SCUDDER INTERNATIONAL FUND INC
485BPOS, 2000-12-29
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       Filed electronically with the Securities and Exchange Commission on
                               December 29, 2000

                                                              File No. 2-14400
                                                              File No. 811-642

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM N-1A


             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                           Pre-Effective Amendment No.
                         Post-Effective Amendment No. 83
                                     and/or           --
                        REGISTRATION STATEMENT UNDER THE
                         INVESTMENT COMPANY ACT OF 1940

                                Amendment No. 63
                                              --


                        Scudder International Fund, Inc.
                       ----------------------------------
               (Exact Name of Registrant as Specified in Charter)

                       345 Park Avenue, New York, NY 10154
                       -----------------------------------
               (Address of Principal Executive Offices) (Zip Code)

       Registrant's Telephone Number, including Area Code: (617) 295-2565
                                                           --------------

                                Caroline Pearson
                        Scudder Kemper Investments, Inc.
                 Two International Place, Boston, MA 02110-4103
                 ----------------------------------------------
                     (Name and Address of Agent for Service)


It is proposed that this filing will become effective (check appropriate box):

/___/         Immediately upon filing pursuant to paragraph (b)
/___/         ______ days after filing pursuant to paragraph (a)(2)
/___/         On December 29, 2000 pursuant to paragraph (a)(3)
/___/         days after filing pursuant to paragraph (a)(1)
/___/         On (date) pursuant to paragraph (a)(2) of Rule 485
/_X_/         On December 29, 2000 pursuant to paragraph (b)

         If appropriate, check the following box:
/___/    This post-effective amendment designates a new effective date for a
         previously filed post-effective amendment


<PAGE>

                           Scudder International Fund

                            SUPPLEMENT TO PROSPECTUS

                             DATED DECEMBER 29, 2000

                            ------------------------
                                 CLASS I SHARES
                            -------------------------

The above Fund  currently  offers seven  classes of shares to provide  investors
with  different  purchasing  options.  These are Class  AARP,  Class S,  Barrett
International  Shares,  Class A, Class B and Class C shares, which are described
in the  Fund's  prospectus,  and Class I  shares,  which  are  described  in the
prospectus as supplemented hereby. When placing purchase orders,  investors must
specify whether the order is for Class AARP,  Class S, Class A, Class B, Class C
or Class I shares.

Class  I  shares  are  available  for  purchase  exclusively  by  the  following
categories of institutional  investors:  (1) tax-exempt retirement plans (Profit
Sharing,  401(k),  Money Purchase  Pension and Defined  Benefit Plans) of Zurich
Scudder  Investments,  Inc.  ("Zurich  Scudder") and its affiliates and rollover
accounts from those plans;  (2) the  following  investment  advisory  clients of
Zurich Scudder and its investment  advisory  affiliates  that invest at least $1
million in a Fund:  unaffiliated  benefit  plans,  such as qualified  retirement
plans (other than individual  retirement  accounts and self-directed  retirement
plans);  unaffiliated  banks and insurance  companies  purchasing  for their own
accounts;  and endowment funds of  unaffiliated  non-profit  organizations;  (3)
investment-only accounts for large qualified plans, with at least $50 million in
total  plan  assets or at least  1000  participants;  (4)  trust  and  fiduciary
accounts  of trust  companies  and bank trust  departments  providing  fee-based
advisory  services  that  invest at least $1 million in a Fund on behalf of each
trust; (5) policy holders under  Zurich-American  Insurance  Group's  collateral
investment  program  investing at least  $200,000 in a Fund;  and (6) investment
companies  managed by Zurich Scudder that invest  primarily in other  investment
companies.

Class  I  shares   currently   are  available  for  purchase  only  from  Kemper
Distributors, Inc. ("KDI"), principal underwriter for the Fund, and, in the case
of category 4 above,  selected dealers authorized by KDI. Share certificates are
not available for Class I shares.

The following information supplements the indicated sections of the prospectus.


THE FUND'S TRACK RECORD

The table  shows how these  performance  figures  for the Fund's  Class S shares
compare with a broad based market index (which,  unlike the Fund, has no fees or
expenses).  The performance of both the Fund and the index vary over time. Class
I shares  do not  have a full  calendar  year of  performance,  therefore  their
performance  data is not  provided.  Class S  shares  are  invested  in the same
portfolio.  Class S shares'  annual  returns  differ only to the extent that the
classes  have  different  fees and  expenses.  All  figures on this page  assume
reinvestment of dividends and distributions.  As always,  past performance is no
guarantee of future results.

<PAGE>


Average Annual Total Returns - Class S shares

<TABLE>
<CAPTION>
---------------------------- -------------------------- -------------------------- --------------------------
For Periods ended December           One Year                  Five Years                  Ten Years
         31, 1999
---------------------------- -------------------------- -------------------------- --------------------------
<S>                                   <C>                        <C>                        <C>
Class S shares                        57.89%                     21.06%                     13.06%
---------------------------- -------------------------- -------------------------- --------------------------
Index                                 27.93%                     13.10%                      7.10%
---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>

Index: MSCI EAFE plus Canada Index, an unmanaged capitalization-weighted measure
of stock markets in Europe, Australia, the Far East and Canada.


HOW MUCH INVESTORS PAY

This table  describes the fees and expenses that you may pay if you buy and hold
shares of the Class I shares.

Shareholder fees: Fees paid directly from your investment.


Annual operating expenses: Expenses that are deducted from fund assets.

<TABLE>
<CAPTION>
--------------------------- -------------------- ----------------------- -------------------------
Investment management fee   Distribution         Other expenses*         Total annual fund
                            (12b-1) fees                                 operating expenses
--------------------------- -------------------- ----------------------- -------------------------
<S>                         <C>                  <C>                     <C>
0.68%                       None                 0.15%                   0.83%
--------------------------- -------------------- ----------------------- -------------------------

--------------------------- -------------------- ----------------------- -------------------------
</TABLE>

* Includes a fixed rate administrative fee of 0.15%


Expense Example

Based on the costs above,  this  example  helps you compare the expenses of each
share class to those of other mutual  funds.  This example  assumes the expenses
above remain the same.  It also assumes  that you  invested  $10,000,  earned 5%
annual returns, and reinvested all dividends and distributions.  This is only an
example; actual expenses will be different.

Expenses, assuming you sold your shares at the end of each period:

-------------------- ------------------- ---------------- -------------------
1 Year               3 Years             5 Years          10 Years
-------------------- ------------------- ---------------- -------------------
$85                  $265                $460             $1,025
-------------------- ------------------- ---------------- -------------------

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


FINANCIAL HIGHLIGHTS

No  financial   information   is  presented   for  Class  I  shares  of  Scudder
International Fund since no Class I shares were issued as of the fiscal year end
of the Fund.


<PAGE>

SPECIAL FEATURES

Shareholders  of the Fund's  Class I shares may  exchange  their  shares for (i)
shares of Zurich Money Funds -- Zurich Money Market Fund if the  shareholders of
Class I shares have purchased shares because they are participants in tax-exempt
retirement plans of Zurich Scudder and its affiliates and (ii) Class I shares of
any  other  "Scudder   Mutual  Fund"  listed  in  the  Statement  of  Additional
Information.  Conversely,  shareholders  of Zurich  Money Funds -- Zurich  Money
Market  Fund  who  have  purchased  shares  because  they  are  participants  in
tax-exempt  retirement  plans of Zurich  Scudder and its affiliates may exchange
their shares for Class I shares of "Kemper Mutual Funds" to the extent that they
are  available  through their plan.  Exchanges  will be made at the relative net
asset values of the shares.  Exchanges are subject to the  limitations set forth
in the  prospectus.  As a result of the  relatively  lower  expenses for Class I
shares,  the level of income  dividends  per share (as a percentage of net asset
value) and, therefore,  the overall investment return,  typically will be higher
for Class I shares  than for Class  AARP,  Class S, Class A, Class B and Class C
shares.

<PAGE>

                                                                     SCUDDER
                                                                 INVESTMENTS(SM)
                                                                     [LOGO]


-------------------------
EQUITY/GLOBAL
-------------------------

Class AARP and Class S Shares

Scudder
International Fund










Prospectus
December 29, 2000


As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.

<PAGE>





Contents
--------------------------------------------------------------------------------

   How the Fund Works                        How to Invest in the Fund

     4  The Fund's Investment Strategy        14  How to Buy, Sell and
                                                  Exchange Class AARP Shares
     5  The Main Risks of Investing
        in the Fund                           16  How to Buy, Sell and
                                                  Exchange Class S Shares
     6  The Fund's Performance History
                                              18  Policies You Should Know
     7  How Much Investors Pay                    About

     8  Other Policies and Risks              22  Understanding Distributions
                                                  and Taxes
     9  Who Manages and Oversees
        the Fund

    11  Financial Highlights


<PAGE>

How the Fund Works

On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal and the main risks that
could affect its performance.

Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.

Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency, and you could
lose money by investing in them.

This prospectus offers two classes of the fund. Class AARP shares have been
created especially for AARP members. Class S shares are generally not available
to new investors. Unless otherwise noted, all information in this prospectus
applies to both classes.

You can find Scudder prospectuses on the Internet for Class AARP shares at
aarp.scudder.com and for Class S shares at www.scudder.com.



<PAGE>

--------------------------------------------------------------------------------
                                                     |  Class AARP     Class S
                                      ticker symbol  |  AINTX          SCINX
                                        fund number  |  168            068

Scudder International Fund
--------------------------------------------------------------------------------

The Fund's Investment Strategy

The fund seeks long-term growth of capital by investing at least 65% of its
total assets in foreign equities (equities issued by foreign-based companies and
listed on foreign exchanges). Although the fund can invest in companies of any
size and from any country, it invests mainly in common stocks of established
companies in countries with developed economies (other than the United States).

In choosing common stocks, the portfolio managers use a combination of three
analytical disciplines:

Bottom-up research. The managers look for individual companies that have
financial strength, good business prospects, competitive positioning and
earnings growth that is above-average for their market segment, among other
factors.

Top-down analysis. The managers consider the economic outlooks for various
countries and geographical regions, favoring countries that they believe have
sound economic conditions and open markets.

Analysis of global themes. The managers look for significant changes in the
business environment, seeking to identify industries that may benefit from these
changes.

The managers intend to divide the fund's holdings across industries and
geographical areas, although, depending on their outlook, they may increase or
reduce the fund's exposure to a given industry or area.

--------------------------------------------------------------------------------
OTHER INVESTMENTS The fund may invest up to 20% of net assets in foreign debt
securities, including convertible bonds. Although the managers are permitted to
use various types of derivatives (contracts whose value is based on, for
example, indices, commodities, currencies, or securities), the managers don't
intend to use them as principal investments, and may not use them at all.

                                       4
<PAGE>

The fund will normally sell a stock when the managers believe its price is
unlikely to go much higher, its fundamentals have deteriorated, other
investments offer better opportunities or in the course of adjusting its
emphasis on a given country.

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.

As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, foreign markets. When foreign stock prices
fall, you should expect the value of your investment to fall as well. Foreign
stocks also tend to be more volatile than their U.S. counterparts, for reasons
ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. While developed foreign
markets may be less risky than emerging markets, increasing globalization can
make any market vulnerable to events elsewhere in the world.

A second major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.

Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies.

Other factors that could affect performance include:

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

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

o        the managers could be wrong in their analysis of industries, companies,
         economic trends, geographical areas or other matters

o        derivatives could produce disproportionate losses

o        at times, market conditions might make it hard to value some
         investments or to get an attractive price for them


THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

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

This fund is designed for investors interested in a broadly diversified
international investment with the emphasis squarely on long-term growth of
capital.

                                       5
<PAGE>

The Fund's Performance History

While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know.

The bar chart shows how the returns for the fund's Class S shares have varied
from year to year, which may give some idea of risk. The table shows average
annual total returns of the fund's Class S shares and a broad-based market index
(which, unlike the fund, does not have any fees or expenses).

The performance of both the fund and the index varies over time. All figures on
this page assume reinvestment of dividends and distributions.

Scudder International Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year                        Class S
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:

  1990         -8.92
  1991         11.78
  1992         -2.64
  1993         36.50
  1994         -2.99
  1995         12.22
  1996         14.55
  1997          7.98
  1998         18.62
  1999         57.89


2000 Total Return as of September 30: -17.71%
Best Quarter: 30.46%, Q4 1999               Worst Quarter: -18.46%, Q3 1990


--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
--------------------------------------------------------------------------------

                                 1 Year           5 Years           10 Years
--------------------------------------------------------------------------------
Fund-- Class S*                  57.89            21.06               13.06
--------------------------------------------------------------------------------
Index                            27.93            13.10                7.10
--------------------------------------------------------------------------------


Index: MSCI EAFE plus Canada Index, an unmanaged capitalization-weighted
measure of stock markets in Europe, Australia, the Far East and Canada.

*        Performance for Class AARP shares is not provided because this class
         does not have a full calendar year of performance.

                                       6
<PAGE>

How Much Investors Pay

The fund has no sales charge or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares, you pay them indirectly.

--------------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------------

Shareholder Fees (paid directly from your investment)                  None
--------------------------------------------------------------------------------

Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                                                         0.68%
--------------------------------------------------------------------------------
Distribution (12b-1) Fee                                               None
--------------------------------------------------------------------------------
Other Expenses*                                                        0.38%
--------------------------------------------------------------------------------
Total Annual Operating Expenses                                        1.06%
--------------------------------------------------------------------------------


* Includes a fixed rate administrative fee of 0.375%.

Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These new fees
became effective on August 14, 2000.

Based on the costs above, this example helps you compare this fund's expenses to
those of other mutual funds. This example assumes the expenses above remain the
same. It also assumes that you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions and sold your shares at the end of
each period. This is only an example; actual expenses will be different.

--------------------------------------------------------------------------------
Example                1 Year         3 Years       5 Years        10 Years
--------------------------------------------------------------------------------
Class AARP/S shares    $108           $337          $585           $1,294
--------------------------------------------------------------------------------


                                       7
<PAGE>

Other Policies and Risks

While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:

o        Although major changes tend to be infrequent, the fund's Board could
         change the fund's investment goal without seeking shareholder approval.

o        As a temporary defensive measure, the fund could shift up to 100% of
         its assets into investments such as U.S. or Canadian securities money
         market securities. This could prevent losses, but would mean that the
         fund was not pursuing its goal.

o        The fund may trade securities actively. This could raise transaction
         costs (thus lowering performance) and could mean higher taxable
         distributions.

Euro conversion

Funds that invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is well underway. The
investment advisor is working to address euro-related issues as they occur and
has been notified that other key service providers are taking similar steps.
Still, there's some risk that this problem could materially affect a fund's
operation (including its ability to calculate net asset value and to handle
purchases and redemptions), its investments or securities markets in general.

For more information

This prospectus doesn't tell you about every policy or risk of investing in the
fund.

If you want more information on the fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the Statement of Additional Information (the back cover tells you how
to do this).

Keep in mind that there is no assurance that any mutual fund will achieve its
goal.



                                       8
<PAGE>

Who Manages and Oversees the Fund

The investment advisor

The fund's investment advisor is Zurich Scudder Investments, Inc., 345 Park
Avenue, New York, NY. The advisor has more than 80 years of experience managing
mutual funds, and currently has more than $290 billion in assets under
management.

The advisor's asset management teams include investment professionals,
economists, research analysts, traders and other investment specialists, located
in offices across the United States and around the world.

The advisor receives a management fee from the fund. For the 12 months through
the most recent fiscal year end, the actual amount the fund paid in management
fees was 0.76% of its average daily net assets.

The fund has entered into a new investment management agreement with the
advisor. The table below describes the new fee rates for the fund.

---------------------------------------------------------------------
Investment Management Fee effective August 14, 2000
---------------------------------------------------------------------

Average Daily Net Assets                              Fee Rate
---------------------------------------------------------------------
first $6 billion                                      0.675%
---------------------------------------------------------------------
next $1 billion                                       0.625%
---------------------------------------------------------------------
more than $7 billion                                  0.600%
---------------------------------------------------------------------

The advisor has agreed to pay a fee to AARP and/or its affiliates in return for
services relating to investments by AARP members in AARP Class shares of each
fund. This fee is calculated on a daily basis as a percentage of the combined
net assets of the AARP Classes of all funds managed by the advisor. The fee
rates, which decrease as the aggregate net assets of the AARP Classes become
larger, are as follows: 0.07% for the first $6 billion in net assets, 0.06% for
the next $10 billion and 0.05% thereafter.



                                       9
<PAGE>

The portfolio managers
The following people handle the day-to-day management of the fund.


Irene T. Cheng                       Nicholas Bratt
Lead Portfolio Manager                 o Began investment career
  o Began investment career              in 1974
    in 1985                            o Joined the advisor in 1976
  o Joined the advisor in 1993         o Joined the fund team in
  o Joined the fund team in 1998         1976

Carol L. Franklin                    Marc J. Slendebroek
  o Began investment career            o Began investment career
    in 1975                              in 1989
  o Joined the advisor in 1981         o Joined the advisor in 1994
  o Joined the fund team in 1986       o Joined the fund team in
                                         1999

                                       10
<PAGE>



Financial Highlights


This table is designed to help you understand the fund's financial performance
in recent years. The figures in the first part of each table are for a single
share. The total return figures represent the percentage that an investor in the
fund would have earned (or lost), assuming all dividends and distributions were
reinvested. This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, is included in the
annual report (see "Shareholder reports" on the back cover).
Scudder International Fund -- Class AARP

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
                                                                         2000(a)
-----------------------------------------------------------------------------------
<S>                                                                     <C>
Net asset value, beginning of period                                    $57.26
                                                                        ----------
-----------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------
  Net investment income (loss) (b)                                          .01
-----------------------------------------------------------------------------------
  Net realized and unrealized gain (loss) on investment transactions        .47
                                                                        ----------
-----------------------------------------------------------------------------------
  Total from investment operations .48 Less distributions from:
-----------------------------------------------------------------------------------
  Net investment income                                                      --
-----------------------------------------------------------------------------------
Net asset value, end of period                                           $57.74
                                                                        ----------
-----------------------------------------------------------------------------------
Total Return (%)                                                            .84**
-----------------------------------------------------------------------------------

Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------
Net assets, end of period ($ millions)                                       71
-----------------------------------------------------------------------------------
Ratio of expenses (%)                                                      1.05*
-----------------------------------------------------------------------------------
Ratio of net investment income (loss) (%)                                   .30*
-----------------------------------------------------------------------------------
Portfolio turnover rate (%)                                                  83
-----------------------------------------------------------------------------------
</TABLE>


(a)      For the period from August 14, 2000 (commencement of sale of Class
         AARP) to August 31, 2000.

(b)      Based on monthly average shares outstanding during the period.

*        Annualized

**       Not annualized

                                       11
<PAGE>




Scudder International Fund-- Class S (a)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
                           2000(c)  1999(d)  1999(e)   1998(e)  1997(e)  1996(e)
----------------------------------------------------------------------------------
<S>                       <C>       <C>      <C>      <C>       <C>      <C>
Net asset value,
beginning of period       $54.82    $50.07   $52.06   $48.07    $45.71   $39.72
----------------------------------------------------------------------------------
Income (loss) from investment operations:
----------------------------------------------------------------------------------
  Net investment income
  (loss) (b)                 .16    .20(g)   .47(f)      .43       .30      .38
----------------------------------------------------------------------------------
  Net realized and
  unrealized gain (loss)
  on investment
  transactions              9.38      7.20     3.10     9.16      4.53     7.19
                          --------------------------------------------------------
----------------------------------------------------------------------------------
  Total from investment
  operations                9.54      7.40     3.57     9.59      4.83     7.57
----------------------------------------------------------------------------------
Less distributions from:
----------------------------------------------------------------------------------
  Net investment income    (.13)        --       --    (.25)    (1.28)    (.40)
----------------------------------------------------------------------------------
  Net realized gains on
  investment transactions (6.50)    (2.65)   (5.56)   (5.35)    (1.19)   (1.18)
                          --------------------------------------------------------
----------------------------------------------------------------------------------
  Total distributions     (6.63)    (2.65)   (5.56)   (5.60)    (2.47)   (1.58)
----------------------------------------------------------------------------------
Net asset value, end
of period                 $57.73    $54.82   $50.07   $52.06    $48.07   $45.71
                          --------------------------------------------------------
----------------------------------------------------------------------------------
Total Return (%)           17.09    15.19**    7.18    21.57     10.74    19.25
----------------------------------------------------------------------------------

Ratios to Average Net Assets and Supplemental Data
----------------------------------------------------------------------------------
Net assets, end of
period ($ millions)        4,841     3,610    3,090    2,885     2,583    2,515
----------------------------------------------------------------------------------
Ratio of expenses (%)     1.12(h)    1.21*     1.17     1.18      1.15     1.14
----------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%)            .25      .93*      .92      .83       .64      .86
----------------------------------------------------------------------------------
Portfolio turnover rate
(%)                           83       82*       80       56        36       45
----------------------------------------------------------------------------------
</TABLE>


(a)      On August 14, 2000, International shares of the Fund were redesignated
         as Class S shares.

(b)      Based on monthly average shares outstanding during the period.

(c)      For the year ended August 31, 2000.

(d)      For the five months ended August 31, 1999. On June 7, 1999, the Fund
         changed its fiscal year end from March 31 to August 31.

(e)      For the years ended March 31.

(f)      Net investment income per share includes non-recurring dividend income
         amounting to $.09 per share.

(g)      Net investment income per share includes non-recurring dividend income
         amounting to $.02 per share.

(h)      The ratio of operating expenses excluding costs incurred in connection
         with the reorganization was 1.12% (see Notes to Financial Statements).

*        Annualized

**       Not annualized


                                       12
<PAGE>

How to Invest in the Fund

The following pages tell you how to invest in the fund and what to expect as a
shareholder. If you're investing directly with Scudder, all of this information
applies to you.

If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket or financial advisor -- your provider may
have its own policies or instructions, and you should follow those.

As noted earlier, there are two classes of shares of the fund available through
this prospectus. The instructions for buying and selling each class are slightly
different.

Instructions for buying and selling Class AARP shares, which have been created
especially for AARP members, are found on the next two pages. These are followed
by instructions for buying and selling Class S shares, which are generally not
available to new investors. Be sure to use the appropriate table when placing
any orders to buy, exchange or sell shares in your account.


                                       13
<PAGE>

How to Buy, Sell and Exchange Class AARP Shares

Buying Shares Use these instructions to invest directly. Make out your check to
"The AARP Investment Program."

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
First investment                                         Additional investments
------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>
$1,000 or more for regular accounts                      $50 or more with an Automatic Investment Plan, Payroll
                                                         Deduction or Direct Deposit
$500 or more for IRAs
---------------------------------------------------------------------------------------------------------------------------
By mail

o For enrollment forms, call 1-800-253-2277              Send a personalized investment slip or short note that
                                                         includes:
o Fill out and sign an enrollment form
                                                         o fund and class name
o Send it to us at the appropriate address,
  along with an investment check                         o account number

                                                         o check payable to "The AARP Investment Program"
---------------------------------------------------------------------------------------------------------------------------
By wire

o Call 1-800-253-2277 for instructions                   o Call 1-800-253-2277 for instructions
---------------------------------------------------------------------------------------------------------------------------
By phone

--                                                       o Call 1-800-253-2277 for instructions
---------------------------------------------------------------------------------------------------------------------------
With an automatic investment plan

o Fill in the information required on your               o To set up regular investments from a bank checking
  enrollment form and include a voided check               account, call 1-800-253-2277 (minimum $50)
---------------------------------------------------------------------------------------------------------------------------
Payroll Deduction or Direct Deposit

o Select either of these options on your                 o Once you specify a dollar amount (minimum $50),
  enrollment form and submit it. You will                  investments are automatic.
  receive further instructions by mail.
---------------------------------------------------------------------------------------------------------------------------
Using QuickBuy

--                                                       o Call 1-800-253-2277
---------------------------------------------------------------------------------------------------------------------------
On the Internet

o Go to "services and forms-- How to Open an             o Call 1-800-253-2277 to ensure you have electronic
  Account" at aarp.scudder.com                             services

o Print out a prospectus and an enrollment               o Register at aarp.scudder.com
  form
                                                         o Follow the instructions for buying shares with
o Complete and return the enrollment form                  money from your bank account
  with your check
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
  Regular mail: The AARP Investment Program,
  First investment: PO Box 219735, Kansas City, Mo 64121-9735
  Additional investments: Po Box 219743, Kansas City, Mo 64121-9743

  Express, registered or certified mail:
  The AARP Investment Program, 811 Main Street, Kansas City, Mo 64105-2005

  Fax number: 1-800-821-6234 (for exchanging and selling only)




                                       14
<PAGE>

Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Exchanging into another fund                             Selling shares
-------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>
$1,000 or more to open a new account ($500 or            Some transactions, including most for over $100,000,
more for IRAs)                                           can only be ordered in writing; if you're in
                                                         doubt, see page 20
-------------------------------------------------------------------------------------------------------------------------
By phone

o Call 1-800-253-2277 for instructions                   o Call 1-800-253-2277 for instructions
-------------------------------------------------------------------------------------------------------------------------
Using Easy-Access Line

o Call 1-800-631-4636 and follow the                     o Call 1-800-631-4636 and follow the instructions
  instructions
-------------------------------------------------------------------------------------------------------------------------
By mail or fax (see previous page)

Your instructions should include:                        Your instructions should include:

o your account number                                    o your account number

o names of the funds, class and number of                o names of the funds, class and number of shares or
  shares or dollar amount you want to exchange             dollar amount you want to redeem
-------------------------------------------------------------------------------------------------------------------------
With an automatic withdrawal plan

--                                                       o To set up regular cash payments from an account,
                                                           call 1-800-253-2277
-------------------------------------------------------------------------------------------------------------------------
Using QuickSell

--                                                       o Call 1-800-253-2277
-------------------------------------------------------------------------------------------------------------------------
On the Internet

o Register at aarp.scudder.com                           --

o Go to "services and forms"

o Follow the instructions for making on-line
  exchanges
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
 To reach us:    o Web site aarp.scudder.com
                 o Program representatives 1-800-253-2277, M-F, 8 a.m. - 8 p.m.
                   EST
                 o Confidential fax line 1-800-821-6234, always open
                 o TDD line 1-800-634-9454, M-F, 9 a.m. - 5 p.m. EST

 Class AARP      o AARP Lump Sum Service For planning and setting up a lump
 Services          sum distribution.
                 o AARP Legacy Service For organizing financial documents and
                   planning the orderly transfer of assets to heirs
                 o AARP Goal Setting and Asset Allocation Service For allocating
                   assets and measuring investment progress
                 o For more information, please call 1-800-253-2277.



                                       15
<PAGE>

How to Buy, Sell and Exchange Class S Shares

Buying Shares  Use these instructions to invest directly. Make out your check to
"The Scudder Funds."

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
First investment                                         Additional investments
------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>
$2,500 or more for regular accounts                      $100 or more for regular accounts

$1,000 or more for IRAs                                  $50 or more for IRAs

                                                         $50 or more with an Automatic Investment Plan
------------------------------------------------------------------------------------------------------------------------
By mail or express (see below)

o Fill out and sign an application                       Send a Scudder investment slip or short note that
                                                         includes:
o Send it to us at the appropriate address,
  along with an investment check                         o fund and class name

                                                         o account number

                                                         o check payable to "The Scudder Funds"
------------------------------------------------------------------------------------------------------------------------
By wire

o Call 1-800-SCUDDER for instructions                    o Call 1-800-SCUDDER for instructions
------------------------------------------------------------------------------------------------------------------------
By phone

--                                                       o Call 1-800-SCUDDER for instructions
------------------------------------------------------------------------------------------------------------------------
With an automatic investment plan

o Fill in the information on your                        o To set up regular investments from a bank
  application and include a voided check                   checking account, call 1-800-SCUDDER
------------------------------------------------------------------------------------------------------------------------
Using QuickBuy

--                                                       o Call 1-800-SCUDDER
------------------------------------------------------------------------------------------------------------------------
On the Internet

o Go to "funds and prices" at www.scudder.com            o Call 1-800-SCUDDER to ensure you have electronic
                                                           services
o Print out a prospectus and a new account
  application                                            o Register at www.scudder.com

o Complete and return the application with               o Follow the instructions for buying shares with
  your check                                               money from your bank account
------------------------------------------------------------------------------------------------------------------------
</TABLE>


--------------------------------------------------------------------------------
  Regular mail:
  First investment: The Scudder Funds, PO Box 219669, Kansas City, MO 64121-9669
  Additional investments: The Scudder Funds, PO Box 219664, Kansas
  City, MO 64121-9664

  Express, registered or certified mail:
  The Scudder Funds, 811 Main Street, Kansas City, MO 64105-2005

  Fax number: 1-800-821-6234 (for exchanging and selling only)



                                       16
<PAGE>

Exchanging or Selling Shares  Use these instructions to exchange or sell shares
in an account opened directly with Scudder.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Exchanging into another fund                                Selling shares
----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>
$2,500 or more to open a new account ($1,000 or             Some transactions, including most for over $100,000,
more for IRAs)                                              can only be ordered in writing; if you're in doubt,
                                                            see page 20
$100 or more for exchanges between existing
accounts
----------------------------------------------------------------------------------------------------------------------------
By phone or wire

o Call 1-800-SCUDDER for instructions                      o Call 1-800-SCUDDER for instructions
----------------------------------------------------------------------------------------------------------------------------
Using SAIL(TM)

o Call 1-800-343-2890 and follow the                       o Call 1-800-343-2890 and follow the instructions
  instructions
----------------------------------------------------------------------------------------------------------------------------
By mail, express or fax
(see previous page)

Your instructions should include:                          Your instructions should include:

o the fund, class, and account number you're               o the fund, class and account number from which you
  exchanging out of                                           want to sell shares

o the dollar amount or number of shares you                o the dollar amount or number of shares you want to
  want to exchange                                            sell

o the name and class of the fund you want to               o your name(s), signature(s) and address, as they
  exchange into                                               appear on your account

o your name(s), signature(s), and address, as              o a daytime telephone number
  they appear on your account

o a daytime telephone number
----------------------------------------------------------------------------------------------------------------------------
With an automatic withdrawal plan

--                                                         o To set up regular cash payments from a Scudder
                                                             account, call 1-800-SCUDDER
----------------------------------------------------------------------------------------------------------------------------
Using QuickSell

--                                                         o Call 1-800-SCUDDER
----------------------------------------------------------------------------------------------------------------------------
On the Internet

o Register at www.scudder.com                              --

o Follow the instructions for making on-line
  exchanges
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       17
<PAGE>

Policies You Should Know About

Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.

If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.

In either case, keep in mind that the information in this prospectus applies
only to the fund's Class AARP and Class S shares. The fund does have other share
classes, which are described in separate prospectuses and which have different
fees, requirements, and services.

In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call
1-800-253-2277 (Class AARP) or 1-800-SCUDDER (Class S).

Policies about transactions

The fund is open for business each day the New York Stock Exchange is open. The
fund calculates its share price every business day, as of the close of regular
trading on the Exchange (typically 4 p.m. Eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading).

You can place an order to buy or sell shares at any time. Once your order is
received by Scudder Service Corporation, and they have determined that it is a
"good order," it will be processed at the next share price calculated.

Because orders placed through investment providers must be forwarded to Scudder
Service Corporation before they can be processed, you'll need to allow extra
time. A representative of your investment provider should be able to tell you
when your order will be processed.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

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

Questions? You can speak to a Scudder representative between 8 a.m. and  8 p.m.
Eastern time on any fund business day by calling 1-800-253-2277 (Class AARP) or
1-800-SCUDDER (Class S).



                                       18
<PAGE>

Automated phone information is available 24 hours a day. You can use your
automated phone services to get information on Scudder funds generally and on
accounts held directly at Scudder. If you signed up for telephone services, you
can also use this service to make exchanges and sell shares.

For Class AARP shares
----------------------------------------------------------------------
Call Easy-Access Line, the AARP Program Automated Information Line,
at 1-800-631-4636
----------------------------------------------------------------------

For Class S shares
----------------------------------------------------------------------
Call SAIL(TM), the Scudder Automated Information Line, at
1-800-343-2890
----------------------------------------------------------------------


QuickBuy and QuickSell let you set up a link between a Scudder account and a
bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. To set up QuickBuy or QuickSell on a new account, see the
account application; to add it to an existing account, call 1-800-253-2277
(Class AARP) or 1-800-SCUDDER (Class S).

Since many transactions may be initiated by telephone or electronically, it's
important to understand that as long as we take reasonable steps to ensure that
an order to purchase or redeem shares is genuine, such as recording calls or
requesting personalized security codes or other information, we are not
responsible for any losses that may occur. For transactions conducted over the
Internet, we recommend the use of a secure Internet browser. In addition, you
should verify the accuracy of your confirmation statements immediately after you
receive them.

When you ask us to send or receive a wire, please note that while we don't
charge a fee to receive wires, we will deduct a $5 fee from all wires sent from
us to your bank. Your bank may charge its own fees for handling wires. The fund
can only accept wires of $100 or more.

Exchanges are a shareholder privilege, not a right: we may reject any exchange
order, particularly when there appears to be a pattern of "market timing" or
other frequent purchases and sales. We may also reject purchase orders, for
these or other reasons.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

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

The Scudder Web site can be a valuable resource for shareholders with Internet
access. To get up-to-date information, review balances or even place orders for
exchanges, go to aarp.scudder.com (Class AARP) or www.scudder.com (Class
S).

                                       19
<PAGE>

When you want to sell more than $100,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.

A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.

Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 15 days) or when unusual circumstances prompt the
SEC to allow further delays.

How the fund calculates share price

For each share class, the price at which you buy shares is the net asset value
per share, or NAV. To calculate NAV, each share class of the fund uses the
following equation:

   TOTAL ASSETS - TOTAL LIABILITIES
 -------------------------------------  = NAV
  TOTAL NUMBER OF SHARES OUTSTANDING

We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by the fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.



                                       20
<PAGE>

Because the fund invests in securities that are traded primarily in foreign
markets, the value of its holdings could change at a time when you aren't able
to buy or sell fund shares. This is because some foreign markets are open on
days when the fund doesn't price its shares.

Other rights we reserve

You should be aware that we may do any of the following:

o        withhold 31% of your distributions as federal income tax if you have
         been notified by the IRS that you are subject to backup withholding, or
         if you fail to provide us with a correct taxpayer ID number or
         certification that you are exempt from backup withholding

o        for Class AARP and Class S shareholders, close your account and send
         you the proceeds if your balance falls below $1,000; for Class S
         shareholders, charge you $10 a year if your account balance falls below
         $2,500; in either case, we will give you 60 days notice so you can
         either increase your balance or close your account (these policies
         don't apply to retirement accounts, to investors with $100,000 or more
         in Scudder fund shares or in any case where a fall in share price
         created the low balance)

o        reject a new account application if you don't provide a correct Social
         Security or other tax ID number; if the account has already been
         opened, we may give you 30 days' notice to provide the correct number

o        pay you for shares you sell by "redeeming in kind," that is, by giving
         you marketable securities (which typically will involve brokerage costs
         for you to liquidate) rather than cash; in most cases, the fund won't
         make a redemption in kind unless your requests over a 90-day period
         total more than $250,000 or 1% of the value of the fund's net assets,
         whichever is less

o        change, add or withdraw various services, fees and account policies
         (for example, we may change or terminate the exchange privilege at any
         time)

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

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

If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.


                                       21
<PAGE>

Understanding Distributions and Taxes

By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.

The fund intends to pay dividends and distributions to its shareholders annually
in November or December, and if necessary may do so at other times as well.

You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't indicate a preference,
your dividends and distributions will all be reinvested. For retirement plans,
reinvestment is the only option.

Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

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

Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional about the tax consequences of your investments,
including any state and local tax consequences.

                                       22
<PAGE>

The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:



Generally taxed at ordinary income rates
----------------------------------------------------------------------
o short-term capital gains from selling fund shares
----------------------------------------------------------------------
o taxable income dividends you receive from the fund
----------------------------------------------------------------------
o short-term capital gains distributions you receive from the fund
----------------------------------------------------------------------

Generally taxed at capital gains rates
----------------------------------------------------------------------
o long-term capital gains from selling fund shares
----------------------------------------------------------------------
o long-term capital gains distributions you receive from the fund
----------------------------------------------------------------------

You may be able to claim a tax credit or deduction for your share of any foreign
taxes the fund pays.

Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.

If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.


                                       23
<PAGE>

To Get More Information

Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. Shareholders get these
reports automatically. For more copies, call 1-800-253-2277 (Class AARP) or
1-800-SCUDDER (Class S).

Statement of Additional Information (SAI) -- This tells you more about the
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).

If you'd like to ask for copies of these documents, please contact Scudder or
the SEC (see below). If you're a shareholder and have questions, please contact
Scudder. Materials you get from Scudder are free; those from the SEC involve a
copying fee. If you like, you can look over these materials at the SEC's Public
Reference Room in Washington, DC or request them electronically at
[email protected].

AARP Investment
Program from Scudder    Scudder Funds           SEC
---------------------------------------------------------------------
PO Box 219735           PO Box 219669           450 Fifth Street, N.W.
Kansas City, MO         Kansas City, MO         Washington, D.C.
64121-9735              64121-9669              20549-6009
---------------------------------------------------------------------
1-800-253-2277          1-800-SCUDDER           1-202-942-8090
---------------------------------------------------------------------
aarp.scudder.com        www.scudder.com         www.sec.gov
---------------------------------------------------------------------


SEC File Number        811-642


<PAGE>



Barrett International
Shares Fund #401




Prospectus
December 29, 2000

This prospectus applies to the Barrett International Shares of the Scudder
International Fund.

As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.



<PAGE>


Contents
--------------------------------------------------------------------------------


How the Fund Works

4  The Fund's Investment Strategy

5  The Main Risks of Investing in
   the Fund

6  The Fund's Performance History

7  How Much Investors Pay

8  Other Policies and Risks

9  Who Manages and Oversees
   the Fund

10 Financial Highlights

How to Invest in the Fund

12 How to Buy and Sell Shares

13 Policies You Should Know About

17 Understanding Distributions
   and Taxes



<PAGE>

How the Fund Works


On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal and the main risks that
could affect its performance.

Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.

Zurich Scudder Investments, Inc. serves as investment advisor to the Scudder
International Fund. Barrett Associates, Inc. sponsors the Barrett International
Shares, a class of the Scudder International Fund, which are described herein.

Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency, and you could
lose money by investing in them.



<PAGE>
--------------------------------------------------------------------------------
                                                  ticker symbol   SIBIX
                                                    fund number   401


Barrett International Shares
--------------------------------------------------------------------------------

         The Fund's Investment Strategy

         The fund seeks long-term growth of capital by investing at least 65% of
         its total assets in foreign equities (equities issued by foreign-based
         companies and listed on foreign exchanges). Although the fund can
         invest in companies of any size and from any country, it invests mainly
         in common stocks of established companies in countries with developed
         economies (other than the United States).

         In choosing common stocks, the portfolio managers use a combination of
         three analytical disciplines:

         Bottom-up research. The managers look for individual companies that
         have financial strength, good business prospects, competitive
         positioning and earnings growth that is above-average for their market
         segment, among other factors.

         Top-down analysis. The managers consider the economic outlooks for
         various countries and geographical regions, favoring countries that
         they believe have sound economic conditions and open markets.

         Analysis of global themes. The managers look for significant changes in
         the business environment, seeking to identify industries that may
         benefit from these changes.

         The managers intend to divide the fund's holdings across industries and
         geographical areas, although, depending on their outlook, they may
         increase or reduce the fund's exposure to a given industry or area.



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

OTHER INVESTMENTS The fund may invest up to 20% of net assets in foreign debt
securities, including convertible bonds. Although the managers are permitted to
use various types of derivatives (contracts whose value is based on, for
example, indices, commodities, currencies, or securities), the managers don't
intend to use them as principal investments, and may not use them at all.




                                       4
<PAGE>

         The fund will normally sell a stock when the managers believe its price
         is unlikely to go much higher, its fundamentals have deteriorated,
         other investments offer better opportunities or in the course of
         adjusting its emphasis on a given country.

         The Main Risks of Investing in the Fund

         There are several risk factors that could hurt the fund's performance,
         cause you to lose money, or make the fund perform less well than other
         investments.

         As with most stock funds, the most important factor with this fund is
         how stock markets perform -- in this case, foreign markets. When
         foreign stock prices fall, you should expect the value of your
         investment to fall as well. Foreign stocks also tend to be more
         volatile than their U.S. counterparts, for reasons ranging from
         political and economic uncertainties to a higher risk that essential
         information may be incomplete or wrong. While developed foreign markets
         may be less risky than emerging markets, increasing globalization can
         make any market vulnerable to events elsewhere in the world.

         A second major factor is currency exchange rates. When the dollar value
         of a foreign currency falls, so does the value of any investments the
         fund owns that are denominated in that currency. This is separate from
         market risk, and may add to market losses or reduce market gains.

         Because a stock represents ownership in its issuer, stock prices can be
         hurt by poor management, shrinking product demand and other business
         risks. These may affect single companies as well as groups of
         companies.

         Other factors that could affect performance include:

         o the managers could be wrong in their analysis of industries,
           companies, economic trends, geographical areas or other matters

         o derivatives could produce disproportionate losses

         o at times, market conditions might make it hard to value some
           investments or to get an attractive price for them

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
This fund is designed for investors interested in a broadly diversified
international investment with the emphasis squarely on long-term growth of
capital
--------------------------------------------------------------------------------

                                       5
<PAGE>

The Fund's Performance History

While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know.

The bar chart shows the total return for the first complete calendar year of
Barrett International Shares. The table shows average annual total returns of
Barrett International Shares and a broad-based market index (which, unlike the
fund, does not have any fees or expenses).

The performance of both the Barrett International Shares and the index varies
over time. All figures on this page assume reinvestment of dividends and
distributions.

If you would like up-to-date information on the performance of Barrett
International Shares since inception, call 1-800-854-8525.

Barrett International Shares

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31
--------------------------------------------------------------------------------

THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE FUND TOTAL
RETURN (%)

1999           58.24


2000 Total Return as of September 30: -17.71%
Best Quarter: 30.60%, Q4 1999              Worst Quarter: 2.85%, Q1 1999


--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
--------------------------------------------------------------------------------

                                           1 Year            Since Inception*
--------------------------------------------------------------------------------
Barrett International Shares               58.24                 32.78
--------------------------------------------------------------------------------
Index                                      27.93                 17.43**
--------------------------------------------------------------------------------

MSCI EAFE plus Canada Index, an unmanaged capitalization-weighted measure of
stock markets in Europe, Australia, the Far East and Canada.

*  Inception date for Barrett International Shares is 4/3/1998.

** Index comparison begins 3/31/1998.


                                       6
<PAGE>

How Much Investors Pay

The Barrett International Shares has no sales charges or other shareholder fees.
The fund does have annual operating expenses, and as a shareholder of Barrett
International Shares you pay them indirectly. This table shows fees for the
fund's Barrett International Shares.

--------------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)            None
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                                                   0.68%
--------------------------------------------------------------------------------
Distribution (12b-1) Fee                                         None
--------------------------------------------------------------------------------
Other Expenses*                                                  0.38%
--------------------------------------------------------------------------------
Total Annual Operating Expenses                                  1.06%
--------------------------------------------------------------------------------

*  Includes a fixed rate administrative fee of 0.375%.

   Information in the table has been restated to reflect a new fixed rate
   administrative fee and a new investment management agreement. These new fees
   became effective on August 14, 2000.

Based on the costs above, this example helps you compare the expenses of the
fund's Barrett International Shares to those of other mutual funds. This example
assumes the expenses above remain the same. It also assumes that you invested
$10,000, earned 5% annual returns, reinvested all dividends and distributions
and sold your shares at the end of each period. This is only an example; actual
expenses will be different.

--------------------------------------------------------------------------------
Example                    1 Year        3 Years        5 Years       10 Years
--------------------------------------------------------------------------------
                            $108           $337          $585          $1,294
--------------------------------------------------------------------------------


                                       7
<PAGE>

Other Policies and Risks

             While the sections on the previous pages describe the main points
             of the fund's strategy and risks, there are a few other issues to
             know about:

             o  Although major changes tend to be infrequent, the fund's Board
                could change the fund's investment goal without seeking
                shareholder approval.

             o  As a temporary defensive measure, the fund could shift up to
                100% of its assets into investments such as U.S. or Canadian
                securities. This could help prevent losses, but would mean that
                the fund was not pursuing its goal.

             o  The fund may trade securities actively. This could raise
                transaction costs (thus lowering performance) and could mean
                higher taxable distributions.

             Euro conversion

             Funds that invest in foreign securities could be affected by
             accounting differences, changes in tax treatment or other issues
             related to the conversion of certain European currencies into the
             euro, which is well underway. The investment advisor is working to
             address euro-related issues as they occur and has been notified
             that other key service providers are taking similar steps. Still,
             there's some risk that this problem could materially affect a
             fund's operation (including its ability to calculate net asset
             value and to handle purchases and redemptions), its investments or
             securities markets in general.

             For more information

             This prospectus doesn't tell you about every policy or risk of
             investing in the fund.

             If you want more information on the fund's allowable securities and
             investment practices and the characteristics and risks of each one,
             you may want to request a copy of the SAI (the back cover has
             information on how to do this).

             Keep in mind that there is no assurance that any mutual fund will
             achieve its goal.


                                       8
<PAGE>

Who Manages and Oversees the Fund

         The investment advisor

         The fund's investment advisor is Zurich Scudder Investments,  Inc., 345
         Park  Avenue,  New  York,  NY.  The  advisor  has more than 80 years of
         experience  managing  mutual  funds,  and  currently has more than $290
         billion in assets under management.  The Barrett  International  Shares
         are offered exclusively by Barrett Associates,  Inc., 565 Fifth Avenue,
         New York, NY 10017.

         The advisor's asset management teams include investment  professionals,
         economists,   research   analysts,   traders,   and  other   investment
         specialists, located in offices across the United States and around the
         world.

         The advisor  receives a management fee from the fund. For the 12 months
         through the most recent  fiscal  year end,  the actual  amount the fund
         paid in management fees was 0.76% of its average daily net assets.

         The fund has entered into a new  investment  management  agreement with
         the advisor. The table below describes the new fee rates for the fund.

         -------------------------------------------------------------------
         Investment Management Fee effective August 14, 2000
         -------------------------------------------------------------------
         Average Daily Net Assets                            Fee Rate
         -------------------------------------------------------------------
         first $6 billion                                     0.675%
         -------------------------------------------------------------------
         next $1 billion                                      0.625%
         -------------------------------------------------------------------
         more than $7 billion                                 0.600%
         -------------------------------------------------------------------

         The portfolio managers

         The following people handle the day-to-day management of the fund.

         Irene T. Cheng                     Nicholas Bratt
         Lead Portfolio Manager               o Began investment career
           o Began investment career in         in 1974
             1985                             o Joined the advisor in 1976
           o Joined the advisor in 1993       o Joined the fund team in 1976
           o Joined the fund team in 1998   Marc J. Slendebroek
         Carol L. Franklin                    o Began investment career in
           o Began investment career in         1989
             1975                             o Joined the advisor in 1994
           o Joined the advisor in 1981       o Joined the fund team in 1999
           o Joined the fund team in 1986


                                       9
<PAGE>

Financial Highlights


This table is designed to help you understand the financial performance of the
Barrett International Shares since inception. The figures in the first part of
the table are for a single share. The total return figures represent the
percentage that an investor in the fund would have earned (or lost), assuming
all dividends and distributions were reinvested. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the fund's
financial statements, is included in the annual report (see "Shareholder
reports" on the back cover).

Barrett International Shares

--------------------------------------------------------------------------------
                                                     2000(b)   1999(c)   1999(d)
--------------------------------------------------------------------------------
Net asset value, beginning of period                $54.94   $50.14    $52.40
                                                    ----------------------------
--------------------------------------------------------------------------------
Income (loss) from investment operations:
--------------------------------------------------------------------------------
  Net investment income (loss) (a)                     .25      .25(f)    .52(e)
--------------------------------------------------------------------------------
  Net realized and unrealized gain (loss) on
  investment transactions                             9.45     7.20      2.78
                                                    ----------------------------
--------------------------------------------------------------------------------
  Total from investment operations                    9.70     7.45      3.30
--------------------------------------------------------------------------------
Less distributions from:
--------------------------------------------------------------------------------
  Net investment income                              (.19)        --        --
--------------------------------------------------------------------------------
  Net realized gains on investment transactions      (6.50)   (2.65)    (5.56)
                                                    ----------------------------
--------------------------------------------------------------------------------
  Total distributions                                (6.69)   (2.65)    (5.56)
--------------------------------------------------------------------------------
Net asset value, end of period                      $57.95   $54.94    $50.14
                                                    ----------------------------
--------------------------------------------------------------------------------
Total Return (%)                                     17.31    15.27**    6.60**
--------------------------------------------------------------------------------

Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------
Net assets, end of period ($ millions)                  26        25        23
--------------------------------------------------------------------------------
Ratio of expenses(%)                                  .96(g)     1.03*     1.08*
--------------------------------------------------------------------------------
Ratio of net investment income (loss) (%)              .39     1.11*     1.02*
--------------------------------------------------------------------------------
Portfolio turnover rate (%)                             83       82*        80
--------------------------------------------------------------------------------

(a) Based on monthly average shares outstanding during
    the period.

(b) For the year ended August 31, 2000.

(c) For the five months ended August 31, 1999. On June 7, 1999, the Fund changed
    its fiscal year end from March 31 to August 31.

(d)For the period April 3, 1998 (commencement of sale of Barrett International
    Shares) to March 31, 1999.

(e) Net investment income per share includes non-recurring dividend income
    amounting to $.09 per share.

(f) Net investment income per share includes non-recurring dividend income
    amounting to $.02 per share.

(g) The ratio of operating expenses excluding costs incurred in connection with
    the reorganization was 0.96% (see Notes to Financial Statements).

*   Annualized

**  Not annualized




                                       10
<PAGE>

How to Invest in the Fund


The following pages tell you how to invest with us and what to expect as a
shareholder.


<PAGE>


How to Buy and Sell Shares

             Barrett Associates sponsors the Barrett International Shares, and
             will arrange for purchases and sales on your behalf. Please contact
             your Barrett representative by telephone at 212-983-5080 or in
             person at 565 Fifth Avenue, New York, NY 10017. Additional
             information appears below:

             Initial investments in Barrett International Shares require a
             minimum of $25,000. Additional investments can be made in
             increments of $1,000 or more. These minimums may be waived for
             Directors and Officers of Scudder International Fund, Inc. and
             existing shareholders as of April 3, 1998, the date of the creation
             of the Barrett International Shares.

             Purchases and sales may also be made by wire and by mail. Contact
             your Barrett representative for further information.



                                       12
<PAGE>



Policies You Should Know About

         Along with the instructions on the previous pages, the policies below
         may affect you as a shareholder. Some of this information, such as the
         section on dividends and taxes, applies to all investors, including
         those investing through investment providers. If you are investing
         through an investment provider, check the materials you got from them.
         As a general rule, you should follow the information in those materials
         wherever it contradicts the information given here. Please note that an
         investment provider may charge its own fees.

         In either case, keep in mind that the information in this prospectus
         applies only to the fund's Barrett International Shares. The fund does
         have other share classes, which are described in separate prospectuses
         and which have different fees, requirements, and services.

         Policies about transactions

         The fund is open for business each day the New York Stock Exchange is
         open. The fund calculates the share price for its Barrett International
         Shares every business day, as of the close of regular trading on the
         Exchange (typically 4 p.m. Eastern time, but sometimes earlier, as in
         the case of scheduled half-day trading or unscheduled suspensions of
         trading).

                  You can place an order to buy or sell shares at any time. Once
                  you instruct Barrett Associates to place an order for you with
                  Scudder Service Corporation, and it is determined to be a
                  "good order," it will be processed at the next share price
                  calculated.

                  Because orders placed through Barrett Associates must be
                  forwarded to Scudder Service Corporation before they can be
                  processed, you'll need to allow extra time. A representative
                  of Barrett Associates should be able to tell you when your
                  order will be processed.

                  When Barrett Associates, on your behalf, asks us to send or
                  receive a wire, please note that while we don't charge a fee
                  to receive wires, we will deduct a $5 fee from all wires sent
                  from us to your bank. Your bank may charge its own fees for
                  handling wires. The fund can only accept wires of $100 or
                  more.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
Questions? You can speak to a Scudder representative between 8 a.m. and 8 p.m.
Eastern time on any fund business day by calling 1-800-854-8525.
--------------------------------------------------------------------------------


                                       13
<PAGE>



             The Expedited Redemption Service is designed for investors who want
             the proceeds from shares they sell to be automatically wired to a
             bank account. If the proceeds are less than $1,000, we will mail a
             check to Barrett Associates, on your behalf, rather than wiring the
             funds to your bank account.

             To use the Expedited Redemption Service, you'll need to set it up
             in advance. Also, please note that if you opened your account by
             wire, you can't use the Expedited Redemption Service until we have
             received your written application.

             When you want to sell more than $100,000 worth of shares, you'll
             usually need to place your order in writing and include a signature
             guarantee. The only exception is if you want money wired to a bank
             account that is already on file with us; in that case, you don't
             need a signature guarantee.

             A signature guarantee is simply a certification of your signature
             -- a valuable safeguard against fraud. You can get a signature
             guarantee from most brokers and most banks, savings institutions,
             and credit unions. Note that you can't get a signature guarantee
             from a notary public.

             Money from shares you sell is normally sent out within one business
             day of when your order is processed (not when it is received),
             although it could be delayed for up to seven days. There are also
             two circumstances when it could be longer: when you are selling
             shares you bought recently by check and that check hasn't cleared
             yet (maximum delay: 15 days) or when unusual circumstances prompt
             the SEC to allow further delays.



                                       14
<PAGE>



         How the fund calculates share price

         The share price for the fund's Barrett International Shares is the net
         asset value per share, or NAV. To calculate NAV, the fund uses the
         following equation, taking figures for this share class only:


           TOTAL ASSETS - TOTAL LIABILITIES
         -------------------------------------------    = NAV
         TOTAL NUMBER OF SHARES OUTSTANDING

         We typically use market prices to value securities. However, when a
         market price isn't available, or when we have reason to believe it
         doesn't represent market realities, we may use fair value methods
         approved by the fund's Board. In such a case, the fund's value for a
         security is likely to be different from quoted market prices.

         Because the fund invests in securities that are traded primarily in
         foreign markets, the value of its holdings could change at a time when
         you aren't able to buy or sell fund shares. This is because some
         foreign markets are open on days when the fund doesn't price its
         shares.



                                       15
<PAGE>



             Other rights we reserve

             You should be aware that we may do any of the following:

             o  withhold 31% of your distributions as federal income tax if you
                have been notified by the IRS that you are subject to backup
                withholding, or if you fail to provide us with a correct
                taxpayer ID number or certification that you are exempt from
                backup withholding

             o  close your account and send you the proceeds if your balance
                falls below $25,000 and, after 30 days' notice, you haven't
                either increased your balance or closed your account; this
                policy doesn't apply in cases where a fall in share price
                created the low balance, and it may be waived in certain cases
                or for certain investors

             o  reject a new account application if you don't provide a correct
                Social Security or other tax ID number; if the account has
                already been opened, we may give you 30 days' notice to provide
                the correct number

             o  pay you for shares you sell by "redeeming in kind," that is, by
                giving you marketable securities (which typically will involve
                brokerage costs for you to liquidate) rather than cash; in most
                cases, the fund won't make a redemption in kind unless your
                requests over a 90-day period total more than $250,000 or 1% of
                the fund's net assets, whichever is less

             o  change, add, or withdraw various services, fees, and account
                policies


                                       16
<PAGE>


             Understanding Distributions and Taxes

             By law, a mutual fund is required to pass through to its
             shareholders virtually all of its net earnings. A fund can earn
             money in two ways: by receiving interest, dividends or other income
             from securities it holds, and by selling securities for more than
             it paid for them. (A fund's earnings are separate from any gains or
             losses stemming from your own purchase of shares.) A fund may not
             always pay a distribution for a given period.


             The fund intends to pay dividends and distributions to its
             shareholders annually in November or December, and if necessary may
             do so at other times as well.

             You can choose how to receive your dividends and distributions. You
             can have them all automatically reinvested in fund shares or all
             sent to you by check. Tell us your preference on your application.
             If you don't indicate a preference, your dividends and
             distributions will all be reinvested.

                           Buying and selling fund shares will usually have tax
                           consequences for you (except in an IRA or other
                           tax-advantaged account). Your sales of shares may
                           result in a capital gain or loss for you; whether
                           long-term or short-term depends on how long you owned
                           the shares.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional or Barrett Associates representative about the tax
consequences of your investments, including any state and local tax consequences
--------------------------------------------------------------------------------


                                       17
<PAGE>



             The tax status of the fund earnings you receive, and your own fund
             transactions, generally depends on their type:


             Generally taxed at ordinary income rates
             -------------------------------------------------------------------
             o short-term capital gains from selling fund shares
             -------------------------------------------------------------------
             o taxable income dividends you receive from the fund
             -------------------------------------------------------------------
             o short-term capital gains distributions you receive from the fund
             -------------------------------------------------------------------

             Generally taxed at capital gains rates
             -------------------------------------------------------------------
             o long-term capital gains from selling fund shares
             -------------------------------------------------------------------
             o long-term capital gains distributions you receive from the fund
             -------------------------------------------------------------------

             You may be able to claim a tax credit or deduction for your share
             of any foreign taxes the fund pays.

             The fund will send detailed tax information every January to
             Barrett Associates, who will forward it to you. These statements
             tell you the amount and the tax category of any dividends or
             distributions you received. They also have certain details on your
             purchases and sales of shares. The tax status of dividends and
             distributions is the same whether you reinvest them or not.
             Dividends or distributions declared in the last quarter of a given
             year are taxed in that year, even though you may not receive the
             money until the following January.

             If you invest right before the fund pays a dividend, you'll be
             getting some of your investment back as a taxable dividend. You can
             avoid this, if you want, by investing after the fund declares a
             dividend. In tax-advantaged retirement accounts you don't need to
             worry about this.




                                       18
<PAGE>


Notes
--------------------------------------------------------------------------------



<PAGE>


To Get More Information


             Shareholder reports -- These include commentary from the fund's
             management team about recent market conditions and the effects of
             the fund's strategies on its performance. They also have detailed
             performance figures, a list of everything the fund owns, and the
             fund's financial statements. These reports are mailed by Barrett
             Associates automatically to fund shareholders (one copy per
             household).

             Statement of Additional Information (SAI) -- This tells you more
             about the fund's features and policies, including additional risk
             information. The SAI is incorporated by reference into this
             document (meaning that it's legally part of this prospectus).

             If you'd like to ask for copies of these documents please contact
             Barrett Associates, Scudder or the SEC. If you're a shareholder and
             have questions, please contact Barrett Associates or Scudder.
             Materials you get from Barrett Associates and Scudder are free;
             those from the SEC involve a copying fee. If you like, you can look
             over these materials in person at the SEC's Public Reference Room
             in Washington, DC or request them electronically at
             [email protected].


             Barrett Associates, Inc.              SEC
             565 Fifth Avenue                      450 Fifth Street, N.W.
             New York, NY 10017                    Washington, D.C. 20549-6009
             212-983-5080                          1-202-942-8090
                                                   www.sec.gov
             Scudder Funds
             PO Box 219669
             Kansas City, MO 64121-9669
             1-800-854-8525

             SEC File Number    811-642




<PAGE>
                                                                    SCUDDER
                                                                INVESTMENTS (SM)
                                                                      [LOGO]


  December 29, 2000

Prospectus

                                                      Scudder International Fund

                                                      Advisor Classes A, B and C


As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.

<PAGE>





Contents
--------------------------------------------------------------------------------

   How the Fund Works                    How to Invest in the Fund

     4  The Fund's Investment Strategy    12  Choosing a Share Class

     5  The Main Risks of Investing       17  How to Buy Shares
        in the Fund
                                          18  How to Exchange or Sell
     6  The Fund's Performance History        Shares

     7  How Much Investors Pay            19  Policies You Should Know
                                              About
     8  Other Policies and Risks
                                          26  Understanding Distributions
     9  Who Manages and Oversees              and Taxes
        the Fund


<PAGE>


  How the Fund Works

  On the next few pages, you'll find information about this fund's investment
  goal, the main strategies it uses to pursue that goal and the main risks that
  could affect its performance.

  Whether you are considering investing in the fund or are already a
  shareholder, you'll probably want to look this information over carefully. You
  may want to keep it on hand for reference as well.

  Remember that mutual funds are investments, not bank deposits. They're not
  insured or guaranteed by the FDIC or any other government agency, and you
  could lose money by investing in them.



<PAGE>


--------------------------------------------------------------------------------
                                           |  Class A     Class B     Class C
                              fund number  |  468         668         768

  Scudder International Fund
--------------------------------------------------------------------------------

The Fund's Investment Strategy

The fund seeks long-term growth of capital by investing at least 65% of its
total assets in foreign equities (equities issued by foreign-based companies and
listed on foreign exchanges). Although the fund can invest in companies of any
size and from any country, it invests mainly in common stocks of established
companies in countries with developed economies (other than the United States).

In choosing common stocks, the portfolio managers use a combination of three
analytical disciplines:

Bottom-up research. The managers look for individual companies that have
financial strength, good business prospects, competitive positioning and
earnings growth that is above-average for their market segment, among other
factors.

Top-down analysis. The managers consider the economic outlooks for various
countries and geographical regions, favoring countries that they believe have
sound economic conditions and open markets.

Analysis of global themes. The managers look for significant changes in the
business environment, seeking to identify industries that may benefit from these
changes.

The managers intend to divide the fund's holdings across industries and
geographical areas, although, depending on their outlook, they may increase or
reduce the fund's exposure to a given industry or area.

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

OTHER INVESTMENTS The fund may invest up to 20% of net assets in foreign debt
securities, including convertible bonds. Although the managers are permitted to
use various types of derivatives (contracts whose value is based on, for
example, indices, commodities, currencies, or securities), the managers don't
intend to use them as principal investments, and may not use them at all.



                                       4
<PAGE>

The fund will normally sell a stock when the managers believe its price is
unlikely to go much higher, its fundamentals have deteriorated, other
investments offer better opportunities or in the course of adjusting its
emphasis on a given country.


The Main Risks of Investing in the Fund

There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.

As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, foreign markets. When foreign stock prices
fall, you should expect the value of your investment to fall as well. Foreign
stocks also tend to be more volatile than their U.S. counterparts, for reasons
ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. While developed foreign
markets may be less risky than emerging markets, increasing globalization can
make any market vulnerable to events elsewhere in the world.

A second major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.

Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies.

Other factors that could affect performance include:

o        the managers could be wrong in their analysis of industries, companies,
         economic trends, geographical areas or other matters

o        derivatives could produce disproportionate losses

o        at  times,   market  conditions  might  make  it  hard  to  value  some
         investments or to get an attractive price for them

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

This fund is designed for investors who want a broadly diversified international
investment with the emphasis squarely on long-term growth of capital.


                                       5
<PAGE>

The Fund's Performance History

While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know. The bar chart shows how
fund performance has varied from year to year, which may give some idea of risk.
The table shows how fund performance compares with a broad-based market index
(which, unlike the fund, does not have any fees or expenses). The performance of
both the fund and the index varies over time. All figures on this page assume
reinvestment of dividends and distributions.

The inception date for Class A (formerly Class R) was August 2, 1999. In the bar
chart,  the  performance  figures for Class A shares for the period prior to its
inception are based on the historical  performance of the fund's  original share
class (Class S),  adjusted to reflect the higher  gross total  annual  operating
expenses  of Class A. The bar chart does not  reflect  sales  loads;  if it did,
returns would be lower.

In the table, the performance figures for each share class for the periods prior
to their inception (August 2, 1999 for Class A and December 29, 2000 for Classes
B and C) are based on the historical performance of Class S, adjusted to reflect
both the higher gross total annual operating expenses of Class A, B or C and the
current applicable sales charge of that class. Class S shares are offered in a
different prospectus. In addition, the performance figures for Class A since its
inception have been adjusted to reflect the current applicable sales charge of
Class A.

Scudder International Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year                       Class A
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:


         1990          -9.17
         1991          11.47
         1992          -2.90
         1993          36.13
         1994          -3.26
         1995          11.91
         1996          14.24
         1997           7.68
         1998          18.30
         1999          57.33


2000 Total Return as of September 30: -17.85%
Best Quarter: 30.20%, Q4 1999                 Worst Quarter: -18.51%, Q3 1990


--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
--------------------------------------------------------------------------------
                              1 Year            5 Years            10 Years
--------------------------------------------------------------------------------
Class A                       48.28              19.28               12.07
--------------------------------------------------------------------------------
Class B                       51.51              19.52               11.85
--------------------------------------------------------------------------------
Class C                       56.24              19.79               11.88
--------------------------------------------------------------------------------
Index                         27.93              13.10                7.10
--------------------------------------------------------------------------------

Index: MSCI EAFE plus Canada Index, an unmanaged capitalization-weighted
measure of stock markets in Europe, Australia, the Far East and Canada.


                                       6
<PAGE>

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold
fund shares.

--------------------------------------------------------------------------------
Fee Table                                 Class A        Class B       Class C
--------------------------------------------------------------------------------

Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (% of offering price)        5.75%            None          None
--------------------------------------------------------------------------------
Maximum Contingent Deferred Sales
Charge (Load) (% of redemption
proceeds)                                  None*          4.00%         1.00%
--------------------------------------------------------------------------------

Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                            0.68%           0.68%         0.68%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee*         0.25%           1.00%         1.00%
--------------------------------------------------------------------------------
Other Expenses**                          0.40%           0.45%         0.43%
--------------------------------------------------------------------------------
Total Annual Operating Expenses           1.33%***        2.13%         2.11%
--------------------------------------------------------------------------------

*        The  redemption of shares  purchased at net asset value under the Large
         Order NAV Purchase  Privilege  (see  "Policies You Should Know About --
         Policies about  transactions") may be subject to a contingent  deferred
         sales charge of 1.00% if redeemed within one year of purchase and 0.50%
         if redeemed during the second year following purchase.

**       Includes a fixed rate  administrative fee of 0.400%,  0.450% and 0.425%
         for Class A, Class B and Class C shares, respectively.

***      Zurich  Scudder  has agreed to cap  operating  expenses  at 1.30% until
         4/1/2001.

Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These new fees
became effective on August 14, 2000.

Based on the costs above, this example helps you compare the expenses of each
share class to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.


--------------------------------------------------------------------------------
Example                1 Year         3 Years        5 Years       10 Years
--------------------------------------------------------------------------------

Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares          $703           $972          $1,262        $2,084
--------------------------------------------------------------------------------
Class B shares           616            967           1,344         2,071
--------------------------------------------------------------------------------
Class C shares           314            661           1,134         2,441
--------------------------------------------------------------------------------

Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares          $703           $972          $1,262        $2,084
--------------------------------------------------------------------------------
Class B shares           216            667           1,144         2,071
--------------------------------------------------------------------------------
Class C shares           214            661           1,134         2,441
--------------------------------------------------------------------------------


                                       7
<PAGE>

Other Policies and Risks

While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:

o        Although major changes tend to be infrequent, the fund's Board could
         change the fund's investment goal without seeking shareholder approval.

o        As a temporary defensive measure, the fund could shift up to 100% of
         its assets into investments such as U.S. or Canadian securities. This
         could prevent losses, but would mean that the fund would not be
         pursuing its goal.

o        The fund may trade securities actively. This could raise transaction
         costs (thus lowering performance) and could mean higher taxable
         distributions.

Euro conversion

Funds that invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is well underway. The
investment advisor is working to address euro-related issues as they occur and
has been notified that other key service providers are taking similar steps.
Still, there's some risk that this problem could materially affect a fund's
operation (including its ability to calculate net asset value and to handle
purchases and redemptions), its investments or securities markets in general.

For more information

This prospectus doesn't tell you about every policy or risk of investing in the
fund.

If you want more information on the fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the Statement of Additional Information (the back cover tells you how
to do this).

Keep in mind that there is no assurance that any mutual fund will achieve its
goal.

                                       8
<PAGE>

Who Manages and Oversees the Fund

The investment advisor

The fund's investment advisor is Zurich Scudder Investments, Inc., 345 Park
Avenue, New York, NY. The advisor has more than 80 years of experience managing
mutual funds, and currently has more than $290 billion in assets under
management.

The advisor's asset management teams include investment professionals,
economists, research analysts, traders and other investment specialists, located
in offices across the United States and around the world.

The advisor receives a management fee from the fund. For the 12 months through
the most recent fiscal year end, the actual amount the fund paid in management
fees was 0.76% of its average daily net assets.

The fund has entered into a new investment management agreement with the
advisor. The table below describes the new fee rates for the fund.


---------------------------------------------------------------------
Investment Management Fee effective August 14, 2000
---------------------------------------------------------------------

Average Daily Net Assets                              Fee Rate
---------------------------------------------------------------------
first $6 billion                                      0.675%
---------------------------------------------------------------------
next $1 billion                                       0.625%
---------------------------------------------------------------------
more than $7 billion                                  0.600%
---------------------------------------------------------------------



                                       9
<PAGE>

The portfolio managers

The following people handle the day-to-day management of the fund.


  Irene T. Cheng                            Nicholas Bratt
  Lead Portfolio Manager                     o Began investment career in 1974
    o Began investment career in 1985        o Joined the advisor in 1976
    o Joined the advisor in 1993             o Joined the fund team in 1976
    o Joined the fund team in 1998
                                            Marc J. Slendebroek
  Carol L. Franklin                          o Began investment career in 1989
    o Began investment career in 1975        o Joined the advisor in 1994
    o Joined the advisor in 1981             o Joined the fund team in 1999
    o Joined the fund team in 1986



                                       10
<PAGE>

  How to Invest in the Fund

  The following pages tell you about many of the services, choices and benefits
  of being a shareholder. You'll also find information on how to check the
  status of your account using the method that's most convenient for you.

  You can find out more about the topics covered here by speaking with your
  financial representative or a representative of your workplace retirement plan
  or other investment provider.



<PAGE>

Choosing a Share Class

Offered in this prospectus are three share classes for the fund. The fund offers
other classes of shares separately. Each class has its own fees and expenses,
offering you a choice of cost structures. Class A, Class B and Class C shares
are intended for investors seeking the advice and assistance of a financial
representative, who may receive compensation for those services through sales
commissions, service fees and/or distribution fees.

Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.

We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Classes and features                                          Points to help you compare
-----------------------------------------------------------------------------------------------------------------------------
Class A
<S>                                                           <C>
o Sales charges of up to 5.75%, charged when you buy          o  Some investors may be able to reduce or eliminate their
  shares                                                         sales charges; see next page

o In most cases, no charges when you sell shares              o  Total annual operating expenses are lower than those for
                                                                 Class B or Class C
o 0.25% service fee
-----------------------------------------------------------------------------------------------------------------------------
Class B

o No charges when you buy shares                              o  The deferred sales charge rate falls to zero after six
                                                                 years
o Deferred sales charge declining from 4.00%, charged
  when you sell shares you bought within the last six         o  Shares automatically convert to Class A after six years,
  years                                                          which means lower annual expenses going forward

o 1.00% distribution/service fee
-----------------------------------------------------------------------------------------------------------------------------
Class C

o  No charges when you buy shares                             o  The deferred sales charge rate is lower, but your shares
                                                                 never convert to Class A, so annual expenses remain
o  Deferred sales charge of 1.00%, charged when you sell         higher
   shares you bought within the last year

o 1.00% distribution/service fee
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       12
<PAGE>

Class A shares

Class A shares do have a 12b-1 plan, under which a service fee of 0.25% is
deducted from fund assets each year. Class A shares have a sales charge that
varies with the amount you invest:



                      Sales charge as a      Sales charge as % of
Your investment       % of offering price    your net investment
---------------------------------------------------------------------
Up to $50,000         5.75%                  6.10%
---------------------------------------------------------------------
$50,000-$99,999       4.50                   4.71
---------------------------------------------------------------------
$100,000-$249,999     3.50                   3.63
---------------------------------------------------------------------
$250,000-$499,999     2.60                   2.67
---------------------------------------------------------------------
$500,000-$999,999     2.00                   2.04
---------------------------------------------------------------------
$1 million or more    See below and next page
---------------------------------------------------------------------

The offering price includes the sales charge.

You may be able to lower your Class A sales charges if:

o        you plan to invest at least $50,000 over the next 24 months ("letter of
         intent")

o        the amount of shares you already own (including shares in certain other
         funds) plus the amount you're investing now is at least $50,000
         ("cumulative discount")

o        you are investing a total of $50,000 or more in several funds at once
         ("combined purchases")

The point of these three features is to let you count investments made at other
times for purposes of calculating your present sales charge. Any time you can
use the privileges to "move" your investment into a lower sales charge category
in the table above, it's generally beneficial for you to do so. You can take
advantage of these methods by filling in the appropriate sections of your
application or by speaking with your financial representative.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.


                                       13
<PAGE>

You may be able to buy Class A shares without sales charges when you are:

o        reinvesting dividends or distributions

o        investing through certain workplace retirement plans

o        participating in an investment advisory program under which you pay a
         fee to an investment advisor or other firm for portfolio management
         services

There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Kemper Service
Company can answer your questions and help you determine if you are eligible.

If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them. This CDSC is waived under
certain circumstances (see "Policies You Should Know About"). Your financial
representative or Kemper Service Company can answer your questions and help you
determine if you're eligible.




                                       14
<PAGE>

Class B shares

With Class B shares, you pay no up-front sales charges to the fund. Class B
shares do have a 12b-1 plan, under which a distribution fee of 0.75% and a
service fee of 0.25% are deducted from fund assets each year. This means the
annual expenses for Class B shares are somewhat higher (and their performance
correspondingly lower) compared to Class A shares. After six years, Class B
shares automatically convert to Class A, which has the net effect of lowering
the annual expenses from the seventh year on. However, unlike Class A shares,
your entire investment goes to work immediately.

Class B shares have a CDSC. This charge declines over the years you own shares,
and disappears completely after six years of ownership. But for any shares you
sell within those six years, you may be charged as follows:


Year after you bought shares        CDSC on shares you sell
---------------------------------------------------------------------
First year                          4.00%
---------------------------------------------------------------------
Second or third year                3.00
---------------------------------------------------------------------
Fourth or fifth year                2.00
---------------------------------------------------------------------
Sixth year                          1.00
---------------------------------------------------------------------
Seventh year and later              None (automatic conversion
                                    to Class A)
---------------------------------------------------------------------

This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper Service Company can answer your
questions and help you determine if you're eligible.

While Class B shares don't have any front-end sales charges, their higher annual
expenses mean that over the years you could end up paying more than the
equivalent of the maximum allowable front-end sales charge.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

Class B shares can be a logical choice for long-term investors who would prefer
to see all of their investment go to work right away, and can accept somewhat
higher annual expenses.

                                       15
<PAGE>

Class C shares

Like Class B shares, Class C shares have no up-front sales charges. However,
Class C shares do have a 12b-1 plan under which a distribution fee of 0.75% and
a service fee of 0.25% are deducted from fund assets each year. Because of these
fees, the annual expenses for Class C shares are similar to those of Class B
shares, but higher than those for Class A shares (and the performance of Class C
shares is correspondingly lower than that of Class A). However, unlike Class A
shares, your entire investment goes to work immediately.

Unlike Class B shares, Class C shares do NOT automatically convert to Class A
after six years, so they continue to have higher annual expenses.

Class C shares have a CDSC, but only on shares you sell within one year of
buying them:


Year after you bought shares       CDSC on shares you sell
---------------------------------------------------------------------
First year                         1.00%
---------------------------------------------------------------------
Second year and later              None
---------------------------------------------------------------------

This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper Service Company can answer your
questions and help you determine if you're eligible.

While Class C shares don't have any front-end sales charges, their higher annual
expenses mean that over the years you could end up paying more than the
equivalent of the maximum allowable front-end sales charge.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

Class C shares may appeal to investors who plan to sell some or all shares
within six years of buying them, or who aren't certain of their investment time
horizon.


                                       16
<PAGE>

How to Buy Shares

Once you've chosen a share class, use these instructions to make investments.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
First investment                                               Additional investments
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>
$1,000 or more for regular accounts                            $100 or more for regular accounts

$250 or more for IRAs                                          $50 or more for IRAs

                                                               $50 or more with an Automatic Investment Plan
-----------------------------------------------------------------------------------------------------------------------------
Through a financial representative

o  Contact your representative using the method                o  Contact your representative using the method that's
   that's most convenient for you                                 most convenient for you
-----------------------------------------------------------------------------------------------------------------------------
By mail or express mail (see below)

o  Fill out and sign an application                            o  Send a check made out to "Kemper Funds" and an
                                                                  investment slip to us at the appropriate address below
o  Send it to us at the appropriate address,
   along with an investment check                              o  If you don't have an investment slip, simply include a
                                                                  letter with your name, account number, the full name of
                                                                  the fund and the share class and your investment
                                                                  instructions
-----------------------------------------------------------------------------------------------------------------------------
By wire

o Call (800) 621-1048 for instructions                         o  Call (800) 621-1048 for instructions
-----------------------------------------------------------------------------------------------------------------------------
By phone

--                                                             o  Call (800) 621-1048 for instructions
-----------------------------------------------------------------------------------------------------------------------------
With an automatic investment plan

--                                                             o  To set up regular investments from a bank checking
                                                                  account, call (800) 621-1048 (minimum $50)
-----------------------------------------------------------------------------------------------------------------------------
On the Internet

--                                                             o  Go to www.kemper.com and register

                                                               o  Follow the instructions for buying shares with money
                                                                  from your bank account
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>


--------------------------------------------------------------------------------
  Regular mail:
  Kemper Funds, PO Box 219153, Kansas City, MO 64121-9153

  Express, registered or certified mail:
  Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005

  Fax number: (800) 818-7526 (for exchanging and selling only)


                                       17
<PAGE>

How to Exchange or Sell Shares

Use these instructions to exchange or sell shares in your account.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Exchanging into another fund                                      Selling shares
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>
$1,000 or more to open a new account                              Some transactions, including most for over $50,000, can
($250 for IRAs)                                                   only be ordered in writing with a signature guarantee; if
                                                                  you're in doubt, see page 21
$100 or more for exchanges between existing accounts
-----------------------------------------------------------------------------------------------------------------------------
Through a financial representative

o Contact your representative by the method that's                o  Contact your representative by the method that's most
  most convenient for you                                            convenient for you
-----------------------------------------------------------------------------------------------------------------------------
By phone or wire

o Call (800) 621-1048 for instructions                            o  Call (800) 621-1048 for instructions
-----------------------------------------------------------------------------------------------------------------------------
By mail, express mail or fax (see previous page)

Write a letter that includes:                                     Write a letter that includes:

o the fund, class and account number you're exchanging            o  the fund, class and account number from which you want
  out of                                                             to sell shares

o the dollar amount or number of shares you want to               o  the dollar amount or number of shares you want to sell
  exchange
                                                                  o  your name(s), signature(s) and address, as they appear
o the name and class of the fund you want to exchange                on your account
  into
                                                                  o  a daytime telephone number
o your name(s), signature(s) and address, as they
  appear on your account

o a daytime telephone number
-----------------------------------------------------------------------------------------------------------------------------
With a systematic exchange plan

o To set up regular exchanges from a fund account,                --
  call (800) 621-1048
-----------------------------------------------------------------------------------------------------------------------------
With a systematic withdrawal plan

--                                                                o  To set up regular cash payments from a fund account,
                                                                     call (800) 621-1048
-----------------------------------------------------------------------------------------------------------------------------
On the Internet

o Go to www.kemper.com and register                               --

o Follow the instructions for making on-line exchanges
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       18
<PAGE>

Policies You Should Know About

Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.

If you are investing through an investment provider, check the materials you
received from them. As a general rule, you should follow the information in
those materials wherever it contradicts the information given here. Please note
that an investment provider may charge its own fees.

In either case, keep in mind that the information in this prospectus applies
only to the fund's Class A, Class B and Class C shares. The fund does have other
share classes, which are described in a separate prospectus and which have
different fees, requirements and services.

In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call (800)
621-1048.


                                       19
<PAGE>

Policies about transactions

The fund is open for business each day the New York Stock Exchange is open. The
fund calculates its share price every business day, as of the close of regular
trading on the Exchange (typically 4 p.m. Eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading).

You can place an order to buy or sell shares at any time. Once your order is
received by Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.

Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representative of your investment provider should be able to tell you when your
order will be processed.

KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Scudder or Kemper funds generally and on accounts held directly at Kemper. You
can also use it to make exchanges and sell shares.

EXPRESS-Transfer lets you set up a link between a Scudder or Kemper account and
a bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. Transactions take two to three days to be completed, and
there is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the
account application; to add it to an existing account, call (800) 621-1048.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www.kemper.com to get up-to-date information, review balances or
even place orders for exchanges.

                                       20
<PAGE>


Since many transactions may be initiated by telephone or electronically, it's
important to understand that as long as we take reasonable steps to ensure that
an order to purchase or redeem shares is genuine, such as recording calls or
requesting personalized security codes or other information, we are not
responsible for any losses that may occur. For transactions conducted over the
Internet, we recommend the use of a secure Internet browser. In addition, you
should verify the accuracy of your confirmation statements immediately after you
receive them.

When you ask us to send or receive a wire, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are completed within 24 hours. The fund can only send or
accept wires of $100 or more.

Exchanges are a shareholder privilege, not a right: we may reject any exchange
order, particularly when there appears to be a pattern of "market timing" or
other frequent purchases and sales. We may also reject or limit purchase orders,
for these or other reasons.

When you want to sell more than $50,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.

A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.


                                       21
<PAGE>

When you sell shares that have a CDSC, we calculate the CDSC as a percentage of
what you paid for the shares or what you are selling them for -- whichever
results in the lowest charge to you. In processing orders to sell shares, we
turn to the shares with the lowest CDSC first. Exchanges from one fund into
another don't affect CDSCs: for each investment you make, the date you first
bought shares is the date we use to calculate a CDSC on that particular
investment.

There are certain cases in which you may be exempt from a CDSC. These include:

o        the death or disability of an account owner (including a joint owner)

o        withdrawals made through a systematic withdrawal plan

o        withdrawals related to certain retirement or benefit plans

o        redemptions for certain loan advances, hardship provisions or returns
         of excess contributions from retirement plans

o        for Class A shares purchased through the Large Order NAV Purchase
         Privilege, redemption of shares whose dealer of record at the time of
         the investment notifies Kemper Distributors that the dealer waives the
         applicable commission

In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Kemper Service Company can answer your questions and help you determine if you
are eligible.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.

                                       22
<PAGE>



If you sell shares in a Scudder fund offering multiple classes or a Kemper fund
and then decide to invest with Scudder or Kemper again within six months, you
can take advantage of the "reinstatement feature." With this feature, you can
put your money back into the same class of a Scudder or Kemper fund at its
current NAV and for purposes of sales charges it will be treated as if it had
never left Scudder or Kemper. You'll be reimbursed (in the form of fund shares)
for any CDSC you paid when you sold. Future CDSC calculations will be based on
your original investment date, rather than your reinstatement date. There is
also an option that lets investors who sold Class B shares buy Class A shares
with no sales charge, although they won't be reimbursed for any CDSC they paid.
You can only use the reinstatement feature once for any given group of shares.
To take advantage of this feature, contact Kemper Service Company or your
financial representative.

Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 10 days) or when unusual circumstances prompt the
SEC to allow further delays. Certain expedited redemption processes may also be
delayed when you are selling recently purchased shares.


                                       23
<PAGE>

How the fund calculates share price

The price at which you buy shares is as follows:

Class A shares -- net asset value per share, or NAV, adjusted to allow for any
applicable sales charges (see "Choosing a Share Class")

Class B and Class C shares-- net asset value per share, or NAV

To calculate NAV, each share class of the fund uses the following equation:


      TOTAL ASSETS - TOTAL LIABILITIES
   --------------------------------------  = NAV
     TOTAL NUMBER OF SHARES OUTSTANDING

For each share class, the price at which you sell shares is also the NAV,
although for Class B and Class C investors a contingent deferred sales charge
may be taken out of the proceeds (see "Choosing a Share Class").

We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by the fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.

Because the fund invests in securities that are traded primarily in foreign
markets, the value of its holdings could change at a time when you aren't able
to buy or sell fund shares. This is because some foreign markets are open on
days when the fund doesn't price its shares.


                                       24
<PAGE>




Other rights we reserve

You should be aware that we may do any of the following:

o        withhold 31% of your distributions as federal income tax if we have
         been notified by the IRS that you are subject to backup withholding, or
         if you fail to provide us with a correct taxpayer ID number or
         certification that you are exempt from backup withholding

o        reject a new account application if you don't provide a correct Social
         Security or other tax ID number; if the account has already been
         opened, we may give you 30 days' notice to provide the correct number

o        charge you $9 each calendar quarter if your account balance is below
         $1,000 for the entire quarter; this policy doesn't apply to most
         retirement accounts or if you have an automatic investment plan

o        pay you for shares you sell by "redeeming in kind," that is, by giving
         you marketable securities (which typically will involve brokerage costs
         for you to liquidate) rather than cash; the fund generally won't make a
         redemption in kind unless your requests over a 90-day period total more
         than $250,000 or 1% of the value of the fund's net assets, whichever is
         less

o        change, add or withdraw various services, fees and account policies
         (for example, we may change or terminate the exchange privilege at any
         time)



                                       25
<PAGE>

Understanding Distributions and Taxes

By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.

The fund intends to pay dividends and distributions to its shareholders annually
in November or December, and if necessary may do so at other times as well.

You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't indicate a preference,
your dividends and distributions will all be reinvested. For retirement plans,
reinvestment is the only option.

Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional about the tax consequences of your investments,
including any state and local tax consequences.


                                       26
<PAGE>

The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:


Generally taxed at ordinary income rates
----------------------------------------------------------------------
o short-term capital gains from selling fund shares
----------------------------------------------------------------------
o taxable income dividends you receive from the fund
----------------------------------------------------------------------
o short-term capital gains distributions you receive from the fund
----------------------------------------------------------------------

Generally taxed at capital gains rates
----------------------------------------------------------------------
o long-term capital gains from selling fund shares
----------------------------------------------------------------------
o long-term capital gains distributions you receive from the fund
----------------------------------------------------------------------

You may be able to claim a tax credit or deduction for your share of any foreign
taxes the fund pays.

Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.

If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.


                                       27
<PAGE>
Notes
--------------------------------------------------------------------------------



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



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



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



<PAGE>

To Get More Information

Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. Shareholders get the reports
automatically. For more copies, call (800) 621-1048.

Statement of Additional Information (SAI) -- This tells you more about the
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus). If you'd like to ask for copies of these documents, please
contact Kemper or the SEC (see below). If you're a shareholder and have
questions, please contact Kemper. Materials you get from Kemper are free; those
from the SEC involve a copying fee. If you like, you can look over these
materials at the SEC's Public Reference Room in Washington, DC or request them
electronically at [email protected].

SEC                                 Scudder Funds c/o
450 Fifth Street, N.W.              Kemper Distributors, Inc.
Washington, DC 20549-0102           222 South Riverside Plaza
www.sec.gov                         Chicago, IL 60606-5808
Tel (202) 942-8090                  www.kemper.com
                                    Tel (800) 621-1048


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

SEC File Number
Scudder International Fund                  811-642









Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048


<PAGE>
                               SCUDDER GLOBAL FUND
                  A series of Global/International Fund, Inc.


                           SCUDDER INTERNATIONAL FUND
                  A series of Scudder International Fund, Inc.

                          Class AARP and Class S Shares



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



                       STATEMENT OF ADDITIONAL INFORMATION
                                December 29, 2000




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

This combined Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectuses for Scudder Global Fund and Scudder
International Fund dated December 29, 2000, as 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.

The  Annual  Report to  Shareholders  for each Fund dated  August  31,  2000 are
incorporated  by  reference  and hereby  deemed to be part of this  Statement of
Additional  Information.  The Annual  Reports may be obtained  without charge by
calling 1-800-SCUDDER.



<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                    Page


<S>                                                                                                                  <C>
THE FUNDS' INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
         General Investment Objective and Policies....................................................................1
         Scudder Global Fund..........................................................................................1
         Scudder International Fund...................................................................................3
         Foreign Investment Risk......................................................................................5
         Master/feeder structure......................................................................................5
         Interfund Lending Program....................................................................................6
         Special Considerations.......................................................................................6
         Specialized Investment Techniques............................................................................9
         Investment Restrictions.....................................................................................23

PURCHASES............................................................................................................24
         Additional Information About Opening An Account.............................................................24
         Minimum balances............................................................................................25
         Additional Information About Making Subsequent
              Investments............................................................................................26
         Share Price.................................................................................................27
         Share Certificates..........................................................................................27
         Other Information...........................................................................................28

EXCHANGES AND REDEMPTIONS............................................................................................28
         Exchanges...................................................................................................28
         Redemption By Telephone.....................................................................................29
         Redemption by QuickSell.....................................................................................30
         Redemption-in-Kind..........................................................................................30


FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................31
         Dividends and Capital Gains Distribution Options............................................................32

SPECIAL PLAN ACCOUNTS................................................................................................34

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................37

PERFORMANCE INFORMATION..............................................................................................38
         Average Annual Total Return.................................................................................38
         Cumulative Total Return.....................................................................................38
         Total Return................................................................................................39
         Comparison of Fund Performance..............................................................................39

ORGANIZATION OF THE FUNDS............................................................................................40


INVESTMENT ADVISOR...................................................................................................42
         AMA InvestmentLinkSM Program................................................................................46
         Code of Ethics..............................................................................................46


DIRECTORS AND OFFICERS OF SCUDDER INTERNATIONAL FUND, INC............................................................46

DIRECTORS AND OFFICERS OF GLOBAL/INTERNATIONAL FUND, INC.............................................................46


REMUNERATION.........................................................................................................49
         Compensation of Officers and Directors......................................................................50



                                        i
<PAGE>

DISTRIBUTOR..........................................................................................................51
         Administrative Fee..........................................................................................51


TAXES................................................................................................................52


PORTFOLIO TRANSACTIONS...............................................................................................56
         Brokerage Commissions.......................................................................................56
         Portfolio Turnover..........................................................................................57


NET ASSET VALUE......................................................................................................57

ADDITIONAL INFORMATION...............................................................................................58
         Experts.....................................................................................................58
         Other Information...........................................................................................58

FINANCIAL STATEMENTS.................................................................................................60

APPENDIX.............................................................................................................61

</TABLE>


                                       ii
<PAGE>

        THE FUNDS' INVESTMENT OBJECTIVE AND POLICIES

Scudder Global Fund and Scudder  International Fund (each a "Fund," collectively
the  "Funds")  are  each  an  open-end   management   investment  company  which
continuously  offers  and  redeems  shares  at net asset  value.  Each Fund is a
company of the type commonly  known as a mutual fund.  Scudder  Global Fund is a
diversified series of Global/International Fund, Inc. Scudder International Fund
is  a  diversified   series  of  Scudder   International   Fund,  Inc.  (each  a
"Corporation," collectively the "Corporations"). Scudder Global Fund offers five
classes of  shares,  Class  AARP,  Class S, Class A, Class B and Class C shares.
Scudder  International Fund offers seven classes of shares: Class AARP, Class S,
Barrett  International  Shares,  Class A,  Class B, Class C, and Class I shares.
Each class has its own  important  features  and  policies.  Only Class AARP and
Class S of each Fund are  offered  herein.  Shares of Class AARP are  especially
designed for members of AARP.

Except as  otherwise  indicated,  each Fund's  objectives  and  policies are not
fundamental  and may be  changed  without a  shareholder  vote.  There can be no
assurance that the Funds will achieve their objective. If there is a change in a
Fund's  investment  objective,  shareholders  should consider  whether that Fund
remains  an  appropriate  investment  in light of their then  current  financial
position and needs.


Descriptions  in  this  Statement  of  Additional  Information  of a  particular
investment  practice or  technique  in which the Funds may engage (such as short
selling,  hedging,  etc.) or a  financial  instrument  in which  the  Funds  may
purchase (such as options,  forward foreign currency contracts,  etc.) are meant
to describe the spectrum of investments  that Zurich Scudder  Investments,  Inc.
(the  "Advisor"),  in its  discretion,  might,  but is not  required  to, use in
managing a Fund's portfolio assets.  The Advisor may, in its discretion,  at any
time employ such practice, technique or instrument for one or more funds but not
for all funds advised by it.  Furthermore,  it is possible that certain types of
financial  instruments  or  investment  techniques  described  herein may not be
available,  permissible,  economically  feasible or effective for their intended
purposes in all markets. Certain practices,  techniques,  or instruments may not
be principal  activities of a Fund but, to the extent employed,  could from time
to time have a material impact on that Fund's performance.


General Investment Objective and Policies

Scudder Global Fund and Scudder International Fund each seek long-term growth of
capital from foreign equity  securities by each employing a distinct  investment
style.

Scudder Global Fund

The Fund seeks long-term  growth while actively  seeking to reduce downside risk
as  compared  with  other  global  growth  funds.  The Fund  will not  invest in
securities issued by tobacco-producing  companies.  Although the Fund can invest
in companies of any size, it generally  focuses on established  companies  whose
stocks are listed on a recognized  exchange.  While most of the Fund's  equities
are common  stocks,  some may be other types of  equities,  such as  convertible
stocks,  preferred  stocks  and  depository  receipts.  The  Fund  may  also buy
investment  grade debt  securities when it believes they may perform at least as
well as equities.

The  management of the Fund believes that there is substantial  opportunity  for
long-term  capital growth from a professionally  managed portfolio of securities
selected  from  the  U.S.  and  foreign  equity  markets.  Through  this  global
investment  framework,  management  seeks to take  advantage  of the  investment
opportunities  created  by the  global  economy.  The  world has  become  highly
integrated in economic,  industrial and financial terms.  Companies increasingly
operate  globally  as they  purchase  raw  materials,  produce  and  sell  their
products, and raise capital. As a result, international trends such as movements
in currency  and trading  relationships  are  becoming  more  important  to many
industries than purely domestic influences.  To understand a company's business,
it is  frequently  more  important to  understand  how it is linked to the world
economy than whether or not it is, for example, a U.S., French or Swiss company.
Just as a company takes a global  perspective in deciding  where to operate,  so
too may an investor  benefit from looking  globally in deciding which industries
are growing,  which  producers  are efficient  and which  companies'  shares are
undervalued.  The Fund  affords the investor  access to potential  opportunities
wherever they arise,  without being  constrained  by the location of a company's
headquarters or the trading market for its shares.


                                       1
<PAGE>

The Fund invests in companies that the Advisor believes will benefit from global
economic  trends,  promising  technologies  or  products  and  specific  country
opportunities  resulting  from  changing  geopolitical,  currency,  or  economic
considerations.  It is expected that  investments  will be spread broadly around
the world. The Fund will be invested usually in securities of issuers located in
at least three countries,  one of which may be the U.S. The Fund may be invested
100% in non-U.S.  issues,  and for temporary  defensive purposes may be invested
100% in U.S.  issues,  although under normal  circumstances  it is expected that
both foreign and U.S.  investments will be represented in the Fund's  portfolio.
It is expected  that  investments  will include  companies  of varying  sizes as
measured by assets,  sales,  or  capitalization.  The Fund generally  invests in
equity securities of established  companies listed on U.S. or foreign securities
exchanges,  but also may invest in securities traded  over-the-counter.  It also
may invest in debt securities convertible into common stock, and convertible and
non-convertible  preferred stock,  and  fixed-income  securities of governments,
governmental  agencies,  supranational  agencies and companies  when the Advisor
believes the potential for appreciation will equal or exceed that available from
investments in equity securities. In addition, for temporary defensive purposes,
the Fund may vary from its investment  policies  during periods when the Advisor
determines that it is advisable to do so because of conditions in the securities
markets or other economic or political conditions. During such periods, the Fund
may hold without limit cash and cash equivalents. It is impossible to accurately
predict for how long such alternative  strategies may be utilized.  The Fund may
not invest more than 5% of its total  assets in debt  securities  that are rated
Baa or below by Moody's Investors Service,  Inc.  ("Moody's") or BBB or below by
Standard and Poor's Ratings Services,  a division of The McGraw-Hill  Companies,
Inc.  ("S&P"),  or deemed by the Advisor to be of comparable  quality  (commonly
referred  to as "high  yield" or "junk"  bonds).  More  information  about these
investment techniques is provided under "Investments and Investment Techniques."


Investments.  Scudder Global Fund seeks long-term  growth while actively seeking
to reduce downside risk as compared with other global growth funds. The managers
use  analytical  tools to monitor  actively the risk profile of the portfolio as
compared to comparable  funds and  appropriate  benchmarks and peer groups.  The
managers use several  strategies in seeking to reduce downside risk,  including:
(i)  diversifying  broadly among companies,  industries,  countries and regions;
(ii) focusing on high-quality  companies with reasonable  valuations;  and (iii)
generally  focusing  on  countries  with  developed  economies.   The  portfolio
managers'  attempts to manage  downside  risk may also reduce  performance  in a
strong market.  In addition,  the Fund will also not invest in securities issued
by tobacco-producing companies.


The Fund is intended to provide  individual and institutional  investors with an
opportunity  to  invest  a  portion  of  their  assets  in a  globally  oriented
portfolio,  and is  designed  for  long-term  investors  who can  accept  global
investment  risk.  The Advisor  believes  that  allocation of assets on a global
basis  decreases  the degree to which events in any one country,  including  the
U.S., will affect an investor's entire investment holdings.  In the period since
World War II, many leading  foreign  economies  have grown more rapidly than the
U.S. economy, thus providing investment opportunities;  although there can be no
assurance  that  this  will  be  true  in the  future.  As  with  any  long-term
investment, the value of the Fund's shares when sold may be higher or lower than
when purchased.

Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below, which are not typically
associated  with  investing  in U.S.  securities  and  which  may  favorably  or
unfavorably  affect  the  Fund's  performance.  As  foreign  companies  are  not
generally subject to uniform standards, practices and requirements, with respect
to  accounting,  auditing and financial  reporting,  as are domestic  companies,
there may be less publicly  available  information  about a foreign company than
about a domestic  company.  Many foreign  securities  markets,  while growing in
volume of trading activity, have substantially less volume than the U.S. market,
and  securities  of some foreign  issuers are less liquid and more volatile than
securities of domestic issuers.  Similarly, volume and liquidity in most foreign
bond markets is less than in the U.S. and, at times,  volatility of price can be
greater than in the U.S. Further,  foreign markets have different  clearance and
settlement  procedures  and in  certain  markets  there  have  been  times  when
settlements  have  been  unable  to keep  pace  with the  volume  of  securities
transactions  making  it  difficult  to  conduct  such  transactions.  Delays in
settlement  could  result  in  temporary  periods  when  assets  of the Fund are
uninvested  and no return is earned  thereon.  The inability of the Fund to make
intended security  purchases due to settlement  problems could cause the Fund to
miss  attractive  investment  opportunities.  Inability  to dispose of portfolio
securities due to settlement  problems either could result in losses to the Fund
due to subsequent  declines in value of the  portfolio  security or, if the Fund
has  entered  into a contract  to sell the  security,  could  result in possible
liability  to the  purchaser.  Fixed  commissions  on  some  foreign  securities
exchanges and bid to asked spreads in foreign bond markets are generally  higher
than  negotiated  commissions on U.S.  exchanges and bid to asked spreads in the
U.S. bond market,  although the Fund will endeavor to achieve the most favorable
net results on their  portfolio  transactions.  Further,  the Fund may encounter
difficulties  or be unable to pursue  legal


                                       2
<PAGE>

remedies  and  obtain  judgments  in foreign  courts.  There is  generally  less
governmental  supervision  and  regulation  of business and industry  practices,
securities  exchanges,  brokers and listed  companies than in the U.S. It may be
more difficult for the Fund's agents to keep currently  informed about corporate
actions such as stock  dividends or other matters which may affect the prices of
portfolio securities.  Communications between the U.S. and foreign countries may
be less  reliable  than  within the U.S.,  thus  increasing  the risk of delayed
settlements  of portfolio  transactions  or loss of  certificates  for portfolio
securities.  Payment for securities  without delivery may be required in certain
foreign markets. In addition,  with respect to certain foreign countries,  there
is the  possibility of  expropriation  or  confiscatory  taxation,  political or
social  instability,   or  diplomatic   developments  which  could  affect  U.S.
investments  in those  countries.  Investments  in foreign  securities  may also
entail  certain  risks,  such  as  possible   currency   blockages  or  transfer
restrictions,  and the  difficulty  of  enforcing  rights  in  other  countries.
Moreover,  individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national  product,  rate of
inflation,  capital  reinvestment,  resource  self-sufficiency  and  balance  of
payments  position.  The  management  of the Fund  seeks to  mitigate  the risks
associated with the foregoing  considerations  through  continuous  professional
management.


These  considerations  generally are more of a concern in developing  countries.
For  example,  the  possibility  of  revolution  and the  dependence  on foreign
economic  assistance  may be  greater  in  these  countries  than  in  developed
countries.  Investments  in companies  domiciled in developing  countries may be
subject to potentially greater risks than investments in developed countries.


Investments  in foreign  securities  usually will involve  currencies of foreign
countries.  Because  of the  considerations  discussed  above,  the value of the
assets of the Fund as measured in U.S.  dollars  may be  affected  favorably  or
unfavorably by changes in foreign  currency  exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions between
various  currencies.  Although the Fund values its assets daily in terms of U.S.
dollars,  it does not intend to convert its holdings of foreign  currencies into
U.S.  dollars on a daily basis.  It will do so from time to time,  and investors
should be aware of the costs of currency  conversion.  Although foreign exchange
dealers do not charge a fee for  conversion,  they do realize a profit  based on
the difference  (the  "spread")  between the prices at which they are buying and
selling various currencies.  Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate,  while  offering a lesser rate of  exchange  should the
Fund desire to resell that  currency to the dealer.  The Fund will conduct their
foreign currency exchange  transactions  either on a spot (i.e.,  cash) basis at
the spot rate prevailing in the foreign  currency  exchange  market,  or through
entering  into  strategic  transactions  involving  currencies  (see  "Strategic
Transactions and Derivatives").


Because the Fund may be invested in both U.S.  and foreign  securities  markets,
changes in the Fund's share price may have a low  correlation  with movements in
the U.S. markets.  The Fund's share price will reflect the movements of both the
different  stock and bond markets in which it is invested and of the  currencies
in which the investments are  denominated;  the strength or weakness of the U.S.
dollar against foreign  currencies may account for part of the Fund's investment
performance.  Foreign  securities  such as  those  purchased  by the Fund may be
subject to  foreign  governmental  taxes  which  could  reduce the yield on such
securities,  although  a  shareholder  of  the  Fund  may,  subject  to  certain
limitations,  be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his or her  proportionate  share of such foreign  taxes paid by
the Fund (see "TAXES").  U.S. and foreign  securities markets do not always move
in step with each other,  and the total returns from different  markets may vary
significantly.  The Fund invests in many securities  markets around the world in
an attempt to take advantage of opportunities wherever they may arise.

Because  of  the  Fund's  investment  considerations  discussed  above  and  the
investment policies, investment in shares of a Fund is not intended to provide a
complete investment program for an investor.

The Fund cannot  guarantee a gain or eliminate  the risk of loss.  The net asset
value of the Fund's  shares will increase or decrease with changes in the market
price of the  Fund's  investments,  and there is no  assurance  that the  Fund's
objectives will be achieved.

Scudder International Fund

The Fund  seeks  long-term  growth of  capital  primarily  from  foreign  equity
securities.  These  securities  are  selected  primarily  to permit  the Fund to
participate  in  non-U.S.  companies  and  economies  that are  believed to have
prospects for growth.


                                       3
<PAGE>

The Fund generally invests in equity securities of established companies, listed
on foreign  exchanges  (although the Fund may also invest in  securities  traded
over the counter),  which the Advisor  believes have favorable  characteristics.
The  Fund's  equity   investments   include   common  stock,   convertible   and
non-convertible  preferred stock, sponsored and unsponsored depository receipts,
and warrants.

When the Advisor  believes that it is  appropriate  to do so in order to achieve
the Fund's investment objective of long-term capital growth, the Fund may invest
up to 20% of its total assets in debt securities.  Such debt securities  include
debt   securities   of   governments,   governmental   agencies,   supranational
organizations  and private issuers,  including bonds denominated in the European
Currency Unit (the "Euro").  Portfolio debt  investments will be selected on the
basis of,  among  other  things,  yield,  credit  quality,  and the  fundamental
outlooks for currency and interest rate trends in different  parts of the globe,
taking  into  account  the  ability to hedge a degree of  currency or local bond
price risk. The value of fixed-income investments will fluctuate with changes in
interest  rates and bond market  conditions,  tending to rise as interest  rates
decline and decline as interest rates rise. The Fund will predominantly purchase
"investment-grade"  bonds, which are those rated Aaa, Aa, A or Baa by Moody's or
AAA,  AA,  A or BBB by S&P  or,  if  unrated,  judged  by the  Advisor  to be of
equivalent  quality.  The Fund may also  invest up to 5% of its total  assets in
debt securities which are rated below investment-grade (see "Risk factors").


The Fund intends to diversify  investments  among several countries and normally
to have  investments in securities of at least three  different  countries other
than the U.S. The Fund will invest  primarily in securities of issuers in the 21
developed foreign countries included in the Morgan Stanley Capital International
("MSCI")  World ex-US  Index,  but may invest in  "emerging  markets."  The Fund
considers  "emerging  markets"  to  include  any  country  that is defined as an
emerging  or   developing   economy  by  any  of  the   International   Bank  of
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation  or the United Nations or its  authorities.  It is expected that the
Fund's investments will include companies of varying size as measured by assets,
sales or market capitalization.


The  major  portion  of the  Fund's  assets  consists  of equity  securities  of
established companies listed on recognized  exchanges;  the Advisor expects this
condition to  continue,  although  the Fund may invest in other  securities.  In
selecting   securities  for  the  Fund's   portfolio,   the  Advisor  applies  a
disciplined,  multi-part  investment approach for selecting stocks for the Fund.
In analyzing  companies for investment,  the Advisor ordinarily looks for one or
more  of  the  following   characteristics:   strong  competitive   positioning,
above-average  earnings  growth  per share,  high  return on  invested  capital,
healthy balance sheets and overall  financial  strength,  strength of management
and general operating characteristics which will enable the companies to compete
successfully  in the  marketplace.  The Advisor  will further seek to have broad
country  representation,  favoring  those  countries that it believes have sound
economic   conditions  and  open  markets.   The  Advisor  will  also  look  for
opportunities  on a macro-economic  level,  seeking to identify major changes in
the business  environment  and  companies  that are poised to benefit from these
changes.  Investment  decisions are made without regard to arbitrary criteria as
to minimum  asset  size,  debt-equity  ratios or dividend  history of  portfolio
companies.  The Advisor will typically sell an investment when certain  criteria
are met,  including  but not limited to: the price of the  security  reaches the
Advisor's  assessment  of its fair value;  the  underlying  investment  theme is
judged by the Advisor to have matured;  or if the original  reason for investing
in the security no longer applies or is no longer valid.

In applying the disciplined, multi-part investment approach for selecting stocks
for the Fund,  the Advisor  first  analyzes the pool of foreign  dividend-paying
securities, primarily from the world's more mature markets, and targeting stocks
that have high relative yields compared to the average for their markets. In the
Advisor's opinion, this group of higher-yielding stocks offers the potential for
returns that is greater than or equal to the average market  return,  with price
volatility  that is lower  than  the  overall  market  volatility.  The  Advisor
believes that these potentially favorable risk and return  characteristics exist
because the higher  dividends  offered by these  stocks act as a "cushion"  when
markets are volatile and because the stocks with higher yields tend to have more
attractive   valuations   (e.g.,   lower   price-to-earning   ratios  and  lower
price-to-book  ratios).  The second stage of portfolio  construction  involves a
fundamental  analysis  of  each  company's  financial  strength,  profitability,
projected earnings,  competitive positioning, and ability of management.  During
this step, the Advisor's  research team identifies what it believes are the most
promising  stocks for the Fund's  portfolio.  The third stage of the  investment
process involves  diversifying the portfolio among different  industry  sectors.
The key element of this stage is evaluating how the stocks in different  sectors
react to economic  factors such as interest  rates,  inflation,  Gross  Domestic
Product, and consumer spending, and then attaining a proper balance of stocks in
these  sectors based on the Advisor's  economic  forecast.  The fourth and final
stage of this ongoing  process is  diversifying  the portfolio  among  different
countries. The Advisor will seek to have broad country representation,  favoring


                                       4
<PAGE>

those  countries  that it  believes  have  sound  economic  conditions  and open
markets. The Fund's strategy is to manage risk and create opportunity at each of
the four stages in its  investment  process,  starting  with the focus on stocks
with high relative yields.

The Fund may hold up to 20% of its net assets in U.S.  and foreign  fixed income
securities  for  temporary  defensive  purposes  when the Advisor  believes that
market  conditions  so warrant.  The Fund may invest up to 20% of its net assets
under normal conditions,  and without limit for temporary defensive purposes, in
cash  or  cash   equivalents   including   domestic  and  foreign  money  market
instruments,  short-term  government  and corporate  obligations  and repurchase
agreements,  when  the  Advisor  deems  such a  position  advisable  in light of
economic or market conditions.  It is impossible to predict how long alternative
strategies  may be  utilized.  In  addition,  the Fund  may  engage  in  reverse
repurchase agreements, illiquid securities and strategic transactions, which may
include derivatives.


Foreign securities such as those purchased by the Fund may be subject to foreign
governmental  taxes which could reduce the yield on such securities,  although a
shareholder  of the Fund may,  subject to certain  limitations,  be  entitled to
claim a credit or deduction for U.S.  federal income tax purposes for his or her
proportionate share of such foreign taxes paid by the Fund. (See "TAXES.")

From time to time,  the Fund may be a purchaser of illiquid  securities  such as
restricted  debt or  equity  securities  (i.e.,  securities  which  may  require
registration under the Securities Act of 1933, as amended,  (the "1933 Act"), or
an exemption therefrom,  in order to be sold in the ordinary course of business)
in a private placement. (See "Illiquid Securities".)

The Fund invests in companies,  wherever organized,  which do business primarily
outside the United States.

The Fund cannot  guarantee a gain or eliminate  the risk of loss.  The net asset
value of the Fund's  shares will increase or decrease with changes in the market
price of the  Fund's  investments,  and there is no  assurance  that the  Fund's
objectives will be achieved.

Foreign Investment Risk

While the Funds offer the potential for substantial appreciation over time, they
also  involve  above-average  investment  risk in  comparison  to a mutual  fund
investing in a broad range of U.S. equity securities. Each Fund is designed as a
long-term investment and not for short-term trading purposes. None of the Funds,
nor the Funds  together,  should be  considered a complete  investment  program,
although each could serve as a core  international  holding for an  individual's
portfolio.  Each Fund's net asset value, or price,  can fluctuate  significantly
with  changes in stock  market  levels,  political  developments,  movements  in
currencies, global investment flows and other factors.

Master/feeder structure

The Board of Directors  has the  discretion  to retain the current  distribution
arrangement  for the Funds while  investing in a master fund in a  master/feeder
structure as described below.

A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing  directly in a portfolio of securities,  invests most or all of its
investment  assets in a separate  registered  investment  company  (the  "master
fund") with  substantially  the same  investment  objective  and policies as the
feeder  fund.  Such a  structure  permits  the  pooling of assets of two or more
feeder funds,  preserving  separate  identities or distribution  channels at the
feeder  fund  level.  Based on the  premise  that  certain  of the  expenses  of
operating an investment  portfolio are  relatively  fixed,  a larger  investment
portfolio may eventually  achieve a lower ratio of operating expenses to average
net assets. An existing  investment  company is able to convert to a feeder fund
by  selling  all  of  its  investments,   which  involves  brokerage  and  other
transaction  costs and realization of a taxable gain or loss, or by contributing
its assets to the master  fund and  avoiding  transaction  costs and,  if proper
procedures are followed, the realization of taxable gain or loss.



                                       5
<PAGE>

Interfund Lending Program


The  Corporations'  Board of Directors has approved the filing of an application
for exemptive  relief with the  Securities and Exchange  Commission  (the "SEC")
which would  permit the Funds to  participate  in an interfund  lending  program
among certain investment  companies advised by the Advisor. If the Funds receive
the  requested   relief,   the  interfund   lending   program  would  allow  the
participating  funds to  borrow  money  from and loan  money to each  other  for
temporary or  emergency  purposes.  The program  would be subject to a number of
conditions  designed to ensure fair and equitable treatment of all participating
funds, including the following: (1) no fund may borrow money through the program
unless it receives a more favorable  interest rate than a rate approximating the
lowest  interest  rate at which  bank  loans  would be  available  to any of the
participating  funds  under a loan  agreement;  and (2) no fund may  lend  money
through  the  program  unless it  receives  a more  favorable  return  than that
available  from an  investment  in  repurchase  agreements  and,  to the  extent
applicable,  money market cash sweep  arrangements.  In  addition,  a fund would
participate in the program only if and to the extent that such  participation is
consistent  with the fund's  investment  objectives  and policies (for instance,
money market  funds would  normally  participate  only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings would extend overnight,
but could have a maximum  duration of seven  days.  Loans could be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed.  Any delay in repayment to a lending
fund could result in a lost  investment  opportunity  or additional  costs.  The
program is subject to the  oversight  and  periodic  review of the Boards of the
participating  funds. To the extent the Funds are actually  engaged in borrowing
through the interfund lending program, the Funds, as a matter of non-fundamental
policy,  may not borrow for other than temporary or emergency  purposes (and not
for  leveraging)  except  that  the  Funds  may  engage  in  reverse  repurchase
agreements and dollar rolls for any purpose.


Special Considerations

Investing  in  Emerging  Markets.  Most  emerging  securities  markets  may have
substantially less volume and are subject to less governmental  supervision than
U.S. securities  markets.  Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges,  securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.


Emerging markets also have different clearance and settlement procedures, and in
certain markets there have been times when  settlements  have not kept pace with
the volume of  securities  transactions.  Delays in  settlement  could result in
temporary  periods when a portion of the assets of the Fund is uninvested and no
cash is earned  thereon.  The  inability of the Fund to make  intended  security
purchases due to  settlement  problems  could cause the Fund to miss  attractive
investment  opportunities.  Inability to dispose of portfolio  securities due to
settlement  problems could result either in losses to the Fund due to subsequent
declines in value of the  portfolio  security or, if the Fund has entered into a
contract  to sell the  security,  could  result  in  possible  liability  to the
purchaser.   Costs  associated  with  transactions  in  foreign  securities  are
generally  higher than costs  associated with  transactions in U.S.  securities.
Such  transactions  also  involve  additional  costs for the purchase or sale of
foreign currency.

Foreign  investment in certain emerging market debt obligations is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign  investment in certain emerging markets debt obligations and
increase the costs and expenses of the Fund.  Certain  emerging  markets require
prior governmental approval of investments by foreign persons,  limit the amount
of investment by foreign persons in a particular  company,  limit the investment
by foreign  persons only to a specific class of securities of a company that may
have less  advantageous  rights  than the  classes  available  for  purchase  by
domiciliaries  of the  countries  and/or  impose  additional  taxes  on  foreign
investors.  Certain emerging markets may also restrict investment  opportunities
in issuers in industries deemed important to national interest.

Certain emerging markets may require governmental  approval for the repatriation
of investment income,  capital or the proceeds of sales of securities by foreign
investors.  In  addition,  if a  deterioration  occurs in an  emerging  market's
balance of payments  or for other  reasons,  a country  could  impose  temporary
restrictions on foreign capital remittances.  A Fund could be adversely affected
by delays in, or a refusal to grant,  any  required  governmental  approval  for
repatriation  of  capital,  as well  as by the  application  to the  Fund of any
restrictions on investments.

In the course of investment in emerging markets, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in one
or more emerging  markets.  Political  changes in emerging market  countries may
affect the willingness of an emerging market  country's  governmental  issuer to
make or provide for timely


                                       6
<PAGE>

payments of its obligations.  The country's  economic status,  and reflected in,
among other things,  its inflation rate, the amount of its external debt and its
gross domestic product, also affects its ability to honor its obligations. While
the Fund will  manage  its  assets in a manner  that will seek to  minimize  the
exposure to such risks, there can be no assurance that adverse political, social
or economic changes will not cause the Fund to suffer a loss of value in respect
of the securities in that Fund's portfolio.

The risk  also  exists  that an  emergency  situation  may  arise in one or more
emerging  markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's securities in such markets may
not be readily  available.  The Corporation may suspend redemption of its shares
for any period  during  which an emergency  exists,  as  determined  by the SEC.
Accordingly if the Fund believes that appropriate  circumstances  exist, it will
promptly  apply to the SEC for a  determination  that an  emergency  is present.
During the period  commencing from the Fund's  identification  of such condition
until the date of the SEC action,  the Fund's securities in the affected markets
will be valued at fair value  determined in good faith by or under the direction
of the Corporation's Board of Directors.

Volume and  liquidity  in most  foreign  markets are less than in the U.S.,  and
securities  of many foreign  companies  are less liquid and more  volatile  than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally  higher than negotiated  commissions on U.S.  exchanges,
although  the Fund  endeavors to achieve the most  favorable  net results on its
portfolio  transactions.  There is generally less  governmental  supervision and
regulation of business and industry practices,  securities  exchanges,  brokers,
dealers and listed companies than in the U.S.. Mail service between the U.S. and
foreign  countries  may be slower or less  reliable  than within the U.S.,  thus
increasing the risk of delayed settlements of portfolio  transactions or loss of
certificates for certificated portfolio securities. In addition, with respect to
certain  emerging  markets,   there  is  the  possibility  of  expropriation  or
confiscatory   taxation,   political  or  social   instability,   or  diplomatic
developments  which  could  affect the Fund's  investments  in those  countries.
Moreover,   individual   emerging  market  economies  may  differ  favorably  or
unfavorably  from the U.S.  economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment,  resource self-sufficiency and
balance of payments position.

The Fund may have limited legal  recourse in the event of a default with respect
to certain debt  obligations it holds. If the issuer of a fixed-income  security
owned by the Fund  defaults,  that Fund may incur  additional  expenses  to seek
recovery.  Debt obligations issued by emerging market country governments differ
from debt  obligations  of private  entities;  remedies  from  defaults  on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. The Fund's ability
to enforce its rights  against  private  issuers may be limited.  The ability to
attach assets to enforce a judgment may be limited.  Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other  countries.  The  political  context,  expressed  as  an  emerging  market
governmental issuer's willingness to meet the terms of the debt obligation,  for
example, is of considerable  importance.  In addition, no assurance can be given
that the holders of commercial bank debt may not contest payments to the holders
of  debt  obligations  in the  event  of  default  under  commercial  bank  loan
agreements.

Income from securities held by the Fund could be reduced by a withholding tax at
the source or other taxes imposed by the emerging market countries in which that
Fund makes its  investments.  The Fund's net asset value may also be affected by
changes  in the  rates or  methods  of  taxation  applicable  to that Fund or to
entities in which that Fund has invested.  The Advisor will consider the cost of
any taxes in determining whether to acquire any particular investments,  but can
provide no assurance that the taxes will not be subject to change.

Many  emerging  markets  have  experienced  substantial,  and, in some  periods,
extremely  high,  rates  of  inflation  for  many  years.  Inflation  and  rapid
fluctuations  in  inflation  rates  have had and may  continue  to have  adverse
effects on the  economies  and  securities  markets of certain  emerging  market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain  countries.  Of these countries,  some, in recent years, have
begun to control inflation through prudent economic policies.


Emerging market governmental issuers are among the largest debtors to commercial
banks,  foreign  governments,  international  financial  organizations and other
financial  institutions.  Certain emerging market governmental  issuers have not
been able to make  payments of interest on or principal of debt  obligations  as
those  payments  have  come due.  Obligations  arising  from past  restructuring
agreements  may  affect  the  economic  performance  and  political  and  social
stability of those issuers.


                                       7
<PAGE>

Governments  of many emerging  market  countries  have exercised and continue to
exercise  substantial  influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in any
given  country.  As a result,  governmental  actions in the future  could have a
significant  effect on economic  conditions in emerging markets,  which in turn,
may adversely affect companies in the private sector,  general market conditions
and prices and yields of  certain  of the  securities  in the Fund's  portfolio.
Expropriation,  confiscatory taxation,  nationalization,  political, economic or
social instability or other similar  developments have occurred  frequently over
the history of certain  emerging  markets and could adversely  affect the Fund's
assets should these conditions recur.

The  ability of  emerging  market  country  governmental  issuers to make timely
payments  on their  obligations  is  likely  to be  influenced  strongly  by the
issuer's balance of payments,  including export  performance,  and its access to
international  credits and  investments.  An emerging  market whose  exports are
concentrated  in a few  commodities  could be  vulnerable  to a  decline  in the
international   prices   of  one  or  more  of  those   commodities.   Increased
protectionism  on the part of an emerging  market's  trading partners could also
adversely  affect the country's  exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for their exports in
currencies other than dollars or non-emerging  market currencies,  their ability
to make debt payments  denominated in dollars or non-emerging  market currencies
could be affected.


Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country.  Fluctuations
in the level of these  reserves  affect the amount of foreign  exchange  readily
available  for  external  debt  payments  and thus  could  have a bearing on the
capacity  of  emerging   market   countries  to  make  payments  on  these  debt
obligations.

To the extent that an emerging  market country cannot  generate a trade surplus,
it must  depend on  continuing  loans  from  foreign  governments,  multilateral
organizations or private commercial banks, aid payments from foreign governments
and inflows of foreign investment. The access of emerging markets to these forms
of external  funding may not be certain,  and a withdrawal  of external  funding
could  adversely  affect the capacity of emerging  market  country  governmental
issuers  to make  payments  on  their  obligations.  In  addition,  the  cost of
servicing  emerging  market  debt  obligations  can be  affected  by a change in
international  interest  rates  since the  majority of these  obligations  carry
interest rates that are adjusted periodically based upon international rates.

Common Stocks. Under normal circumstances, each Fund invests primarily in common
stocks.  Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund  participates  in the  success or failure of any  company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic  or  financial  market  movements.  Smaller  companies  are  especially
sensitive to these  factors and may even become  valueless.  Despite the risk of
price  volatility,  however,  common  stock also offers  greater  potential  for
long-term gain on investment, compared to other classes of financial assets such
as bonds or cash equivalents.


Depository  Receipts.  International Fund may invest indirectly in securities of
foreign issuers through sponsored or unsponsored  American  Depository  Receipts
("ADRs"), Global Depository Receipts ("GDRs"), International Depository Receipts
("IDRs") and other types of Depository Receipts (which, together with ADRs, GDRs
and IDRs are  hereinafter  referred  to as  "Depository  Receipts").  Prices  of
unsponsored  Depository  Receipts may be more volatile than if the issuer of the
underlying securities sponsored them. Depository Receipts may not necessarily be
denominated  in the same currency as the underlying  securities  into which they
may be  converted.  In  addition,  the  issuers  of  the  stock  of  unsponsored
Depository  Receipts are not obligated to disclose  material  information in the
United  States  and,  therefore,  there may not be a  correlation  between  such
information and the market value of the Depository Receipts. ADRs are Depository
Receipts which are bought and sold in the United States and are typically issued
by a  U.S.  bank  or  trust  company  which  evidence  ownership  of  underlying
securities by a foreign  corporation.  GDRs,  IDRs and other types of Depository
Receipts are typically issued by foreign banks or trust companies, although they
may also be issued by  United  States  banks or trust  companies,  and  evidence
ownership of underlying securities issued by either a foreign or a United States
corporation.  Generally, Depository Receipts in registered form are designed for
use in the United States  securities  markets and Depository  Receipts in bearer
form are designed for use in securities  markets outside the United States.  For
purposes of each Fund's  investment  policies,  the Fund's  investments in ADRs,
GDRs and other types of Depository  Receipts will be deemed to be investments in
the underlying  securities.  Depository Receipts other than those denominated in
U.S. dollars will be subject to foreign currency exchange rate risk. However, by
investing  in ADRs rather  than  directly in foreign  issuers'  stock,  the Fund
avoids  currency  risks during the  settlement  period.  In


                                       8
<PAGE>

general,  there is a large,  liquid  market in the United  States for most ADRs.
However,  certain  Depository  Receipts  may not be  listed on an  exchange  and
therefore may be illiquid securities.

Warrants.  International  Fund may invest in  warrants  up to 5% of the value of
their  respective net assets.  The holder of a warrant has the right,  until the
warrant expires,  to purchase a given number of shares of a particular issuer at
a specified price.  Such investments can provide a greater  potential for profit
or loss than an equivalent  investment  in the  underlying  security.  Prices of
warrants  do not  necessarily  move,  however,  in tandem with the prices of the
underlying   securities  and  are,  therefore,   considered  to  be  speculative
investments.  Warrants  pay no  dividends  and  confer  no rights  other  than a
purchase  option.  Thus, if a warrant held by the Fund were not exercised by the
date of its  expiration,  the Fund would lose the entire  purchase  price of the
warrant.


Specialized Investment Techniques


Foreign  Currencies.  Because  investments  in foreign  securities  usually will
involve currencies of foreign countries,  and because the Funds may hold foreign
currencies  and  forward  contracts,  futures  contracts  and options on foreign
currencies and foreign  currency futures  contracts,  the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the  Fund  may  incur  costs  and   experience   conversion   difficulties   and
uncertainties  in connection with  conversions  between various  currencies.  In
particular,  the Funds' foreign investments are generally denominated in foreign
currencies. The strength or weakness of the U.S. dollar against these currencies
is  responsible  for part of the Fund's  investment  performance.  If the dollar
falls in value relative to the Japanese yen, for example,  the dollar value of a
Japanese  stock  held in the  portfolio  will rise even  though the price of the
stock remains  unchanged.  Conversely,  if the dollar rises in value relative to
the yen, the dollar value of the Japanese stock will fall.

In addition,  many foreign currencies have experienced  significant  devaluation
relative to the dollar.  Although  the Fund values its assets  daily in terms of
U.S. dollars,  it does not intend to convert its holdings of foreign  currencies
into  U.S.  dollars  on a daily  basis.  It will do so from  time to  time,  and
investors should be aware of the costs of currency conversion.  Although foreign
exchange  dealers do not charge a fee for  conversion,  they do realize a profit
based on the  difference  (the  "spread")  between  the prices at which they are
buying  and  selling  various  currencies.  Thus,  a dealer  may offer to sell a
foreign  currency  to the Fund at one  rate,  while  offering  a lesser  rate of
exchange  should the Fund desire to resell that  currency to the dealer.  A Fund
will conduct its foreign currency exchange  transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into options or forward or futures  contracts to purchase or
sell foreign currencies.


Trust Preferred  Securities.  A 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 a 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 a 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
a 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 1933 Act, 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 a Fund, to sell their holdings.


                                       9
<PAGE>

Investment-Grade  Bonds.  When the Advisor believes that it is appropriate to do
so in order to achieve  International  Fund's  objective  of  long-term  capital
growth,  the Fund may  invest up to 20% of its total  assets in debt  securities
including bonds of foreign governments,  supranational organizations and private
issuers,  including bonds  denominated in the Euro.  Portfolio debt  investments
will be selected on the basis of, among other things, yield, credit quality, and
the  fundamental  outlooks for  currency,  economic and interest  rate trends in
different parts of the globe,  taking into account the ability to hedge a degree
of currency or local bond price risk.  The Fund may purchase  "investment-grade"
bonds,  which are those rated Aaa,  Aa, A or Baa by Moody's or AAA, AA, A or BBB
by S&P or, if unrated,  judged to be of equivalent  quality as determined by the
Advisor.  Moody's  considers bonds it rates Baa to have speculative  elements as
well as investment-grade characteristics. To the extent that the Fund invests in
higher-grade  securities,  the  Fund  will  not  be  able  to  avail  itself  of
opportunities  for higher income which may be available at lower grades.  Global
Fund may not invest more than 5% of its total assets in debt securities that are
rated Baa or below by Moody's or BBB or below by S&P,  or deemed by the  Advisor
to be of  comparable  quality.

High Yield/High Risk Bonds. A Fund may also purchase,  to a limited extent, debt
securities which are rated below investment-grade (commonly referred to as "junk
bonds"),  that is,  rated  below Baa by Moody's or below BBB by S&P and  unrated
securities,  which usually  entail greater risk  (including  the  possibility of
default or  bankruptcy  of the issuers of such  securities),  generally  involve
greater  volatility of price and risk of principal  and income,  and may be less
liquid  than  securities  in the higher  rating  categories  and are  considered
speculative.  The lower the ratings of such debt  securities,  the greater their
risks render them like equity securities.  The International Fund will invest no
more than 5% of its total assets in  securities  rated BB or lower by Moody's or
Ba by S&P,  and may invest in  securities  which are rated D by S&P.  Securities
rated D may be in default with respect to payment of principal or interest.  See
the Appendix to this  Statement of  Additional  Information  for a more complete
description  of  the  ratings  assigned  by  ratings   organizations  and  their
respective characteristics.

High yield,  high-risk  securities are especially  subject to adverse changes in
general  economic  conditions,  to changes in the  financial  condition of their
issuers and to price  fluctuations  in response to changes in interest rates. An
economic  downturn  could disrupt the high yield  market,  impair the ability of
issuers to repay  principal  and  interest  and  increase  an  issuer's  risk of
default. Also, an increase in interest rates would have a greater adverse impact
on the value of such obligations than on higher quality debt securities.  During
an economic downturn or period of rising interest rates, highly leveraged issues
may experience  financial  stress which would adversely  affect their ability to
service their principal and interest payment  obligations.  Prices and yields of
high yield  securities  will fluctuate over time and, during periods of economic
uncertainty,  volatility of high yield  securities may adversely affect a Fund's
net  asset  value.  In  addition,  investments  in high  yield  zero  coupon  or
pay-in-kind bonds, rather than income-bearing high yield securities, may be more
speculative  and may be subject to greater  fluctuations in value due to changes
in interest rates.

The  trading  market for high yield  securities  may be thin to the extent  that
there is no established  retail  secondary market or because of a decline in the
value of such securities.  A thin trading market may limit the ability of a Fund
to  accurately  value high yield  securities  in its portfolio and to dispose of
those securities.  Adverse  publicity and investor  perceptions may decrease the
values and liquidity of high yield securities. These securities may also involve
special registration responsibilities,  liabilities and costs, and liquidity and
valuation difficulties.

Credit  quality in the  high-yield  securities  market can change  suddenly  and
unexpectedly,  and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the  policy  of the  Advisor  not to  rely  exclusively  on  ratings  issued  by
established credit rating agencies,  but to supplement such ratings with its own
independent and on-going  review of credit quality.  The achievement of a Fund's
investment  objective by investment in such  securities may be more dependent on
the Advisor's credit analysis than is the case for higher quality bonds.  Should
the rating of a portfolio  security be  downgraded,  the Advisor will  determine
whether  it is in the best  interests  of a Fund to  retain or  dispose  of such
security.


Prices for below investment-grade  securities may be affected by legislative and
regulatory developments. For example, new federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security.  Also,
Congress has from time to time  considered  legislation  which would restrict or
eliminate the corporate tax deduction for interest  payments in these securities
and  regulate  corporate  restructurings.  Such  legislation  may  significantly
depress the prices of outstanding securities of this type.


                                       10
<PAGE>

On average,  for the semiannual  period ended  February 29, 2000,  International
Fund's holdings in debt securities  rated below  investment grade by one or more
nationally  recognized  rating  services,  or  judged  by the  Advisor  to be of
equivalent  quality  to the  established  categories  of  such  rating  services
comprised  less  than  5% of the  Fund's  total  assets.  For  more  information
regarding tax issues related to high yield securities, see "TAXES."

Illiquid  Securities and Restricted  Securities.  A Fund may purchase securities
that are subject to legal or  contractual  restrictions  on resale  ("restricted
securities").  Generally speaking, restricted securities may be sold (i) only to
qualified  institutional buyers; (ii) in a privately negotiated transaction to a
limited number of  purchasers;  or (iii) in limited  quantities  after they have
been held for a specified  period of time and other  conditions are met pursuant
to an  exemption  from  registration;  or (iv) in a public  offering for which a
registration  statement  is in  effect  under  the  Securities  Act of 1933,  as
amended.  Issuers of restricted  securities may not be subject to the disclosure
and other  investor  protection  requirements  that would be applicable if their
securities were publicly traded.

Restricted  securities  are often  illiquid,  but they may also be  liquid.  For
example,  restricted securities that are eligible for resale under Rule 144A are
often deemed to be liquid.

The  Corporation's  Board of Directors  has approved  guidelines  for use by the
Advisor in  determining  whether a security is  illiquid.  Among the factors the
Investment Manager may consider in reaching liquidity decisions relating to Rule
144A  securities  are: (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 other potential  purchasers;  (3) dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the market
for the security (i.e.,  the time needed to dispose of the security,  the method
of soliciting offers, and the mechanics of the transfer).

Issuers of restricted  securities may not be subject to the disclosure and other
investor  protection  requirement  that would be applicable if their  securities
were publicly traded. Where a registration  statement is required for the resale
of  restricted  securities,  a Fund may be  required  to bear all or part of the
registration  expenses. A 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, a Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.

A Fund may also purchase securities that are not subject to legal or contractual
restrictions  on resale,  but that are deemed  illiquid.  Such securities may be
illiquid, for example, because there is a limited trading market for them.

A Fund may be unable to sell a restricted or illiquid security.  In addition, it
may be more  difficult to determine a market  value for  restricted  or illiquid
securities,  Moreover,  if adverse market  conditions were to develop during the
period between a Fund's  decision to sell a restricted or illiquid  security and
the point at which a Fund is  permitted  or able to sell such  security,  a Fund
might  obtain a price  less  favorable  than the price  that  prevailed  when it
decided to sell.



                                       11
<PAGE>

This  investment  practice,  therefore,  could have the effect of increasing the
level of illiquidity of a Fund.

Repurchase Agreements.  The Fund may invest in repurchase agreements pursuant to
its  investment  guidelines.  In  a  repurchase  agreement,  the  Fund  acquires
ownership of a security and  simultaneously  commits to resell that  security to
the  seller,  typically  a bank or  broker/dealer.  Some  repurchase  commitment
transactions  may not provide the Fund with collateral  marked-to-market  during
the term of the commitment.

A repurchase  agreement  provides a means for a Fund to earn income on funds for
periods as short as overnight.  It is an  arrangement  under which the purchaser
(i.e., a Fund) acquires a security  ("Obligation") and the seller agrees, at the
time of sale,  to  repurchase  the  Obligation  at a  specified  time and price.
Securities  subject to a repurchase  agreement are held in a segregated  account
and the value of such securities kept at least equal to the repurchase  price on
a daily basis.  The repurchase  price may be higher than the purchase price, the
difference being income to a Fund, or the purchase and repurchase  prices may be
the same,  with  interest  at a stated  rate due to the Fund  together  with the
repurchase  price  upon  repurchase.  In either  case,  the  income to a Fund is
unrelated to the interest rate on the  Obligation  itself.  Obligations  will be
held by the Custodian or in the Federal Reserve Book Entry system.

It is not clear  whether a court would  consider the  Obligation  purchased by a
Fund  subject to a  repurchase  agreement  as being  owned by a Fund or as being
collateral for a loan by a Fund to the seller.  In the event of the commencement
of  bankruptcy  or  insolvency  proceedings  with  respect  to the seller of the
Obligation before repurchase of the Obligation under a repurchase  agreement,  a
Fund may encounter delay and incur costs before being able to sell the security.
Delays may involve  loss of interest or decline in price of the  Obligation.  If
the court characterizes the transaction as a loan and a Fund has not perfected a
security  interest  in the  Obligation,  a Fund may be  required  to return  the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor,  a Fund would be at risk of losing some or all
of the principal and income involved in the  transaction.  As with any unsecured
debt  instrument  purchased for a Fund,  the Advisor seeks to reduce the risk of
loss through  repurchase  agreements  by analyzing the  creditworthiness  of the
obligor,  in this case the  seller  of the  Obligation.  Apart  from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the Obligation,  in which case a Fund may incur a loss if the
proceeds to the Fund of the sale to a third  party are less than the  repurchase
price.  However,  if the market  value  (including  interest)of  the  Obligation
subject to the  repurchase  agreement  becomes  less than the  repurchase  price
(including interest), a Fund will direct the seller of the Obligation to deliver
additional  securities so that the market value of all securities subject to the
repurchase  agreement will equal or exceed the repurchase  price. It is possible
that a Fund will be unsuccessful in seeking to enforce the seller's  contractual
obligation to deliver additional securities.

Reverse  Repurchase  Agreements.  Each Fund may enter into  "reverse  repurchase
agreements,"  which are repurchase  agreements in which a Fund, as the seller of
the securities,  agrees to repurchase such securities at an agreed upon time and
price.  Each Fund maintains a segregated  account in connection with outstanding
reverse  repurchase  agreements.  Each Fund will enter into  reverse  repurchase
agreements only when the Advisor  believes that the interest income to be earned
from the investment of the proceeds of the transaction  will be greater than the
interest expense of the transaction. Such transactions may increase fluctuations
in the market value of a Fund's assets and its yield.


Investment  Company  Securities.  Each  Fund  may  acquire  securities  of other
investment  companies to the extent consistent with its investment objective and
subject  to the  limitations  of the 1940 Act. A Fund will  indirectly  bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.


For example,  a Fund may invest in a variety of investment  companies which seek
to track the  composition  and  performance  of  specific  indices or a specific
portion of an index.  These  index-based  investments hold  substantially all of
their assets in securities representing their specific index.  Accordingly,  the
main risk of investing in index-based  investments is the same as investing in a
portfolio  of equity  securities  comprising  the index.  The  market  prices of
index-based  investments  will fluctuate in accordance  with both changes in the
market  value of their  underlying  portfolio  securities  and due to supply and
demand for the  instruments on the exchanges on which they are traded (which may
result in their


                                       12
<PAGE>

trading at a discount or premium to their NAVs). Index-based investments may not
replicate   exactly  the   performance  of  their  specified  index  because  of
transaction  costs  and  because  of the  temporary  unavailability  of  certain
component securities of the index.


Examples of index-based investments include:

SPDRs(R):  SPDRs,  an acronym for "Standard & Poor's  Depositary  Receipts," are
based on the S&P 500  Composite  Stock Price Index.  They are issued by the SPDR
Trust,  a unit  investment  trust that  holds  shares of  substantially  all the
companies  in the S&P 500 in  substantially  the  same  weighting  and  seeks to
closely track the price performance and dividend yield of the Index.


MidCap  SPDRs(R):  MidCap SPDRs are based on the S&P MidCap 400 Index.  They are
issued by the MidCap SPDR Trust, a unit investment  trust that holds a portfolio
of securities  consisting of  substantially  all of the common stocks in the S&P
MidCap 400 Index in substantially  the same weighting and seeks to closely track
the price performance and dividend yield of the Index.

Select Sector SPDRs(R):  Select Sector SPDRs are based on a particular sector or
group of  industries  that are  represented  by a specified  Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end  management  investment  company with nine
portfolios  that each seeks to closely track the price  performance and dividend
yield of a particular Select Sector Index.


DIAMONDS(SM):  DIAMONDS are based on the Dow Jones Industrial Average(SM).  They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.

Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100  Trust, a unit investment  trust that holds a portfolio
consisting of substantially  all of the securities,  in  substantially  the same
weighting,  as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.


WEBs(SM):  WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific  Morgan Stanley Capital International  Indices. They are issued
by the WEBs Index Fund,  Inc., an open-end  management  investment  company that
seeks to correspond  generally to the price and yield  performance of a specific
Morgan Stanley Capital International Index.

Strategic  Transactions and  Derivatives.  The Fund may, but is not required to,
utilize various other investment  strategies as described below for a variety of
purposes,  such as hedging various market risks, managing the effective maturity
or duration of  fixed-income  securities  in a Fund's  portfolio,  or  enhancing
potential gain.  These  strategies may be executed through the use of derivative
contracts.

In the course of pursuing these investment strategies, the Fund may purchase and
sell  exchange-listed and  over-the-counter  put and call options on securities,
equity and fixed-income indices and other instruments, purchase and sell futures
contracts and options thereon,  enter into various  transactions  such as swaps,
caps, floors, collars,  currency forward contracts,  currency futures contracts,
currency swaps or options on currencies,  or currency  futures and various other
currency  transactions  (collectively,  all  the  above  are  called  "Strategic
Transactions").  In  addition,  strategic  transactions  may  also  include  new
techniques,  instruments or strategies that are permitted as regulatory  changes
occur.  Strategic  Transactions  may be used without  limit  (subject to certain
limitations  imposed by the 1940 Act) to attempt  to  protect  against  possible
changes in the  market  value of  securities  held in or to be  purchased  for a
Fund's  portfolio  resulting from securities  markets or currency  exchange rate
fluctuations, to protect a Fund's unrealized gains in the value of its portfolio
securities,  to facilitate the sale of such securities for investment  purposes,
to manage the  effective  maturity or duration of  fixed-income  securities in a
Fund's  portfolio,  or to establish a position in the  derivatives  markets as a
substitute  for  purchasing or selling  particular  securities.  Some  Strategic
Transactions  may also be used to enhance  potential gain though no more than 5%
of a Fund's assets will be committed to Strategic  Transactions entered into for
non-hedging  purposes.  Any or all of these investment techniques may be used at
any time  and in any  combination,  and  there is no  particular  strategy  that
dictates the use of one technique  rather than another,  as use of any Strategic
Transaction is a function of numerous variables including


                                       13
<PAGE>

market  conditions.   The  ability  of  the  Fund  to  utilize  these  Strategic
Transactions  successfully  will  depend on the  Advisor's  ability  to  predict
pertinent market movements,  which cannot be assured. The Funds will comply with
applicable   regulatory   requirements  when   implementing   these  strategies,
techniques and  instruments.  Strategic  Transactions  will not be used to alter
fundamental  investment purposes and characteristics of the Funds, and the Funds
will  segregate  assets (or as provided by  applicable  regulations,  enter into
certain  offsetting  positions) to cover its obligations under options,  futures
and swaps to limit leveraging of the Funds.

Strategic  Transactions,  including derivative contracts,  have risks associated
with them  including  possible  default by the other  party to the  transaction,
illiquidity and, to the extent the Advisor's view as to certain market movements
is incorrect,  the risk that the use of such Strategic Transactions could result
in losses  greater  than if they had not been used.  Use of put and call options
may  result  in losses to the Fund,  force  the sale or  purchase  of  portfolio
securities  at  inopportune  times or for prices higher than (in the case of put
options)  or lower than (in the case of call  options)  current  market  values,
limit the amount of  appreciation  the Fund can  realize on its  investments  or
cause the Fund to hold a security it might  otherwise  sell. The use of currency
transactions can result in the Funds incurring losses as a result of a number of
factors   including  the   imposition  of  exchange   controls,   suspension  of
settlements,  or the inability to deliver or receive a specified  currency.  The
use of  options  and  futures  transactions  entails  certain  other  risks.  In
particular,  the  variable  degree of  correlation  between  price  movements of
futures contracts and price movements in the related  portfolio  position of the
Fund  creates  the  possibility  that losses on the  hedging  instrument  may be
greater than gains in the value of a Fund's position.  In addition,  futures and
options   markets   may  not  be  liquid  in  all   circumstances   and  certain
over-the-counter  options may have no markets.  As a result, in certain markets,
the  Fund  might  not be able  to  close  out a  transaction  without  incurring
substantial  losses,  if at  all.  Although  the  use  of  futures  and  options
transactions  for  hedging  should  tend to  minimize  the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any  potential  gain  which  might  result  from an  increase  in  value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential  financial risk than would purchases of
options,  where the  exposure  is  limited to the cost of the  initial  premium.
Losses resulting from the use of Strategic  Transactions  would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.


General  Characteristics of Options. Put options and call options typically have
similar structural  characteristics and operational  mechanics regardless of the
underlying  instrument on which they are purchased or sold.  Thus, the following
general  discussion relates to each of the particular types of options discussed
in greater  detail below.  In addition,  many Strategic  Transactions  involving
options  require  segregation of Fund assets in special  accounts,  as described
below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option,  upon payment of a premium,  the
right to sell, and the writer the  obligation to buy, the  underlying  security,
commodity,  index,  currency or other  instrument  at the  exercise  price.  For
instance,  a Fund's  purchase of a put option on a security might be designed to
protect its holdings in the underlying  instrument (or, in some cases, a similar
instrument)  against a  substantial  decline in the  market  value by giving the
Funds the right to sell such  instrument at the option  exercise  price.  A call
option,  upon payment of a premium,  gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying  instrument at the
exercise  price.  A Fund's  purchase of a call  option on a security,  financial
future,  index, currency or other instrument might be intended to protect a Fund
against an increase in the price of the underlying instrument that it intends to
purchase  in the  future  by  fixing  the  price at which it may  purchase  such
instrument.  An American  style put or call option may be  exercised at any time
during  the  option  period  while a  European  style put or call  option may be
exercised only upon expiration or during a fixed period prior thereto. The Funds
are authorized to purchase and sell exchange listed options and over-the-counter
options  ("OTC  options").  Exchange  listed  options  are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"),  which guarantees
the  performance  of the  obligations  of  the  parties  to  such  options.  The
discussion  below uses the OCC as an example,  but is also  applicable  to other
financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally settle
by physical  delivery of the  underlying  security or currency,  although in the
future cash  settlement  may become  available.  Index  options  and  Eurodollar
instruments are cash settled for the net amount,  if any, by which the option is
"in-the-money"  (i.e., where the value of the underlying  instrument exceeds, in
the case of a call  option,  or is less than,  in the case of a put option,  the
exercise  price of the option) at the time the option is exercised.  Frequently,
rather than taking or making delivery of the underlying  instrument  through the
process of  exercising  the option,  listed  options are closed by entering into
offsetting  purchase or sale transactions that do not result in ownership of the
new option.



                                       14
<PAGE>

A Fund's ability to close out its position as a purchaser or seller of an OCC or
exchange listed put or call option is dependent,  in part, upon the liquidity of
the option market. Among the possible reasons for the absence of a liquid option
market on an exchange are: (i) insufficient trading interest in certain options;
(ii) restrictions on transactions  imposed by an exchange;  (iii) trading halts,
suspensions or other restrictions  imposed with respect to particular classes or
series of  options or  underlying  securities  including  reaching  daily  price
limits;  (iv)  interruption of the normal  operations of the OCC or an exchange;
(v) inadequacy of the facilities of an exchange or OCC to handle current trading
volume;  or (vi) a decision by one or more exchanges to discontinue  the trading
of options  (or a  particular  class or series of  options),  in which event the
relevant market for that option on that exchange would cease to exist,  although
outstanding  options on that exchange would generally continue to be exercisable
in accordance with their terms.

The hours of trading for listed  options may not coincide  with the hours during
which the underlying  financial  instruments are traded.  To the extent that the
option   markets  close  before  the  markets  for  the   underlying   financial
instruments,  significant  price  and  rate  movements  can  take  place  in the
underlying markets that cannot be reflected in the option markets.

OTC  options  are  purchased  from  or  sold to  securities  dealers,  financial
institutions  or  other  parties  ("Counterparties")  through  direct  bilateral
agreement with the Counterparty.  In contrast to exchange listed options,  which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement,  term, exercise price,
premium,  guarantees and security,  are set by  negotiation of the parties.  The
Funds will only sell OTC options  (other  than OTC  currency  options)  that are
subject to a buy-back provision permitting the Funds to require the Counterparty
to sell the option back to the Funds at a formula  price within seven days.  The
Funds  expect  generally  to enter into OTC  options  that have cash  settlement
provisions, although they are not required to do so.


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 the Funds or fails to make a cash  settlement
payment due in accordance with the terms of that option, the Funds will lose any
premium  they paid for the  option  as well as any  anticipated  benefit  of the
transaction.  Accordingly,  the Advisor 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.  The Funds  will  engage 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 Advisor.  The staff of the
SEC currently  takes the position that OTC options  purchased by the Funds,  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 a Fund's  limitation  on investing no
more than 15% of its net assets in illiquid securities.


If the Funds sell a call  option,  the premium  that they receive may serve as a
partial hedge,  to the extent of the option  premium,  against a decrease in the
value of the underlying  securities or  instruments  in their  portfolio or will
increase a Fund's income. The sale of put options can also provide income.

The Funds may  purchase  and sell call  options  on  securities  including  U.S.
Treasury and agency securities,  mortgage-backed  securities,  foreign sovereign
debt,  corporate  debt  securities,  equity  securities  (including  convertible
securities)  and  Eurodollar  instruments  that are traded on U.S.  and  foreign
securities  exchanges  and in the  over-the-counter  markets,  and on securities
indices,  currencies and futures contracts.  All calls sold by the Funds must be
"covered"  (i.e.,  the Funds must own the securities or futures contract subject
to the call) or must meet the asset segregation  requirements described below as
long as the call is  outstanding.  Even though the Funds will receive the option
premium to help protect them against  loss, a call sold by the Funds exposes the
Funds during the term of the option to possible loss of  opportunity  to realize
appreciation  in the market price of the  underlying  security or instrument and
may  require  the  Funds to hold a  security  or  instrument  which  they  might
otherwise have sold.

The Funds  may  purchase  and sell put  options  on  securities  including  U.S.
Treasury and agency securities,  mortgage-backed  securities,  foreign sovereign
debt,  corporate  debt  securities,  equity  securities  (including  convertible
securities)  and  Eurodollar  instruments  (whether  or not they  hold the above
securities in their  portfolios),  and on

                                       15
<PAGE>

securities  indices,  currencies  and futures  contracts  other than  futures on
individual  corporate debt and individual equity securities.  The Funds will not
sell put  options  if, as a result,  more than 50% of a Fund's  assets  would be
required to be  segregated  to cover its  potential  obligations  under such put
options other than those with respect to futures and options thereon. In selling
put  options,  there  is a risk  that  the  Funds  may be  required  to buy  the
underlying security at a disadvantageous price above the market price.

General  Characteristics of Futures.  The Funds may enter into futures contracts
or  purchase  or sell put and call  options on such  futures as a hedge  against
anticipated  interest rate, currency or equity market changes,  and for duration
management,  risk  management  and  return  enhancement  purposes.  Futures  are
generally  bought and sold on the  commodities  exchanges  where they are listed
with payment of initial and variation  margin as described  below. The sale of a
futures contract  creates a firm obligation by the Funds, as seller,  to deliver
to the  buyer  the  specific  type of  financial  instrument  called  for in the
contract at a specific  future time for a specified  price (or,  with respect to
index  futures and  Eurodollar  instruments,  the net cash  amount).  Options on
futures  contracts are similar to options on securities except that an option on
a futures  contract gives the purchaser the right in return for the premium paid
to assume a position in a futures  contract and  obligates the seller to deliver
such position.

A Fund's use of futures and options thereon will in all cases be consistent with
applicable  regulatory  requirements and in particular the rules and regulations
of the Commodity  Futures  Trading  Commission and will be entered into for bona
fide hedging, risk management (including duration management) or other portfolio
and return enhancement  management  purposes.  Typically,  maintaining a futures
contract  or  selling  an  option  thereon  requires  a Fund to  deposit  with a
financial  intermediary  as security  for its  obligations  an amount of cash or
other specified  assets (initial  margin) which initially is typically 1% to 10%
of the face amount of the  contract  (but may be higher in some  circumstances).
Additional  cash or assets  (variation  margin) may be required to be  deposited
thereafter  on a  daily  basis  as the  mark to  market  value  of the  contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further  obligation on the part of the Funds.
If the Funds exercise an option on a futures  contract they will be obligated to
post  initial  margin  (and  potential  subsequent  variation  margin)  for  the
resulting  futures  position  just  as they  would  for  any  position.  Futures
contracts  and  options  thereon  are  generally  settled  by  entering  into an
offsetting  transaction  but there can be no assurance  that the position can be
offset prior to  settlement  at an  advantageous  price,  nor that delivery will
occur.

A Fund will not enter into a futures  contract  or related  option  (except  for
closing transactions) if, immediately  thereafter,  the sum of the amount of its
initial margin and premiums on open futures  contracts and options thereon would
exceed 5% of a Fund's total assets  (taken at current  value);  however,  in the
case of an  option  that  is  in-the-money  at the  time  of the  purchase,  the
in-the-money  amount may be  excluded  in  calculating  the 5%  limitation.  The
segregation  requirements  with respect to futures contracts and options thereon
are described below.

Options on Securities  Indices and Other Financial  Indices.  The Funds also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through  the sale or  purchase  of options  on  individual  securities  or other
instruments.  Options on  securities  indices  and other  financial  indices are
similar to options on a security or other  instrument  except that,  rather than
settling by physical delivery of the underlying instrument,  they settle by cash
settlement,  i.e.,  an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds,  in the case of a call, or is less than,
in the case of a put, the exercise  price of the option  (except if, in the case
of an OTC option, physical delivery is specified).  This amount of cash is equal
to the excess of the closing  price of the index over the exercise  price of the
option,  which  also may be  multiplied  by a formula  value.  The seller of the
option is  obligated,  in return for the premium  received,  to make delivery of
this  amount.  The  gain or loss on an  option  on an  index  depends  on  price
movements in the instruments making up the market,  market segment,  industry or
other  composite  on which the  underlying  index is based,  rather  than  price
movements in  individual  securities,  as is the case with respect to options on
securities.


Currency  Transactions.  The Fund  may  engage  in  currency  transactions  with
Counterparties  primarily in order to hedge,  or manage the risk of the value of
portfolio holdings denominated in particular  currencies against fluctuations in
relative  value.  Currency  transactions  include  forward  currency  contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately  negotiated
obligation  to purchase or sell (with  delivery  generally  required) a specific
currency at a future  date,  which may be any fixed number of days from the date
of the contract  agreed upon by the  parties,  at a price set at the time of the
contract.  A currency  swap is an agreement to exchange  cash flows based on the
notional  difference  among two or more currencies and operates  similarly to an
interest rate swap,  which is described below. The Funds

                                       16
<PAGE>

may enter into currency transactions with Counterparties which have received (or
the guarantors of the obligations which have received) a credit rating of A-1 or
P-1 by S&P or Moody's,  respectively,  or that have an equivalent  rating from a
NRSRO or (except for OTC currency  options) are  determined  to be of equivalent
credit quality by the Advisor.


The  Funds'   dealings  in  forward   currency   contracts  and  other  currency
transactions  such as futures,  options,  options on futures and swaps generally
will be limited to hedging  involving either specific  transactions or portfolio
positions  except as described  below.  Transaction  hedging is entering  into a
currency  transaction  with  respect to specific  assets or  liabilities  of the
Funds,  which will  generally  arise in connection  with the purchase or sale of
their portfolio securities or the receipt of income therefrom.  Position hedging
is entering  into a currency  transaction  with  respect to  portfolio  security
positions denominated or generally quoted in that currency.

A Fund generally will not enter into a transaction to hedge currency exposure to
an extent greater,  after netting all transactions  intended wholly or partially
to offset other  transactions,  than the aggregate  market value (at the time of
entering into the  transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently  convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.

The Funds may also  cross-hedge  currencies  by entering  into  transactions  to
purchase or sell one or more  currencies  that are  expected to decline in value
relative  to other  currencies  to which  the  Funds  have or in which the Funds
expect to have portfolio exposure.


To reduce  the  effect of  currency  fluctuations  on the value of  existing  or
anticipated holdings of portfolio securities, the Funds may also engage in proxy
hedging.  Proxy  hedging  is  often  used  when the  currency  to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging  entails  entering into a commitment or option to sell a currency  whose
changes in value are  generally  considered  to be  correlated  to a currency or
currencies  in which  some or all of a Fund's  portfolio  securities  are or are
expected to be  denominated,  in exchange  for U.S.  dollars.  The amount of the
commitment  or  option  would  not  exceed  the  value  of a  Fund's  securities
denominated in correlated currencies. For example, if the Advisor considers that
the Austrian schilling is correlated to the German  deutschemark (the "D-mark"),
the Funds holds  securities  denominated in schillings and the Advisor  believes
that the value of schillings will decline against the U.S.  dollar,  the Advisor
may enter into a commitment or option to sell D-marks and buy dollars.  Currency
hedging involves some of the same risks and considerations as other transactions
with  similar  instruments.  Currency  transactions  can result in losses to the
Funds if the  currency  being  hedged  fluctuates  in value to a degree  or in a
direction that is not anticipated. Further, there is the risk that the perceived
correlation  between various currencies may not be present or may not be present
during the particular time that the Funds are engaging in proxy hedging.  If the
Funds enter into a currency hedging transaction,  the Funds will comply with the
asset segregation requirements described below.


Risks of  Currency  Transactions.  Currency  transactions  are  subject to risks
different from those of other portfolio  transactions.  Because currency control
is of great  importance  to the  issuing  governments  and  influences  economic
planning and policy, purchases and sales of currency and related instruments can
be  negatively  affected  by  government  exchange  controls,   blockages,   and
manipulations or exchange restrictions imposed by governments.  These can result
in losses to a Fund if it is unable to deliver or receive  currency  or funds in
settlement of obligations  and could also cause hedges it has entered into to be
rendered  useless,  resulting  in full  currency  exposure as well as  incurring
transaction  costs.  Buyers and sellers of  currency  futures are subject to the
same risks that apply to the use of futures generally.  Further, settlement of a
currency  futures  contract for the purchase of most  currencies must occur at a
bank  based in the  issuing  nation.  Trading  options  on  currency  futures is
relatively  new,  and the ability to establish  and close out  positions on such
options is subject to the maintenance of a liquid market which may not always be
available.  Currency  exchange rates may fluctuate based on factors extrinsic to
that country's economy.


Combined Transactions. The Funds may enter into multiple transactions, including
multiple options transactions,  multiple futures transactions, multiple currency
transactions  (including forward currency  contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions   ("component"   transactions),   instead  of  a  single  Strategic
Transaction,  as part of a single or combined  strategy  when, in the opinion of
the  Advisor,  it is in the best  interests  of the  Funds to do so. A  combined
transaction  will usually  contain  elements of risk that are present in each of
its component transactions.  Although combined transactions are normally entered
into based on the Advisor's  judgment that the combined  strategies  will


                                       17
<PAGE>

reduce  risk  or  otherwise  more  effectively  achieve  the  desired  portfolio
management  goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.


Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Funds may enter  are  interest  rate,  currency,  index and other  swaps and the
purchase or sale of related caps, floors and collars.  The Funds expect to enter
into these transactions primarily to preserve a return or spread on a particular
investment  or  portion  of  its   portfolio,   to  protect   against   currency
fluctuations,  as a duration  management  technique  or to protect  against  any
increase in the price of securities the Funds  anticipate  purchasing at a later
date. The Funds will not sell interest rate caps or floors where they do not own
securities  or other  instruments  providing  the income stream the Funds may be
obligated  to pay.  Interest  rate swaps  involve the exchange by the Funds with
another party of their respective commitments to pay or receive interest,  e.g.,
an exchange of floating  rate payments for fixed rate payments with respect to a
notional  amount of principal.  A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them, and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference  indices.  The
purchase  of a cap  entitles  the  purchaser  to receive  payments on a notional
principal  amount from the party selling such cap to the extent that a specified
index exceeds a predetermined  interest rate or amount.  The purchase of a floor
entitles the purchaser to receive  payments on a notional  principal amount from
the party selling such floor to the extent that a specified  index falls below a
predetermined  interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a  predetermined  range of interest
rates or values.


The Funds will usually  enter into swaps on a net basis,  i.e.,  the two payment
streams  are  netted  out in a cash  settlement  on the  payment  date or  dates
specified in the instrument, with the Funds receiving or paying, as the case may
be,  only  the net  amount  of the two  payments.  Inasmuch  as the  Funds  will
segregate assets (or enter into offsetting positions) to cover their obligations
under  swaps,  the  Advisor  and  the  Funds  believe  such  obligations  do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to their borrowing restrictions.  The Funds will not enter
into any swap, cap, floor or collar transaction  unless, at the time of entering
into  such  transaction,  the  unsecured  long-term  debt  of the  Counterparty,
combined with any credit enhancements,  is rated at least A by S&P or Moody's or
has an  equivalent  rating  from a NRSRO or is  determined  to be of  equivalent
credit quality by the Advisor.  If there is a default by the  Counterparty,  the
Funds may have contractual  remedies  pursuant to the agreements  related to the
transaction.  The swap  market has grown  substantially  in recent  years with a
large number of banks and investment banking firms acting both as principals and
as agents  utilizing  standardized  swap  documentation.  As a result,  the swap
market has become  relatively  liquid.  Caps, floors and collars are more recent
innovations  for  which  standardized  documentation  has  not  yet  been  fully
developed and, accordingly, they are less liquid than swaps.


Eurodollar   Instruments.   The  Funds  may  make   investments   in  Eurodollar
instruments.   Eurodollar  instruments  are  U.S.   dollar-denominated   futures
contracts or options  thereon which are linked to the London  Interbank  Offered
Rate ("LIBOR"), although foreign currency-denominated  instruments are available
from time to time.  Eurodollar  futures  contracts enable purchasers to obtain a
fixed  rate for the  lending  of funds and  sellers  to obtain a fixed  rate for
borrowings. The Funds might use Eurodollar futures contracts and options thereon
to hedge against  changes in LIBOR,  to which many interest rate swaps and fixed
income instruments are linked.

Risks of Strategic  Transactions  outside the U.S.  When  conducted  outside the
U.S., Strategic  Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees,  and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities,  currencies and other instruments.  The value of such positions also
could be adversely affected by: (i) other complex foreign  political,  legal and
economic factors,  (ii) lesser availability than in the U.S. of data on which to
make trading decisions,  (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during  non-business hours in the U.S., (iv)
the  imposition of different  exercise and  settlement  terms and procedures and
margin  requirements  than  in the  U.S.,  and  (v)  lower  trading  volume  and
liquidity.

Use of Segregated and Other Special Accounts.  Many Strategic  Transactions,  in
addition to other  requirements,  require that a Fund  segregate  cash or liquid
assets with its  custodian  to the extent  Fund  obligations  are not  otherwise
"covered" through ownership of the underlying security,  financial instrument or
currency.  In general,  either the full amount of any obligation by the Funds to
pay or  deliver  securities  or  assets  must be  covered  at all  times  by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory  restrictions,  an amount of cash or liquid  assets at least equal to
the current amount of the obligation must be segregated with the custodian.  The
segregated  assets cannot be sold or transferred  unless  equivalent  assets are
substituted in their place or it is no longer


                                       18
<PAGE>

necessary to segregate  them.  For example,  a call option  written by the Funds
will require the Funds to hold the securities subject to the call (or securities
convertible into the needed securities without  additional  consideration) or to
segregate  cash  or  liquid  assets  sufficient  to  purchase  and  deliver  the
securities if the call is exercised. A call option sold by the Funds on an index
will require the Funds to own  portfolio  securities  which  correlate  with the
index or to  segregate  cash or liquid  assets  equal to the excess of the index
value over the exercise  price on a current  basis.  A put option written by the
Funds  requires  the  Funds to  segregate  cash or  liquid  assets  equal to the
exercise price.

Except when the Funds enter into a forward  contract for the purchase or sale of
a security denominated in a particular currency,  which requires no segregation,
a currency  contract  which  obligates  the Funds to buy or sell  currency  will
generally  require the Funds to hold an amount of that currency or liquid assets
denominated  in that currency  equal to the Funds'  obligations  or to segregate
cash or liquid assets equal to the amount of a Fund's obligation.


OTC options entered into by the Funds, including those on securities,  currency,
financial  instruments  or  indices  and OCC issued and  exchange  listed  index
options, will generally provide for cash settlement.  As a result, when the Fund
sells  these  instruments  it will  only  segregate  an amount of cash or liquid
assets  equal to its accrued net  obligations,  as there is no  requirement  for
payment or delivery of amounts in excess of the net amount.  These  amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Funds, or the in-the-money amount
plus any sell-back  formula amount in the case of a cash-settled put or call. In
addition,  when  the Fund  sells a call  option  on an index at a time  when the
in-the-money  amount exceeds the exercise price, the Fund will segregate,  until
the option expires or is closed out, cash or cash equivalents  equal in value to
such excess. OCC issued and exchange listed options sold by the Funds other than
those above  generally  settle with  physical  delivery,  or with an election of
either  physical  delivery or cash  settlement  and the Fund will  segregate  an
amount of cash or  liquid  assets  equal to the full  value of the  option.  OTC
options settling with physical delivery,  or with an election of either physical
delivery or cash settlement  will be treated the same as other options  settling
with physical delivery.

In the case of a futures  contract or an option  thereon,  the Fund must deposit
initial  margin and possible daily  variation  margin in addition to segregating
cash or liquid assets sufficient to meet their obligation to purchase or provide
securities  or  currencies,  or to pay the amount owed at the  expiration  of an
index-based  futures  contract.  Such liquid  assets may  consist of cash,  cash
equivalents, liquid debt or equity securities or other acceptable assets.

With  respect to swaps,  the Fund will accrue the net amount of the  excess,  if
any, of their  obligations over its entitlements  with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess.  Caps,  floors and collars  require  segregation of
assets with a value equal to the Fund's net obligation, if any.

Strategic  Transactions  may be covered  by other  means  when  consistent  with
applicable   regulatory   policies.  A  Fund  may  also  enter  into  offsetting
transactions so that its combined position,  coupled with any segregated assets,
equals  its  net  outstanding   obligation  in  related  options  and  Strategic
Transactions.  For example,  the Fund could  purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, if a Fund held a futures or forward contract instead
of segregating cash or liquid assets, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the  contract  held.  Other  Strategic  Transactions  may also be  offset  in
combinations.  If the offsetting  transaction terminates at the time of or after
the primary  transaction no segregation is required,  but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.


Each Fund's activities  involving  Strategic  Transactions may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company. (See "TAXES.")

Zero Coupon  Securities.  Global Fund may invest in zero coupon securities which
pay no cash  income and are sold at  substantial  discounts  from their value at
maturity.  When  held to  maturity,  their  entire  income,  which  consists  of
accretion of  discount,  comes from the  difference  between the issue price and
their value at maturity.  Zero coupon  securities  are subject to greater market
value  fluctuations  from  changing  interest  rates  than debt  obligations  of
comparable  maturities which make current distributions of interest (cash). Zero
coupon  securities which are convertible into common stock offer the opportunity
for capital  appreciation  as increases  (or  decreases) in market value of such
securities  closely  follows the movements in the market value of the underlying
common stock. Zero


                                       19
<PAGE>

coupon  convertible  securities  generally are expected to be less volatile than
the underlying  common stocks,  as they usually are issued with maturities of 15
years or less and are issued with options and/or redemption features exercisable
by the holder of the  obligation  entitling the holder to redeem the  obligation
and receive a defined cash payment.

Zero coupon securities  include securities issued directly by the U.S. Treasury,
and U.S.  Treasury  bonds or notes  and their  unmatured  interest  coupons  and
receipts for their underlying principal ("coupons") which have been separated by
their holder,  typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying  principal (the "corpus")
of the U.S.  Treasury  security.  A number of  securities  firms and banks  have
stripped  the  interest  coupons and  receipts and then resold them in custodial
receipt  programs with a number of different names,  including  "Treasury Income
Growth   Receipts"   (TIGRS(TM))   and  Certificate  of  Accrual  on  Treasuries
(CATS(TM)).  The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e.,  unregistered  securities  which are owned  ostensibly  by the  bearer or
holder  thereof),  in trust on  behalf of the  owners  thereof.  Counsel  to the
underwriters  of these  certificates or other evidences of ownership of the U.S.
Treasury  securities have stated that, for federal tax and securities  purposes,
in their opinion purchasers of such certificates,  such as the Fund, most likely
will  be  deemed  the  beneficial  holder  of  the  underlying  U.S.  Government
securities.  The Fund  understands  that the staff of the Division of Investment
Management  of the  Securities  and  Exchange  Commission  (the "SEC") no longer
considers such privately stripped obligations to be U.S. Government  securities,
as defined in the 1940 Act; therefore,  the Fund intends to adhere to this staff
position  and will not treat  such  privately  stripped  obligations  to be U.S.
Government  securities  for the  purpose of  determining  if the Global  Fund is
"diversified" under the 1940 Act.

The  U.S.  Treasury  has  facilitated  transfers  of  ownership  of zero  coupon
securities by accounting  separately for the beneficial  ownership of particular
interest coupon and corpus payments on Treasury  securities  through the Federal
Reserve  book-entry  record  keeping  system.  The  Federal  Reserve  program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered  Interest and Principal of Securities."  Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry  record-keeping  system in lieu of having to
hold  certificates  or other  evidences  of  ownership  of the  underlying  U.S.
Treasury securities.

When U.S.  Treasury  obligations have been stripped of their unmatured  interest
coupons  by the  holder,  the  principal  or corpus  is sold at a deep  discount
because the buyer  receives  only the right to receive a future fixed payment on
the  security  and does not  receive  any  rights to  periodic  interest  (cash)
payments.  Once  stripped  or  separated,  the  corpus and  coupons  may be sold
separately.  Typically,  the coupons are sold  separately  or grouped with other
coupons with like  maturity  dates and sold bundled in such form.  Purchasers of
stripped  obligations   acquire,  in  effect,   discount  obligations  that  are
economically  identical to the zero coupon  securities  that the Treasury  sells
itself (see "TAXES").


Convertible Securities.  Global Fund may invest in convertible securities,  that
is, bonds,  notes,  debentures,  preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an  opportunity  for capital  appreciation  and/or income  through  interest and
dividend payments by virtue of their conversion or exchange features.


The convertible securities in which a Fund may invest are either fixed income or
zero coupon debt  securities  which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular  convertible security may be adjusted from time to time
due to stock splits,  dividends,  spin-offs,  other corporate  distributions  or
scheduled  changes  in the  exchange  ratio.  Convertible  debt  securities  and
convertible  preferred  stocks,  until converted,  have general  characteristics
similar to both debt and equity  securities.  Although  to a lesser  extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest  rates  increase  and,  conversely,  tends to increase as
interest  rates  decline.  In addition,  because of the  conversion  or exchange
feature,  the market value of convertible  securities  typically  changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow  movements  in the  general  market  for equity  securities.  A unique
feature of convertible  securities is that as the market price of the underlying
common stock declines,  convertible  securities tend to trade  increasingly on a
yield basis, and so may not experience  market value declines to the same extent
as the underlying  common stock.  When the market price of the underlying common
stock  increases,  the prices of the  convertible  securities  tend to rise as a
reflection of the value of the underlying common stock,  although  typically not
as much as the  underlying  common stock.  While no securities  investments  are
without risk,  investments in convertible  securities generally entail less risk
than investments in common stock of the same issuer.



                                       20
<PAGE>

As debt securities,  convertible  securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with  generally  higher  yields than  common  stocks.  Of course,  like all debt
securities,  there can be no assurance of income or principal  payments  because
the issuers of the  convertible  securities  may  default on their  obligations.
Convertible   securities  generally  offer  lower  yields  than  non-convertible
securities of similar quality because of their conversion or exchange features.

Convertible   securities   generally  are  subordinated  to  other  similar  but
non-convertible  securities of the same issuer,  although  convertible bonds, as
corporate debt  obligations,  enjoy  seniority in right of payment to all equity
securities,  and  convertible  preferred  stock is senior to common stock of the
same issuer.  However,  because of the subordination feature,  convertible bonds
and  convertible  preferred  stock  typically  have lower  ratings  than similar
non-convertible securities. Convertible securities may be issued as fixed income
obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs"(TM)).


Dollar Roll Transactions. Dollar roll transactions consist of the sale by a Fund
to a bank or broker/dealers  (the  "counterparty") of GNMA certificates or other
mortgage-backed  securities  together  with a  commitment  to purchase  from the
counterparty  similar,  but not  identical,  securities at a future date, at the
same price.  The  counterparty  receives all  principal  and interest  payments,
including  prepayments,  made on the  security  while it is the  holder.  A Fund
receives a fee from the  counterparty  as  consideration  for entering  into the
commitment  to  purchase.  Dollar  rolls may be renewed over a period of several
months  with  a  different  purchase  and  repurchase  price  fixed  and a  cash
settlement  made at each  renewal  without a physical  delivery  of  securities.
Moreover,  the  transaction  may  be  preceded  by a firm  commitment  agreement
pursuant to which the Fund agrees to buy a security on a later date.

A fund will segregate cash, U.S. Government securities or other liquid assets in
an amount sufficient to meet their purchase  obligations under the transactions.
The Fund will also maintain asset coverage of at least 300% for all  outstanding
firm commitments, dollar rolls and other borrowings.

Dollar rolls may be treated for purposes of the 1940 Act as borrowings of a Fund
because  they  involve  the sale of a  security  coupled  with an  agreement  to
repurchase.  A dollar roll involves costs to a Fund.  For example,  while a Fund
receives a fee as consideration for agreeing to repurchase the security,  a Fund
forgoes the right to receive  all  principal  and  interest  payments  while the
counterparty  holds the security.  These payments to the counterparty may exceed
the fee received by a Fund, thereby effectively  charging a Fund interest on its
borrowing.  Further,  although  a Fund  can  estimate  the  amount  of  expected
principal prepayment over the term of the dollar roll, a variation in the actual
amount of prepayment could increase or decrease the cost of a Fund's borrowing.

The entry into dollar rolls involves  potential risks of loss that are different
from those related to the securities  underlying the transactions.  For example,
if the  counterparty  becomes  insolvent,  a Fund's  right to purchase  from the
counterparty might be restricted. Additionally, the value of such securities may
change adversely before a Fund is able to purchase them.  Similarly,  a Fund may
be required to purchase  securities in connection with a dollar roll at a higher
price than may otherwise be available on the open market. Since, as noted above,
the counterparty is required to deliver a similar,  but not identical,  security
to a Fund, the security that a Fund is required to buy under the dollar roll may
be worth less than an  identical  security.  Finally,  there can be no assurance
that a Fund's use of the cash that it receives from a dollar roll will provide a
return that exceeds borrowing costs.

Lending of  Portfolio  Securities.  Each Fund may seek to increase its income by
lending   portfolio   securities.   Such   loans  may  be  made  to   registered
broker/dealers  and are required to be secured  continuously  by  collateral  in
cash,  U.S.  Government  Securities  and  liquid  high  grade  debt  obligations
maintained  on a current  basis at an amount at least equal to the market  value
and accrued  interest of the securities  loaned.  A Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice.  During
the existence of a loan, a Fund will  continue to receive the  equivalent of any
distributions  paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral.  As with other extensions of
credit  there  are  risks of delay in  recovery  or even  loss of  rights in the
collateral should the borrower of the securities fail financially.  However, the
loans will be made only to firms  deemed by the Advisor to be in good  standing.
The value of the  securities  loaned will not exceed 5% of the value of a Fund's
total assets at the time any loan is made.

Borrowing.  Each Fund may not borrow  money,  except as permitted  under Federal
law. Each Fund will borrow only when the Advisor  believes that  borrowing  will
benefit a Fund after taking into account considerations such as the costs of the
borrowing.  Each Fund does not  expect to borrow  for  investment  purposes,  to
increase  return


                                       21
<PAGE>

or  leverage  the  portfolio.  Borrowing  by a Fund will  involve  special  risk
considerations.  Although the principal of a Fund's  borrowings will be fixed, a
Fund's  assets  may  change  in  value  during  the  time  that a  borrowing  is
outstanding, thus increasing exposure to capital risk.

When-Issued  and Forward  Delivery  Securities.  Each Fund may from time to time
purchase  equity and debt securities on a  "when-issued"  or "forward  delivery"
basis. The price of such  securities,  which may be expressed in yield terms, is
fixed at the time the  commitment to purchase is made,  but delivery and payment
for the when-issued or forward delivery  securities takes place at a later date.
During the period between purchase and settlement,  no payment is made by a Fund
to the issuer and no interest  accrues to a Fund. To the extent that assets of a
Fund are held in cash pending the settlement of a purchase of securities, a Fund
would earn no income;  however, it is each Fund's intention to be fully invested
to the extent  practicable  and  subject to the  policies  stated  above.  While
when-issued or forward  delivery  securities may be sold prior to the settlement
date, each Fund intends to purchase such securities with the purpose of actually
acquiring them unless a sale appears  desirable for investment  reasons.  At the
time a Fund makes the  commitment  to  purchase a security on a  when-issued  or
forward  delivery basis, it will record the transaction and reflect the value of
the security in determining  its net asset value. At the time of the settlement,
the market value of the when-issued or forward  delivery  securities may be more
or less than the purchase  price.  Each Fund does not believe that its net asset
value or income will be adversely  affected by its purchase of  securities  on a
when-issued or forward delivery basis.


Real  Estate  Investment  Trusts  ("REITs").  Scudder  Global Fund may invest in
REITs. REITs are sometimes  informally  characterized as equity REITs,  mortgage
REITs  and  hybrid  REITs.  Investment  in REITs may  subject  the Fund to risks
associated with the direct  ownership of real estate,  such as decreases in real
estate values,  overbuilding,  increased  competition and other risks related to
local or general economic conditions,  increases in operating costs and property
taxes,  changes  in zoning  laws,  casualty  or  condemnation  losses,  possible
environmental  liabilities,  regulatory  limitations on rent and fluctuations in
rental income.  Equity REITs generally  experience  these risks directly through
fee or leasehold  interests,  whereas mortgage REITs generally  experience these
risks indirectly through mortgage interests, unless the mortgage REIT forecloses
on the  underlying  real estate.  Changes in interest  rates may also affect the
value of the  Fund's  investment  in REITs.  For  instance,  during  periods  of
declining  interest  rates,  certain  mortgage REITs may hold mortgages that the
mortgagors  elect  to  prepay,  which  prepayment  may  diminish  the  yield  on
securities issued by those REITs.

Certain REITs have relatively  small market  capitalizations,  which may tend to
increase the  volatility of the market price of their  securities.  Furthermore,
REITs  are  dependent  upon   specialized   management   skills,   have  limited
diversification and are,  therefore,  subject to risks inherent in operating and
financing a limited  number of  projects.  REITs are also  subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free  pass-through of income under the Internal Revenue Code of 1986, as
amended,  and to maintain  exemption from the  registration  requirements of the
1940 Act. By investing in REITs indirectly  through the Fund, a shareholder will
bear not only his or her proportionate  share of the expenses of the Fund's, but
also,  indirectly,  similar  expenses of the REITs.  In  addition,  REITs depend
generally  on their  ability  to  generate  cash flow to make  distributions  to
shareholders.


Investment of Uninvested  Cash  Balances.  Each Fund may have cash balances that
have not been invested in portfolio securities  ("Uninvested Cash").  Uninvested
Cash may result  from a variety of  sources,  including  dividends  or  interest
received from portfolio securities, unsettled securities transactions,  reserves
held for  investment  strategy  purposes,  scheduled  maturity  of  investments,
liquidation  of  investment  securities  to  meet  anticipated  redemptions  and
dividend payments, and new cash received from investors.  Uninvested Cash may be
invested  directly  in  money  market   instruments  or  other  short-term  debt
obligations. Pursuant to an Exemptive Order issued by the SEC, each Fund may use
Uninvested  Cash to purchase  shares of affiliated  funds including money market
funds,  short-term bond funds and Scudder Cash Management  Investment  Trust, or
one or more future entities for which Zurich Scudder Investments acts as trustee
or investment  advisor that operate as cash management  investment  vehicles and
that are excluded from the definition of investment  company pursuant to section
3(c)(1) or 3(c)(7) of the  Investment  Company  Act of 1940  (collectively,  the
"Central  Funds")  in excess  of the  limitations  of  Section  12(d)(1)  of the
Investment  Company Act.  Investment by each Fund in shares of the Central Funds
will be in accordance with each Fund's  investment  policies and restrictions as
set forth in its registration statement.


Certain of the  Central  Funds  comply  with rule 2a-7 under the Act.  The other
Central Funds are or will be short-term  bond funds that invest in  fixed-income
securities  and maintain a dollar  weighted  average  maturity of three years or


                                       22
<PAGE>

less.  Each of the  Central  Funds will be managed  specifically  to  maintain a
highly liquid portfolio,  and access to them will enhance each Fund's ability to
manage Uninvested Cash.

Each Fund will invest  Uninvested  Cash in Central Funds only to the extent that
each Fund's aggregate investment in the Central Funds does not exceed 25% of its
total  assets in shares of the Central  Funds.  Purchase  and sales of shares of
Central Funds are made at net asset value.

Investment Restrictions

The fundamental policies of the Funds set forth below may not be changed without
the  approval  of a majority  of a Fund's  outstanding  shares.  As used in this
Statement of Additional Information, a "majority of a Fund's outstanding shares"
means the  lesser of (1) 67% or more of the  voting  securities  present at such
meeting, if the holders of more than 50% of the outstanding voting securities of
a Fund  are  present  or  represented  by  proxy;  or (2)  more  than 50% of the
outstanding  voting securities of a Fund. Each Fund has elected to be classified
as a diversified series of an open-end investment company.

If a percentage  restriction on investment or utilization of assets as set forth
under "Investment Restrictions" and "Other Investment Policies" above is adhered
to at the time an  investment  is made, a later change in  percentage  resulting
from  changes  in the value or the  total  cost of a Fund's  assets  will not be
considered a violation of the restriction.

In addition,  as a matter of fundamental  policy,  each Fund
may not:

         1.       borrow money, except as permitted under the Investment Company
                  Act of 1940,  as amended,  and as  interpreted  or modified by
                  regulatory authority having jurisdiction, from time to time;

         2.       issue  senior  securities,   except  as  permitted  under  the
                  Investment Company Act of 1940, as amended, and as interpreted
                  or modified by regulatory authority having jurisdiction,  from
                  time to time;

         3.       concentrate its investments in a particular industry,  as that
                  term  is  used  in the  Investment  Company  Act of  1940,  as
                  amended,   and  as   interpreted  or  modified  by  regulatory
                  authority having jurisdiction, from time to time;

         4.       engage in the business of  underwriting  securities  issued by
                  others, except to the extent that the Fund may be deemed to be
                  an underwriter in connection with the disposition of portfolio
                  securities;

         5.       purchase  or sell real  estate,  which  term does not  include
                  securities of companies which deal in real estate or mortgages
                  or  investments  secured by real estate or interests  therein,
                  except that the Fund reserves freedom of action to hold and to
                  sell real estate acquired as a result of the Fund's  ownership
                  of securities;

         6.       purchase  physical   commodities  or  contracts   relating  to
                  physical commodities; or

         7.       make loans except as permitted  under the  Investment  Company
                  Act of 1940,  as amended,  and as  interpreted  or modified by
                  regulatory authority having jurisdiction, from time to time.

With respect to fundamental  policy number six above,  the Funds have no current
intention  to hold  and  sell  real  estate  acquired  as a  result  of a Fund's
ownership.

The   Directors   of  the   Corporation   have   voluntarily   adopted   certain
non-fundamental policies and restrictions which are observed in the conduct of a
Fund's affairs.  These represent  intentions of the Directors based upon current
circumstances. They differ from fundamental investment policies in that they may
be changed or amended by action of the Directors  without requiring prior notice
to or approval of the shareholders.

As a matter of nonfundamental policy, the Funds do not currently intend to:



                                       23
<PAGE>

         1.       borrow money in an amount greater than 5% of its total assets,
                  except (i) for  temporary  or  emergency  purposes and (ii) by
                  engaging in reverse  repurchase  agreements,  dollar rolls, or
                  other  investments  or  transactions  described  in the Fund's
                  registration statement which may be deemed to be borrowings;

         2.       enter into either of reverse  repurchase  agreements or dollar
                  rolls in an amount greater than 5% of its total assets;

         3.       purchase  securities on margin or make short sales, except (i)
                  short sales against the box, (ii) in connection with arbitrage
                  transactions,  (iii) for margin  deposits in  connection  with
                  futures  contracts,  options or other  permitted  investments,
                  (iv) that  transactions in futures contracts and options shall
                  not be deemed to constitute  selling securities short, and (v)
                  that the Fund may  obtain  such  short-term  credits as may be
                  necessary for the clearance of securities transactions;

         4.       purchase  options,  unless the aggregate  premiums paid on all
                  such options held by the Fund at any time do not exceed 20% of
                  its total  assets;  or sell put options,  if as a result,  the
                  aggregate value of the obligations underlying such put options
                  would exceed 50% of its total assets;

         5.       enter into  futures  contracts  or  purchase  options  thereon
                  unless  immediately  after  the  purchase,  the  value  of the
                  aggregate   initial   margin  with  respect  to  such  futures
                  contracts  entered into on behalf of the Fund and the premiums
                  paid for such options on futures  contracts does not exceed 5%
                  of the fair market value of the Fund's total assets;  provided
                  that in the case of an option that is in-the-money at the time
                  of  purchase,  the  in-the-money  amount  may be  excluded  in
                  computing the 5% limit;

         6.       purchase  warrants if as a result,  such securities,  taken at
                  the lower of cost or market value,  would  represent more than
                  5% of the value of the Fund's total assets (for this  purpose,
                  warrants  acquired in units or attached to securities  will be
                  deemed to have no value); and

         7.       lend portfolio  securities in an amount greater than 5% of its
                  total assets.

The  foregoing  nonfundamental  policies  are in addition to policies  otherwise
stated in the Prospectus or in this Statement of Additional Information.

                                    PURCHASES

Additional Information About Opening An Account


         All new investors in Class AARP of the Funds are required to provide an
AARP membership number on their account application.

         In  addition,  Class  S  shares  of the  Funds  will  generally  not be
available to new investors.

         The  following  investors  may  continue to purchase  Class S shares of
Scudder Funds:

         1.       Existing shareholders of Class S shares of any Scudder Fund as
                  of December 29, 2000,  and household  members  residing at the
                  same address.

         2.       Investors  may  purchase  Class S shares of any  Scudder  Fund
                  through any  broker-dealer or service agent account until June
                  30, 2001.  After June 30, 2001, only investors who owned Class
                  S shares as of June 30, 2001 and household members residing at
                  the  same  address  may open  new  accounts  in Class S of any
                  Scudder Fund.

         3.       Any   retirement,    employee   stock,    bonus   pension   or
                  profit-sharing plans.



                                       24
<PAGE>

         4.       Any  participant  who owns Class S shares of any Scudder  Fund
                  through an  employee  sponsored  retirement,  employee  stock,
                  bonus,  pension or profit sharing plan as of December 29, 2000
                  may, at a later date, open a new individual account in Class S
                  of any Scudder Fund.

         5.       Any  participant  who owns Class S shares of any Scudder  Fund
                  through a retirement, employee stock, bonus, pension or profit
                  sharing plan may complete a direct  rollover to an IRA account
                  that will hold Class S shares.  This  applies for  individuals
                  who begin their  retirement  plan  investments  with a Scudder
                  Fund at any time, including after December 29, 2000.

         6.       Officers, Fund Trustees and Directors, and full-time employees
                  and their family members, of Zurich Financial Services and its
                  affiliates.

         7.       Class S shares are available to any accounts managed by Zurich
                  Scudder  Investments,  Inc., any advisory  products offered by
                  Zurich Scudder Investments, Inc. or Scudder Investor Services,
                  Inc., and to the Portfolios of Scudder Pathway Series.

         8.       Registered   investment  advisors  ("RIAs")  may  continue  to
                  purchase Class S shares of Scudder Funds for all clients until
                  June 30, 2001.  After June 30, 2001, RIAs may purchase Class S
                  shares for any client that has an existing position in Class S
                  shares of any Scudder Funds as of June 30, 2001.

         9.       Broker-dealers  and  RIAs who have  clients  participating  in
                  comprehensive  fee programs  may continue to purchase  Class S
                  shares of Scudder  Funds until June 30,  2001.  After June 30,
                  2001,  broker  dealers and RIAs may purchase Class S shares in
                  comprehensive fee programs for any client that has an existing
                  position  in Class S shares of a  Scudder  Fund as of June 30,
                  2001.

         10.      Scudder  Investors  Services,  Inc.  may,  at its  discretion,
                  require  appropriate  documentation  that shows an investor is
                  eligible to purchase Class S shares.

Clients  having a regular  investment  counsel  account  with the Advisor or its
affiliates and members of their  immediate  families,  officers and employees of
the Advisor or of any  affiliated  organization  and members of their  immediate
families,  members of the  National  Association  of  Securities  Dealers,  Inc.
("NASD") and banks may, if they prefer,  subscribe initially for at least $2,500
for Class S and $1,000 for Class AARP through Scudder Investor Services, Inc. by
letter, fax, or telephone.

Shareholders  of other Scudder funds who have  submitted an account  application
and have  certified  a tax  identification  number,  clients  having  a  regular
investment  counsel  account with the Advisor or its  affiliates  and members of
their  immediate  families,  officers  and  employees  of the  Advisor or of any
affiliated  organization and their immediate families,  members of the NASD, and
banks may open an account by wire.  Investors interested in investing in Class S
must call 1-800-225-5163 to get an account number.  During the call the investor
will be asked to indicate the Fund name, class name,  amount to be wired ($2,500
minimum for Class S and $1,000 for Class  AARP),  name of bank or trust  company
from which the wire will be sent, the exact registration of the new account, the
tax  identification  number or Social  Security  number,  address and  telephone
number.  The investor  must then call the bank to arrange a wire transfer to The
Scudder Funds,  Boston, MA 02101, ABA Number 011000028,  DDA Account  9903-5552.
The investor must give the Scudder fund name,  class name,  account name and the
new account  number.  Finally,  the  investor  must send a completed  and signed
application  to the Fund  promptly.  Investors  interested in investing in Class
AARP should call 1-800-253-2277 for further instructions.


The  minimum  initial  purchase  amount  is less than  $2,500  for Class S under
certain special plan accounts and is $1,000 for Class AARP.

Minimum balances

Shareholders  should  maintain a share balance worth at least $2,500 for Class S
and $1,000 for Class AARP.  For fiduciary  accounts such as IRAs,  and custodial
accounts  such as Uniform  Gift to Minor  Act,  and  Uniform  Trust to Minor Act
accounts,  the  minimum  balance is $1,000 for Class S and $500 for Class  AARP.
Each Fund's Board of Directors may change these amounts.  A shareholder may open
an account with at least $1,000 ($500 for


                                       25
<PAGE>

fiduciary/custodial   accounts),  if  an  automatic  investment  plan  (AIP)  of
$100/month  ($50/month  for  Class  AARP and  fiduciary/custodial  accounts)  is
established.  Scudder group  retirement  plans and certain  other  accounts have
similar or lower minimum share balance requirements.

The Funds  reserve  the right,  following  60 days'  written
notice to applicable shareholders, to:

         o        for Class S,  assess an annual $10 per Fund  charge  (with the
                  Fee    to    be     paid    to    the     Fund)     for    any
                  non-fiduciary/non-custodial   account   without  an  automatic
                  investment  plan  (AIP) in place  and a  balance  of less than
                  $2,500; and

         o        redeem  all  shares  in Fund  accounts  below  $1,000  where a
                  reduction in value has occurred due to a redemption,  exchange
                  or  transfer  out of the  account.  The  Fund  will  mail  the
                  proceeds of the redeemed account to the shareholder.

Reductions in value that result solely from market  activity will not trigger an
involuntary  redemption.  Shareholders with a combined household account balance
in any of the Scudder Funds of $100,000 or more, as well as group retirement and
certain other accounts will not be subject to a fee or automatic redemption.

Fiduciary  (e.g., IRA or Roth IRA) and custodial  accounts (e.g.,  UGMA or UTMA)
with balances below $100 are subject to automatic  redemption following 60 days'
written notice to applicable shareholders.

Additional Information About Making Subsequent Investments

Subsequent  purchase  orders for  $10,000 or more and for an amount not  greater
than  four  times  the  value of the  shareholder's  account  may be  placed  by
telephone,  fax, etc. by established  shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD,  and banks.  Orders  placed in this  manner may be  directed to any
office of the Distributor listed in a Fund's  prospectus.  A confirmation of the
purchase  will be mailed  out  promptly  following  receipt of a request to buy.
Federal  regulations  require that payment be received within three (3) business
days.  If  payment is not  received  within  that time,  the order is subject to
cancellation.  In  the  event  of  such  cancellation  or  cancellation  at  the
purchaser's  request, the purchaser will be responsible for any loss incurred by
a Fund or the  principal  underwriter  by  reason of such  cancellation.  If the
purchaser is a  shareholder,  a Fund shall have the  authority,  as agent of the
shareholder, to redeem shares in the account in order to reimburse a Fund or the
principal  underwriter  for the loss incurred.  Net losses on such  transactions
which are not  recovered  from the  purchaser  will be absorbed by the principal
underwriter. Any net profit on the liquidation of unpaid shares will accrue to a
Fund.

Additional Information About Making Subsequent Investments by QuickBuy

Shareholders,  whose  predesignated  bank  account  of record is a member of the
Automated  Clearing  House Network (ACH) and who have elected to  participate in
the QuickBuy program,  may purchase shares of a Fund by telephone.  Through this
service  shareholders  may  purchase  up to  $250,000.  To  purchase  shares  by
QuickBuy,  shareholders  should call before the close of regular  trading on the
New York Stock Exchange,  Inc. (the  "Exchange"),  normally 4 p.m. eastern time.
Proceeds  in the  amount of your  purchase  will be  transferred  from your bank
checking  account two or three  business days  following your call. For requests
received  by the  close of  regular  trading  on the  Exchange,  shares  will be
purchased at the net asset value per share calculated at the close of trading on
the day of your  call.  QuickBuy  requests  received  after the close of regular
trading on the Exchange will begin their  processing and be purchased at the net
asset value  calculated  the following  business day. If you purchase  shares by
QuickBuy and redeem them within seven days of the purchase,  a Fund may hold the
redemption  proceeds for a period of up to seven  business days. If you purchase
shares and there are insufficient funds in your bank account,  the purchase will
be  canceled  and you will be  subject  to any  losses or fees  incurred  in the
transaction.  QuickBuy  transactions  are not available for most retirement plan
accounts. However, QuickBuy transactions are available for Scudder IRA accounts.

In order to request purchases by QuickBuy,  shareholders must have completed and
returned to the Transfer Agent the  application,  including the designation of a
bank  account from which the purchase  payment  will be debited.  New  investors
wishing to  establish  QuickBuy  may so  indicate on the  application.  Existing
shareholders who wish to add


                                       26
<PAGE>

QuickBuy to their  account may do so by completing a QuickBuy  Enrollment  Form.
After sending in an enrollment form  shareholders  should allow 15 days for this
service to be available.

Each Fund employs procedures,  including  recording  telephone calls,  testing a
caller's identity,  and sending written confirmation of telephone  transactions,
designed  to  give  reasonable  assurance  that  instructions   communicated  by
telephone are genuine and to discourage  fraud.  To the extent that the Funds do
not follow such procedures, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.  The Funds will not be liable for acting upon
instructions  communicated  by  telephone  that they  reasonably  believe  to be
genuine.

Investors  interested in making  subsequent  investments in Class AARP of a Fund
should call 1-800-253-2277 for further information.

Checks

A certified  check is not  necessary,  but checks are only  accepted  subject to
collection  at full face  value in U.S.  funds  and must be drawn on or  payable
through, a U.S. bank.

If shares of a Fund are  purchased by a check which proves to be  uncollectible,
the Corporation reserves the right to cancel the purchase  immediately,  and the
purchaser will be  responsible  for any loss incurred by a Fund or the principal
underwriter by reason of such  cancellation.  If the purchaser is a shareholder,
the Corporation shall have the authority, as agent of the shareholder, to redeem
shares in the account in order to reimburse a Fund or the principal  underwriter
for the  loss  incurred.  Investors  whose  orders  have  been  canceled  may be
prohibited  from or  restricted  in placing  future orders in any of the Scudder
funds.

Wire Transfer of Federal Funds

To obtain the net asset value  determined as of the close of regular  trading on
the Exchange on a selected  day,  your bank must forward  federal  funds by wire
transfer and provide the required account information so as to be available to a
Fund prior to the  regular  close of trading on the  Exchange  (normally  4 p.m.
eastern time).

The bank  sending an  investor's  federal  funds by bank wire may charge for the
service.  Presently,  the Funds pay a fee for receipt by the Custodian of "wired
funds," but the right to charge investors for this service is reserved.

Boston banks are presently closed on certain holidays  although the Exchange may
be open.  These  holidays  are  Columbus  Day (the 2nd  Monday in  October)  and
Veterans' Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of a Fund.

Share Price


Purchases  will be filled  without sales charge at the net asset value per share
next computed after receipt of the  application  in good order.  Net asset value
normally  will be computed for each class as of the close of regular  trading on
each day during which the Exchange is open for trading.  Orders  received  after
the close of  regular  trading  on the  Exchange  will be  executed  at the next
business day's net asset value.  If the order has been placed by a member of the
NASD,  other  than the  Distributor,  it is the  responsibility  of that  member
broker,  rather than a Fund,  to forward the purchase  order to Scudder  Service
Corporation  (the  "Transfer  Agent")  in Kansas  City by the  close of  regular
trading on the Exchange.


Share Certificates

Due to the  desire  of each  Fund's  management  to afford  ease of  redemption,
certificates  will  not  be  issued  to  indicate  ownership  in a  Fund.  Share
certificates now in a shareholder's  possession may be sent to a Fund's Transfer
Agent for cancellation and credit to such  shareholder's  account.  Shareholders
who  prefer may hold the  certificates  in their  possession  until they wish to
exchange or redeem such shares.

All issued and  outstanding  shares of what were  formerly  AARP Funds that were
subsequently   reorganized  into  existing  Scudder  Funds  were  simultaneously
cancelled  on the  books  of the AARP  Funds.  Share  certificates


                                       27
<PAGE>

representing  interests  in shares of the  relevant  AARP Fund will  represent a
number of shares of Class AARP of the relevant  Scudder Fund into which the AARP
Fund was reorganized. Class AARP shares of each fund will not issue certificates
representing shares in connection with the reorganization.

Other Information

Each Fund has authorized  certain members of the NASD other than the Distributor
to accept purchase and redemption orders for its shares.  Those brokers may also
designate  other parties to accept  purchase and  redemption  orders on a Fund's
behalf.  Orders for purchase or redemption  will be deemed to have been received
by a Fund when such  brokers or their  authorized  designees  accept the orders.
Subject to the terms of the contract  between a Fund and the broker,  ordinarily
orders will be priced at a class' net asset value next computed after acceptance
by such  brokers  or  their  authorized  designees.  Further,  if  purchases  or
redemptions  of a  Fund's  shares  are  arranged  and  settlement  is made at an
investor's  election through any other authorized NASD member,  that member may,
at its discretion, charge a fee for that service. The Board of Directors and the
Distributor,  also a Fund's principal  underwriter,  each has the right to limit
the amount of purchases  by, and to refuse to sell to, any person.  The Board of
Directors and the Distributor may suspend or terminate the offering of shares of
a Fund at any time for any reason.

The "Tax  Identification  Number" section of the  Application  must be completed
when opening an account.  Applications  and purchase  orders without a certified
tax  identification  number and certain other certified  information (e.g., from
exempt organizations a certification of exempt status),  will be returned to the
investor.  The Funds reserve the right, following 30 days' notice, to redeem all
shares  in  accounts  without  a  correct   certified  Social  Security  or  tax
identification  number.  A  shareholder  may  avoid  involuntary  redemption  by
providing  the Fund with a tax  identification  number  during the 30-day notice
period.

The  Corporation  may issue  shares at net asset  value in  connection  with any
merger or  consolidation  with, or  acquisition of the assets of, any investment
company or personal  holding  company,  subject to the  requirements of the 1940
Act.

                            EXCHANGES AND REDEMPTIONS

Exchanges

Exchanges  are  comprised of a  redemption  from one Scudder fund and a purchase
into another  Scudder fund.  The purchase side of the exchange  either may be an
additional  investment  into an existing  account or may  involve  opening a new
account in the other fund.  When an  exchange  involves a new  account,  the new
account  will be  established  with the same  registration,  tax  identification
number,  address,  telephone redemption option,  "Scudder Automated  Information
Line"  (SAIL)  transaction  authorization  and  dividend  option as the existing
account.  Other features will not carry over  automatically  to the new account.
Exchanges  to a new fund account must be for a minimum of $2,500 for Class S and
$1,000 for Class AARP. When an exchange represents an additional investment into
an existing  account,  the account  receiving  the exchange  proceeds  must have
identical registration,  address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more for Class S.
If the  account  receiving  the  exchange  proceeds  is to be  different  in any
respect,  the  exchange  request must be in writing and must contain an original
signature guarantee.

Exchange  orders received before the close of regular trading on the Exchange on
any  business day  ordinarily  will be executed at  respective  net asset values
determined  on that day.  Exchange  orders  received  after the close of regular
trading on the Exchange will be executed on the following business day.

Investors may also request, at no extra charge, to have exchanges  automatically
executed  on a  predetermined  schedule  from one  Scudder  fund to an  existing
account in another Scudder fund, at current net asset value,  through  Scudder's
Automatic Exchange Program. Exchanges must be for a minimum of $50. Shareholders
may add this free feature over the telephone or in writing.  Automatic Exchanges
will continue until the shareholder  requests by telephone or in writing to have
the  feature  removed,  or  until  the  originating  account  is  depleted.  The
Corporation  and the  Transfer  Agent  each  reserves  the right to  suspend  or
terminate the privilege of the Automatic Exchange Program at any time.



                                       28
<PAGE>

There is no charge to the  shareholder  for any  exchange  described  above.  An
exchange  into another  Scudder fund is a redemption of shares and therefore may
result in tax consequences  (gain or loss) to the shareholder,  and the proceeds
of such an exchange may be subject to backup withholding. (See "TAXES.")

Investors  currently  receive  the  exchange  privilege,  including  exchange by
telephone,   automatically   without  having  to  elect  it.  The  Funds  employ
procedures,  including recording  telephone calls,  testing a caller's identity,
and sending  written  confirmation of telephone  transactions,  designed to give
reasonable assurance that instructions communicated by telephone are genuine and
to discourage  fraud. To the extent that a Fund does not follow such procedures,
it may  be  liable  for  losses  due to  unauthorized  or  fraudulent  telephone
instructions.   A  Fund  will  not  be  liable  for  acting  upon   instructions
communicated by telephone that it reasonably  believes to be genuine.  The Funds
and the  Transfer  Agent each  reserves  the right to suspend or  terminate  the
privilege of exchanging by telephone or fax at any time.

The Scudder  Funds into which  investors  may make an exchange  are listed under
"THE SCUDDER  FAMILY OF FUNDS" herein.  Before making an exchange,  shareholders
should obtain from Scudder Investor  Services,  Inc. a prospectus of the Scudder
fund into which the exchange is being  contemplated.  The exchange privilege may
not be available for certain Scudder Funds or classes of Scudder Funds. For more
information,  please call  1-800-225-5163  (Class S) and  1-800-253-2277  (Class
AARP).

Scudder retirement plans may have different exchange requirements.  Please refer
to appropriate plan literature.

Redemption By Telephone

Shareholders currently receive the right automatically,  without having to elect
it, to redeem by telephone up to $100,000 and have the proceeds  mailed to their
address of  record.  Shareholders  may also  request  by  telephone  to have the
proceeds  mailed  or wired  to their  predesignated  bank  account.  In order to
request wire  redemptions  by telephone,  shareholders  must have  completed and
returned to the Transfer Agent the  application,  including the designation of a
bank account to which the redemption proceeds are to be sent.

         (a)      NEW INVESTORS  wishing to establish  the telephone  redemption
                  privilege  must  complete  the  appropriate   section  on  the
                  application.

         (b)      EXISTING  SHAREHOLDERS  (except  those  who are  Scudder  IRA,
                  Scudder pension and profit-sharing, Scudder 401(k) and Scudder
                  403(b) Planholders) who wish to establish telephone redemption
                  to a predesignated bank account or who want to change the bank
                  account previously  designated to receive redemption  proceeds
                  should  either  return  a  Telephone  Redemption  Option  Form
                  (available  upon request),  or send a letter  identifying  the
                  account and  specifying  the exact  information to be changed.
                  The letter must be signed exactly as the shareholder's name(s)
                  appears on the account.  An original signature and an original
                  signature guarantee are required for each person in whose name
                  the account is registered.

If a  request  for a  redemption  to a  shareholder's  bank  account  is made by
telephone  or fax,  payment  will be by  Federal  Reserve  bank wire to the bank
account  designated  on the  application,  unless  a  request  is made  that the
redemption  check be mailed to the designated  bank account.  There will be a $5
charge for all wire redemptions.

Note: Investors designating a savings bank to receive their telephone redemption
proceeds  are  advised  that if the  savings  bank is not a  participant  in the
Federal Reserve System,  redemption  proceeds must be wired through a commercial
bank which is a correspondent  of the savings bank. As this may delay receipt by
the  shareholder's  account,  it is suggested  that  investors  wishing to use a
savings bank discuss wire procedures with their bank and submit any special wire
transfer information with the telephone redemption authorization. If appropriate
wire  information  is not  supplied,  redemption  proceeds will be mailed to the
designated bank.

The Funds employ  procedures,  including  recording  telephone calls,  testing a
caller's identity,  and sending written confirmation of telephone  transactions,
designed  to  give  reasonable  assurance  that  instructions   communicated  by
telephone  are genuine and to discourage  fraud.  To the extent that a Fund does
not follow such  procedures,  it may be liable for losses due to unauthorized or
fraudulent  telephone  instructions.  A Fund will not be liable for acting  upon
instructions  communicated  by  telephone  that  it  reasonably  believes  to be
genuine.



                                       29
<PAGE>

Redemption requests by telephone (technically a repurchase agreement between the
Fund and the  shareholder)  of shares  purchased  by check will not be  accepted
until the purchase check has cleared which may take up to seven business days.

Redemption by QuickSell

Shareholders,  whose  predesignated  bank  account  of record is a member of the
Automated  Clearing  House Network (ACH) and have elected to  participate in the
QuickSell program,  may sell shares of a Fund by telephone.  Redemptions must be
for at least $250. Proceeds in the amount of your redemption will be transferred
to your bank checking account in two or three business days following your call.
For requests received by the close of regular trading on the Exchange,  normally
4 p.m.  eastern  time,  shares will be redeemed at the net asset value per share
calculated at the close of trading on the day of your call.  QuickSell  requests
received  after the close of regular  trading on the  Exchange  will begin their
processing the following business day. QuickSell  transactions are not available
for Scudder IRA accounts and most other retirement plan accounts.

In order to request  redemptions by QuickSell,  shareholders must have completed
and returned to the Transfer Agent the application, including the designation of
a bank account.  New investors wishing to establish QuickSell may so indicate on
the  application.  Existing  shareholders  who  wish to add  QuickSell  to their
account may do so by completing a QuickSell Enrollment Form. After sending in an
enrollment  form,  shareholders  should allow for 15 days for this service to be
available.

The Funds employ  procedures,  including  recording  telephone calls,  testing a
caller's identity,  and sending written confirmation of telephone  transactions,
designed  to  give  reasonable  assurance  that  instructions   communicated  by
telephone  are genuine and to discourage  fraud.  To the extent that a Fund does
not follow such  procedures,  it may be liable for losses due to unauthorized or
fraudulent  telephone  instructions.  A Fund will not be liable for acting  upon
instructions  communicated  by  telephone  that  it  reasonably  believes  to be
genuine.

Redemption by Mail or Fax

Any  existing  share  certificates   representing  shares  being  redeemed  must
accompany a request for  redemption  and be duly  endorsed or  accompanied  by a
proper stock assignment form with signature(s) guaranteed.

In order to ensure proper  authorization  before redeeming shares,  the Transfer
Agent may request  additional  documents  such as, but not  restricted to, stock
powers,  trust  instruments,  certificates  of death,  appointments as executor,
certificates of corporate  authority and waivers of tax (required in some states
when settling estates).

It is  suggested  that  shareholders  holding  shares  registered  in other than
individual  names contact the Transfer Agent prior to any  redemptions to ensure
that all necessary documents accompany the request.  When shares are held in the
name of a corporation,  trust,  fiduciary  agent,  attorney or partnership,  the
Transfer Agent requires,  in addition to the stock power,  certified evidence of
authority to sign.  These  procedures are for the protection of shareholders and
should be followed to ensure  prompt  payment.  Redemption  requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven (7) business days after receipt by the Transfer  Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven (7) days of payment for shares  tendered for repurchase or redemption
may result, but only until the purchase check has cleared.

The  requirements  for IRA  redemptions  are  different  from those for  regular
accounts. For more information call 1-800-225-5163.

Redemption-in-Kind

The Corporation reserves the right, if conditions exist which make cash payments
undesirable,  to honor any request for redemption or repurchase  order by making
payment in whole or in part in readily  marketable  securities  chosen by a Fund
and valued as they are for  purposes  of  computing  a Fund's net asset value (a
redemption-in-kind).  If payment is made in securities,  a shareholder may incur
transaction  expenses in converting  these securities into cash. The Corporation
has  elected,  however,  to be  governed  by Rule 18f-1  under the 1940 Act as a
result of which a Fund is  obligated to redeem  shares,  with respect to any one
shareholder  during  any  90-day  period,  solely  in cash up to the  lesser  of
$250,000  or 1% of the net  asset  value of that  Fund at the  beginning  of the
period.



                                       30
<PAGE>

Other Information


Clients,  officers or employees of the Advisor or of an affiliated organization,
and members of such clients',  officers' or employees' immediate families, banks
and members of the NASD may direct repurchase requests to a Fund through Scudder
Investor  Services,  Inc.  at Two  International  Place,  Boston,  Massachusetts
02110-4103 by letter,  fax, TWX, or telephone.  A two-part  confirmation will be
mailed out promptly after receipt of the repurchase  request.  A written request
in good order with a proper original  signature  guarantee,  as described in the
Shares' prospectus,  should be sent with a copy of the invoice to Scudder Funds,
c/o Scudder Confirmed Processing, Two International Place, Boston, Massachusetts
02110-4103.  Failure to deliver shares or required  documents (see above) by the
settlement date may result in cancellation of the trade and the shareholder will
be responsible  for any loss incurred by a Fund or the principal  underwriter by
reason  of such  cancellation.  Net  losses on such  transactions  which are not
recovered from the  shareholder  will be absorbed by the principal  underwriter.
Any net gains so resulting  will accrue to a Fund.  For this group,  repurchases
will be carried out at the net asset value next computed  after such  repurchase
requests have been received.  The  arrangements  described in this paragraph for
repurchasing shares are discretionary and may be discontinued at any time.


Shareholders who wish to redeem shares from Special Plan Accounts should contact
the employer, trustee or custodian of the Plan for the requirements.

If a  shareholder  redeems all shares in the account  after the record date of a
dividend,  the shareholder  receives in addition to the net asset value thereof,
all  declared  but unpaid  dividends  thereon.  The value of shares  redeemed or
repurchased may be more or less than the shareholder's cost depending on the net
asset value at the time of  redemption or  repurchase.  A Fund does not impose a
redemption or repurchase  charge,  although a wire charge may be applicable  for
redemption  proceeds wired to an investor's bank account.  Redemption of shares,
including  redemptions  undertaken  to effect an exchange  for shares of another
Scudder fund, may result in tax  consequences  (gain or loss) to the shareholder
and the proceeds of such redemptions may be subject to backup withholding.  (See
"TAXES.")

The determination of net asset value and a shareholder's  right to redeem shares
and to receive payment  therefore may be suspended at times (a) during which the
Exchange is closed,  other than  customary  weekend and  holiday  closings,  (b)
during which  trading on the Exchange is restricted  for any reason,  (c) during
which an emergency  exists as a result of which disposal by a Fund of securities
owned by it is not reasonably  practicable  or it is not reasonably  practicable
for a Fund fairly to determine the value of its net assets,  or (d) during which
the Securities and Exchange  Commission (the  "Commission"),  by order permits a
suspension of the right of redemption or a  postponement  of the date of payment
or of  redemption;  provided  that  applicable  rules  and  regulations  of  the
Commission (or any succeeding governmental authority) shall govern as to whether
the conditions prescribed in (b), (c) or (d) exist.

                   FEATURES AND SERVICES OFFERED BY THE FUNDS

Internet access

World Wide Web Site -- The address of the Scudder Funds site is www.scudder.com.
The  address  for Class  AARP  shares is  aarp.scudder.com.  These  sites  offer
guidance on global  investing and  developing  strategies to help meet financial
goals and  provide  access to the  Scudder  investor  relations  department  via
e-mail.  The sites also  enable  users to access or view fund  prospectuses  and
profiles with links between summary information in Fund Summaries and details in
the  Prospectus.  Users  can fill out new  account  forms  on-line,  order  free
software, and request literature on funds.


Account  Access -- The Advisor is among the first mutual fund  families to allow
shareholders to manage their fund accounts  through the World Wide Web.  Scudder
Fund  shareholders  can view a snapshot  of  current  holdings,  review  account
activity and move assets between Scudder Fund accounts.

The  Advisor's  personal  portfolio  capabilities  --  known  as  SEAS  (Scudder
Electronic  Account  Services) -- are  accessible  only by current  Scudder Fund
shareholders  who have set up a Personal  Page on  Scudder's  Web site.  Using a
secure Web  browser,  shareholders  sign on to their  account  with their Social
Security  number and their SAIL  password.  As an additional  security  measure,
users can change their  current  password or disable  access to their  portfolio
through the World Wide Web.


                                       31
<PAGE>

An Account  Activity option reveals a financial  history of transactions  for an
account,  with trade  dates,  type and amount of  transaction,  share  price and
number of shares  traded.  For users who wish to trade  shares  between  Scudder
Funds,  the Fund Exchange option  provides a step-by-step  procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.

Dividends and Capital Gains Distribution Options

Investors  have  freedom to choose  whether to receive  cash or to reinvest  any
dividends  from net investment  income or  distributions  from realized  capital
gains in additional Shares of a Fund. A change of instructions for the method of
payment may be given to the  Transfer  Agent in writing at least five days prior
to a dividend  record date.  Shareholders  may change their  dividend  option by
calling  1-800-225-5163  for Class S and  1-800-253-2277  for  Class  AARP or by
sending written  instructions to the Transfer Agent. Please include your account
number with your written request.

Reinvestment  is usually made at the closing net asset value  determined  on the
business  day   following  the  record  date.   Investors  may  leave   standing
instructions  with the  Transfer  Agent  designating  their  option  for  either
reinvestment  or cash  distribution  of any income  dividends  or capital  gains
distributions.  If no  election is made,  dividends  and  distributions  will be
invested in additional class shares of a Fund.

Investors may also have dividends and distributions  automatically  deposited to
their predesignated bank account through Scudder's Direct Distributions Program.
Shareholders who elect to participate in the Direct  Distributions  Program, and
whose  predesignated  checking  account  of  record  is  with a  member  bank of
Automated  Clearing  House  Network  (ACH)  can have  income  and  capital  gain
distributions  automatically  deposited to their  personal bank account  usually
within  three  business  days  after a Fund  pays  its  distribution.  A  Direct
Distributions request form can be obtained by calling 1-800-225-5163 for Class S
and  1-800-253-2277  for Class AARP.  Confirmation  Statements will be mailed to
shareholders as notification that distributions have been deposited.

Investors  choosing to participate in Scudder's  Automatic  Withdrawal Plan must
reinvest any dividends or capital gains. For most retirement plan accounts,  the
reinvestment of dividends and capital gains is also required.

Transaction Summaries

Annual  summaries  of all  transactions  in each Fund  account are  available to
shareholders. The summaries may be obtained by calling 1-800-SCUDDER for Class S
and 1-800-253-2277 for Class AARP.



Reports to Shareholders


The Corporation  issues to its shareholders an unaudited  semiannual  report for
Global Fund,  an audited  semiannual  report for  International  Fund and annual
financial  statements  audited by independent  accountants,  including a list of
investments held and statements of assets and liabilities,  operations,  changes
in net assets and financial highlights. Each distribution will be accompanied by
a brief explanation of the source of the distribution.


                           THE SCUDDER FAMILY OF FUNDS

MONEY MARKET
         Scudder U.S. Treasury Money Fund
         Scudder Cash Investment Trust
         Scudder Money Market Series+

TAX FREE MONEY MARKET
         Scudder Tax Free Money Fund

TAX FREE
         Scudder  Medium  Term Tax Free Fund


                                       32
<PAGE>

         Scudder Managed Municipal Bonds
         Scudder High Yield Tax Free Fund**
         Scudder California  Tax Free Fund*
         Scudder Massachusetts Tax Free Fund*
         Scudder New York Tax Free Fund*

U.S. INCOME
         Scudder Short Term Bond Fund
         Scudder GNMA Fund
         Scudder Income Fund
         Scudder High Yield Bond Fund

GLOBAL INCOME
         Scudder Global Bond Fund
         Scudder Emerging Markets Income Fund

ASSET ALLOCATION

         Scudder Pathway Series: Conservative Portfolio
         Scudder Pathway Series: Moderate Portfolio
         Scudder Pathway Series: Growth Portfolio


U.S. GROWTH AND INCOME
         Scudder Balanced Fund
         Scudder Dividend & Growth Fund
         Scudder Growth and Income Fund
         Scudder Select 500 Fund
         Scudder S&P 500 Index Fund

U.S. GROWTH

     Value
         Scudder Large Company Value Fund
         Scudder Value Fund**
         Scudder Small Company Stock Fund
         Scudder Small Company Value Fund

     Growth
         Scudder Capital Growth Fund
         Scudder Classic Growth Fund**
         Scudder Large Company Growth Fund
         Scudder Select 1000 Growth Fund
         Scudder Development Fund
         Scudder 21st Century Growth Fund

GLOBAL EQUITY

     Worldwide
         Scudder Global Fund
         Scudder International Fund***
         Scudder Global Discovery Fund**


                                       33
<PAGE>

         Scudder Emerging Markets Growth Fund
         Scudder Gold Fund

     Regional
         Scudder Greater Europe Growth Fund
         Scudder Pacific Opportunities Fund
         Scudder Latin America Fund
         The Japan Fund, Inc.

INDUSTRY SECTOR FUNDS

     Choice Series

         Scudder Health Care Fund
         Scudder Technology Innovation Fund

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


+        The institutional  class of shares is not part of the Scudder Family of
         Funds.


*        These funds are not available for sale in all states.  For information,
         contact Scudder Investor Services, Inc.


**       Only the Scudder Shares are part of the Scudder Family of Funds.

***      Only Class S shares are part of the Scudder Family of Funds.

The net asset  values of most  Scudder  funds can be found  daily in the "Mutual
Funds" section of The Wall Street  Journal under  "Scudder  Funds," and in other
leading newspapers  throughout the country.  The latest seven-day yields for the
money-market  funds can be found every Monday and Thursday in the  "Money-Market
Funds" section of The Wall Street Journal. This information also may be obtained
by calling the Scudder Automated Information Line (SAIL) at 1-800-343-2890.

Certain  Scudder  funds or classes  thereof may not be available for purchase or
exchange. For more information, please call 1-800-225-5163.

                              SPECIAL PLAN ACCOUNTS


Detailed  information on any Scudder  investment plan,  including the applicable
charges,  minimum  investment  requirements  and  disclosures  made  pursuant to
Internal Revenue Service (the "IRS") requirements, may be obtained by contacting
Scudder Investor Services, Inc., Two International Place, Boston,  Massachusetts
02110-4103 or by calling toll free, 1-800-225-2470. The discussions of the plans
below  describe only certain  aspects of the federal income tax treatment of the
plan. The state tax treatment may be different and may vary from state to state.
It is advisable for an investor  considering the funding of the investment plans
described  below to consult with an attorney or other  investment or tax advisor
with respect to the suitability requirements and tax aspects thereof.


Shares of a Fund may also be a permitted  investment  under  profit  sharing and
pension  plans  and IRA's  other  than  those  offered  by a Fund's  distributor
depending on the provisions of the relevant plan or IRA.

None  of  the  plans   assures  a  profit  or  guarantees   protection   against
depreciation, especially in declining markets.

Scudder  Retirement Plans:  Profit-Sharing  and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals

Shares of a Fund may be purchased as the  investment  medium under a plan in the
form of a Scudder  Profit-Sharing  Plan  (including  a version of the Plan which
includes a  cash-or-deferred  feature) or a Scudder Money Purchase  Pension Plan
(jointly referred to as the Scudder  Retirement Plans) adopted by a corporation,
a self-employed  individual or a group of self-employed  individuals  (including
sole proprietorships and partnerships),  or other qualifying organization.  Each
of these forms was approved by the IRS as a prototype.  The IRS's approval of an
employer's  plan  under  Section  401(a) of the  Internal  Revenue  Code will be
greatly facilitated if it is in such


                                       34
<PAGE>

approved  form.  Under certain  circumstances,  the IRS will assume that a plan,
adopted  in  this  form,  after  special  notice  to any  employees,  meets  the
requirements of Section 401(a) of the Internal Revenue Code as to form.

Scudder  401(k):  Cash or  Deferred  Profit-Sharing  Plan for  Corporations  and
Self-Employed Individuals

Shares of a Fund may be purchased as the  investment  medium under a plan in the
form  of a  Scudder  401(k)  Plan  adopted  by a  corporation,  a  self-employed
individual or a group of self-employed  individuals  (including sole proprietors
and partnerships), or other qualifying organization. This plan has been approved
as a prototype by the IRS.

Scudder IRA: Individual Retirement Account

Shares of a Fund may be purchased as the underlying investment for an Individual
Retirement  Account  which  meets  the  requirements  of  Section  408(a) of the
Internal Revenue Code.

A single individual who is not an active  participant in an  employer-maintained
retirement plan, a simplified  employee pension plan, or a tax-deferred  annuity
program (a  "qualified  plan"),  and a married  individual  who is not an active
participant  in a  qualified  plan  and  whose  spouse  is  also  not an  active
participant   in  a  qualified   plan,  are  eligible  to  make  tax  deductible
contributions  of up to  $2,000  to an IRA  prior  to the year  such  individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified  plans (or who have spouses who are active  participants)  are also
eligible to make  tax-deductible  contributions to an IRA; the annual amount, if
any, of the  contribution  which such an  individual  will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation  prohibits an individual
from   contributing   what  would   otherwise  be  the  maximum   tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.

An eligible  individual  may  contribute  as much as $2,000 of qualified  income
(earned income or, under certain circumstances, alimony) to an IRA each year (up
to $2,000 per individual for married couples, even if only one spouse has earned
income).  All  income  and  capital  gains  derived  from  IRA  investments  are
reinvested  and  compound  tax-deferred  until  distributed.  Such  tax-deferred
compounding can lead to substantial retirement savings.


The following paragraph applies to Class S shareholders only:


Scudder 403(b) Plan

Shares of a Fund may also be  purchased  as the  underlying  investment  for tax
sheltered  annuity  plans  under the  provisions  of  Section  403(b)(7)  of the
Internal  Revenue  Code.  In  general,  employees  of  tax-exempt  organizations
described in Section  501(c)(3) of the Internal Revenue Code (such as hospitals,
churches,  religious,  scientific,  or literary  organizations  and  educational
institutions)  or a public school system are eligible to participate in a 403(b)
plan.

Automatic Withdrawal Plan

Non-retirement  plan shareholders may establish an Automatic  Withdrawal Plan to
receive monthly,  quarterly or periodic  redemptions from his or her account for
any designated amount of $50 or more.  Shareholders may designate which day they
want the automatic withdrawal to be processed. The check amounts may be based on
the redemption of a fixed dollar amount, fixed share amount,  percent of account
value or declining  balance.  The Plan provides for income dividends and capital
gains distributions,  if any, to be reinvested in additional Shares.  Shares are
then  liquidated  as necessary  to provide for  withdrawal  payments.  Since the
withdrawals are in amounts  selected by the investor and have no relationship to
yield or income,  payments  received  cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the  initial   investment  and  any  reinvested   dividends  and  capital  gains
distributions.  Requests for  increases in  withdrawal  amounts or to change the
payee must be submitted in writing, signed exactly as the account is registered,
and contain  signature  guarantee(s).  Any such  requests  must be received by a
Fund's  transfer  agent  ten  days  prior  to the  date of the  first  automatic
withdrawal.  An Automatic  Withdrawal  Plan may be terminated at any time by the
shareholder,  the  Corporation  or its  agent  on  written  notice,  and will be
terminated when all Shares of a Fund under the Plan have been liquidated or upon
receipt by the Corporation of notice of death of the shareholder.



                                       35
<PAGE>

An  Automatic   Withdrawal   Plan  request  form  can  be  obtained  by  calling
1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP.

Group or Salary Deduction Plan

An  investor  may join a Group  or  Salary  Deduction  Plan  where  satisfactory
arrangements have been made with Scudder Investor Services,  Inc. for forwarding
regular  investments  through a single source.  The minimum annual investment is
$240 per investor which may be made in monthly, quarterly,  semiannual or annual
payments.  The minimum  monthly deposit per investor is $20. Except for trustees
or custodian fees for certain  retirement plans, at present there is no separate
charge for maintaining group or salary deduction plans; however, the Corporation
and its agents reserve the right to establish a maintenance charge in the future
depending on the services required by the investor.

The  Corporation  reserves  the  right,  after  notice  has  been  given  to the
shareholder,  to redeem and close a shareholder's  account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per  individual  or in the  event  of a  redemption  which  occurs  prior to the
accumulation  of that amount or which  reduces  the  account  value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after  notification.  An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.

Automatic Investment Plan

Shareholders may arrange to make periodic  investments in Class S shares through
automatic  deductions from checking  accounts by completing the appropriate form
and providing the necessary documentation to establish this service. The minimum
investment is $50 for Class S shares.

Shareholders may arrange to make periodic investments in Class AARP of each Fund
through automatic deductions from checking accounts.  The minimum pre-authorized
investment  amount is $50. New  shareholders  who open a Gift to Minors  Account
pursuant  to the Uniform  Gift to Minors Act (UGMA) and the Uniform  Transfer to
Minors Act (UTMA) and who sign up for the Automatic Investment Plan will be able
to open a Fund  account  for less  than  $500 if they  agree to  increase  their
investment  to $500 within a 10 month  period.  Investors may also invest in any
Class AARP for $500 if they establish a plan with a minimum automatic investment
of at least $100 per month.  This  feature is only  available to Gifts to Minors
Account investors. The Automatic Investment Plan may be discontinued at any time
without prior notice to a shareholder  if any debit from their bank is not paid,
or by written  notice to the  shareholder at least thirty days prior to the next
scheduled payment to the Automatic Investment Plan.

The Automatic Investment Plan involves an investment strategy called dollar cost
averaging.  Dollar cost  averaging is a method of  investing  whereby a specific
dollar  amount is invested at regular  intervals.  By investing  the same dollar
amount each period,  when shares are priced low the investor  will purchase more
shares  than  when  the  share  price is  higher.  Over a  period  of time  this
investment  approach may allow the  investor to reduce the average  price of the
shares purchased.  However, this investment approach does not assure a profit or
protect  against loss. This type of regular  investment  program may be suitable
for various  investment  goals such as, but not limited to, college  planning or
saving for a home.

Uniform Transfers/Gifts to Minors Act

Grandparents,  parents or other donors may set up custodian accounts for minors.
The minimum initial  investment is $1,000 unless the donor agrees to continue to
make  regular  share  purchases  for the  account  through  Scudder's  Automatic
Investment Plan (AIP). In this case, the minimum initial investment is $500.

The  Corporation  reserves  the  right,  after  notice  has  been  given  to the
shareholder and custodian,  to redeem and close a  shareholder's  account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.



                                       36
<PAGE>

Scudder Roth IRA: Individual Retirement Account

Shares  of a Fund  may be  purchased  as the  underlying  investment  for a Roth
Individual  Retirement  Account which meets the  requirements of Section 408A of
the Internal Revenue Code.

A single  individual  earning below $95,000 can contribute up to $2,000 per year
to a Roth IRA. The maximum contribution amount diminishes and gradually falls to
zero for single  filers with  adjusted  gross  incomes  ranging  from $95,000 to
$110,000.  Married  couples  earning  less than  $150,000  combined,  and filing
jointly,  can  contribute a full $4,000 per year  ($2,000 per IRA).  The maximum
contribution  amount for married couples filing jointly phases out from $150,000
to $160,000.

An eligible  individual can contribute money to a traditional IRA and a Roth IRA
as long as the total  contribution  to all IRAs does not exceed  $2,000.  No tax
deduction  is  allowed  under  Section  219 of the  Internal  Revenue  Code  for
contributions to a Roth IRA.  Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.

All income and capital gains derived from Roth IRA  investments  are  reinvested
and  compounded  tax-free.  Such tax-free  compounding  can lead to  substantial
retirement savings. No distributions are required to be taken prior to the death
of the original account holder. If a Roth IRA has been established for a minimum
of five years,  distributions  can be taken  tax-free after reaching age 59 1/2,
for a first-time home purchase ($10,000 maximum,  one-time use) or upon death or
disability.  All other distributions of earnings from a Roth IRA are taxable and
subject to a 10% tax penalty unless an exception applies.  Exceptions to the 10%
penalty include:  disability,  certain medical expenses,  the purchase of health
insurance for an unemployed individual and qualified higher education expenses.

         An  individual  with an income of  $100,000 or less (who is not married
filing  separately)  can roll his or her existing IRA into a Roth IRA.  However,
the individual  must pay taxes on the taxable  amount in his or her  traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year  period.  After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.

                    DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

The Funds intend to follow the practice of distributing  all of their investment
company  taxable  income,  which includes any excess of net realized  short-term
capital gains over net realized  long-term capital losses. A Fund may follow the
practice of  distributing  the entire excess of net realized  long-term  capital
gains over net realized  short-term  capital losses.  However, a Fund may retain
all or part of such gain for  reinvestment  after  paying  the  related  federal
income  taxes  for which  the  shareholders  may then be asked to claim a credit
against their federal income tax liability. (See "TAXES.")

If a Fund does not distribute the amount of capital gain and/or  ordinary income
required to be distributed by an excise tax provision of the Code, a Fund may be
subject to that excise tax. (See "TAXES.") In certain circumstances,  a Fund may
determine that it is in the interest of shareholders to distribute less than the
required amount.

Earnings and profits  distributed to  shareholders on redemptions of Fund shares
may be  utilized  by a Fund,  to the  extent  permissible,  as part of a  Fund's
dividends paid deduction on its federal tax return.

Each Fund intends to distribute  its investment  company  taxable income and any
net realized  capital gains in November or December to avoid federal excise tax,
although an additional distribution may be made if necessary.

Both types of distributions  will be made in Shares of a Fund and  confirmations
will be mailed to each  shareholder  unless a shareholder has elected to receive
cash, in which case a check will be sent.  Distributions  of investment  company
taxable income and net realized capital gains are taxable (See "TAXES"), whether
made in Shares or cash.

Each  distribution  is  accompanied  by a  brief  explanation  of the  form  and
character of the  distribution.  The  characterization  of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year each Fund issues to each  shareholder  a  statement  of the
federal income tax status of all distributions in the prior calendar year.



                                       37
<PAGE>

                             PERFORMANCE INFORMATION

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

Average Annual Total Return

Average  Annual Total Return is the average  annual  compound rate of return for
the periods of one year, five years and ten years,  all ended on the last day of
a recent  calendar  quarter.  Average  annual  total return  quotations  reflect
changes  in the price of the Class S shares and assume  that all  dividends  and
capital gains  distributions  during the respective  periods were  reinvested in
Class S 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 Returns for the period ended August 31, 2000

                                             1 Year       5 Years       10 Years

Scudder Global Fund - Class S*               13.83%        14.37%         12.73%
Scudder International Fund - Class S*        17.09%        15.89%         11.61%

*  Since Class AARP shares (in the case of each fund) are new classes of shares,
   no performance information is available. However, Class AARP shares will have
   substantially  similar annual returns  because the shares are invested in the
   same portfolio of securities, and the annual returns would differ only to the
   extent that expenses differ.


Cumulative Total Return

         Cumulative   Total  Return  is  the  compound   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 the Shares and assume
that all  dividends  and  capital  gains  distributions  during the period  were
reinvested  in 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.




                                       38
<PAGE>

      Cumulative Annual Total Returns for the period ended August 31, 2000

                                           1 Year        5 Years        10 Years

Scudder Global Fund - Class S*             13.83%         95.72%        231.29%
Scudder International Fund - Class S*      17.09%        109.05%        199.85%

*  Since Class AARP shares (in the case of each fund) are new classes of shares,
   no performance information is available. However, Class AARP shares will have
   substantially  similar annual returns  because the shares are invested in the
   same portfolio of securities, and the annual returns would differ only to the
   extent that expenses differ.

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.

From  time  to  time,  in  advertisements,  sales  literature,  and  reports  to
shareholders  or prospective  investors,  figures  relating to the growth in the
total net assets of the Fund apart from capital  appreciation  will be cited, as
an update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital  appreciation  generally will be covered
by marketing literature as part of the Fund's and classes' performance data.

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

Comparison of Fund Performance

A  comparison  of  the  quoted  non-standard  performance  offered  for  various
investments is valid only if performance is calculated in the same manner. Since
there  are  different  methods  of  calculating  performance,  investors  should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.

In connection  with  communicating  their  performance to current or prospective
shareholders,  the Funds also may compare  these figures to the  performance  of
unmanaged  indices  which may assume  reinvestment  of dividends or interest but
generally do not reflect deductions for administrative and management costs.

Historical  information on the value of the dollar versus foreign currencies may
be used  from  time  to  time  in  advertisements  concerning  the  Funds.  Such
historical  information is not indicative of future fluctuations in the value of
the U.S. dollar against these currencies.  In addition,  marketing materials may
cite country and economic statistics and historical stock market performance for
any of the countries in which a Fund invests.

From time to time, in advertising and marketing literature, a Fund's performance
may be compared to the  performance of broad groups of mutual funds with similar
investment goals, as tracked by independent organizations.


From  time to time,  in  marketing  and other  Fund  literature,  Directors  and
officers  of a  Fund,  its  portfolio  manager,  or  members  of  the  portfolio
management  team may be  depicted  and quoted to give  prospective  and  current
shareholders  a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Advisor has under management in
various geographical areas may be quoted in advertising and marketing materials.


Marketing and other Fund  literature  may include a description of the potential
risks and rewards  associated  with an investment in a Fund. The description may
include a "risk/return spectrum" which compares the Funds to other Scudder funds
or broad  categories of funds,  such as money market,  bond or equity funds,  in
terms of  potential  risks and  returns.  Money  market  funds are  designed  to
maintain a constant $1.00 share price and have a fluctuating yield.


                                       39
<PAGE>

Share  price,  yield and total return of a bond fund will  fluctuate.  The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank  products,  such as  certificates  of deposit.  Unlike
mutual  funds,  certificates  of deposit  are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.

Because bank products  guarantee the principal  value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than  investments  in either bond or equity funds,  which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an  investment as prices  increase over a long time period.  The
risks/returns  associated with an investment in bond or equity funds depend upon
many factors.  For bond funds these factors  include,  but are not limited to, a
fund's overall  investment  objective,  the average portfolio  maturity,  credit
quality of the securities  held, and interest rate movements.  For equity funds,
factors  include  a fund's  overall  investment  objective,  the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns  associated  with an  investment in  international  bond or equity
funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential  for less return  than  longer-term  bond  funds.  The same is true of
domestic bond funds relative to  international  bond funds,  and bond funds that
purchase  higher quality  securities  relative to bond funds that purchase lower
quality securities.  Growth and income equity funds are generally  considered to
be less risky and offer the  potential  for less return than  growth  funds.  In
addition,  international  equity funds  usually are  considered  more risky than
domestic equity funds but generally offer the potential for greater return.

Evaluation of Fund performance or other relevant statistical information made by
independent  sources  may  also  be used in  advertisements  concerning  a Fund,
including reprints of, or selections from, editorials or articles about a Fund.

                            ORGANIZATION OF THE FUNDS

Scudder International Fund, Inc. was organized as Scudder Fund of Canada Ltd. in
Canada in 1953 by the investment  management  firm of Scudder,  Stevens & Clark,
Inc.  On March 16,  1964,  the name of the  Corporation  was  changed to Scudder
International  Investments Ltd. On July 31, 1975, the corporate  domicile of the
Corporation was changed to the U.S.  through the transfer of its net assets to a
newly formed Maryland corporation, Scudder International Fund, Inc., in exchange
for shares of the Corporation which then were distributed to the shareholders of
the Corporation.


The authorized  capital stock of Scudder  International  Fund,. Inc. consists of
2,247,923,888  billion  shares of a par value of $.01 each,  which capital stock
has been divided  into five series:  Scudder  International  Fund,  the original
series;  Scudder Latin America Fund and Scudder Pacific Opportunities Fund, both
organized in December 1992,  Scudder  Greater  Europe Growth Fund,  organized in
October 1994, and Scudder Emerging  Markets Growth Fund,  organized in May 1996.
Each series consists of 320 million shares except for  International  Fund which
consists of 620,595,597  million shares.  Scudder  International Fund is further
divided into seven classes of shares, Class AARP, Class S, Barrett International
Shares,  Class A, Class B, Class C, and Class I shares.  Scudder  Latin  America
Fund, Scudder Pacific Opportunities Fund, Scudder Greater Europe Growth Fund and
Scudder  Emerging Markets Growth Fund are each further divided into five classes
of shares, Class AARP, Class S, Class A, Class B and Class C. The Directors have
the authority to issue additional series of shares and to designate the relative
rights and  preferences as between the different  series.  All shares issued and
outstanding are fully paid and non-assessable,  transferable,  and redeemable at
net asset value, subject to such charges as may be applicable,  at the option of
the shareholder.  Shares have no pre-emptive or conversion rights. To the extent
that the Funds offer additional share classes,  these classes will be offered in
a separate prospectus and have different fees, requirements and services.

Scudder Global Fund is a series of  Global/International  Fund, Inc., a Maryland
corporation organized on May 15, 1986. The name of this Corporation was changed,
effective  May 29,  1998,  from  Scudder  Global  Fund,  Inc.  This  Corporation
currently  consists of four series:  Scudder  Global Fund,  Scudder  Global Bond
Fund,  Global Discovery Fund and Scudder Emerging Markets Income Fund. Each Fund
is further


                                       40
<PAGE>

divided into two classes of shares, Class AARP and Class S shares, except Global
Fund and Global  Discovery  Fund whose  shares are divided  into five classes of
shares, Class AARP, Class S, Class A, Class B and Class C shares.

The authorized  capital stock of  Global/International  Fund,  Inc.  consists of
1,559,993,796  billion shares with $0.01 par value,  200 million shares of which
are allocated to Global Discovery Fund,  529,154,575 million shares of which are
allocated  to Scudder  Global  Bond Fund,  and 320  million  shares of which are
allocated to each of,  Scudder  Emerging  Markets Income Fund and Scudder Global
Fund. The Directors have the authority to issue additional  series of shares and
to  designate  the  relative  rights and  preferences  as between the  different
series.  All shares issued and  outstanding  are fully paid and  non-assessable,
transferable  and redeemable at net asset value,  subject to such charges as may
be applicable,  at the option of the shareholder.  Shares have no pre-emptive or
conversion  rights. To the extent that the Funds offer additional share classes,
these classes will be offered in a separate  prospectus and have different fees,
requirements and services.


Shares of each Corporation have non-cumulative  voting rights,  which means that
the holders of more than 50% of the shares  voting for the election of Directors
can elect 100% of the Directors if they choose to do so, and, in such event, the
holders of the remaining  less than 50% of the shares voting for the election of
Directors  will not be able to elect  any  person  or  persons  to the  Board of
Directors.  The assets of each Corporation received for the issue or sale of the
shares of each series and all income,  earnings,  profits and proceeds  thereof,
subject  only to the rights of  creditors,  are  specifically  allocated to such
series and  constitute  the  underlying  assets of such series.  The  underlying
assets of each series are  segregated  on the books of account,  and are charged
with the  liabilities  in respect to such series and with a share of the general
liabilities  of  each  Corporation.   If  a  series  were  unable  to  meet  its
obligations,  the  assets  of all  other  series  may in some  circumstances  be
available to creditors for that purpose,  in which case the assets of such other
series  could  be used to meet  liabilities  which  are not  otherwise  properly
chargeable  to them.  Expenses  with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations  of direct  expenses can  otherwise be fairly made.  The officers of
each Corporation,  subject to the general supervision of the Directors, have the
power to determine which  liabilities are allocable to a given series,  or which
are general or allocable to two or more series.  In the event of the dissolution
or liquidation of either Corporation or any series, the holders of the shares of
any series are  entitled  to  receive as a class the  underlying  assets of such
shares available for distribution to shareholders.

Shares of each Corporation entitle their holders to one vote per share; however,
separate  votes are taken by each  series on  matters  affecting  an  individual
series and by class on matters  affecting an individual  class.  For example,  a
change  in  investment  policy  for  a  series  would  be  voted  upon  only  by
shareholders of the series  involved.  Additionally,  approval of the investment
advisory  agreement  is a matter to be  determined  separately  by each  series.
Approval  by the  shareholders  of one  series is  effective  as to that  series
whether or not enough  votes are  received  from the  shareholders  of the other
series to approve such agreement as to the other series.

The  Directors of each  Corporation,  in their  discretion,  may  authorize  the
additional  division of shares of a series  into  different  classes  permitting
shares of different  classes to be  distributed by different  methods.  Although
shareholders of different classes of a series would have an interest in the same
portfolio  of assets,  shareholders  of  different  classes  may bear  different
expenses in connection with different methods of distribution.



                                       41
<PAGE>

Pursuant  to the  approval  of a majority of  stockholders,  each  Corporation's
Directors  have the  discretion to retain the current  distribution  arrangement
while investing in a master fund in a master/feeder  fund structure if the Board
determines  that the  objectives  of a Fund would be achieved  more  efficiently
thereby.


Each Corporation's  Board of Directors  supervises the Fund's  activities.  Each
Corporation  adopted  a plan  pursuant  to Rule  18f-3  under  the 1940 Act (the
"Plan") to permit the  Corporation  to establish a multiple  class  distribution
system for the Fund.


         Under each Plan,  each class of shares will represent  interests in the
same portfolio of investments of the Series, and be identical in all respects to
each other class,  except as set forth  below.  The only  differences  among the
various  classes of shares of the Series  will relate  solely to: (a)  different
distribution fee payments or service fee payments associated with any Rule 12b-1
Plan  for a  particular  class  of  shares  and  any  other  costs  relating  to
implementing or amending such Rule 12b-1 Plan (including  obtaining  shareholder
approval of such Rule 12b-1 Plan or any amendment  thereto)  which will be borne
solely by shareholders of such class; (b) different  service fees; (c) different
account  minimums;  (d) the  bearing  by each  class of its Class  Expenses,  as
defined in Section 2(b) below;  (e) the voting rights  related to any Rule 12b-1
Plan affecting a specific class of shares; (f) separate exchange privileges; (g)
different  conversion  features and (h) different class names and  designations.
Expenses currently  designated as "Class Expenses" by the Corporation's Board of
Directors   under  each  Plan  include,   for  example,   transfer  agency  fees
attributable to a specific class, and certain securities registration fees.


Each   Corporation's   Amended  and  Restated  Articles  of  Incorporation  (the
"Articles")  provide  that the  Directors  of the  Corporations,  to the fullest
extent permitted by Maryland General Corporation Law and the 1940 Act, shall not
be liable to the  Corporations  or its  shareholders  for damages.  Maryland law
currently  provides that Directors shall not be liable for actions taken by them
in good faith,  in a manner  reasonably  believed to be in the best interests of
the Corporations  and with the care that an ordinarily  prudent person in a like
position would use under similar  circumstances.  In so acting, a Director shall
be fully protected in relying in good faith upon the records of the Corporations
and upon reports made to the  Corporation  by persons  selected in good faith by
the Directors as qualified to make such reports. The Articles and the By-Laws of
each  Corporation  provide that each  Corporation  will indemnify its Directors,
officers,  employees or agents  against  liabilities  and  expenses  incurred in
connection  with  litigation  in which  they may be  involved  because  of their
offices with the Corporations consistent with applicable law.


                               INVESTMENT ADVISOR

Zurich Scudder Investments, Inc., an investment counsel firm, acts as investment
advisor to the Funds.  This  organization,  the predecessor of which is Scudder,
Stevens & Clark,  Inc., is one of the most experienced  investment counsel firms
in the U. S. It was  established  as a  partnership  in 1919 and  pioneered  the
practice of providing  investment  counsel to individual clients on a fee basis.
In 1928 it introduced the first no-load  mutual fund to the public.  In 1953 the
Advisor  introduced  Scudder  International  Fund,  Inc.,  the first mutual fund
available in the U.S.  investing  internationally  in  securities  of issuers in
several foreign  countries.  The predecessor firm reorganized from a partnership
to a  corporation  on June 28,  1985.  On December 31,  1997,  Zurich  Insurance
Company  ("Zurich")  acquired a majority  interest  in the  Advisor,  and Zurich
Kemper Investments,  Inc., a Zurich subsidiary,  became part of the Advisor. The
Advisor's name changed to Scudder Kemper Investments, Inc. On September 7, 1998,
the businesses of Zurich (including Zurich's 70% interest in Scudder Kemper) and
the financial  services  businesses of B.A.T  Industries  p.l.c.  ("B.A.T") were
combined to form a new global insurance and financial  services company known as
Zurich  Financial  Services Group.  By way of a dual holding company  structure,
former Zurich shareholders initially owned approximately 57% of Zurich Financial
Services Group, with the balance  initially owned by former B.A.T  shareholders.
On October 17, 2000,  the dual  holding  company  structure of Zurich  Financial
Services  Group,  comprised of Allied  Zurich p.l.c.  in the United  Kingdom and
Zurich  Allied A.G. in  Switzerland,  was unified  into a single  Swiss  holding
company,  Zurich  Financial  Services.  The  Advisor  manages  the Fund's  daily
investment  and  business  affairs  subject to the policies  established  by the
Corporation's Board of Directors.  The Directors have overall responsibility for
the management of the Fund under Massachusetts law. The Advisor changed its name
from Scudder Kemper Investments, Inc. to Zurich Scudder Investments, Inc.


Founded in 1872, Zurich is a multinational,  public corporation  organized under
the laws of  Switzerland.  Its home  office is  located  at  Mythenquai  2, 8002
Zurich,  Switzerland.  Historically,  Zurich's  earnings  have resulted from its


                                       42
<PAGE>

operations as an insurer as well as from its ownership of its  subsidiaries  and
affiliated  companies  (the  "Zurich  Insurance  Group").  Zurich and the Zurich
Insurance  Group provide an extensive  range of insurance  products and services
and have branch offices and  subsidiaries  in more than 40 countries  throughout
the world.


Pursuant to an investment  management  agreement with the Fund, the Advisor acts
as the  Fund's  investmentadvisor,  manages  its  investments,  administers  its
business affairs,  furnishes office facilities and equipment,  provides clerical
and  administrative  services  and permits any of its  officers or  employees to
serve  without  compensation  as  trustees or officers of the Fund if elected to
such positions.

The principal source of the Advisor's income is professional  fees received from
providing  continuous  investment advice.  Today, it provides investment counsel
for many individuals and institutions,  including insurance companies, colleges,
industrial  corporations,  and  financial and banking  organizations  as well as
providing investment advice to over 280 open and closed-end mutual funds.

The Advisor  maintains a large research  department,  which conducts  continuous
studies of the factors that affect the position of various industries, companies
and  individual   securities.   The  Advisor  receives   published  reports  and
statistical  compilations  from issuers and other  sources,  as well as analyses
from  brokers  and  dealers  who  may  execute  portfolio  transactions  for the
Advisor's clients. However, the Advisor regards this information and material as
an  adjunct  to  its  own  research  activities.   The  Advisor's  international
investment management team travels the world, researching hundreds of companies.
In selecting the securities in which the Funds may invest,  the  conclusions and
investment  decisions  of the  Advisor  with  respect  to the  Funds  are  based
primarily on the analyses of its own research department.

Certain  investments  may be  appropriate  for a fund and also for other clients
advised by the Advisor.  Investment  decisions  for a fund and other clients are
made with a view to achieving their respective  investment  objectives and after
consideration  of such factors as their current  holdings,  availability of cash
for  investment  and the  size of their  investments  generally.  Frequently,  a
particular  security  may be bought or sold for only one client or in  different
amounts  and at  different  times for more  than one but less than all  clients.
Likewise,  a particular  security may be bought for one or more clients when one
or more other clients are selling the security. In addition,  purchases or sales
of the same  security  may be made for two or more  clients on the same day.  In
such event,  such  transactions  will be allocated among the clients in a manner
believed by the Advisor to be equitable to each. In some cases,  this  procedure
could have an adverse effect on the price or amount of the securities  purchased
or sold by a fund.  Purchase  and sale  orders for a fund may be  combined  with
those of other  clients of the  Advisor in the  interest of  achieving  the most
favorable net results to that fund.

In certain cases, the investments for a fund are managed by the same individuals
who manage one or more other  mutual  funds  advised by the  Advisor,  that have
similar names,  objectives and investment  styles.  You should be aware that the
Funds are likely to differ  from these  other  mutual  funds in size,  cash flow
pattern and tax matters.  Accordingly, the holdings and performance of the Funds
can be expected to vary from those of these other mutual funds.

Upon  consummation  of the  transaction  between  Zurich and  B.A.T,  the Funds'
existing investment management agreement with Scudder Kemper were deemed to have
been assigned and,  therefore,  terminated.  The Board  approved new  investment
management agreements with Scudder Kemper, which were substantially identical to
the prior investment management agreement,  except for the date of execution and
termination.  The  agreements  became  effective  September  7,  1998,  upon the
termination  of the  then  current  investment  management  agreement  and  were
approved at a shareholder meeting held on December 15, 1998.

An Amended and Restated  investment  management  agreement (the "Agreement") for
Scudder  Global Fund became  effective  September  11, 2000,  was most  recently
approved by the Directors on October 10, 2000.An Amended and Restated  Agreement
for Scudder  International  Fund was approved by the  Directors on July 10, 2000
and at a  shareholder  meeting  held on July 13,  2000 and became  effective  on
August 14, 2000. The Agreements will continue in effect until September 30, 2001
and from year to year thereafter only if its continuance is approved annually by
the vote of a majority of those  Directors who are not parties to such Agreement
or interested  persons of the Advisor or the  Corporations,  cast in person at a
meeting called for the purpose of voting on such approval,  and either by a vote
of the  Corporations'  Directors  or of a  majority  of the  outstanding  voting
securities of the respective  Fund. The Agreements may be terminated at any time
without


                                       43
<PAGE>

payment  of  penalty  by  either  party  on  sixty  days'  written   notice  and
automatically terminate in the event of their assignment.

Under the Agreement,  the Advisor  regularly  provides the Fund with  continuing
investment  management  for the  Fund's  portfolio  consistent  with the  Fund's
investment  objective,  policies and restrictions and determines what securities
shall be purchased,  held or sold and what portion of the Fund's assets shall be
held uninvested, subject to the Corporation's Declaration of Trust, By-Laws, the
1940  Act,  the  Code  and to the  Fund's  investment  objective,  policies  and
restrictions,  and subject,  further,  to such policies and  instructions as the
Board of  Directors  of the  Corporation  may from time to time  establish.  The
Advisor also advises and assists the officers of the  Corporation in taking such
steps  as are  necessary  or  appropriate  to  carry  out the  decisions  of its
Directors and the appropriate  committees of the Directors regarding the conduct
of the business of the Fund.

Under the Agreement,  the Advisor renders  significant  administrative  services
(not otherwise provided by third parties) necessary for the Fund's operations as
an open-end investment company including,  but not limited to, preparing reports
and  notices  to  the  Directors  and  shareholders;   supervising,  negotiating
contractual  arrangements  with,  and  monitoring  various  third-party  service
providers  to the Fund  (such as the  Fund's  transfer  agent,  pricing  agents,
Custodian,  accountants  and others);  preparing and making filings with the SEC
and other  regulatory  agencies;  assisting in the preparation and filing of the
Fund's  federal,  state and local tax returns;  preparing  and filing the Fund's
federal  excise tax  returns;  assisting  with  investor  and  public  relations
matters; monitoring the valuation of securities and the calculation of net asset
value;  monitoring  the  registration  of  shares of the Fund  under  applicable
federal and state securities  laws;  maintaining the Fund's books and records to
the extent not otherwise maintained by a third party;  assisting in establishing
accounting  policies of the Fund;  assisting in the resolution of accounting and
legal  issues;   establishing  and  monitoring  the  Fund's  operating   budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging  for,  the  payment of  distributions  and  dividends;  and  otherwise
assisting the Fund in the conduct of its business,  subject to the direction and
control of the Directors.

The Advisor pays the  compensation  and expenses of all Directors,  officers and
executive  employees  (except  expenses  incurred  attending Board and committee
meetings  outside  New  York,  New  York;  Boston,  Massachusetts  and  Chicago,
Illinois) of the Fund affiliated with the Advisor and makes  available,  without
expense  to the  Corporation,  the  services  of such  Directors,  officers  and
employees  of the Advisor as may duly be elected  officers or  Directors  of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law, and provides the Fund's office space and facilities.

For these  services,  under the current  Agreement  between  Global Fund and the
Advisor,  effective  September 11, 2000,  the  management  fee payable under the
Agreement  is equal to an annual  rate of 1.00% on the  first  $500  million  of
average  daily net assets,  0.95% on such net assets in excess of $500  million,
0.90% on such net  assets in excess of $1  billion,  0.85% on such net assets in
excess of $1.5 billion and 0.80% on such net assets in excess of $2 billion.

For these services, under the prior Agreement, effective September 7, 1998 until
September  11,  2000,  Global  Fund paid the Advisor a fee equal to 1.00% on the
first  $500  million of average  daily net  assets,  0.95% on such net assets in
excess of $500  million,  0.90% on such net assets in excess of $1  billion  and
0.85% on such net assets in excess of $1.5 billion.  The fee is payable monthly,
provided  the Fund will make such  interim  payments as may be  requested by the
Advisor not to exceed 75% of the amount of the fee then  accrued on the books of
the Fund and unpaid.

Accordingly,  under these agreements the investment advisory fees for the fiscal
years ended June 30, 1999,  1998 and 1997,  were  $14,936,557,  $15,502,974  and
$13,450,790,  respectively.  For the two  months  ended  August  31,  1999,  the
investment  advisory fee pursuant to the Agreement  amounted to $2,547,570.  For
the fiscal  year ended  August  31,  2000,  the  investment  advisory  fees were
$14,778,270,  which was  equivalent to an annual  effective rate of 0.95% of the
Fund's average daily net assets.

For these services,  under the current Agreement between  International Fund and
the Advisor,  effective  August 14, 2000,  the  management fee payable under the
Agreement  is equal to an  annual  rate of 0.675%  on the  first $6  billion  of
average daily net assets,  0.625% on the next $1 billion of such net assets, and
0.600% of such net assets in excess of $7 billion,  computed  and accrued  daily
and payable monthly.

Under the prior Agreement between International Fund and the Advisor,  effective
September 7, 1998 until August 14, 2000,  the  management  fee payable under the
Agreement  was  equal to an  annual  rate of  approximately


                                       44
<PAGE>

0.90% of the first  $500,000,000 of average daily net assets,  0.85% of the next
$500,000,000 of such net assets,  0.80% of the next  $1,000,000,000  of such net
assets,  0.75% of the next  $1,000,000,000 of such net assets, and 0.70% of such
net assets in excess of  $3,000,000,000,  computed and accrued daily and payable
monthly.

Accordingly,  for the year ended August 31, 2000, the  investment  advisory fees
amounted to  $36,335,757,  which was  equivalent to an annual  effective rate of
0.76% of the Fund's  average daily net assets.  For the five months ended August
31, 1999, the net investment advisory fees were $11,269,103.  The net investment
advisory  fees  for the  fiscal  years  ended  March  31,  1999  and  1998  were
$23,819,941 and $22,491,681, respectively.

Under  the  Agreement  the Fund is  responsible  for all of its  other  expenses
including:   fees  and  expenses  incurred  in  connection  with  membership  in
investment company  organizations;  brokers'  commissions;  legal,  auditing and
accounting expenses;  the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer  Agent;  the cost of preparing share
certificates or any other expenses of issue, sale,  underwriting,  distribution,
redemption or repurchase of shares; the expenses of and the fees for registering
or qualifying securities for sale; the fees and expenses of Directors,  officers
and employees of the Fund who are not affiliated  with the Advisor;  the cost of
printing and distributing reports and notices to stockholders;  and the fees and
disbursements  of custodians.  The Fund may arrange to have third parties assume
all or part of the expenses of sale,  underwriting and distribution of shares of
the  Fund.  The  Fund is also  responsible  for its  expenses  of  shareholders'
meetings,  the cost of responding to shareholders'  inquiries,  and its expenses
incurred in connection  with  litigation,  proceedings  and claims and the legal
obligation  it  may  have  to  indemnify  its  officers  and  Directors  of  the
Corporation with respect thereto.

The Agreement expressly provides that the Advisor shall not be required to pay a
pricing agent of the Fund for portfolio pricing services, if any.

The Agreement  identifies the Advisor as the exclusive licensee of the rights to
use and sublicense the names "Scudder," "Scudder Kemper  Investments,  Inc." and
"Scudder Stevens and Clark,  Inc." (together,  the "Scudder Marks").  Under this
license, the Corporation,  with respect to the Fund, has the non-exclusive right
to use and sublicense the Scudder name and marks as part of its name, and to use
the Scudder Marks in the Corporation's investment products and services.

In reviewing  the terms of the  Agreement  and in  discussions  with the Advisor
concerning  such  Agreement,  the  Directors  of the  Corporation  who  are  not
"interested  persons" of the Advisor are  represented by independent  counsel at
the Fund's expense.

The  Agreement  provides  that the Advisor  shall not be liable for any error of
judgment or mistake of law or for any loss  suffered  by the Fund in  connection
with  matters  to which the  Agreement  relates,  except a loss  resulting  from
willful misfeasance, bad faith or gross negligence on the part of the Advisor in
the  performance of its duties or from reckless  disregard by the Advisor of its
obligations and duties under the Agreement.

Officers and  employees  of the Advisor from time to time may have  transactions
with various  banks,  including the Fund's  custodian  bank. It is the Advisor's
opinion that the terms and conditions of those  transactions which have occurred
were  not   influenced  by  existing  or  potential   custodial  or  other  Fund
relationships.

The Advisor may serve as advisor to other funds with  investment  objectives and
policies  similar  to  those of the Fund  that may have  different  distribution
arrangements or expenses, which may affect performance.


None of the officers or Directors of the  Corporation may have dealings with the
Fund as principals in the purchase or sale of  securities,  except as individual
subscribers to or holders of shares of the Fund.


The term Scudder  Investments is the designation  given to the services provided
by Zurich Scudder Investments,  Inc. and its affiliates to the Scudder Family of
Funds.


Scudder  Kemper has agreed to pay a fee to AARP and/or its  affiliates in return
for  services  relating to  investments  by AARP members in AARP Class shares of
each  fund.  This fee is  calculated  on a daily  basis as a  percentage  of the
combined net assets of AARP Classes of all funds managed by Scudder Kemper.  The
fee rates, which decrease as the


                                       45
<PAGE>

aggregate net assets of the AARP Classes  become larger,  are as follows:  0.07%
for the first $6 billion in net assets, 0.06% for the next $10 billion and 0.05%
thereafter.

AMA InvestmentLink(SM) Program


Pursuant  to an  Agreement  between  the  Advisor  and AMA  Solutions,  Inc.,  a
subsidiary of the American Medical  Association (the "AMA"),  dated May 9, 1997,
the Advisor has agreed,  subject to  applicable  state  regulations,  to pay AMA
Solutions,  Inc.  royalties  in an  amount  equal  to 5% of the  management  fee
received  by the  Advisor  with  respect to assets  invested  by AMA  members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Advisor
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833.  The AMA and AMA  Solutions,  Inc.  are not engaged in the  business of
providing  investment advice and neither is registered as an investment  advisor
or broker/dealer  under federal  securities laws. Any person who participates in
the AMA  InvestmentLink(SM  Program  will be a customer  of the Advisor (or of a
subsidiary thereof) and not the AMA or AMA Solutions,  Inc. AMA InvestmentLinkSM
is a service mark of AMA Solutions, Inc.


Code of Ethics


The Funds,  the Advisor and  principal  underwriter  have each adopted  codes of
ethics under rule 17j-1 of the Investment  Company Act. Board members,  officers
of the  Funds  and  employees  of the  Advisor  and  principal  underwriter  are
permitted to make personal securities  transactions,  including  transactions in
securities  that may be purchased or held by the Funds,  subject to requirements
and restrictions set forth in the applicable Code of Ethics.  The Advisor's Code
of Ethics contains provisions and requirements  designed to identify and address
certain  conflicts of interest  between personal  investment  activities and the
interests  of the  Funds.  Among  other  things,  the  Advisor's  Code of Ethics
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
quarterly 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
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.


           DIRECTORS AND OFFICERS OF SCUDDER INTERNATIONAL FUND, INC.
                       AND GLOBAL/INTERNATIONAL FUND, INC.

<TABLE>
<CAPTION>
                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Scudder Investor
Name, Age, and Address             Position with Fund      Principal Occupation**                  Services, Inc.
----------------------             ------------------      ----------------------                  --------------

<S>                                <C>                     <C>                                     <C>
Henry P. Becton, Jr. (56)          Director                President, WGBH Educational Foundation  None
WGBH
125 Western Avenue
Allston, MA 02134


Linda C. Coughlin (48)+*           President and Director  Managing Director of Zurich Scudder     Director and Senior

                                                           Investments, Inc.                       Vice President

Dawn-Marie Driscoll (53)           Director                Executive Fellow, Center for Business   None
4909 SW 9th Place                                          Ethics, Bentley College; President,
Cape Coral, FL  33914                                      Driscoll Associates (consulting firm)



                                       46
<PAGE>
                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Scudder Investor
Name, Age, and Address             Position with Fund      Principal Occupation**                  Services, Inc.
----------------------             ------------------      ----------------------                  --------------

Edgar R. Fiedler (70)              Director                Senior Fellow and Economic              None
50023 Brogden                                              Counsellor, The Conference Board,
Chapel Hill, NC                                            Inc.( Not-for-profit business
                                                           research organization)


Keith R. Fox (46)                  Director                General Partner, Exeter Group of Funds  None
10 East 53rd Street
New York, NY  10022


Joan E. Spero (55)                 Director                President, Doris Duke Charitable        None
Doris Duke Charitable Foundation                           Foundation; Department of State -
650 Fifth Avenue                                           Undersecretary of State for Economic,
New York, NY  10128                                        Business and Agricultural Affairs
                                                           (March 1993 to January 1997)


Jean Gleason Stromberg (56)        Director                Consultant; Director, Financial         None
3816 Military Road, NW                                     Institutions Issues, U.S. General
Washington, D.C.                                           Accounting Office (1996-1997);
                                                           Partner, Fulbright & Jaworski (law
                                                           firm) (1978-1996)

Jean C. Tempel (56)                Director                Managing Director, First Light          None
One Boston Place                                           Capital, LLC. (venture capital firm)
23rd Floor
Boston, MA 02108

Steven Zaleznick (45)*             Director                President and CEO, AARP Services, Inc.  None
601 E. Street, NW
7th Floor
Washington, D.C. 20004

Kathryn L. Quirk  (47)#            Vice President and      Managing Director of Zurich Scudder     Director, Senior Vice
                                   Assistant Secretary     Investments, Inc.                       President, Chief Legal
                                                                                                   Officer and Assistant
                                                                                                   Clerk

Thomas V. Bruns (43) ***           Vice President          Managing Director of Zurich Scudder     None
                                                           Investments, Inc.

William F. Glavin (41)+            Vice President          Managing Director of Zurich Scudder     Vice President
                                                           Investments, Inc.

Irene T. Cheng (44) #              Vice President of       Managing Director of Zurich Scudder     None
                                   Scudder International   Investments, Inc.
                                   Fund, Inc.

Joyce E. Cornell (55) #            Vice President of       Managing Director of Zurich Scudder     None
                                   Scudder International   Investments, Inc.
                                   Fund, Inc.




                                       47
<PAGE>

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


Susan E. Dahl (34) +               Vice President of       Managing Director of Zurich Scudder      None
                                   Global/International    Investments, Inc.
                                   Fund, Inc.

Edmund B. Games, Jr. (61) +        Vice President of       Managing Director of Zurich Scudder      None
                                   Scudder International   Investments, Inc.
                                   Fund, Inc.

James E. Masur (40) +              Vice President          Senior Vice President of Zurich         None
                                                           Scudder Investments, Inc.

Howard Schneider (43) +            Vice President          Managing Director of Zurich Scudder     None
                                                           Investments, Inc.

Carol L. Franklin (46) #           Vice President of       Managing Director of Zurich Scudder     None
                                   Scudder International   Investments, Inc.
                                   Fund, Inc.

Ann M. McCreary (43) #             Vice President          Managing Director of Zurich Scudder     None
                                                           Investments, Inc.

Joan Gregory (55) #                Vice President of       Vice President of Zurich Scudder        None
                                   Scudder International   Investments, Inc.
                                   Fund, Inc.

Tien Yu Sieh (31) #                Vice President of       Senior Vice President of Zurich         None
                                   Scudder International   Scudder Investments, Inc.
                                   Fund, Inc.

Jan C. Faller (34)+                Vice President of       Vice President of Zurich Scudder        None
                                   Global/International    Investments, Inc.
                                   Fund, Inc.

William E. Holzer (50) #           Vice President of       Managing Director of Zurich Scudder     None
                                   Global/International    Investments, Inc.
                                   Fund, Inc.

Gerald J. Moran (60)#              Vice President of       Managing Director of Zurich Scudder     None
                                   Global/International    Investments, Inc.
                                   Fund, Inc.

M. Isabel Saltzman (45)+           Vice President of       Managing Director of Zurich Scudder     None
                                   Global/International    Investments, Inc.
                                   Fund, Inc.

John R. Hebble (42)+               Treasurer               Senior Vice President of Zurich         Assistant Treasurer
                                                           Scudder Investments, Inc.

Caroline Pearson (38)+             Assistant Secretary     Senior Vice President of Zurich         Clerk
                                                           Scudder Investments, Inc.; Associate,
                                                           Dechert Price & Rhoads (law firm)
                                                           1989 - 1997



                                       48
<PAGE>


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

John Millette (37)+                Vice President and      Vice President of Zurich Scudder        None
                                   Secretary               Investments, Inc.

Brenda Lyons (37)+                 Assistant Treasurer     Senior Vice President of Zurich         None
                                                           Scudder Investments, Inc.
</TABLE>

*        Ms.  Coughlin and Mr.  Zaleznick are  considered by the Funds and their
         counsel to be persons who are "interested persons" of the Advisor or of
         the Corporation as defined in the 1940 Act.

**       Unless  otherwise   stated,   all  officers  and  directors  have  been
         associated  with their  respective  companies for more than five years,
         but not necessarily in the same capacity.

+        Address: Two International Place, Boston, Massachusetts 02110

#        Address: 345 Park Avenue, New York, New York 10154

***      Address: 222 South Riverside Plaza, Chicago, Illinois


The Directors and officers of the Corporation  also serve in similar  capacities
with respect to other Scudder Funds.

To the  best of the  Corporation's  knowledge,  as of  November  29,  2000,  all
Directors and officers of the Corporation,  as a group,  owned  beneficially (as
that term is  defined in Section  13 (d) under the  Securities  Exchange  Act of
1934)  less  than  1%  of  the  outstanding  shares  of  any  class  of  Scudder
International Fund and Scudder Global Fund.

To the best of the Fund's knowledge, as of November 29, 2000, no person owned of
record  more than 5% or more of the  outstanding  shares of any class of Scudder
International  Fund,  except  as  stated  below.  They may be  deemed  to be the
beneficial owner of certain of these shares.


As of November 30, 2000,  11,200,992  shares in the aggregate,  or 13.39% of the
outstanding  shares of Scudder  International  Fund - Class S - were held in the
name of Charles Schwab, 101 Montgomery  Street,  San Francisco,  CA 9410 who may
deemed to be the beneficial owner of such shares.


To the best of the Fund's knowledge, as of November 29, 2000, no person owned of
record  more than 5% or more of the  outstanding  shares of any class of Scudder
Global Fund,  except as stated  below.  They may be deemed to be the  beneficial
owner of certain of these shares.


As of November 30, 2000,  5,507,079  shares in the  aggregate,  or 10.49% of the
outstanding  shares of Scudder  Global Fund - Class S - were held in the name of
Charles Schwab, 101 Montgomery Street, San Francisco, CA 94101 who may deemed to
be the beneficial owner of such shares.


                                  REMUNERATION

Responsibilities of the Board -- Board and Committee Meetings


The Board of Directors is  responsible  for the general  oversight of the Funds'
business.  A majority of the  Board's  members  are not  affiliated  with Zurich
Scudder   Investments,   Inc.  These   "Independent   Directors"   have  primary
responsibility  for assuring that a Fund is managed in the best interests of its
shareholders.

The  Board of  Directors  meets at least  quarterly  to  review  the  investment
performance of the Funds and other operational  matters,  including policies and
procedures  designed to ensure compliance with various regulatory  requirements.
At least annually, the Independent Directors review the fees paid to the Advisor
and its affiliates for investment advisory services and other administrative and
shareholder  services.  In this regard,  they evaluate,  among other things, the
Fund's investment  performance,  the quality and efficiency of the various other
services  provided,  costs  incurred  by the  Advisor  and its  affiliates,  and
comparative  information  regarding


                                       49
<PAGE>

fees and expenses of competitive funds. They are assisted in this process by the
Funds'  independent public accountants and by independent legal counsel selected
by the Independent Directors.


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

Compensation of Officers and Directors

Each Independent Director receives  compensation for his or her services,  which
includes an annual retainer and an attendance fee for each meeting attended. The
Independent   Director  who  serves  as  lead   director   receives   additional
compensation for his or her service.  No additional  compensation is paid to any
Independent  Director  for travel time to  meetings,  attendance  at  director's
educational  seminars  or  conferences,   service  on  industry  or  association
committees,  participation  as speakers at directors'  conferences or service on
special  director  task forces or  subcommittees.  Independent  Directors do not
receive any employee  benefits such as pension or retirement  benefits or health
insurance.  Notwithstanding the schedule of fees, the Independent Directors have
in the past and may in the future waive a portion of their compensation.


The  Independent  Directors  also  serve in the same  capacity  for other  funds
managed by the Advisor. These funds differ broadly in type and complexity and in
some cases have substantially  different  Director fee schedules.  The following
table shows the aggregate  compensation  received by each  Independent  Director
during 1999 from each Corporation and from all of the Scudder funds as a group.


<TABLE>
<CAPTION>

                                           Scudder                  Global/International,
Name                              International Fund, Inc.*             Fund, Inc. **               All Scudder Funds
----                              ------------------------              -----------                 -----------------

<S>                                        <C>                                <C>                  <C>
Henry P. Becton, Jr. +                     $0                                 $0                   $140,000 (30 funds)

Dawn-Marie Driscoll +                      $0                                 $0                   $150,000 (30 funds)

Edgar R. Fiedler +                         $0                                 $0                  $73,230 (29 funds)++

Keith R. Fox                             $43,650                           $36,375                 $160,325 (23 funds)

Joan E. Spero                            $47,550                           $39,625                 $175,275 (23 funds)

Jean Gleason Stromberg +                   $0                                 $0                   $40,935 (16 funds)

Jean C. Tempel +                           $0                                 $0                   $140,000 (30 funds)

</TABLE>

+        Newly  elected  Director.  On July 7,  2000,  shareholders  of the Fund
         elected a new Board of  Directors.  See the  "Directors  and  Officers"
         section for the newly constituted Board of Directors.

*        In 1999,  Scudder  International  Fund, Inc.  consisted of eight funds:
         Scudder International Fund, Scudder Latin America Fund, Scudder Pacific
         Opportunities   Fund,  Scudder  Greater  Europe  Growth  Fund,  Scudder
         Emerging Markets Growth Fund, Scudder  International  Growth and Income
         Fund, Scudder International Value Fund and Scudder International Growth
         Fund.

**       In 1999,  Global/International  Fund,  Inc.  consisted  of five  funds:
         Scudder Global Fund,  Scudder  International  Bond Fund, Scudder Global
         Bond Fund,  Global  Discovery Fund and Scudder  Emerging Markets Income
         Fund.

++       Mr. Fielder's total compensation  includes the $9,900 accrued,  but not
         received, through the deferred compensation program.


                                       50
<PAGE>

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


                                   DISTRIBUTOR


Each Corporation has an underwriting  agreement with Scudder Investor  Services,
Inc.,  Two  International  Place,  Boston,  MA  02110  (the  "Distributor"),   a
Massachusetts  corporation,  which is a subsidiary  of the  Advisor,  a Delaware
corporation.  The  Corporations'  underwriting  agreement dated May 8, 2000 will
remain in effect until  September 30, 2001 and from year to year thereafter only
if its  continuance  is  approved  annually  by a majority of the members of the
Board of Directors who are not parties to such  agreement or interested  persons
of any such party and either by vote of a majority of the Board of  Directors or
a majority of the outstanding  voting  securities of the Funds. The underwriting
agreements were last approved by the Directors on July 10, 2000.


Under the underwriting agreements, a Fund is responsible for: the payment of all
fees and  expenses  in  connection  with the  preparation  and  filing  with the
Commission of its  registration  statement and prospectus and any amendments and
supplements  thereto;  the registration and  qualification of shares for sale in
the  various  states,  including  registering  a Fund as a broker  or  dealer in
various  states as required;  the fees and expenses of  preparing,  printing and
mailing prospectuses  annually to existing  shareholders (see below for expenses
relating to prospectuses  paid by the Distributor);  notices,  proxy statements,
reports or other  communications to shareholders of a Fund; the cost of printing
and  mailing   confirmations   of  purchases  of  shares  and  any  prospectuses
accompanying such confirmations;  any issuance taxes and/or any initial transfer
taxes;  a portion of  shareholder  toll-free  telephone  charges and expenses of
shareholder  service  representatives;  the  cost  of  wiring  funds  for  share
purchases  and  redemptions  (unless paid by the  shareholder  who initiates the
transaction);  the cost of printing and postage of business reply envelopes; and
a  portion  of the  cost of  computer  terminals  used  by  both a Fund  and the
Distributor.

The Distributor will pay for printing and  distributing  prospectuses or reports
prepared for its use in  connection  with the offering of a Fund's shares to the
public and preparing,  printing and mailing any other  literature or advertising
in  connection  with  the  offering  of  shares  of a Fund  to the  public.  The
Distributor will pay all fees and expenses in connection with its  qualification
and  registration  as a broker or dealer under federal and state laws, a portion
of the cost of toll-free  telephone service and expenses of shareholder  service
representatives,  a portion of the cost of computer  terminals,  and expenses of
any activity which is primarily  intended to result in the sale of shares issued
by a Fund,  unless a Rule 12b-1  Plan is in effect  which  provides  that a Fund
shall bear some or all of such expenses.

As agent,  the Distributor  currently offers shares of the Funds on a continuous
basis to investors in all states in which shares of a Fund may from time to time
be registered or where permitted by applicable law. The underwriting  agreements
provide that the Distributor  accepts orders for shares at net asset value as no
sales commission or load is charged to the investor. The Distributor has made no
firm commitment to acquire shares of a Fund.

Administrative Fee


Each Fund has entered into an  administrative  services  agreement  with Scudder
Kemper (the "Administration Agreements"),  pursuant to which Scudder Kemper will
provide  or pay  others  to  provide  substantially  all  of the  administrative
services  required by a Fund (other than those  provided by Scudder Kemper under
its investment  management  agreements  with the Funds,  as described  above) in
exchange  for the payment by each Fund of an  administrative  services  fee (the
"Administrative  Fee") of 0.375% of its  average  daily net assets  for  Scudder
International  Fund and Scudder  Global  Fund's  average  daily net assets.  One
effect of these  arrangements  is to make each Fund's future  expense ratio more
predictable.  The  Administrative  Fee  became  effective  August  14,  2000 for
International Fund and September 11, 2000 for Global Fund. For the period August
14, 2000 through August 31, 2000, the  Administrative  Agreement expense charged
to  International  Fund amounted to $921,739,  all of which was unpaid at August
31, 2000.

Various third-party service providers (the "Service  Providers"),  some of which
are  affiliated  with  Scudder  Kemper,  provide  certain  services to the Funds
pursuant  to  separate  agreements  with  the  Funds.  Scudder  Fund  Accounting
Corporation,  a subsidiary of Scudder  Kemper,  computes net asset value for the
Funds and maintains their accounting records. Scudder Service Corporation,  also
a subsidiary  of Zurich  Scudder,  is the  transfer,  shareholder  servicing and
dividend-paying  agent for the shares of the Funds.  Scudder Trust  Company,  an
affiliate of Zurich Scudder,  provides  subaccounting and recordkeeping services
for shareholders in certain retirement


                                       51
<PAGE>

and employee  benefit plans.  As custodian,  Brown  Brothers  Harriman holds the
portfolio   securities  of  the  Funds,   pursuant  to  a  custodian  agreement.
PricewaterhouseCoopers  LLP audits  the  financial  statements  of the Funds and
provides other audit, tax, and related services. Dechert acts as general counsel
for each Fund.

Zurich  Scudder  will  pay the  Service  Providers  for the  provision  of their
services  to the Funds and will pay other fund  expenses,  including  insurance,
registration,  printing and postage fees.  In return,  each Fund will pay Zurich
Scudder an Administrative Fee.

Each  Administration  Agreement  has an initial term of three years,  subject to
earlier  termination  by a Fund's  Board.  The fee  payable  by a Fund to Zurich
Scudder  pursuant to the  Administration  Agreements is reduced by the amount of
any credit received from the Fund's custodian for cash balances.

Certain  expenses  of the Funds  will not be borne by Zurich  Scudder  under the
Administration Agreements, such as taxes, brokerage,  interest and extraordinary
expenses;  and the fees and expenses of the Independent Directors (including the
fees and expenses of their  independent  counsel).  In addition,  each Fund will
continue to pay the fees required by its  investment  management  agreement with
Zurich Scudder.


                                      TAXES

Each Fund has  elected to be treated as a  regulated  investment  company  under
Subchapter M of the Code,  or a  predecessor  statute and has  qualified as such
since  its  inception.   Such  qualification   does  not  involve   governmental
supervision or management of investment practices or policy.

A regulated  investment  company  qualifying  under  Subchapter M of the Code is
required to distribute to its shareholders at least 90 percent of its investment
company taxable income (including net short-term  capital gain) and generally is
not subject to federal income tax to the extent that it distributes annually its
investment  company taxable income and net realized  capital gains in the manner
required under the Code.

If for any taxable year a Fund does not qualify for special  federal  income tax
treatment afforded  regulated  investment  companies,  all of its taxable income
will be subject to federal  income tax at regular  corporate  rates (without any
deduction for  distributions to its  shareholders).  In such an event,  dividend
distributions  would  be  taxable  to  shareholders  to the  extent  of a Fund's
earnings and profits, and would be eligible for the dividends received deduction
in the case of corporate shareholders.

Each Fund is subject to a 4% nondeductible  excise tax on amounts required to be
but not distributed under a prescribed formula.  The formula requires payment to
shareholders  during a calendar year of distributions  representing at least 98%
of a Fund's ordinary income for the calendar year, at least 98% of the excess of
its capital gains over capital  losses  (adjusted for certain  ordinary  losses)
realized  during the one-year period ending October 31 during such year, and all
ordinary  income and  capital  gains for prior  years  that were not  previously
distributed.

Investment  company taxable income  generally is made up of dividends,  interest
and net short-term capital gains in excess of net long-term capital losses, less
expenses.  Net realized  capital  gains for a fiscal year are computed by taking
into account any capital loss carryforward of a Fund. Presently,  the Funds have
no capital loss carryforwards.

If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by a Fund for reinvestment, requiring federal income
taxes to be paid  thereon  by a Fund,  each Fund  intends to elect to treat such
capital gains as having been  distributed  to  shareholders.  As a result,  each
shareholder will report such capital gains as long-term  capital gains,  will be
able to claim a  proportionate  share of federal  income taxes paid by a Fund on
such gains as a credit against the  shareholder's  federal income tax liability,
and will be entitled to increase  the  adjusted  tax basis of the  shareholder's
Fund shares by the difference  between such reported gains and the shareholder's
tax credit.

Distributions  of investment  company taxable income are taxable to shareholders
as ordinary income.

Dividends from domestic  corporations are not expected to comprise a substantial
part of each Fund's gross income. If any such dividends  constitute a portion of
a Fund's gross income,  a portion of the income  distributions  of a Fund may be
eligible  for  the  70%  deduction  for  dividends   received  by  corporations.
Shareholders will be informed of the


                                       52
<PAGE>

portion of  dividends  which so qualify.  The  dividends-received  deduction  is
reduced to the extent the shares of a Fund with  respect to which the  dividends
are received are treated as  debt-financed  under federal  income tax law and is
eliminated  if either  those  shares or the  shares of a Fund are deemed to have
been held by a Fund or the  shareholders,  as the case may be,  for less than 46
days  during the  90-day  period  beginning  45 days  before  the shares  become
ex-dividend.

Properly  designated  distributions of the excess of net long-term  capital gain
over net  short-term  capital  loss are  taxable to  shareholders  as  long-term
capital  gains,  regardless of the length of time the shares of a Fund have been
held  by  such  shareholders.  Such  distributions  are  not  eligible  for  the
dividends-received  deduction.  Any loss realized upon the  redemption of shares
held at the time of  redemption  for six  months  or less will be  treated  as a
long-term  capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.

Distributions  of investment  company  taxable  income and net realized  capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders  electing to receive distributions in the form of additional Shares
will have a cost basis for federal income tax purposes in each Share so received
equal to the net asset value of a Share on the reinvestment date.

All distributions of investment  company taxable income and net realized capital
gain,  whether  received  in  shares  or in  cash,  must  be  reported  by  each
shareholder  on his or her  federal  income tax  return.  Dividends  declared in
October,  November or December with a record date in such a month will be deemed
to have been received by  shareholders on December 31, if paid during January of
the following  year.  Redemptions of shares,  including  exchanges for shares of
another  Scudder  Fund,  may  result in tax  consequences  (gain or loss) to the
shareholder and are also subject to these reporting requirements.


A qualifying  individual may make a deductible IRA  contribution for any taxable
year only if (i) neither the  individual  nor his or her spouse  (unless  filing
separate returns) is an active participant in an employer's  retirement plan, or
(ii) the individual (and his or her spouse, if applicable) has an adjusted gross
income below a certain level for 2001 ($53,000 for married  individuals filing a
joint  return,  with a phase-out  of the  deduction  for  adjusted  gross income
between $53,000 and $63,000;  $33,000 for a single individual,  with a phase-out
for adjusted gross income between $33,000 and $43,000).  However,  an individual
not permitted to make a deductible  contribution  to an IRA for any such taxable
year may nonetheless make nondeductible contributions up to $2,000 to an IRA (up
to $2,000  per  individual  for  married  couples  if only one spouse has earned
income) for that year.  There are special rules for  determining how withdrawals
are to be taxed if an IRA contains both deductible and nondeductible amounts. In
general,  a  proportionate  amount of each  withdrawal will be deemed to be made
from nondeductible  contributions;  amounts treated as a return of nondeductible
contributions will not be taxable.  Also, annual  contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no  earnings  (for IRA  contribution  purposes)  for the
year.


Distributions  by a Fund  result in a  reduction  in the net asset value of that
Fund's  shares.  Should  a  distribution  reduce  the net  asset  value  below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above,  even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount  of the  forthcoming  distribution.  Those  purchasing  just  prior  to a
distribution   will  then   receive  a  partial   return  of  capital  upon  the
distribution, which will nevertheless be taxable to them.

Each Fund  intends  to qualify  for and may make the  election  permitted  under
Section 853 of the Code so that  shareholders  may (subject to  limitations)  be
able to claim a credit or deduction on their federal income tax returns for, and
will be required to treat as part of the amounts  distributed to them, their pro
rata portion of qualified taxes paid by a Fund to foreign countries (which taxes
relate  primarily to investment  income).  Each Fund may make an election  under
Section 853 of the Code,  provided  that more than 50% of the value of the total
assets of a Fund at the close of the  taxable  year  consists of  securities  in
foreign  corporations.  The  foreign tax credit  available  to  shareholders  is
subject  to  certain  limitations  imposed  by the  Code,  except in the case of
certain electing individual  taxpayers who have limited creditable foreign taxes
and  no  foreign  source  income  other  than  passive  investment-type  income.
Furthermore,  the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying  shares or the shares of a Fund are
held by a Fund or the shareholder, as the case may be, for less


                                       53
<PAGE>

than 16 days (46 days in the case of preferred  shares) during the 30-day period
(90-day  period for preferred  shares)  beginning 15 days (45 days for preferred
shares) before the shares become  ex-dividend.  In addition,  if a Fund fails to
satisfy these holding period requirements,  it cannot elect under Section 853 to
pass through to  shareholders  the ability to claim a deduction  for the related
foreign taxes.

If a Fund does not make the  election  permitted  under  section 853 any foreign
taxes paid or accrued will  represent an expense to a Fund which will reduce its
investment company taxable income.  Absent this election,  shareholders will not
be able to claim  either a credit or a deduction  for their pro rata  portion of
such taxes paid by a Fund, nor will shareholders be required to treat as part of
the amounts distributed to them their pro rata portion of such taxes paid.

Equity options  (including  covered call options written on portfolio stock) and
over-the-counter  options on debt securities written or purchased by a Fund will
be subject to tax under  Section 1234 of the Code.  In general,  no loss will be
recognized by a Fund upon payment of a premium in  connection  with the purchase
of a put or call option.  The  character of any gain or loss  recognized  (i.e.,
long-term or short-term) will generally  depend,  in the case of a lapse or sale
of the option, on a Fund's holding period for the option, and in the case of the
exercise  of a put  option,  on a  Fund's  holding  period  for  the  underlying
property.  The purchase of a put option may  constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any stock in
a Fund's portfolio  similar to the stocks on which the index is based. If a Fund
writes an option,  no gain is recognized  upon its receipt of a premium.  If the
option  lapses or is  closed  out,  any gain or loss is  treated  as  short-term
capital gain or loss. If a call option is  exercised,  the character of the gain
or loss depends on the holding period of the underlying stock.

Positions  of a Fund which  consist of at least one stock and at least one stock
option or other position with respect to a related security which  substantially
diminishes  a Fund's risk of loss with respect to such stock could be treated as
a  "straddle"  which is governed by Section 1092 of the Code,  the  operation of
which may cause deferral of losses, adjustments in the holding periods of stocks
or securities and conversion of short-term capital losses into long-term capital
losses.  An exception  to these  straddle  rules  exists for certain  "qualified
covered call options" on stock written by a Fund.

Many futures and forward  contracts  entered into by a Fund and listed nonequity
options  written or purchased by a Fund (including  options on debt  securities,
options on futures  contracts,  options on  securities  indices  and  options on
currencies), will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any  such  position  generally  will  be  treated  as 60%  long-term  and 40%
short-term, and on the last trading day of a Fund's fiscal year, all outstanding
Section  1256  positions  will be  marked to market  (i.e.,  treated  as if such
positions  were  closed  out at  their  closing  price  on such  day),  with any
resulting  gain or loss  recognized as 60% long-term and 40%  short-term.  Under
Section 988 of the Code,  discussed  below,  foreign  currency gain or loss from
foreign  currency-related  forward  contracts,  certain  futures and options and
similar financial instruments entered into or acquired by a Fund will be treated
as ordinary income or loss.

Notwithstanding  any of the foregoing,  a Fund may recognize gain (but not loss)
from a constructive sale of certain "appreciated  financial positions" if a Fund
enters into a short sale,  offsetting  notional principal  contract,  futures or
forward  contract  transaction  with  respect  to the  appreciated  position  or
substantially  identical  property.  Appreciated  financial positions subject to
this constructive sale treatment are interests  (including options,  futures and
forward  contracts  and short sales) in stock,  partnership  interests,  certain
actively  traded trust  instruments and certain debt  instruments.  Constructive
sale  treatment of  appreciated  financial  positions  does not apply to certain
transactions  closed in the  90-day  period  ending  with the 30th day after the
close of a Fund's taxable year, if certain conditions are met.

Similarly,  if a  Fund  enters  into a  short  sale  of  property  that  becomes
substantially  worthless,  a Fund will  recognize gain at that time as though it
had closed the short sale.  Future  regulations  may apply similar  treatment to
other   transactions  with  respect  to  property  that  becomes   substantially
worthless.

Under the Code,  gains or losses  attributable to fluctuations in exchange rates
which  occur  between  the  time  a  Fund  accrues  receivables  or  liabilities
denominated  in a foreign  currency and the time a Fund  actually  collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss.  Similarly,  on disposition of debt  securities  denominated in a
foreign  currency and on  disposition  of certain  options,  futures and forward
contracts,  gains or losses attributable to fluctuations in the value of foreign
currency  between the date of  acquisition  of the  security or contract and the
date of  disposition  are also treated as ordinary gain or loss.  These


                                       54
<PAGE>

gains or losses,  referred to under the Code as  "Section  988" gains or losses,
may  increase  or decrease  the amount of a Fund's  investment  company  taxable
income to be distributed to its shareholders as ordinary income.

If a Fund invests in stock of certain foreign investment  companies,  a Fund may
be  subject  to  U.S.  federal  income  taxation  on a  portion  of any  "excess
distribution"  with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such  distribution or gain ratably to each
day of a Fund's  holding  period  for the  stock.  The  distribution  or gain so
allocated  to any taxable  year of a Fund,  other than the  taxable  year of the
excess  distribution  or  disposition,  would be taxed to a Fund at the  highest
ordinary  income  rate in effect  for such  year,  and the tax would be  further
increased by an interest  charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign  company's  stock. Any amount
of  distribution  or gain allocated to the taxable year of the  distribution  or
disposition would be included in a Fund's investment company taxable income and,
accordingly,  would not be taxable to a Fund to the extent distributed by a Fund
as a dividend to its shareholders.

A Fund may make an  election  to mark to  market  its  shares  of these  foreign
investment  companies in lieu of being subject to U.S.  federal income taxation.
At the end of each  taxable  year to which the  election  applies,  a Fund would
report as  ordinary  income  the  amount by which the fair  market  value of the
foreign  company's  stock exceeds a Fund's  adjusted basis in these shares;  any
mark-to-market losses and any loss from an actual disposition of shares would be
reported as ordinary loss to the extent of any net mark-to-market gains included
in income in prior years.  The effect of the  election  would be to treat excess
distributions  and gain on  dispositions as ordinary income which is not subject
to  a  fund  level  tax  when   distributed  to   shareholders  as  a  dividend.
Alternatively,  a Fund may elect to  include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign  investment  companies
in lieu of being taxed in the manner described above.

If a Fund  invests in certain high yield  original  issue  discount  obligations
issued by corporations, a portion of the original issue discount accruing on the
obligation  may  be  eligible  for  the  deduction  for  dividends  received  by
corporations.  In such event,  dividends of investment  company  taxable  income
received from a Fund by its corporate  shareholders,  to the extent attributable
to such portion of accrued  original  issue  discount,  may be eligible for this
deduction for dividends received by corporations if so designated by a Fund in a
written notice to shareholders.

A Fund will be required  to report to the IRS all  distributions  of  investment
company  taxable  income and capital  gains as well as gross  proceeds  from the
redemption  or exchange  of Fund  shares,  except in the case of certain  exempt
shareholders.  Under the backup  withholding  provisions  of Section 3406 of the
Code,  distributions of investment  company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to  withholding  of federal income tax at the rate of 31%
in the case of  non-exempt  shareholders  who  fail to  furnish  the  investment
company  with  their   taxpayer   identification   numbers  and  with   required
certifications  regarding  their  status  under  the  federal  income  tax  law.
Withholding  may also be  required  if a Fund is notified by the IRS or a broker
that  the  taxpayer  identification  number  furnished  by  the  shareholder  is
incorrect or that the  shareholder  has previously  failed to report interest or
dividend  income.  If  the  withholding  provisions  are  applicable,  any  such
distributions  and  proceeds,  whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.

Shareholders of a Fund may be subject to state and local taxes on  distributions
received from a Fund and on redemptions of a Fund's shares.

The foregoing  discussion of U.S.  federal  income tax law relates solely to the
application of that law to U.S.  persons,  i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of a Fund,  including the  possibility  that such a shareholder may be
subject to a U.S.  withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts  constituting  ordinary income received
by him or her, where such amounts are treated as income from U.S.  sources under
the Code.


Shareholders  should  consult their tax advisors  about the  application  of the
provisions of tax law described in this  statement of additional  information in
light of their particular tax situations.




                                       55
<PAGE>
                             PORTFOLIO TRANSACTIONS

Brokerage Commissions


Allocation of brokerage is supervised by the Advisor.

The primary objective of the Advisor in placing orders for the purchase and sale
of securities  for a Fund is to obtain the most  favorable  net results,  taking
into account such factors as price, commission where applicable,  size of order,
difficulty of execution and skill required of the executing  broker/dealer.  The
Advisor seeks to evaluate the overall  reasonableness  of brokerage  commissions
paid (to the extent applicable)  through the familiarity of the Distributor with
commissions  charged  on  comparable  transactions,  as  well  as  by  comparing
commissions paid by a Fund to reported  commissions paid by others.  The Advisor
routinely reviews commission rates,  execution and settlement services performed
and makes internal and external comparisons.

The Funds'  purchases and sales of fixed-income  securities are generally placed
by the Advisor with primary  market makers for these  securities on a net basis,
without any brokerage  commission being paid by a Fund.  Trading does,  however,
involve  transaction costs.  Transactions with dealers serving as primary market
makers  reflect  the  spread  between  the bid and asked  prices.  Purchases  of
underwritten  issues may be made, which will include an underwriting fee paid to
the underwriter.

When it can be done consistently with the policy of obtaining the most favorable
net  results,   it  is  the  Advisor's   practice  to  place  such  orders  with
broker/dealers  who supply  brokerage and research  services to the Advisor or a
Fund.  The  term  "research  services"  includes  advice  as  to  the  value  of
securities;  the advisability of investing in, purchasing or selling securities;
the  availability  of securities or  purchasers  or sellers of  securities;  and
analyses  and  reports  concerning  issuers,  industries,  securities,  economic
factors and trends,  portfolio  strategy and the  performance  of accounts.  The
Advisor is authorized when placing portfolio transactions,  if applicable, for a
Fund to pay a brokerage  commission in excess of that which another broker might
charge for executing the same  transaction on account of execution  services and
the receipt of research services. The Advisor has negotiated arrangements, which
are  not   applicable   to  most   fixed-income   transactions,   with   certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the  Advisor  or a Fund in  exchange  for the  direction  by the  Advisor  of
brokerage  transactions  to  the  broker/dealer.  These  arrangements  regarding
receipt of research  services  generally apply to equity security  transactions.
The Advisor  will not place  orders with a  broker/dealer  on the basis that the
broker/dealer has or has not sold shares of a Fund. In effecting transactions in
over-the-counter securities,  orders are placed with the principal market makers
for the security being traded  unless,  after  exercising  care, it appears that
more favorable results are available elsewhere.

To the  maximum  extent  feasible,  it is expected  that the Advisor  will place
orders  for  portfolio   transactions  through  the  Distributor,   which  is  a
corporation  registered as a broker/dealer and a subsidiary of the Advisor;  the
Distributor will place orders on behalf of the Funds with issuers,  underwriters
or other brokers and dealers.  The Distributor  will not receive any commission,
fee or other remuneration from the Funds for this service.

Although certain research services from  broker/dealers  may be useful to a Fund
and to the Advisor,  it is the opinion of the Advisor that such information only
supplements the Advisor's own research  effort since the information  must still
be analyzed,  weighed, and reviewed by the Advisor's staff. Such information may
be useful to the Advisor in providing services to clients other than a Fund, and
not all such  information  is used by the  Advisor  in  connection  with a Fund.
Conversely,  such information provided to the Advisor by broker/dealers  through
whom other clients of the Advisor effect  securities  transactions may be useful
to the Advisor in providing services to a Fund.

The Directors review,  from time to time,  whether the recapture for the benefit
of the Funds of some portion of the brokerage  commissions  or similar fees paid
by the Funds on portfolio transactions is legally permissible and advisable.

For the fiscal  years ended June 30, 1999 and 1998,  Global Fund paid  brokerage
commissions  of $2,425,890  and  $2,451,495,  respectively.  For the fiscal year
ended June 30, 1999, $1,639,151, (67.57% of the total brokerage commissions paid
by the  Fund)  resulted  from  orders  placed,  consistent  with the  policy  of
obtaining the most favorable net results,  with brokers and dealers who provided
supplementary  research,  market and statistical


                                       56
<PAGE>

information  to  the  Fund  or  the  Advisor.  The  total  amount  of  brokerage
transactions aggregated  $1,575,800,538,  of which $1,003,696,387 (63.69% of all
brokerage  transactions) were transactions which included research  commissions.
Such  brokerage was not allocated to any  particular  brokers or dealers or with
any regard to the  provision  of market  quotations  for purposes of valuing the
Fund's  portfolio  or to any other  special  factors.  For the two months  ended
August 31, 1999 and the year ended August 31, 2000,  Global Fund paid  brokerage
commissions of $________ and $_______, respectively. [TO BE UPDATED]

For the fiscal  years  ended March 31,  1999 and 1998,  International  Fund paid
brokerage commissions of $9,926,570 and $6,904,371, respectively. For the fiscal
year  ended  March  31,  1999,   $9,741,020  (98.13%)  of  the  total  brokerage
commissions  paid by the Fund  resulted  from  orders for  transactions,  placed
consistent  with the policy of seeking to obtain the most favorable net results,
with brokers and dealers who  provided  supplementary  research  services to the
Fund or the Advisor. The amount of such transactions  aggregated  $4,239,712,028
(95.76% of all brokerage  transactions).  The balance of such  brokerage was not
allocated to particular broker or dealer with regard to the  above-mentioned  or
other special factors.  For the five months ended August 31, 1999 and the fiscal
year ended August 31, 2000,  International  Fund paid  brokerage  commissions of
$________ and $_______,  respectively. For the five months ended August 31, 1999
and the  fiscal  year  ended  August 31,  2000,  $________  (____%) of the total
brokerage  commissions  paid by the Fund resulted from orders for  transactions,
placed  consistent  with the policy of seeking to obtain the most  favorable net
results, with brokers and dealers who provided  supplementary  research services
to the  Fund  or  the  Advisor.  The  amount  of  such  transactions  aggregated
$___________  (____%  of  all  brokerage  transactions).  The  balance  of  such
brokerage was not  allocated to  particular  broker or dealer with regard to the
above-mentioned or other special factors.


Portfolio Turnover


The Funds' average annual portfolio  turnover rate is the ratio of the lesser of
sales or  purchases to the monthly  average  value of the  portfolio  securities
owned during the year,  excluding all securities  with  maturities or expiration
dates at the time of acquisition of one year or less. For the fiscal years ended
June 30, 1999 and 1998 Global Fund's  portfolio  turnover rates were 70% and 51%
respectively,  for the two months  ended  August 31,  1999 and fiscal year ended
August 31,  2000 were 29%  (annualized)  and 60%,  respectively.  For the fiscal
years ended  March 31, 1999 and 1998  International  Fund's  portfolio  turnover
rates were 80% and 56%,  respectively,  and for the five months ended August 31,
1999 and  fiscal  year  ended  August 31,  2000 were 82%  (annualized)  and 83%,
respectively.  Purchases  and  sales  are made for a Fund's  portfolio  whenever
necessary, in management's opinion, to meet that Fund's objective.


                                 NET ASSET VALUE

The net  asset  value of  shares  of each  Fund is  computed  as of the close of
regular  trading on the  Exchange  on each day the  Exchange is open for trading
(the "Value  Time").  The Exchange is  scheduled  to be closed on the  following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday,  Memorial Day,  Independence Day, Labor Day,  Thanksgiving and Christmas
and on the  preceding  Friday or  subsequent  Monday when one of these  holidays
falls on a  Saturday  or  Sunday,  respectively.  Net  asset  value per share is
determined  separately  for each  class of shares by  dividing  the value of the
total  assets of each Fund  attributable  to the shares of that class,  less all
liabilities  attributable  to that class,  by the total number of shares of that
class outstanding.

An  exchange-traded  equity  security is valued at its most recent sale price on
the exchange it is traded as of the Value Time.  Lacking any sales, the security
is valued at the  calculated  mean between the most recent bid quotation and the
most recent asked quotation (the "Calculated Mean").  Lacking a Calculated Mean,
the  security is valued at the most  recent bid  quotation.  An equity  security
which is traded on the Nasdaq Stock  Market,  Inc.  ("Nasdaq")  is valued at its
most recent sale price.  Lacking any sales,  the  security is valued at the most
recent bid quotation.  The value of an equity  security not quoted on the Nasdaq
System, but traded in another  over-the-counter  market, is its most recent sale
price. Lacking any sales, the security is valued at the Calculated Mean. Lacking
a Calculated Mean, the security is valued at the most recent bid quotation.


Debt securities, other than short-term securities, are valued at prices supplied
by a Fund's pricing agent(s) which reflect broker/dealer supplied valuations and
electronic  data processing  techniques.  Short-term  securities  purchased with
remaining maturities of sixty days or less shall be valued by the amortized cost
method,  which  the  Board  believes  approximates  market  value.  If it is not
possible  to value a  particular  debt  security  pursuant  to  these  valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona  fide  marketmaker.


                                       57
<PAGE>

If it is not possible to value a particular debt security  pursuant to the above
methods,  the Advisor may calculate the price of that debt security,  subject to
limitations established by the Board.


An exchange traded options contract on securities, currencies, futures and other
financial  instruments is valued at its most recent sale price on such exchange.
Lacking  any sales,  the  options  contract  is valued at the  Calculated  Mean.
Lacking any Calculated  Mean, the options  contract is valued at the most recent
bid quotation in the case of a purchased  options  contract,  or the most recent
asked quotation in the case of a written options  contract.  An options contract
on   securities,    currencies   and   other   financial    instruments   traded
over-the-counter  is valued at the most  recent bid  quotation  in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written  options  contract.  Futures  contracts  are valued at the most recent
settlement price.  Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon one or more exchanges
and in the  over-the-counter  market,  quotations  are taken  from the market in
which the security is traded most extensively.

If, in the  opinion of the  Corporation's  Valuation  Committee,  the value of a
portfolio  asset as  determined  in accordance  with these  procedures  does not
represent  the  fair  market  value of the  portfolio  asset,  the  value of the
portfolio  asset is taken to be an amount which, in the opinion of the Valuation
Committee,   represents  fair  market  value  on  the  basis  of  all  available
information.  The  value  of  other  portfolio  holdings  owned  by the  Fund is
determined in a manner which, in the discretion of the Valuation  Committee most
fairly reflects fair market value of the property on the valuation date.

Following the valuations of securities or other portfolio assets in terms of the
currency in which the market quotation used is expressed ("Local Currency"), the
value of these  portfolio  assets  in terms of U.S.  dollars  is  calculated  by
converting  the Local  Currency  into U.S.  dollars at the  prevailing  currency
exchange rate on the valuation date.

                             ADDITIONAL INFORMATION

Experts


The financial  highlights of each Fund included in the Funds' prospectus and the
Financial  Statements  incorporated by reference in this Statement of Additional
Information  have been so included or  incorporated  by reference in reliance on
the report of PricewaterhouseCoopers  LLP, 160 Federal Street, Boston, MA 02110,
independent  accountants,  given on the  authority  of said firm as  experts  in
accounting  and  auditing.   PricewaterhouseCoopers  LLP  audits  the  financial
statements of each Fund and provides other audit, tax, and related services.


Other Information


Many of the investment  changes in a Fund will be made at prices  different from
those  prevailing  at the time  they may be  reflected  in a  regular  report to
shareholders of a Fund. These  transactions  will reflect  investment  decisions
made by the  Advisor  in the  light  of its  other  portfolio  holdings  and tax
considerations and should not be construed as recommendations for similar action
by other investors.


The CUSIP number of Global Fund Class S is 378947-20-4.

The CUSIP number of Global Fund Class AARP is 378947-87-3.

The CUSIP number of International Fund Class S shares is 811165-10-9.

The CUSIP number of International Fund Class AARP shares is 811165-82-8.

Global Fund has a fiscal year end of August 31. On July 7, 1999,  the  Directors
of the Fund changed the fiscal year end of the Fund from June 30 to August 31.

International  Fund has a fiscal  year end of August  31. On June 7,  1999,  the
Directors  of the Fund  changed the fiscal year end of the Fund from March 31 to
August 31.



                                       58
<PAGE>

The Funds employ Brown  Brothers  Harriman & Company,  40 Water Street,  Boston,
Massachusetts 02109 as Custodian for the Funds.

The law firm of Dechert is counsel to the Funds.


Scudder Service Corporation  ("SSC"),  P.O. Box 219669,  Kansas City,  Missouri,
64121-9669, a subsidiary of the Advisor, is the transfer and dividend disbursing
agent for the Funds.  Service  Corporation  also serves as  shareholder  service
agent and provides  subaccounting  and  recordkeeping  services for  shareholder
accounts  in  certain  retirement  and  employee  benefit  plans.  Prior  to the
implementation of the Administration Agreement, each Fund paid SSC an annual fee
of $26.00 for each retail account and $29.00 for each  retirement  account.  For
the fiscal years ended June 30,  1997,  1998 and 1999,  SSC charged  Global Fund
aggregate  fees of  $2,374,492,  $2,508,727 and  $2,380,471,  respectively,  and
$368,471 for the two months ended August 31, 1999. Prior to August 14, 2000, the
amount  charged to the Fund by SSC aggregated  $2,110,505,  of which $336,686 is
unpaid at August 31, 2000.


Prior to the  inception  of  Barrett  International  Shares,  Class S shares  of
International  Fund incurred fees of $3,394,358 and $3,050,321 during the fiscal
years ended March 31, 1999 and 1998,  respectively.  International Fund incurred
fees of  $3,098,197  for Class S shares  and $4,857  for  Barrett  International
Shares,  respectively,  during  the  fiscal  year  ended  March  31,  1999,  and
$1,258,902 and $4,632, respectively,  for the five months ended August 31, 1999.
Prior to August 14, 2000,  the amount charged by SSC to  International  Fund for
Class S shares  and  Barrett  International  Shares  aggregated  $3,420,086  and
$10,603, respectively, of which $602,732 was unpaid at August 31, 2000.


The Fund, or the Advisor (including any affiliate of the Advisor),  or both, may
pay   unaffiliated   third  parties  for  providing   recordkeeping   and  other
administrative  services with respect to accounts of  participants in retirement
plans or other  beneficial  owners of Fund shares whose  interests are generally
held in an omnibus account.

Scudder  Fund  Accounting   Corporation,   Two  International   Place,   Boston,
Massachusetts, 02110-4103, a subsidiary of the Advisor, computes net asset value
for the Fund. Prior to the implementation of the Administration  Agreement, each
Fund paid Scudder Fund  Accounting  Corporation an annual fee equal to 0.065% of
the first $150  million of average  daily net  assets,  0.040% of such assets in
excess of $150  million,  0.020% of such  assets in excess of $1  billion,  plus
holding and  transaction  charges for this  service.  For the fiscal years ended
June 30, 1998 and 1999,  SFAC charged Global Fund aggregate fees of $601,315 and
$585,537,  respectively,  and $97,186 for the two months  ended August 31, 1999.
For the year ended  August 31, 2000,  the amount  charged to Global Fund by SFAC
aggregated $577,424, of which $95,002 is unpaid as of August 31, 2000.


For the fiscal years ended March 31, 1998 and 1999,  SFAC charged  International
Fund aggregate fees of $838,885 and $795,122, respectively, and $402,576 for the
five months  ended August 31,  1999,  of which  $83,574 was unpaid at August 31,
1999. Prior to August 14, 2000, the amount charged by SFAC to International Fund
aggregated $1,250,099, of which $219,547 was unpaid at August 31, 2000.


Scudder Trust Company, an affiliate of the Advisor,  provides  subaccounting and
recordkeeping  services  for  shareholder  accounts  in certain  retirement  and
employee  benefit  plans.  Prior  to the  implementation  of the  Administration
Agreement,  annual service fees were paid by each Fund to Scudder Trust Company,
Two International Place, Boston, Massachusetts,  02110-4103, an affiliate of the
Advisor, for certain retirement plan accounts. Global Fund and Class S shares of
International  Fund  paid  Scudder  Trust  Company  an  annual  fee of  $29  per
shareholder  account.  For the fiscal years ended June 30, 1998 and 1999, Global
Fund incurred fees of $1,195,885 and $1,427,397,  respectively, and $235,738 for
the two months ended August 31, 1999, of which $119,042 was unpaid at August 31,
1999.




                                       59
<PAGE>

Class S shares of International  Fund incurred fees of $2,067,603 and $1,561,049
during  the  fiscal  years  ended  March 31,  1999 and 1998,  respectively,  and
$1,202,021  for the five months  ended August 31,  1999,  of which  $254,431 was
unpaid at August 31, 1999.  Prior to August 14, 2000,  the amount charged by STC
to Class S shares of International Fund aggregated $3,776,386, of which $731,678
was unpaid at August 31, 2000.

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

                              FINANCIAL STATEMENTS

The  financial  statements,  including  the  investment  portfolio of the Funds,
together with the Report of Independent  Accountants,  Financial  Highlights and
notes to  financial  statements  in the  Annual  Report to the  Shareholders  of
Scudder  International  Fund and Scudder  Global Fund dated August 31, 2000, are
each incorporated herein by reference and are hereby deemed to be a part of this
Statement of Additional Information by reference in its entirety.




                                       60
<PAGE>


                                    APPENDIX

The  following  is a  description  of the  ratings  given by Moody's  and S&P to
corporate bonds.

Ratings of Corporate Bonds

S&P:  Debt rated AAA has the highest  rating  assigned  by S&P.  Capacity to pay
interest  and repay  principal  is  extremely  strong.  Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated  issues only in small  degree.  Debt rated A has a strong  capacity to pay
interest and repay  principal  although it is somewhat more  susceptible  to the
adverse effects of changes in circumstances and economic conditions than debt in
higher  rated  categories.  Debt  rated BBB is  regarded  as having an  adequate
capacity to pay  interest  and repay  principal.  Whereas it  normally  exhibits
adequate  protection   parameters,   adverse  economic  conditions  or  changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.

Debt rated BB, B, CCC, CC and C is regarded as having predominantly  speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates  the least degree of  speculation  and C the highest.  While such debt
will  likely  have  some  quality  and  protective  characteristics,  these  are
outweighed by large uncertainties or major exposures to adverse conditions.

Debt rated BB has less near-term vulnerability to default than other speculative
issues.  However,  it faces major ongoing  uncertainties  or exposure to adverse
business,  financial,  or economic  conditions  which  could lead to  inadequate
capacity to meet timely interest and principal payments.  The BB rating category
is also used for debt  subordinated to senior debt that is assigned an actual or
implied BBB-  rating.  Debt rated B has a greater  vulnerability  to default but
currently has the capacity to meet interest  payments and principal  repayments.
Adverse business,  financial, or economic conditions will likely impair capacity
or willingness  to pay interest and repay  principal.  The B rating  category is
also used for debt  subordinated  to senior  debt that is  assigned an actual or
implied BB or BB- rating.

Debt rated CCC has a currently  identifiable  vulnerability  to default,  and is
dependent upon favorable  business,  financial,  and economic conditions to meet
timely  payment of interest and repayment of principal.  In the event of adverse
business,  financial,  or  economic  conditions,  it is not  likely  to have the
capacity to pay interest and repay  principal.  The CCC rating  category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
B or B- rating.  The rating CC  typically  is  applied to debt  subordinated  to
senior  debt that is  assigned  an actual or implied  CCC  rating.  The rating C
typically  is applied to debt  subordinated  to senior debt which is assigned an
actual  or  implied  CCC-  debt  rating.  The C  rating  may be used to  cover a
situation where a bankruptcy  petition has been filed, but debt service payments
are  continued.  The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest  payments or principal  payments are not made on the date due even
if the  applicable  grace period had not expired,  unless S&P believes that such
payments will be made during such grace  period.  The D rating also will be used
upon  the  filing  of  a  bankruptcy  petition  if  debt  service  payments  are
jeopardized.

Moody's:  Bonds which are rated Aaa are judged to be of the best  quality.  They
carry the smallest  degree of investment  risk and are generally  referred to as
"gilt edge." Interest  payments are protected by a large or by an  exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change,  such changes as can be visualized are most unlikely to impair
the fundamentally  strong position of such issues.  Bonds which are rated Aa are
judged to be of high quality by all standards.  Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best  bonds  because  margins  of  protection  may not be as large as in Aaa
securities or fluctuation of protective  elements may be of greater amplitude or
there  may be other  elements  present  which  make the long term  risks  appear
somewhat  larger than in Aaa  securities.  Bonds which are rated A possess  many
favorable  investment  attributes and are to be considered as upper medium grade
obligations.  Factors  giving  security to principal and interest are considered
adequate  but  elements  may  be  present  which  suggest  a  susceptibility  to
impairment sometime in the future.



<PAGE>

Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective  elements may be
lacking or may be  characteristically  unreliable over any great length of time.
Such  bonds  lack  outstanding  investment  characteristics  and  in  fact  have
speculative characteristics as well. Bonds which are rated Ba are judged to have
speculative elements;  their future cannot be considered as well assured.  Often
the  protection  of interest and  principal  payments  may be very  moderate and
thereby  not well  safeguarded  during  both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bonds which are rated
B generally  lack  characteristics  of the  desirable  investment.  Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.

Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present  elements of danger with  respect to principal or interest.
Bonds which are rated Ca represent  obligations  which are speculative in a high
degree.  Such  issues are often in default  or have other  marked  shortcomings.
Bonds which are rated C are the lowest  rated class of bonds and issues so rated
can be regarded as having  extremely  poor  prospects of ever attaining any real
investment standing.


<PAGE>






                          Barrett International Shares

                                       of

                           SCUDDER INTERNATIONAL FUND
                  A series of Scudder International Fund, Inc.


                      A Mutual Fund Which Seeks to Provide
                      Long-Term Growth of Capital Primarily
                         from Foreign Equity Securities






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



                       STATEMENT OF ADDITIONAL INFORMATION


                                December 29, 2000




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


This Statement of Additional  Information is not a prospectus and should be read
in conjunction with the prospectus for the Barrett International Shares, a class
of Scudder  International Fund, dated December 29, 2000, as 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.

The  Annual   Report  to   Shareholders   dated  August  31,  2000  for  Scudder
International Fund -- Barrett  International Shares is incorporated by reference
and is hereby deemed to be a part of this Statement of Additional Information.



<PAGE>


                                TABLE OF CONTENTS
                                                                           Page


THE FUND'S INVESTMENT OBJECTIVE AND POLICIES.................................1
         General Investment Objective and Policies...........................1
         Investments.........................................................1
         Foreign Investment Risk.............................................2
         Master/feeder structure.............................................2
         Interfund Lending Program...........................................3
         Special Considerations..............................................3
         Specialized Investment Techniques...................................6
         Investment Restrictions............................................17

PURCHASES...................................................................18
         Other Information..................................................19

REDEEMING SHARES............................................................19
         Redemption-in-Kind.................................................19

FEATURES AND SERVICES OFFERED BY THE FUND...................................19

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS...................................19

PERFORMANCE INFORMATION.....................................................20
         Average Annual Total Return........................................20
         Cumulative Total Return............................................20
         Total Return.......................................................21
         Comparison of Fund Performance.....................................21

FUND ORGANIZATION...........................................................22

INVESTMENT MANAGER..........................................................24

DIRECTORS AND OFFICERS......................................................28

REMUNERATION................................................................30
         Responsibilities  of the  Board -- Board  and  Committee
         Meetings...........................................................30
         Compensation of Officers and Directors.............................30

DISTRIBUTOR.................................................................31

CODE OF ETHICS..............................................................32

TAXES.......................................................................33

PORTFOLIO TRANSACTIONS......................................................37
         Brokerage Commissions..............................................37
         Portfolio Turnover.................................................38

NET ASSET VALUE.............................................................38

ADDITIONAL INFORMATION......................................................39
         Experts............................................................39
         Other Information..................................................39

FINANCIAL STATEMENTS........................................................40

APPENDIX....................................................................41




                                       i
<PAGE>

THE FUND'S INVESTMENT OBJECTIVE AND POLICIES


Scudder  International  Fund (the "Fund"),  is a  diversified  series of Scudder
International Fund, Inc. (the "Corporation"),  an open-end management investment
company  registered  under the  Investment  Company Act of 1940, as amended (the
"1940 Act") which continuously offers and redeems its shares at net asset value.
It is a company of the type commonly  known as a mutual fund. The Fund currently
offers seven classes of shares:  Barrett  International  Shares,  Class S shares
(formerly known as International  Shares),  Class AARP shares, Class A, Class B,
Class C, and Class I shares.  This Statement of Additional  Information  applies
only to the Barrett International Shares (the "Shares").


Except as  otherwise  indicated,  the Fund's  objectives  and  policies  are not
fundamental  and may be  changed  without a  shareholder  vote.  There can be no
assurance that the Fund will achieve its objective.  If there is a change in the
Fund's  investment  objective,  shareholders  should  consider  whether the Fund
remains  an  appropriate  investment  in light of their then  current  financial
position and needs.  There can be no assurance that the Fund's objective will be
met.

General Investment Objective and Policies


Descriptions  in  this  Statement  of  Additional  Information  of a  particular
investment  practice or technique in which the Fund may engage (such as hedging,
etc.) or a financial  instrument  which the Fund may purchase  (such as options,
forward foreign currency contracts,  etc.) are meant to describe the spectrum of
investments  that Zurich  Scudder  Investments,  Inc.  (the  "Advisor"),  in its
discretion,  might, but is not required to, use in managing the Fund's portfolio
assets.  The Advisor may, in its  discretion,  at any time employ such practice,
technique or  instrument  for one or more funds but not for all funds advised by
it. Furthermore,  it is possible that certain types of financial  instruments or
investment  techniques  described  herein  may  not be  available,  permissible,
economically  feasible or effective for their intended  purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but,  to the extent  employed,  could from time to time have a material
impact on the Fund's performance.


The Fund's investment objective is to seek long-term growth of capital primarily
from foreign  equity  securities.  These  securities  are selected  primarily to
permit the Fund to  participate  in non-U.S.  companies and  economies  that are
believed to have prospects for growth.

The Fund invests in companies,  wherever organized,  which do business primarily
outside the United States.

Investments


The Fund generally invests in equity securities of established companies, listed
on foreign exchanges (although the Fund may invest in securities traded over the
counter), which the Advisor believes have favorable characteristics.  The Fund's
equity  investments  include  common  stock,   convertible  and  non-convertible
preferred stock, sponsored and unsponsored depository receipts, and warrants.

When the Advisor  believes that it is  appropriate  to do so in order to achieve
the Fund's investment objective of long-term capital growth, the Fund may invest
up to 20% of its total assets in debt securities.  Such debt securities  include
debt   securities   of   governments,   governmental   agencies,   supranational
organizations  and private issuers,  including bonds denominated in the European
Currency Unit (the "Euro").  Portfolio debt  investments will be selected on the
basis of,  among  other  things,  yield,  credit  quality,  and the  fundamental
outlooks for currency and interest rate trends in different  parts of the globe,
taking  into  account  the  ability to hedge a degree of  currency or local bond
price risk. The value of fixed-income investments will fluctuate with changes in
interest  rates and bond market  conditions,  tending to rise as interest  rates
decline and decline as interest rates rise. The Fund will predominantly purchase
"investment-grade"  bonds,  which are those  rated Aaa,  Aa, A or Baa by Moody's
Investors  Service,  Inc.  ("Moody's") or AAA, AA, A or BBB by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies,  Inc., ("S&P") or, if
unrated,  judged by the Advisor to be of equivalent  quality.  The Fund may also
invest up to 5% of its total  assets in debt  securities  which are rated  below
investment-grade (see "Risk factors").

The Fund intends to diversify  investments  among several countries and normally
to have  investments in securities of at least three  different  countries other
than the U.S. The Fund will invest  primarily in securities of issuers in the 21
developed foreign countries included in the Morgan Stanley Capital International
("MSCI")  World ex-US  Index,  but may invest in  "emerging  markets."  The Fund
considers  "emerging  markets"  to  include  any  country  that is defined as an


<PAGE>

emerging  or   developing   economy  by  any  of  the   International   Bank  of
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation  or the United Nations or its  authorities.  It is expected that the
Fund's investments will include companies of varying size as measured by assets,
sales or market capitalization.

The  major  portion  of the  Fund's  assets  consists  of equity  securities  of
established companies listed on recognized  exchanges;  the Advisor expects this
condition to  continue,  although  the Fund may invest in other  securities.  In
selecting   securities  for  the  Fund's   portfolio,   the  Advisor  applies  a
disciplined,  multi-part  investment approach for selecting stocks for the Fund.
In analyzing  companies for investment,  the Advisor ordinarily looks for one or
more  of  the  following   characteristics:   strong  competitive   positioning,
above-average  earnings  growth  per share,  high  return on  invested  capital,
healthy balance sheets and overall  financial  strength,  strength of management
and general operating characteristics which will enable the companies to compete
successfully  in the  marketplace.  The Advisor  will further seek to have broad
country  representation,  favoring  those  countries that it believes have sound
economic   conditions  and  open  markets.   The  Advisor  will  also  look  for
opportunities  on a macro-economic  level,  seeking to identify major changes in
the business  environment  and  companies  that are poised to benefit from these
changes.  Investment  decisions are made without regard to arbitrary criteria as
to minimum  asset  size,  debt-equity  ratios or dividend  history of  portfolio
companies.  The Advisor will typically sell an investment when certain  criteria
are met,  including  but not limited to: the price of the  security  reaches the
Advisor's  assessment  of its fair value;  the  underlying  investment  theme is
judged by the Advisor to have matured;  or if the original  reason for investing
in the security no longer applies or is no longer valid.

The Fund may hold up to 20% of its net assets in U.S.  and foreign  fixed income
securities  for  temporary  defensive  purposes  when the Advisor  believes that
market conditions so warrant.  The Fund may invest up to 20% of its assets under
normal conditions,  and without limit for temporary defensive purposes,  in cash
or cash  equivalents  including  domestic and foreign money market  instruments,
short-term government and corporate obligations and repurchase agreements,  when
the  Advisor  deems such a position  advisable  in light of  economic  or market
conditions.  It is impossible to  accurately  predict how long such  alternative
strategies  may be  utilized.  In  addition,  the Fund  may  engage  in  reverse
repurchase agreements, illiquid securities and strategic transactions, which may
include derivatives.


Foreign securities such as those purchased by the Fund may be subject to foreign
governmental  taxes which could reduce the yield on such securities,  although a
shareholder  of the Fund may,  subject to certain  limitations,  be  entitled to
claim a credit or deduction for U.S.  federal income tax purposes for his or her
proportionate share of such foreign taxes paid by the Fund. (See "TAXES.")

From time to time, the Fund may be a purchaser of illiquid  securities,  such as
restricted  debt or  equity  securities  (i.e.,  securities  which  may  require
registration  under the  Securities Act of 1933, or an exemption  therefrom,  in
order to be sold in the ordinary  course of  business)  in a private  placement.
(See "Illiquid Securities.")

Foreign Investment Risk

While the Fund offers the potential for substantial  appreciation  over time, it
also  involves  above-average  investment  risk in  comparison  to a mutual fund
investing in a broad range of U.S. equity securities.  The Fund is designed as a
long-term  investment and not for short-term  trading purposes.  The Fund should
not be considered a complete  investment  program,  although it could serve as a
core international holding for an individual's  portfolio.  The Fund's net asset
value,  or price,  can  fluctuate  significantly  with  changes in stock  market
levels, political developments, movements in currencies, global investment flows
and other factors.

Master/feeder structure

The Board of  Directors  of the Fund ("the  Board" or "the  Directors")  has the
discretion  to retain the current  distribution  arrangement  for the Fund while
investing in a master fund in a master/feeder fund structure as described below.

A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing  directly in a portfolio of securities,  invests most or all of its
investment  assets in a separate  registered  investment  company  (the  "master
fund") with  substantially  the same  investment  objective  and policies as the
feeder  fund.  Such a  structure  permits  the  pooling of assets of two or more
feeder funds,  preserving  separate  identities or distribution  channels at the
feeder  fund  level.  Based on the  premise  that  certain  of the  expenses  of
operating an investment  portfolio are  relatively  fixed,  a larger  investment
portfolio may eventually  achieve a lower ratio of operating expenses to average
net assets. An existing  investment  company is able to convert to a feeder fund
by  selling  all  of  its  investments,   which  involves  brokerage  and  other


                                       2
<PAGE>

transaction  costs and realization of a taxable gain or loss, or by contributing
its assets to the master  fund and  avoiding  transaction  costs and,  if proper
procedures are followed, the realization of taxable gain or loss.

Interfund Lending Program


The  Corporations'  Board of Directors has approved the filing of an application
for exemptive  relief with the  Securities and Exchange  Commission  (the "SEC")
which would  permit the Funds to  participate  in an interfund  lending  program
among certain investment  companies advised by the Advisor. If the Funds receive
the  requested   relief,   the  interfund   lending   program  would  allow  the
participating  funds to  borrow  money  from and loan  money to each  other  for
temporary or  emergency  purposes.  The program  would be subject to a number of
conditions  designed to ensure fair and equitable treatment of all participating
funds, including the following: (1) no fund may borrow money through the program
unless it receives a more favorable  interest rate than a rate approximating the
lowest  interest  rate at which  bank  loans  would be  available  to any of the
participating  funds  under a loan  agreement;  and (2) no fund may  lend  money
through  the  program  unless it  receives  a more  favorable  return  than that
available  from an  investment  in  repurchase  agreements  and,  to the  extent
applicable,  money market cash sweep  arrangements.  In  addition,  a fund would
participate in the program only if and to the extent that such  participation is
consistent  with the fund's  investment  objectives  and policies (for instance,
money market  funds would  normally  participate  only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings would extend overnight,
but could have a maximum  duration of seven  days.  Loans could be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed.  Any delay in repayment to a lending
fund could result in a lost  investment  opportunity  or additional  costs.  The
program is subject to the  oversight  and  periodic  review of the Boards of the
participating  funds. To the extent the Funds are actually  engaged in borrowing
through the interfund lending program, the Funds, as a matter of non-fundamental
policy,  may not borrow for other than temporary or emergency  purposes (and not
for  leveraging)  except  that  the  Funds  may  engage  in  reverse  repurchase
agreements and dollar rolls for any purpose.


Special Considerations

Investing  in  Emerging  Markets.  Most  emerging  securities  markets  may have
substantially less volume and are subject to less governmental  supervision than
U.S. securities  markets.  Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges,  securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.

Emerging markets also have different clearance and settlement procedures, and in
certain markets there have been times when  settlements  have not kept pace with
the volume of  securities  transactions.  Delays in  settlement  could result in
temporary  periods when a portion of the assets of the Fund is uninvested and no
cash is earned  thereon.  The  inability of the Fund to make  intended  security
purchases due to  settlement  problems  could cause the Fund to miss  attractive
investment  opportunities.  Inability to dispose of portfolio  securities due to
settlement  problems could result either in losses to the Fund due to subsequent
declines in value of the  portfolio  security or, if the Fund has entered into a
contract  to sell the  security,  could  result  in  possible  liability  to the
purchaser.   Costs  associated  with  transactions  in  foreign  securities  are
generally  higher than costs  associated with  transactions in U.S.  securities.
Such  transactions  also  involve  additional  costs for the purchase or sale of
foreign currency.

Certain emerging markets require prior  governmental  approval of investments by
foreign  persons,  limit the  amount  of  investment  by  foreign  persons  in a
particular  company,  limit the investment by foreign persons only to a specific
class of securities of a company that may have less advantageous rights than the
classes  available for purchase by  domiciliaries of the countries and/or impose
additional  taxes  on  foreign  investors.  Certain  emerging  markets  may also
restrict  investment  opportunities in issuers in industries deemed important to
national interest.

Certain emerging markets may require governmental  approval for the repatriation
of investment income,  capital or the proceeds of sales of securities by foreign
investors.  In  addition,  if a  deterioration  occurs in an  emerging  market's
balance of payments  or for other  reasons,  a country  could  impose  temporary
restrictions  on  foreign  capital  remittances.  The Fund  could  be  adversely
affected by delays in, or a refusal to grant, any required governmental approval
for  repatriation  of capital,  as well as by the application to the Fund of any
restrictions on investments.

In the course of investment in emerging markets, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in one
or more emerging markets. While the Fund will manage its assets in a manner that
will seek to minimize the exposure to such risks, there can be no assurance that
adverse political,  social or economic changes will not cause the Fund to suffer
a loss of value in respect of the securities in the Fund's portfolio.

                                       3
<PAGE>

The risk  also  exists  that an  emergency  situation  may  arise in one or more
emerging  markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's securities in such markets may
not be readily  available.  The Corporation may suspend redemption of its shares
for any period  during  which an emergency  exists,  as  determined  by the SEC.
Accordingly if the Fund believes that appropriate  circumstances  exist, it will
promptly  apply to the SEC for a  determination  that an  emergency  is present.
During the period  commencing from the Fund's  identification  of such condition
until the date of the SEC action,  the Fund's securities in the affected markets
will be valued at fair value  determined in good faith by or under the direction
of the Corporation's Board.

Volume and  liquidity  in most  foreign  markets are less than in the U.S.,  and
securities  of many foreign  companies  are less liquid and more  volatile  than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally  higher than negotiated  commissions on U.S.  exchanges,
although  the Fund  endeavors to achieve the most  favorable  net results on its
portfolio  transactions.  There is generally less  governmental  supervision and
regulation of business and industry practices,  securities  exchanges,  brokers,
dealers and listed  companies than in the U.S. Mail service between the U.S. and
foreign  countries  may be slower or less  reliable  than within the U.S.,  thus
increasing the risk of delayed settlements of portfolio  transactions or loss of
certificates for certificated portfolio securities. In addition, with respect to
certain  emerging  markets,   there  is  the  possibility  of  expropriation  or
confiscatory   taxation,   political  or  social   instability,   or  diplomatic
developments  which  could  affect the Fund's  investments  in those  countries.
Moreover,   individual   emerging  market  economies  may  differ  favorably  or
unfavorably  from the U.S.  economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment,  resource self-sufficiency and
balance of  payments  position.  The chart  below  sets for the risk  ratings of
selected emerging market countries' sovereign debt securities.

The Fund may have limited legal  recourse in the event of a default with respect
to certain debt  obligations it holds. If the issuer of a fixed-income  security
owned by the Fund  defaults,  the Fund may  incur  additional  expenses  to seek
recovery.  Debt obligations issued by emerging market country governments differ
from debt  obligations  of private  entities;  remedies  from  defaults  on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. The Fund's ability
to enforce its rights  against  private  issuers may be limited.  The ability to
attach assets to enforce a judgment may be limited.  Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other  countries.  The  political  context,  expressed  as  an  emerging  market
governmental issuer's willingness to meet the terms of the debt obligation,  for
example, is of considerable  importance.  In addition, no assurance can be given
that the holders of commercial bank debt may not contest payments to the holders
of  debt  obligations  in the  event  of  default  under  commercial  bank  loan
agreements.


Income from securities held by the Fund could be reduced by a withholding tax at
the source or other taxes imposed by the emerging market  countries in which the
Fund makes its  investments.  The Fund's net asset value may also be affected by
changes  in the  rates  or  methods  of  taxation  applicable  to the Fund or to
entities in which the Fund has  invested.  The Advisor will consider the cost of
any taxes in determining whether to acquire any particular investments,  but can
provide no assurance that the taxes will not be subject to change.


Many  emerging  markets  have  experienced  substantial,  and, in some  periods,
extremely  high  rates  of  inflation  for  many  years.   Inflation  and  rapid
fluctuations  in  inflation  rates  have had and may  continue  to have  adverse
effects on the  economies  and  securities  markets of certain  emerging  market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain  countries.  Of these countries,  some, in recent years, have
begun to control inflation through prudent economic policies.

Emerging market governmental issuers are among the largest debtors to commercial
banks,  foreign  governments,  international  financial  organizations and other
financial  institutions.  Certain emerging market governmental  issuers have not
been able to make  payments of interest on or principal of debt  obligations  as
those  payments  have  come due.  Obligations  arising  from past  restructuring
agreements  may  affect  the  economic  performance  and  political  and  social
stability of those issuers.

Governments  of many emerging  market  countries  have exercised and continue to
exercise  substantial  influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in any
given  country.  As a result,  governmental  actions in the future  could have a
significant  effect on economic  conditions in emerging markets,  which in turn,
may adversely affect companies in the private sector,  general market conditions
and prices and yields of  certain  of the  securities  in the Fund's  portfolio.
Expropriation,  confiscatory taxation,  nationalization,  political, economic or
social instability or other similar  developments have occurred  frequently over
the history of certain  emerging  markets and could adversely  affect the Fund's
assets should these conditions recur.

                                       4
<PAGE>

The  ability of  emerging  market  country  governmental  issuers to make timely
payments  on their  obligations  is  likely  to be  influenced  strongly  by the
issuer's balance of payments,  including export  performance,  and its access to
international  credits and  investments.  An emerging  market whose  exports are
concentrated  in a few  commodities  could be  vulnerable  to a  decline  in the
international   prices   of  one  or  more  of  those   commodities.   Increased
protectionism  on the part of an emerging  market's  trading partners could also
adversely  affect the country's  exports and diminish its trade account surplus,
if any. To the extent that emerging  markets  receive payment for its exports in
currencies other than dollars or non-emerging market currencies,  its ability to
make debt payments  denominated  in dollars or  non-emerging  market  currencies
could be affected.

Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country.  Fluctuations
in the level of these  reserves  affect the amount of foreign  exchange  readily
available  for  external  debt  payments  and thus  could  have a bearing on the
capacity  of  emerging   market   countries  to  make  payments  on  these  debt
obligations.

To the extent that an emerging  market country cannot  generate a trade surplus,
it must  depend on  continuing  loans  from  foreign  governments,  multilateral
organizations or private commercial banks, aid payments from foreign governments
and inflows of foreign investment. The access of emerging markets to these forms
of external  funding may not be certain,  and a withdrawal  of external  funding
could  adversely  affect the capacity of emerging  market  country  governmental
issuers  to make  payments  on  their  obligations.  In  addition,  the  cost of
servicing  emerging  market  debt  obligations  can be  affected  by a change in
international  interest  rates  since the  majority of these  obligations  carry
interest rates that are adjusted periodically based upon international rates.


Common Stocks. Under normal circumstances,  the Fund invests primarily in common
stocks.  Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund  participates  in the  success or failure of any  company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic  or  financial  market  movements.  Smaller  companies  are  especially
sensitive to these  factors and may even become  valueless.  Despite the risk of
price  volatility,  however,  common  stock also offers  greater  potential  for
long-term gain on investment, compared to other classes of financial assets such
as bonds or cash equivalents.

Depository  Receipts.  The Fund may invest  indirectly  in securities of foreign
issuers through sponsored or unsponsored  American Depository Receipts ("ADRs"),
Global Depository Receipts ("GDRs"),  International Depository Receipts ("IDRs")
and other types of Depository Receipts (which, together with ADRs, GDRs and IDRs
are  hereinafter  referred to as "Depository  Receipts").  Prices of unsponsored
Depositary  Receipts  may be more  volatile  than if they were  sponsored by the
issuer of the underlying securities.  Depository Receipts may not necessarily be
denominated  in the same currency as the underlying  securities  into which they
may be  converted.  In  addition,  the  issuers  of  the  stock  of  unsponsored
Depository  Receipts are not obligated to disclose  material  information in the
United  States  and,  therefore,  there may not be a  correlation  between  such
information and the market value of the Depository Receipts. ADRs are Depository
Receipts which are bought and sold in the United States and are typically issued
by a  U.S.  bank  or  trust  company  which  evidence  ownership  of  underlying
securities by a foreign  corporation.  GDRs,  IDRs and other types of Depository
Receipts are typically issued by foreign banks or trust companies, although they
may also be issued by  United  States  banks or trust  companies,  and  evidence
ownership of underlying securities issued by either a foreign or a United States
corporation.  Generally, Depositary Receipts in registered form are designed for
use in the United States  securities  markets and Depositary  Receipts in bearer
form are designed for use in securities  markets outside the United States.  For
purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depositary  Receipts will be deemed to be  investments in the
underlying securities.  Depositary Receipts other than those denominated in U.S.
dollars will be subject to foreign  currency  exchange  rate risk.  However,  by
investing  in ADRs rather  than  directly in foreign  issuers'  stock,  the Fund
avoids  currency  risks during the  settlement  period.  In general,  there is a
large,  liquid  market in the  United  States for most  ADRs.  However,  certain
Depositary  Receipts  may not be  listed on an  exchange  and  therefore  may be
illiquid securities.


Warrants.  The  Fund  may  invest  in  warrants  up to 5% of  the  value  of its
respective net assets.  The holder of a warrant has the right, until the warrant
expires,  to  purchase  a given  number of shares  of a  particular  issuer at a
specified price.  Such investments can provide a greater potential for profit or
loss  than an  equivalent  investment  in the  underlying  security.  Prices  of
warrants  do not  necessarily  move,  however,  in tandem with the prices of the
underlying securities and are, therefore,  considered  speculative  investments.
Warrants  pay no dividends  and confer no rights  other than a purchase  option.
Thus,  if a  warrant  held by the  Fund  were not  exercised  by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.

                                       5
<PAGE>


Foreign Securities. The Fund is intended to provide individual and institutional
investors  with an  opportunity  to  invest  a  portion  of  their  assets  in a
diversified  group of  securities  of companies,  wherever  organized,  which do
business  primarily  outside  the U.S.,  and  foreign  governments.  The Advisor
believes that  diversification of assets on an international basis decreases the
degree to which events in any one country,  including  the U.S.,  will affect an
investor's  entire investment  holdings.  In certain periods since World War II,
many leading foreign  economies and foreign stock market indices have grown more
rapidly than the U.S.  economy and leading U.S. stock market  indices,  although
there can be no assurance  that this will be true in the future.  Because of the
Fund's  investment  policy,  the Fund is not  intended  to  provide  a  complete
investment program for an investor.


Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below, which are not typically
associated  with  investing  in U.S.  securities  and  which  may  favorably  or
unfavorably  affect  the  Fund's  performance.  As  foreign  companies  are  not
generally  subject to  uniform  accounting,  auditing  and  financial  reporting
standards, practices and requirements comparable to those applicable to domestic
companies,  there may be less  publicly  available  information  about a foreign
company than about a domestic company.  Many foreign securities  markets,  while
growing in volume of trading activity,  have  substantially less volume than the
U.S.  market,  and  securities of some foreign  issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times,  volatility of
price can be greater than in the U.S.  Further,  foreign  markets have different
clearance and settlement procedures and in certain markets there have been times
when  settlements  have been  unable to keep pace with the volume of  securities
transactions  making  it  difficult  to  conduct  such  transactions.  Delays in
settlement  could  result  in  temporary  periods  when  assets  of the Fund are
uninvested  and no return is earned  thereon.  The inability of the Fund to make
intended security  purchases due to settlement  problems could cause the Fund to
miss  attractive  investment  opportunities.  Inability  to dispose of portfolio
securities due to settlement  problems either could result in losses to the Fund
due to subsequent  declines in value of the  portfolio  security or, if the Fund
has  entered  into a contract  to sell the  security,  could  result in possible
liability  to the  purchaser.  Payment for  securities  without  delivery may be
required  in  certain  foreign  markets.   Fixed  commissions  on  some  foreign
securities  exchanges  and bid to asked  spreads in  foreign  bond  markets  are
generally  higher  than  commissions  or bid to asked  spreads on U.S.  markets,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio  transactions.  Further,  the Fund may  encounter  difficulties  or be
unable to pursue legal remedies and obtain judgments in foreign courts. There is
generally less governmental  supervision and regulation of securities exchanges,
brokers and listed  companies in most foreign  countries than in the U.S. It may
be more  difficult  for the  Fund's  agents  to keep  currently  informed  about
corporate  actions  which  may  affect  the  prices  of  portfolio   securities.
Communications  between the U.S. and foreign countries may be less reliable than
within the U.S.,  thus  increasing the risk of delayed  settlements of portfolio
transactions  or loss of  certificates  for  portfolio  securities.  Payment for
securities  without  delivery  may be required in certain  foreign  markets.  In
addition, with respect to certain foreign countries, there is the possibility of
expropriation  or confiscatory  taxation,  political or social  instability,  or
diplomatic  developments which could affect U.S. investments in those countries.
Moreover,  individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national  product,  rate of
inflation,  capital  reinvestment,  resource  self-sufficiency  and  balance  of
payments position.

Many  of  the  currencies  of  foreign   countries  have  experienced  a  steady
devaluation  relative to the United States.  Any future  devaluation  may have a
detrimental  impact on any investments  made by the Fund. The currencies of most
some foreign countries are not freely  convertible into other currencies and are
not   internationally   traded.   The  Fund  will  not   invest  its  assets  in
non-convertible  fixed income securities  denominated in currencies that are not
freely convertible into other currencies at the time the investment is made.


These  considerations  generally are more of a concern in developing  countries.
For  example,  the  possibility  of  revolution  and the  dependence  on foreign
economic  assistance  may be  greater  in  these  countries  than  in  developed
countries.  The  management  of the Fund seeks to mitigate the risks  associated
with  these  considerations  through  diversification  and  active  professional
management.  Although investments in companies domiciled in developing countries
may be subject  to  potentially  greater  risks than  investments  in  developed
countries,  the Fund will not invest in any  securities  of  issuers  located in
developing  countries if the  securities,  in the  judgment of the Advisor,  are
speculative.


Specialized Investment Techniques

Foreign  Currencies.  Because  investments  in foreign  securities  usually will
involve currencies of foreign  countries,  and because the Fund may hold foreign
currencies  and  forward  contracts,  futures  contracts  and options on foreign
currencies and foreign  currency futures  contracts,  the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the  Fund  may  incur  costs  and   experience   conversion   difficulties   and
uncertainties  in connection with  conversions  between various


                                       6
<PAGE>

currencies.  In particular,  the Fund's investments are generally denominated in
foreign  currencies.  The strength or weakness of the U.S.  dollar against these
currencies is responsible for part of the Fund's investment performance.  If the
dollar  falls in value  relative to the Japanese  yen,  for example,  the dollar
value of a Japanese  stock held in the portfolio will rise even though the price
of the  stock  remains  unchanged.  Conversely,  if the  dollar  rises  in value
relative to the yen, the dollar value of the Japanese stock will fall.

In addition,  many foreign currencies have experienced  significant  devaluation
relative to the dollar.  Although  the Fund values its assets  daily in terms of
U.S. dollars,  it does not intend to convert its holdings of foreign  currencies
into  U.S.  dollars  on a daily  basis.  It will do so from  time to  time,  and
investors should be aware of the costs of currency conversion.  Although foreign
exchange  dealers do not charge a fee for  conversion,  they do realize a profit
based on the  difference  (the  "spread")  between  the prices at which they are
buying  and  selling  various  currencies.  Thus,  a dealer  may offer to sell a
foreign  currency  to the Fund at one  rate,  while  offering  a lesser  rate of
exchange should the Fund desire to resell that currency to the dealer.  The Fund
will conduct its foreign currency exchange  transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into options or forward or futures  contracts to purchase or
sell foreign currencies.

Trust Preferred  Securities.  The 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 (the "1933  Act"),  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.


Debt  Securities.  When the Advisor  believes that it is appropriate to do so in
order to achieve the Fund's objective of long-term capital growth,  the Fund may
invest  up to 20% of its  total  assets in debt  securities  including  bonds of
foreign governments,  supranational organizations and private issuers, including
bonds  denominated in the Euro.  Portfolio debt  investments will be selected on
the basis of, among other things,  yield,  credit  quality,  and the fundamental
outlooks for currency and interest rate trends in different  parts of the globe,
taking  into  account  the  ability to hedge a degree of  currency or local bond
price risk.  The Fund may  purchase  "investment-grade"  bonds,  which are those
rated Aaa,  Aa, A or Baa by Moody's or AAA,  AA, A or BBB by S&P or, if unrated,
judged to be of  equivalent  quality,  as  determined  by the  Advisor.  Moody's
considers  bonds  it  rates  Baa  to  have  speculative   elements  as  well  as
investment-grade  characteristics.  The lower that a bond is rated,  the greater
their risks  render them  similar to equity  securities.  To the extent that the
Fund invests in high-grade securities, the Fund will not be able to avail itself
of opportunities for higher income which may be available at lower grades.


High  Yield/High  Risk Bonds.  The Fund may also purchase,  to a limited extent,
debt securities which are rated below investment-grade  (commonly referred to as
"junk  bonds"),  that is,  rated  below Baa by Moody's or below BBB by S&P,  and
unrated securities, which usually entail greater risk (including the possibility
of default or bankruptcy of the issuers of such  securities),  generally involve
greater  volatility of price and risk of principal  and income,  and may be less
liquid,  than securities in the higher rating categories.  The lower the ratings
of such debt  securities,  the  greater  their  risks  render  them like  equity
securities.  The  Fund  will  invest  no more  than 5% of its  total  assets  in
securities  rated  BB or  lower  by  Moody's  or Ba by S&P,  and may  invest  in
securities  which are rated D by S&P.  Securities rated D may be in default with
respect to payment of principal or interest.  See the Appendix to this Statement
of  Additional  Information  for a more  complete  description  of  the  ratings
assigned by ratings organizations and their respective characteristics.

                                       7
<PAGE>

High yield,  high-risk  securities are  especially  subject to adverse change in
general  economic  conditions,  to changes in the  financial  condition of their
issuers and to price  fluctuations  in response to changes in interest rates. An
economic  downturn could disrupt the high yield market and impair the ability of
issuers to repay  principal  and interest.  Also, an increase in interest  rates
would have a greater  adverse  impact on the value of such  obligations  than on
higher quality debt securities.  During an economic downturn or period of rising
interest rates,  highly leveraged  issues may experience  financial stress which
would  adversely  affect their ability to service  their  principal and interest
payment  obligations.  Prices and yields of high yield securities will fluctuate
over time and, during periods of economic uncertainty,  volatility of high yield
securities  may  adversely  affect  the  Fund's net asset  value.  In  addition,
investments  in high  yield  zero  coupon  or  pay-in-kind  bonds,  rather  than
income-bearing high yield securities, may be more speculative and may be subject
to greater fluctuations in value due to changes in interest rates.

The  trading  market for high yield  securities  may be thin to the extent  that
there is no established retail secondary market. A thin trading market may limit
the  ability  of the Fund to  accurately  value  high  yield  securities  in its
portfolio  and to dispose of those  securities.  Adverse  publicity and investor
perceptions  may  decrease the values and  liquidity  of high yield  securities.
These  securities  may  also  involve  special  registration   responsibilities,
liabilities and costs, and liquidity and valuation difficulties.


Credit  quality in the  high-yield  securities  market can change  suddenly  and
unexpectedly,  and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the  policy  of the  Advisor  not to  rely  exclusively  on  ratings  issued  by
established credit rating agencies,  but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment  objective by investment in such  securities may be more dependent on
the Advisor's credit analysis than is the case for higher quality bonds.  Should
the rating of a portfolio  security be  downgraded,  the Advisor will  determine
whether  it is in the best  interest  of the Fund to retain or  dispose  of such
security.


Prices for below investment-grade  securities may be affected by legislative and
regulatory developments. For example, new federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security.  Also,
Congress has from time to time  considered  legislation  which would restrict or
eliminate the corporate tax deduction for interest  payments in these securities
and  regulate  corporate  restructurings.  Such  legislation  may  significantly
depress the prices of outstanding securities of this type.

For more information regarding tax issues related to high yield securities,  see
"TAXES."


Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market.  While such purchases may often offer attractive  opportunities
for  investment  not otherwise  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
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. This investment practice,  therefore,  could have the
effect of  increasing  the level of  illiquidity  of the Fund.  It is the Fund's
policy that illiquid securities  (including  repurchase  agreements of more than
seven days duration,  certain restricted securities,  and other securities which
are not readily  marketable) may not constitute,  at the time of purchase,  more
than 15% of the value of the  Fund's net  assets.  The  Corporation's  Board has
approved  guidelines for use by the Advisor in determining whether a security is
illiquid.


Generally  speaking,  restricted  securities  may be sold (i) only to  qualified
institutional  buyers; (ii) in a privately  negotiated  transaction to a limited
number of purchasers;  or (iii) in limited  quantities after they have been held
for a  specified  period of time and other  conditions  are met  pursuant  to an
exemption from registration. Issuers of restricted securities may not be subject
to the  disclosure  and other  investor  protection  requirements  that would be
applicable  if  their  securities  were  publicly  traded.   If  adverse  market
conditions were to develop during the period between the Fund's decision to sell
a restricted  or illiquid  security and the point at which the Fund is permitted
or able to sell such security, the Fund might obtain a price less favorable than
the price that prevailed when it decided to sell. Where a registration statement
is required for the resale of restricted securities, the Fund may be required to
bear all or part of the registration  expenses.  The 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,  the Fund may be liable to  purchasers  of such
securities if the  registration  statement  prepared by the issuer is materially
inaccurate or misleading.


Repurchase  Agreements.  The Fund may enter into repurchase  agreements with any
member  bank of the  Federal  Reserve  System  and any  broker-dealer  which  is
recognized as a reporting  government  securities dealer if the creditworthiness
of the bank or  broker-dealer  has been determined by the Advisor to be at least
as high as that of


                                       8
<PAGE>

other  obligations  the Fund  may  purchase  or to be at least  equal to that of
issuers of  commercial  paper rated  within the two highest  grades  assigned by
Moody's or S&P.


A repurchase agreement provides a means for the Fund to earn income on funds for
periods as short as overnight.  It is an  arrangement  under which the purchaser
(i.e., the Fund) acquires a security  ("Obligation")  and the seller agrees,  at
the time of sale, to repurchase  the  Obligation at a specified  time and price.
Securities  subject to a repurchase  agreement are held in a segregated  account
and the value of such securities kept at least equal to the repurchase  price on
a daily basis.  The repurchase  price may be higher than the purchase price, the
difference  being income to the Fund, or the purchase and repurchase  prices may
be the same,  with  interest at a stated rate due to the Fund  together with the
repurchase  price upon  repurchase.  In either  case,  the income to the Fund is
unrelated to the interest rate on the  Obligation  itself.  Obligations  will be
held by the Custodian or in the Federal Reserve Book Entry system.


For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
the Fund to the seller of the Obligation subject to the repurchase agreement and
is therefore subject to the Fund's investment  restriction  applicable to loans.
It is not clear whether a court would consider the  Obligation  purchased by the
Fund  subject to a  repurchase  agreement as being owned by the Fund or as being
collateral  for a  loan  by  the  Fund  to  the  seller.  In  the  event  of the
commencement of bankruptcy or insolvency  proceedings with respect to the seller
of the  Obligation  before  repurchase  of the  Obligation  under  a  repurchase
agreement,  the Fund may  encounter  delay and incur costs  before being able to
sell the  security.  Delays may involve  loss of interest or decline in price of
the  Obligation.  If the court  characterizes  the transaction as a loan and the
Fund has not perfected a security  interest in the  Obligation,  the Fund may be
required to return the  Obligation  to the seller's  estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk  of  losing  some  or all of  the  principal  and  income  involved  in the
transaction.  As with any unsecured debt instrument  purchased for the Fund, the
Advisor  seeks to minimize the risk of loss  through  repurchase  agreements  by
analyzing the  creditworthiness  of the obligor,  in this case the seller of the
Obligation.  Apart from the risk of bankruptcy or insolvency proceedings,  there
is also the risk that the seller may fail to repurchase the Obligation, in which
case  the  Fund may  incur a loss if the  proceeds  to the Fund of the sale to a
third party are less than the repurchase price.  However, if the market value of
the  Obligation  subject  to the  repurchase  agreement  becomes  less  than the
repurchase  price (including  interest),  the Fund will direct the seller of the
Obligation  to deliver  additional  securities  so that the market  value of all
securities  subject  to the  repurchase  agreement  will  equal  or  exceed  the
repurchase  price.  It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.

Reverse  Repurchase  Agreements.  The Fund may enter  into  "reverse  repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities,  agrees to repurchase them at an agreed upon time and price. The
Fund  maintains a segregated  account in  connection  with  outstanding  reverse
repurchase  agreements.  The Fund will enter into reverse repurchase  agreements
only when the Advisor  believes  that the interest  income to be earned from the
investment of the proceeds of the transaction  will be greater than the interest
expense of the transaction.

Investment  Company  Securities.  The  Fund  may  acquire  securities  of  other
investment  companies to the extent consistent with its investment objective and
subject to the  limitations of the 1940 Act. The Fund will  indirectly  bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.

For example, the Fund may invest in a variety of investment companies which seek
to track the  composition  and  performance  of  specific  indexes or a specific
portion of an index.  These  index-based  investments hold  substantially all of
their assets in securities representing their specific index.  Accordingly,  the
main risk of investing in index-based  investments is the same as investing in a
portfolio  of equity  securities  comprising  the index.  The  market  prices of
index-based  investments  will fluctuate in accordance  with both changes in the
market  value of their  underlying  portfolio  securities  and due to supply and
demand for the  instruments on the exchanges on which they are traded (which may
result in their  trading at a discount  or premium to their  NAVs).  Index-based
investments  may not replicate  exactly the performance of their specified index
because of  transaction  costs and because of the  temporary  unavailability  of
certain component securities of the index.


Examples of index-based investments include:

SPDRs(R):  SPDRs,  an acronym for "Standard & Poor's  Depositary  Receipts," are
based on the S&P 500  Composite  Stock Price Index.  They are issued by the SPDR
Trust,  a unit  investment  trust that  holds  shares of  substantially  all the
companies  in the S&P 500 in  substantially  the  same  weighting  and  seeks to
closely track the price performance and dividend yield of the Index.

                                       9
<PAGE>

MidCap  SPDRs(R):  MidCap SPDRs are based on the S&P MidCap 400 Index.  They are
issued by the MidCap SPDR Trust, a unit investment  trust that holds a portfolio
of securities  consisting of  substantially  all of the common stocks in the S&P
MidCap 400 Index in substantially  the same weighting and seeks to closely track
the price performance and dividend yield of the Index.

Select Sector SPDRs(R):  Select Sector SPDRs are based on a particular sector or
group of  industries  that are  represented  by a specified  Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end  management  investment  company with nine
portfolios  that each seeks to closely track the price  performance and dividend
yield of a particular Select Sector Index.

DIAMONDS(SM):  DIAMONDS are based on the Dow Jones Industrial Average(SM).  They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.

Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100  Trust, a unit investment  trust that holds a portfolio
consisting of substantially  all of the securities,  in  substantially  the same
weighting,  as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.

WEBs(SM):  WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific  Morgan Stanley Capital International  Indexes. They are issued
by the WEBs Index Fund,  Inc., an open-end  management  investment  company that
seeks to correspond  generally to the price and yield  performance of a specific
Morgan Stanley Capital International Index.


Strategic  Transactions and  Derivatives.  The Fund may, but is not required to,
utilize various other investment  strategies as described below for a variety of
purposes,  such as hedging various market risks, managing the effective maturity
or duration of  fixed-income  securities in the Fund's  portfolio,  or enhancing
potential gain.  These  strategies may be executed through the use of derivative
contracts.  Such strategies are generally accepted as a part of modern portfolio
management   and  are  regularly   utilized  by  many  mutual  funds  and  other
institutional investors.

In the course of pursuing these investment strategies, the Fund may purchase and
sell  exchange-listed and  over-the-counter  put and call options on securities,
equity and fixed-income indices and other instruments, purchase and sell futures
contracts and options thereon,  enter into various  transactions  such as swaps,
caps, floors, collars,  currency forward contracts,  currency futures contracts,
currency  swaps or options on currencies  or currency  futures and various other
currency  transactions  (collectively,  all  the  above  are  called  "Strategic
Transactions").  In  addition,  Strategic  Transactions  may  also  include  new
techniques,  instruments or strategies that are permitted as regulatory  changes
occur.  Strategic  Transactions  may be used without limit to attempt to protect
against  possible  changes in the market  value of  securities  held in or to be
purchased for the Fund's portfolio resulting from securities markets or currency
exchange rate fluctuations,  to protect the Fund's unrealized gains in the value
of its portfolio  securities,  to  facilitate  the sale of such  securities  for
investment   purposes,   to  manage  the  effective   maturity  or  duration  of
fixed-income  securities in the Fund's portfolio,  or to establish a position in
the  derivatives  markets as a substitute for  purchasing or selling  particular
securities.  Some Strategic  Transactions may also be used to enhance  potential
gain  although  no more  than 5% of the  Fund's  assets  will  be  committed  to
Strategic  Transactions  entered into for  non-hedging  purposes.  Any or all of
these investment techniques may be used at any time and in any combination,  and
there is no particular  strategy  that dictates the use of one technique  rather
than  another,  as use of any  Strategic  Transaction  is a function of numerous
variables including market conditions.  The ability of the Fund to utilize these
Strategic  Transactions  successfully  will depend on the  Advisor's  ability to
predict  pertinent  market  movements,  which  cannot be assured.  The Fund will
comply  with  applicable   regulatory   requirements  when  implementing   these
strategies, techniques and instruments.  Strategic Transactions will not be used
to alter fundamental investment purposes and characteristics of the Fund and the
Fund will segregate assets (or as provided by applicable regulations, enter into
certain  offsetting  positions) to cover its obligations under options,  futures
and swaps to limit leveraging of the Fund.

Strategic  Transactions,  including derivative contracts,  have risks associated
with them  including  possible  default by the other  party to the  transaction,
illiquidity and, to the extent the Advisor's view as to certain market movements
is incorrect,  the risk that the use of such Strategic Transactions could result
in losses  greater  than if they had not been used.  Use of put and call options
may  result  in losses to the Fund,  force  the sale or  purchase  of  portfolio
securities  at  inopportune  times or for prices higher than (in the case of put
options)  or lower than (in the case of call  options)  current  market  values,
limit the amount of  appreciation  the Fund can  realize on its  investments  or
cause the Fund to hold a security it might  otherwise  sell. The use of currency
transactions  can result in the Fund incurring losses as a result of a


                                       10
<PAGE>

number of factors including the imposition of exchange  controls,  suspension of
settlements,  or the inability to deliver or receive a specified  currency.  The
use of  options  and  futures  transactions  entails  certain  other  risks.  In
particular,  the  variable  degree of  correlation  between  price  movements of
futures contracts and price movements in the related  portfolio  position of the
Fund  creates  the  possibility  that losses on the  hedging  instrument  may be
greater than gains in the value of the Fund's position. In addition, futures and
options   markets   may  not  be  liquid  in  all   circumstances   and  certain
over-the-counter  options may have no markets.  As a result, in certain markets,
the  Fund  might  not be able  to  close  out a  transaction  without  incurring
substantial  losses,  if at  all.  Although  the  use  of  futures  and  options
transactions  for  hedging  should  tend to  minimize  the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any  potential  gain  which  might  result  from an  increase  in  value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential  financial risk than would purchases of
options,  where the  exposure  is  limited to the cost of the  initial  premium.
Losses resulting from the use of Strategic  Transactions  would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.


General  Characteristics of Options. Put options and call options typically have
similar structural  characteristics and operational  mechanics regardless of the
underlying  instrument on which they are purchased or sold.  Thus, the following
general  discussion relates to each of the particular types of options discussed
in greater  detail below.  In addition,  many Strategic  Transactions  involving
options  require  segregation of Fund assets in special  accounts,  as described
below under "Use of Segregated and Other Special Accounts."


A put option gives the purchaser of the option,  upon payment of a premium,  the
right to sell, and the writer the  obligation to buy, the  underlying  security,
commodity,  index,  currency or other  instrument  at the  exercise  price.  For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying  instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such  instrument at the option  exercise price. A call option,
upon payment of a premium,  gives the  purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price.  The Fund's  purchase of a call option on a security,  financial  future,
index,  currency  or other  instrument  might be  intended  to protect  the Fund
against an increase in the price of the underlying instrument that it intends to
purchase  in the  future  by  fixing  the  price at which it may  purchase  such
instrument.  An American  style put or call option may be  exercised at any time
during  the  option  period  while a  European  style put or call  option may be
exercised only upon expiration or during a fixed period prior thereto.  The Fund
is authorized to purchase and sell exchange listed options and  over-the-counter
options  ("OTC  options").  Exchange  listed  options  are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"),  which guarantees
the  performance  of the  obligations  of  the  parties  to  such  options.  The
discussion  below uses the OCC as an example,  but is also  applicable  to other
financial intermediaries.


With certain exceptions, OCC issued and exchange listed options generally settle
by physical  delivery of the  underlying  security or currency,  although in the
future cash  settlement  may become  available.  Index  options  and  Eurodollar
instruments are cash settled for the net amount,  if any, by which the option is
"in-the-money"  (i.e., where the value of the underlying  instrument exceeds, in
the case of a call  option,  or is less than,  in the case of a put option,  the
exercise  price of the option) at the time the option is exercised.  Frequently,
rather than taking or making delivery of the underlying  instrument  through the
process of  exercising  the option,  listed  options are closed by entering into
offsetting  purchase or sale transactions that do not result in ownership of the
new option.

The Fund's  ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent,  in part, upon the liquidity
of the option  market.  Among the  possible  reasons for the absence of a liquid
option market on an exchange are: (i)  insufficient  trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts,  suspensions  or other  restrictions  imposed with respect to  particular
classes or series of options or underlying  securities  including reaching daily
price  limits;  (iv)  interruption  of the  normal  operations  of the OCC or an
exchange;  (v)  inadequacy  of the  facilities  of an  exchange or OCC to handle
current  trading  volume;  or  (vi)  a  decision  by one or  more  exchanges  to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant  market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed  options may not coincide  with the hours during
which the underlying  financial  instruments are traded.  To the extent that the
option   markets  close  before  the  markets  for  the   underlying   financial
instruments,  significant  price  and  rate  movements  can  take  place  in the
underlying markets that cannot be reflected in the option markets.

                                       11
<PAGE>

OTC  options  are  purchased  from  or  sold to  securities  dealers,  financial
institutions  or  other  parties  ("Counterparties")  through  direct  bilateral
agreements  with the  Counterparties.  In contrast to exchange  listed  options,
which generally have standardized terms and performance mechanics, all the terms
of an OTC option,  including such terms as method of settlement,  term, exercise
price, premium,  guarantees and security, are set by negotiation of the parties.
The Fund will only sell OTC options  (other than OTC currency  options) that are
subject to a buy-back provision  permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula  price within  seven days.  The
Fund  expects  generally  to enter into OTC  options  that have cash  settlement
provisions, although it is not required to do so.


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 the Fund or fails to make a cash  settlement
payment due in accordance with the terms of that option,  the Fund will lose any
premium  it paid  for the  option  as well  as any  anticipated  benefit  of the
transaction.  Accordingly,  the Advisor 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.  The Fund  will  engage  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 Advisor.  The staff of the
SEC  currently  takes the position that OTC options  purchased by the Fund,  and
portfolio securities  "covering" the amount of the 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 the Fund's  limitation  on
investing no more than 15% of its net assets in illiquid securities.


If the Fund sells a call  option,  the premium  that it receives  may serve as a
partial hedge,  to the extent of the option  premium,  against a decrease in the
value of the  underlying  securities  or  instruments  in its  portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may  purchase  and sell  call  options  on  securities  including  U.S.
Treasury  and agency  securities,  mortgage-backed  securities,  corporate  debt
securities,  equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities  exchanges and in the
over-the-counter  markets,  and on securities  indices,  currencies  and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract,  subject to the call) or must meet the asset
segregation  requirements  described  below as long as the call is  outstanding.
Even though the Fund will receive the option  premium to help protect it against
loss,  a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize  appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.

The Fund may purchase and sell put options on securities including U.S. Treasury
and agency  securities,  mortgage-backed  securities,  foreign  sovereign  debt,
corporate debt securities,  equity securities (including convertible securities)
and Eurodollar  instruments (whether or not it holds the above securities in its
portfolio),  and on securities indices,  currencies and futures contracts, other
than futures on individual corporate debt and individual equity securities.  The
Fund will not sell put  options  if, as a  result,  more than 50% of the  Fund's
assets would be required to be  segregated  to cover its  potential  obligations
under such put  options  other than those with  respect to futures  and  options
thereon.  In selling put options,  there is a risk that the Fund may be required
to buy the  underlying  security  at a  disadvantageous  price  above the market
price.

General Characteristics of Futures. The Fund may enter into futures contracts or
purchase  or sell  put and  call  options  on such  futures  as a hedge  against
anticipated  interest rate, currency or equity market changes,  and for duration
management,  for risk management and return  enhancement  purposes.  Futures are
generally  bought and sold on the  commodities  exchanges  where they are listed
with payment of initial and variation  margin as described  below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the  specific  type of  instrument  called  for in the  contract  at a
specific  future time for a specified  price (or,  with respect to index futures
and Eurodollar instruments,  the net cash amount).  Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives  the  purchaser  the  right in  return  for the  premium  paid to assume a
position  in a  futures  contract  and  obligates  the  seller to  deliver  such
position.


The Fund's use of futures and options  thereon  will in all cases be  consistent
with  applicable  regulatory  requirements  and  in  particular  the  rules  and
regulations of the Commodity Futures Trading Commission and will be entered into
for bona


                                       12
<PAGE>

fide hedging, risk management (including duration management) or other portfolio
management and return  enhancement  purposes.  Typically,  maintaining a futures
contract  or  selling an option  thereon  requires  the Fund to  deposit  with a
financial  intermediary  as security  for its  obligations  an amount of cash or
other specified  assets (initial  margin) which initially is typically 1% to 10%
of the face amount of the  contract  (but may be higher in some  circumstances).
Additional  cash or assets  (variation  margin) may be required to be  deposited
thereafter  on a daily  basis as the  marked  to  market  value of the  contract
fluctuates.  The purchase of an option on futures  involves payment of a premium
for the option  without any further  obligation  on the part of the Fund. If the
Fund  exercises  an option on a futures  contract,  it will be obligated to post
initial margin (and  potential  subsequent  variation  margin) for the resulting
futures  position  just as it would  for any  position.  Futures  contracts  and
options thereon are generally settled by entering into an offsetting transaction
but  there  can be no  assurance  that  the  position  can be  offset  prior  to
settlement at an advantageous price, nor that delivery will occur.


The Fund will not enter into a futures  contract or related  option  (except for
closing transactions) if, immediately  thereafter,  the sum of the amount of its
initial margin and premiums on open futures  contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value);  however,  in the
case of an  option  that  is  in-the-money  at the  time  of the  purchase,  the
in-the-money  amount may be  excluded  in  calculating  the 5%  limitation.  The
segregation  requirements  with respect to futures contracts and options thereon
are described below.

Options on Securities  Indices and Other  Financial  Indices.  The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through  the sale or  purchase  of options  on  individual  securities  or other
instruments.  Options on  securities  indices  and other  financial  indices are
similar to options on a security or other  instrument  except that,  rather than
settling by physical delivery of the underlying instrument,  they settle by cash
settlement,  i.e.,  an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds,  in the case of a call, or is less than,
in the case of a put, the exercise  price of the option  (except if, in the case
of an OTC option, physical delivery is specified).  This amount of cash is equal
to the excess of the closing  price of the index over the exercise  price of the
option,  which  also may be  multiplied  by a formula  value.  The seller of the
option is  obligated,  in return for the premium  received,  to make delivery of
this  amount.  The  gain or loss on an  option  on an  index  depends  on  price
movements in the instruments making up the market,  market segment,  industry or
other  composite  on which the  underlying  index is based,  rather  than  price
movements in  individual  securities,  as is the case with respect to options on
securities.


Currency  Transactions.  The Fund  may  engage  in  currency  transactions  with
Counterparties  primarily in order to hedge, or manage the risk of, the value of
portfolio holdings denominated in particular  currencies against fluctuations in
relative  value.  Currency  transactions  include  forward  currency  contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately  negotiated
obligation  to purchase or sell (with  delivery  generally  required) a specific
currency at a future  date,  which may be any fixed number of days from the date
of the contract  agreed upon by the  parties,  at a price set at the time of the
contract.  A currency  swap is an agreement to exchange  cash flows based on the
notional  difference  among two or more currencies and operates  similarly to an
interest rate swap,  which is described  below. The Fund may enter into currency
transactions with  Counterparties  which have received (or the guarantors of the
obligations  which  have  received)  a  credit  rating  of  A-1 or P-1 by S&P or
Moody's,  respectively,  or that  have an  equivalent  rating  from an  NRSRO or
(except for OTC currency  options) are  determined  to be of  equivalent  credit
quality by the Advisor.


The  Fund's   dealings  in  forward   currency   contracts  and  other  currency
transactions  such as futures,  options,  options on futures and swaps generally
will be limited to hedging  involving either specific  transactions or portfolio
positions.  Transaction  hedging is entering  into a currency  transaction  with
respect to specific  assets or  liabilities  of the Fund,  which will  generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt  of income  therefrom.  Position  hedging  is  entering  into a currency
transaction  with  respect  to  portfolio  security  positions   denominated  or
generally quoted in that currency.

The Fund will generally not enter into a transaction to hedge currency  exposure
to an  extent  greater,  after  netting  all  transactions  intended  wholly  or
partially to offset other transactions,  than the aggregate market value (at the
time of entering into the  transaction)  of the securities held in its portfolio
that are denominated or generally  quoted in or currently  convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.

The Fund may also  cross-hedge  currencies  by  entering  into  transactions  to
purchase or sell one or more  currencies  that are  expected to decline in value
relative to other  currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.

                                       13
<PAGE>


To reduce  the  effect of  currency  fluctuations  on the value of  existing  or
anticipated holdings of portfolio securities,  the Fund may also engage in proxy
hedging.  Proxy  hedging  is often  used when the  currency  to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging  entails  entering into a commitment or option to sell a currency  whose
changes in value are  generally  considered  to be  correlated  to a currency or
currencies in which some or all of the Fund's  portfolio  securities  are or are
expected to be  denominated,  in exchange  for U.S.  dollars.  The amount of the
commitment  or  option  would not  exceed  the  value of the  Fund's  securities
denominated in correlated currencies. For example, if the Advisor considers that
the Austrian schilling is correlated to the German  deutschemark (the "D-mark"),
the Fund holds  securities  denominated in schillings  and the Advisor  believes
that the value of schillings will decline against the U.S.  dollar,  the Advisor
may enter into a commitment or option to sell D-marks and buy dollars.  Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency  being hedged  fluctuates in value to a degree or in a direction
that  is  not  anticipated.  Further,  there  is the  risk  that  the  perceived
correlation  between various currencies may not be present or may not be present
during the particular  time that the Fund is engaging in proxy  hedging.  If the
Fund enters into a currency hedging  transaction,  the Fund will comply with the
asset segregation requirements described below.


Risks of  Currency  Transactions.  Currency  transactions  are  subject to risks
different from those of other portfolio  transactions.  Because currency control
is of great  importance  to the  issuing  governments  and  influences  economic
planning and policy, purchases and sales of currency and related instruments can
be  negatively  affected  by  government  exchange  controls,   blockages,   and
manipulations or exchange restrictions imposed by governments.  These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations  and could also cause hedges it has entered into to be
rendered  useless,  resulting  in full  currency  exposure as well as  incurring
transaction  costs.  Buyers and sellers of  currency  futures are subject to the
same risks that apply to the use of futures generally.  Further, settlement of a
currency  futures  contract for the purchase of most  currencies must occur at a
bank  based in the  issuing  nation.  Trading  options  on  currency  futures is
relatively  new,  and the ability to establish  and close out  positions on such
options is subject to the maintenance of a liquid market which may not always be
available.  Currency  exchange rates may fluctuate based on factors extrinsic to
that country's economy.


Combined Transactions. The Fund may enter into multiple transactions,  including
multiple options transactions,  multiple futures transactions, multiple currency
transactions  (including forward currency  contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions   ("component"   transactions),   instead  of  a  single  Strategic
Transaction,  as part of a single or combined  strategy  when, in the opinion of
the  Advisor,  it is in the best  interests  of the  Fund to do so.  A  combined
transaction  will usually  contain  elements of risk that are present in each of
its component transactions.  Although combined transactions are normally entered
into based on the Advisor's  judgment that the combined  strategies  will reduce
risk or otherwise  more  effectively  achieve the desired  portfolio  management
goal, it is possible that the  combination  will instead  increase such risks or
hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter  are  interest  rate,  currency,  index  and other  swaps and the
purchase or sale of related caps, floors and collars.  The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment  or  portion  of  its   portfolio,   to  protect   against   currency
fluctuations,  as a duration  management  technique  or to protect  against  any
increase in the price of securities the Fund  anticipates  purchasing at a later
date.  The Fund will not sell interest rate caps or floors where it does not own
securities  or other  instruments  providing  the income  stream the Fund may be
obligated  to pay.  Interest  rate swaps  involve the  exchange by the Fund with
another party of their respective commitments to pay or receive interest,  e.g.,
an exchange of floating  rate payments for fixed rate payments with respect to a
notional  amount of principal.  A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential  among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference  indices.  The
purchase  of a cap  entitles  the  purchaser  to receive  payments on a notional
principal  amount from the party selling such cap to the extent that a specified
index exceeds a predetermined  interest rate or amount.  The purchase of a floor
entitles the purchaser to receive  payments on a notional  principal amount from
the party selling such floor to the extent that a specified  index falls below a
predetermined  interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a  predetermined  range of interest
rates or values.

The Fund will  usually  enter into swaps on a net basis,  i.e.,  the two payment
streams  are  netted  out in a cash  settlement  on the  payment  date or  dates
specified in the instrument,  with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter into any offsetting  position) to cover its  obligations  under
swaps,  the Advisor and the Fund  believe  such  obligations  do not  constitute
senior


                                       14
<PAGE>

securities  under the 1940 Act, and,  accordingly,  will not treat them as being
subject to its  borrowing  restrictions.  The Fund will not enter into any swap,
cap,  floor or collar  transaction  unless,  at the time of  entering  into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements,  is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent  credit  quality by the
Advisor.  If  there  is a  default  by  the  Counterparty,  the  Fund  may  have
contractual remedies pursuant to the agreements related to the transaction.  The
swap market has grown substantially in recent years with a large number of banks
and investment  banking firms acting both as principals and as agents  utilizing
standardized  swap  documentation.  As a  result,  the swap  market  has  become
relatively  liquid.  Caps,  floors and collars are more recent  innovations  for
which  standardized   documentation  has  not  yet  been  fully  developed  and,
accordingly, they are less liquid than swaps.


Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S.  dollar-denominated futures contracts or options
thereon  which are  linked  to the  London  Interbank  Offered  Rate  ("LIBOR"),
although  foreign  currency-denominated  instruments  are available from time to
time.  Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use  Eurodollar  futures  contracts  and options  thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.

Risks of Strategic  Transactions  Outside the U.S.  When  conducted  outside the
U.S., Strategic  Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees,  and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities,  currencies and other instruments.  The value of such positions also
could be adversely affected by: (i) other complex foreign  political,  legal and
economic factors,  (ii) lesser availability than in the U.S. of data on which to
make trading decisions,  (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during  non-business hours in the U.S., (iv)
the  imposition of different  exercise and  settlement  terms and procedures and
margin  requirements  than  in the  U.S.,  and  (v)  lower  trading  volume  and
liquidity.

Use of Segregated and Other Special Accounts.  Many Strategic  Transactions,  in
addition to other  requirements,  require that the Fund segregate cash or liquid
assets with its  custodian  to the extent  Fund  obligations  are not  otherwise
"covered" through ownership of the underlying security,  financial instrument or
currency.  In general,  either the full amount of any  obligation by the Fund to
pay or  deliver  securities  or  assets  must be  covered  at all  times  by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory  restrictions,  an amount of cash or liquid securities at least equal
to the current amount of the obligation  must be segregated  with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer  necessary to segregate  them. For
example,  a call  option  written by the Fund will  require the Fund to hold the
securities  subject  to the  call (or  securities  convertible  into the  needed
securities  without  additional  consideration)  or to segregate  cash or liquid
securities  sufficient  to purchase  and deliver the  securities  if the call is
exercised.  A call option sold by the Fund on an index will  require the Fund to
own portfolio  securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise  price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.

Except when the Fund enters into a forward  contract for the purchase or sale of
a security denominated in a particular currency,  which requires no segregation,
a  currency  contract  which  obligates  the Fund to buy or sell  currency  will
generally  require  the  Fund to hold an  amount  of  that  currency  or  liquid
securities  denominated in that currency  equal to the Fund's  obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.

OTC options entered into by the Fund,  including those on securities,  currency,
financial  instruments  or  indices  and OCC issued and  exchange  listed  index
options, will generally provide for cash settlement.  As a result, when the Fund
sells these  instruments it will only segregate an amount of assets equal to its
accrued net  obligations,  as there is no requirement for payment or delivery of
amounts  in excess of the net  amount.  These  amounts  will  equal  100% of the
exercise  price  in the  case  of a non  cash-settled  put,  the  same as an OCC
guaranteed  listed option sold by the Fund, or the in-the-money  amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund  sells a call  option on an index at a time when the  in-the-money
amount exceeds the exercise  price,  the Fund will  segregate,  until the option
expires  or is  closed  out,  cash or cash  equivalents  equal  in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above  generally  settle with physical  delivery,  or with an election of either
physical  delivery or cash  settlement  and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery or with an election of either physical delivery or cash settlement will
be treated the same as other options settling with physical delivery.

                                       15
<PAGE>

In the case of a futures  contract or an option  thereon,  the Fund must deposit
initial margin and, possibly,  daily variation margin in addition to segregating
assets  sufficient to meet its  obligation to purchase or provide  securities or
currencies,  or to pay the  amount  owed  at the  expiration  of an  index-based
futures contract. Such assets may consist of cash, cash equivalents,  short-term
debt or equity securities or other acceptable assets.

With  respect to swaps,  the Fund will accrue the net amount of the  excess,  if
any, of its  obligations  over its  entitlements  with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess.  Caps,  floors and collars  require  segregation of
assets with a value equal to the Fund's net obligation, if any.

Strategic  Transactions  may be covered  by other  means  when  consistent  with
applicable  regulatory  policies.  The  Fund  may  also  enter  into  offsetting
transactions so that its combined position,  coupled with any segregated assets,
equals  its  net  outstanding   obligation  in  related  options  and  Strategic
Transactions.  For example,  the Fund could  purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund.  Moreover,  instead of  segregating  assets if the Fund held a
futures or forward contract,  it could purchase a put option on the same futures
or forward  contract with a strike price as high or higher than the price of the
contract held. Other Strategic  Transactions may also be offset in combinations.
If the  offsetting  transaction  terminates  at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.


Lending of  Portfolio  Securities.  The Fund may seek to increase  its income by
lending   portfolio   securities.   Such   loans  may  be  made  to   registered
broker/dealers  and are required to be secured  continuously  by  collateral  in
cash,  U.S.  Government  Securities  and  liquid  high  grade  debt  obligations
maintained  on a current  basis at an amount at least equal to the market  value
and accrued interest of the securities  loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice.  During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions  paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral.  As with other extensions of
credit  there  are  risks of delay in  recovery  or even  loss of  rights in the
collateral should the borrower of the securities fail financially.  However, the
loans will be made only to firms  deemed by the Advisor to be in good  standing,
and will not be made unless,  in the judgment of the Advisor,  the consideration
to be  earned  from such  loans  would  justify  their  risks.  The value of the
securities  loaned will not exceed 5% of the value of the Fund's total assets at
the time any loan is made.

Borrowing. The Fund may not borrow money, except as permitted under Federal law.
The Fund will borrow only when the Advisor  believes that borrowing will benefit
the Fund  after  taking  into  account  considerations  such as the costs of the
borrowing.  The Fund does not  expect  to borrow  for  investment  purposes,  to
increase  return or leverage the  portfolio.  Borrowing by the Fund will involve
special risk  considerations.  Although the  principal of the Fund's  borrowings
will be fixed, the Fund's assets may change in value during the time a borrowing
is outstanding, thus increasing exposure to capital risk.


When-Issued Securities.  The Fund may from time to time purchase equity and debt
securities on a "when-issued"  or "forward  delivery"  basis.  The price of such
securities,  which may be  expressed  in yield  terms,  is fixed at the time the
commitment to purchase is made, but delivery and payment for the  when-issued or
forward  delivery  securities  takes  place at a later  date.  During the period
between  purchase and  settlement,  no payment is made by the Fund to the issuer
and no interest  accrues to the Fund.  To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities,  the Fund would
earn no income;  however, it is the Fund's intention to be fully invested to the
extent  practicable and subject to the policies stated above.  While when-issued
or forward  delivery  securities may be sold prior to the  settlement  date, the
Fund intends to purchase such securities with the purpose of actually  acquiring
them unless a sale appears  desirable for  investment  reasons.  At the time the
Fund makes the  commitment  to purchase a security on a  when-issued  or forward
delivery  basis,  it will  record the  transaction  and reflect the value of the
security in determining its net asset value. The market value of the when-issued
or forward delivery  securities may be more or less than the purchase price. The
Fund does not  believe  that its net asset  value or  income  will be  adversely
affected by its purchase of  securities  on a  when-issued  or forward  delivery
basis.


Investment of  Uninvested  Cash  Balances.  The Fund may have cash balances that
have not been invested in portfolio securities  ("Uninvested Cash").  Uninvested
Cash may result  from a variety of  sources,  including  dividends  or  interest
received from portfolio securities, unsettled securities transactions,  reserves
held for  investment  strategy  purposes,  scheduled  maturity  of  investments,
liquidation  of  investment  securities  to  meet  anticipated  redemptions  and
dividend payments, and new cash received from investors.  Uninvested Cash may be
invested  directly  in  money  market   instruments  or  other  short-term  debt
obligations.  Pursuant to an Exemptive Order issued by the SEC, the Fund may use


                                       16
<PAGE>

Uninvested  Cash to purchase  shares of affiliated  funds including money market
funds,  short-term bond funds and Scudder Cash Management  Investment  Trust, or
one or more future entities for which Zurich Scudder Investments acts as trustee
or investment  advisor that operate as cash management  investment  vehicles and
that are excluded from the definition of investment  company pursuant to section
3(c)(1) or 3(c)(7) of the 1940 Act (collectively, the "Central Funds") in excess
of the limitations of Section 12(d)(1) of the Investment Company Act. Investment
by the Fund in shares of the Central Funds will be in accordance with the Fund's
investment policies and restrictions as set forth in its registration statement.

Certain of the  Central  Funds  comply  with rule 2a-7 under the Act.  The other
Central Funds are or will be short-term  bond funds that invest in  fixed-income
securities  and maintain a dollar  weighted  average  maturity of three years or
less.  Each of the  Central  Funds will be managed  specifically  to  maintain a
highly liquid  portfolio,  and access to them will enhance the Fund's ability to
manage Uninvested Cash.


The Fund will invest  Uninvested  Cash in Central  Funds only to the extent that
the Fund's aggregate  investment in the Central Funds does not exceed 25% of its
total  assets in shares of the Central  Funds.  Purchase  and sales of shares of
Central Funds are made at net asset value.

Investment Restrictions

The fundamental  policies of the Fund set forth below may not be changed without
the  approval of a majority of the Fund's  outstanding  shares.  As used in this
Statement  of  Additional  Information,  a "majority  of the Fund's  outstanding
shares" means the lesser of (1) 67% or more of the voting securities  present at
such  meeting,  if the  holders  of  more  than  50% of the  outstanding  voting
securities of the Fund are present or represented by proxy; or (2) more than 50%
of the  outstanding  voting  securities of the Fund.  The Fund has elected to be
classified as a diversified series of an open-end investment company.

If a percentage  restriction on investment or utilization of assets as set forth
under "Investment Restrictions" and "Other Investment Policies" above is adhered
to at the time an  investment  is made, a later change in  percentage  resulting
from  changes in the value or the total cost of the  Fund's  assets  will not be
considered a violation of the restriction.

In addition, as a matter of fundamental policy, the Fund may not:

         (1)      borrow  money,  except as  permitted  under  the 1940 Act,  as
                  interpreted  or  modified  by  regulatory   authority   having
                  jurisdiction, from time to time;

         (2)      issue senior  securities,  except as permitted  under the 1940
                  Act, as interpreted or modified by regulatory authority having
                  jurisdiction, from time to time;

         (3)      concentrate its investments in a particular industry,  as that
                  term is used in the 1940 Act, and as  interpreted  or modified
                  by  regulatory  authority  having  jurisdiction,  from time to
                  time;

         (4)      engage in the business of  underwriting  securities  issued by
                  others, except to the extent that the Fund may be deemed to be
                  an underwriter in connection with the disposition of portfolio
                  securities;

         (5)      purchase  or sell real  estate,  which  term does not  include
                  securities of companies which deal in real estate or mortgages
                  or  investments  secured by real estate or interests  therein,
                  except that the Fund reserves freedom of action to hold and to
                  sell real estate acquired as a result of the Fund's  ownership
                  of securities;

         (6)      purchase  physical   commodities  or  contracts   relating  to
                  physical commodities; or

         (7)      make loans to other  persons,  except as  permitted  under the
                  1940 Act, as interpreted  or modified by regulatory  authority
                  having jurisdiction, from time to time.

The   Directors   of  the   Corporation   have   voluntarily   adopted   certain
non-fundamental  policies and restrictions  which are observed in the conduct of
the Fund's  affairs.  These  represent  intentions of the  Directors  based upon
current circumstances.  They differ from fundamental investment policies in that
they may be  changed or amended  by action of


                                       17
<PAGE>

the Directors without requiring prior notice to or approval of the shareholders.
As a matter of non-fundamental policy, the Fund does not currently intend to:

         (1)      borrow money in an amount greater than 5% of its total assets,
                  except (i) for  temporary  or  emergency  purposes and (ii) by
                  engaging in reverse  repurchase  agreements,  dollar rolls, or
                  other  investments  or  transactions  described  in the Fund's
                  registration statement which may be deemed to be borrowings;

         (2)      enter into either of reverse  repurchase  agreements or dollar
                  rolls in an amount greater than 5% of its total assets;

         (3)      purchase  securities on margin or make short sales, except (i)
                  short sales against the box, (ii) in connection with arbitrage
                  transactions,  (iii) for margin  deposits in  connection  with
                  futures  contracts,  options or other  permitted  investments,
                  (iv) that  transactions in futures contracts and options shall
                  not be deemed to constitute  selling securities short, and (v)
                  that the Fund may  obtain  such  short-term  credits as may be
                  necessary for the clearance of securities transactions;

         (4)      purchase  options,  unless the aggregate  premiums paid on all
                  such options held by the Fund at any time do not exceed 20% of
                  its total  assets;  or sell put options,  if as a result,  the
                  aggregate value of the obligations underlying such put options
                  would exceed 50% of its total assets;

         (5)      enter into  futures  contracts  or  purchase  options  thereon
                  unless  immediately  after  the  purchase,  the  value  of the
                  aggregate   initial   margin  with  respect  to  such  futures
                  contracts  entered into on behalf of the Fund and the premiums
                  paid for such options on futures  contracts does not exceed 5%
                  of the fair market value of the Fund's total assets;  provided
                  that in the case of an option that is in-the-money at the time
                  of  purchase,  the  in-the-money  amount  may be  excluded  in
                  computing the 5% limit;

         (6)      purchase  warrants if as a result,  such securities,  taken at
                  the lower of cost or market value,  would  represent more than
                  5% of the value of the Fund's total assets (for this  purpose,
                  warrants  acquired in units or attached to securities  will be
                  deemed to have no value); and

         (7)      lend portfolio  securities in an amount greater than 5% of its
                  total assets.

The  foregoing  nonfundamental  policies  are in addition to policies  otherwise
stated in the Prospectus or in this Statement of Additional Information.

PURCHASES
---------

There is a  $25,000  minimum  initial  investment  in the  Shares.  The  minimum
subsequent investment in the Shares is $1,000. Investment minimums may be waived
for Directors and officers of the Corporation  and certain other  affiliates and
entities.  The Fund 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.


The Shares can be purchased and sold  exclusively by investors  through  Barrett
Associates,  Inc. ("Barrett Associates"),  565 Fifth Avenue, New York, NY 10017.
Investors  wishing to purchase  or sell  Shares  should  contact  their  Barrett
Associates representative at 212-983-5080,  or in person at the above address. A
Barrett  Associates  representative  will then execute the order through Scudder
Service Corporation,  a subsidiary of the Advisor (the "Transfer Agent"). Due to
the desire of the  Corporation to afford ease of redemption,  certificates  will
not be issued to indicate  ownership in the Fund.  Orders for Shares of the Fund
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 the Fund, 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 Shares' Prospectus.

                                       18
<PAGE>

Other Information


The Fund has authorized  certain  members of the NASD other than the Distributor
(namely,  Barrett  Associates) to accept purchase and redemption  orders for the
Fund's shares.  The broker may also designate  other parties to accept  purchase
and redemption  orders on the Fund's  behalf.  Orders for purchase or redemption
will be deemed  to have been  received  by the Fund when such  brokers  or their
authorized  designees  accept the orders.  Subject to the terms of the  contract
between the Fund and the broker,  ordinarily orders will be priced at the Fund's
net  asset  value  next  computed  after  acceptance  by such  brokers  or their
authorized designees.  Further, if purchases or redemptions of the Fund's shares
are arranged and settlement is made at an investor's  election through any other
authorized  NASD member,  that member may, at its  discretion,  charge a fee for
that  service.  The  Directors and the  Distributor,  also the Fund's  principal
underwriter,  each has the right to limit the  amount of  purchases  by,  and to
refuse to sell to, any person.  The Directors and the Distributor may suspend or
terminate the offering of shares of the Fund at any time for any reason.


The "Tax  Identification  Number" section of the  Application  must be completed
when opening an account.  Applications  and purchase  orders without a certified
tax  identification  number and certain other certified  information (e.g., from
exempt  organizations a certification of exempt status),  may be returned to the
investor if a correct,  certified  tax  identification  number and certain other
required certificates are not supplied.

The Fund may issue  shares at net asset value in  connection  with any merger or
consolidation  with, or acquisition of the assets of, any investment  company or
personal holding company, subject to the requirements of the 1940 Act.

REDEEMING SHARES
----------------

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

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

Redemption-in-Kind


The Corporation reserves the right, if conditions exist which make cash payments
undesirable,  to honor any request for redemption or repurchase  order by making
payment in whole or in part in readily marketable  securities chosen by the Fund
and valued as they are for purposes of  computing  the Fund's net asset value (a
redemption-in-kind).  If payment is made in securities,  a shareholder may incur
transaction  expenses in converting  these securities into cash. The Corporation
has  elected,  however,  to be  governed  by Rule 18f-1  under the 1940 Act as a
result of which the Fund is obligated to redeem shares,  with respect to any one
shareholder  during  any  90-day  period,  solely  in cash up to the  lesser  of
$250,000  or 1% of the net  asset  value  of the  Fund at the  beginning  of the
period.


FEATURES AND SERVICES OFFERED BY THE FUND
-----------------------------------------


Special  Monthly  Summary of Accounts.  A special service is available to banks,
brokers,  investment  advisors,  trust companies and others who have a number of
accounts  in the 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  Corporation.  For  information on the special  monthly summary of accounts,
contact the Corporation.


DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
-----------------------------------------

The Fund intends to follow the practice of  distributing  all of its  investment
company  taxable  income,  which includes any excess of net realized  short-term
capital gains over net realized  long-term  capital losses.  The Fund may follow
the practice of distributing the entire excess of net realized long-term capital
gains over net realized short-term capital losses.


                                       19
<PAGE>

However,  the Fund may  retain all or part of such gain for  reinvestment  after
paying the related federal income taxes for which the  shareholders  may then be
asked to  claim a credit  against  their  federal  income  tax  liability.  (See
"TAXES.")

If the Fund does not  distribute  the amount of  capital  gain  and/or  ordinary
income  required to be  distributed  by an excise tax provision of the Code, the
Fund may be subject to that excise tax. (See "TAXES.") In certain circumstances,
the Fund may determine that it is in the interest of  shareholders to distribute
less than the required amount.

Earnings and profits  distributed to  shareholders on redemptions of Fund shares
may be utilized by the Fund,  to the extent  permissible,  as part of the Fund's
dividends paid deduction on its federal tax return.

The Fund intends to distribute its investment company taxable income and any net
realized  capital  gains in November or  December to avoid  federal  excise tax,
although an additional distribution may be made if necessary.

Both types of distributions will be made in Shares of the Fund and confirmations
will be mailed to Barrett  Associates,  on behalf of each shareholder,  unless a
shareholder  has  elected to receive  cash,  in which case a check will be sent.
Distributions  of investment  company  taxable  income and net realized  capital
gains are taxable (See "TAXES"), whether made in Shares or cash.

Each  distribution  is  accompanied  by a  brief  explanation  of the  form  and
character of the  distribution.  The  characterization  of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund  issues to Barrett  Associates,  on behalf of each
shareholder,  a statement of the federal income tax status of all  distributions
in the prior calendar year.

PERFORMANCE INFORMATION
-----------------------

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

Average Annual Total Return

Average  Annual Total Return is the average  annual  compound rate of return for
the periods of one year, five years, and ten years, all ended on the last day of
a recent  calendar  quarter.  Average  annual  total return  quotations  reflect
changes in the price of the Shares and assume  that all  dividends  and  capital
gains distributions during the respective periods were reinvested in the 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 August 31, 2000


                      One Year         Life of Class*
                       17.31%              16.37%

* The Class commenced operations on April 3, 1998.

Cumulative Total Return

Cumulative Total Return is the compound 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 the Shares and assume  that all  dividends  and


                                       20
<PAGE>

capital  gains  distributions  during the period were  reinvested in the Shares.
Cumulative  Total Return is calculated by finding the cumulative rates of return
of a  hypothetical  investment  over such  periods,  according to the  following
formula (Cumulative Total Return is then expressed as a percentage):


                                 C = (ERV/P) -1

             Where:

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


            Cumulative Total Return for periods ended August 31, 2000


                         One Year         Life of Class*
                          17.31%              44.18%

* The Class commenced operations on April 3, 1998.

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.

From  time  to  time,  in  advertisements,  sales  literature,  and  reports  to
shareholders  or prospective  investors,  figures  relating to the growth in the
total net assets of the Fund apart from capital  appreciation  will be cited, as
an update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital  appreciation  generally will be covered
by marketing literature as part of the Fund's and classes' performance data.


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


Comparison of Fund Performance

A  comparison  of  the  quoted  non-standard  performance  offered  for  various
investments is valid only if performance is calculated in the same manner. Since
there  are  different  methods  of  calculating  performance,  investors  should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.

In connection  with  communicating  its  performance  to current or  prospective
shareholders,  the Fund also may compare  these  figures to the  performance  of
unmanaged  indices  which may assume  reinvestment  of dividends or interest but
generally do not reflect deductions for administrative and management costs.

Historical  information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Fund. Such historical
information  is not indicative of future  fluctuations  in the value of the U.S.
dollar  against  these  currencies.  In addition,  marketing  materials may cite
country and economic  statistics and historical stock market performance for any
of the countries in which the Fund invests.


From  time to  time,  in  advertising  and  marketing  literature,  the  Shares'
performance  may be compared to the  performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.

                                       21
<PAGE>

From  time to time,  in  marketing  and other  Fund  literature,  Directors  and
officers of the  Corporation,  the Fund's portfolio  manager,  or members of the
portfolio  management  team may be depicted and quoted to give  prospective  and
current  shareholders  a better  sense of the outlook and  approach of those who
manage the Fund.  In  addition,  the amount of assets that the Advisor has under
management  in  various  geographical  areas may be quoted  in  advertising  and
marketing materials.

The Fund may be  advertised as an  investment  choice in the  Advisor's  college
planning program.


Statistical  and  other   information,   as  provided  by  the  Social  Security
Administration,  may be used in marketing  materials  pertaining  to  retirement
planning  in order to  estimate  future  payouts  of social  security  benefits.
Estimates may be used on demographic and economic data.

Marketing and other Fund  literature  may include a description of the potential
risks and rewards  associated with an investment in the Fund and the Shares. The
description  may include a  "risk/return  spectrum"  which  compares the Fund to
other Scudder funds or broad categories of funds, such as money market,  bond or
equity funds,  in terms of potential  risks and returns.  Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating  yield.
Share  price,  yield and total return of a bond fund will  fluctuate.  The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank  products,  such as  certificates  of  deposit.  Unlike
mutual  funds,  certificates  of deposit  are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.

Because bank products  guarantee the principal  value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than  investments  in either bond or equity funds,  which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an  investment as prices  increase over a long time period.  The
risks/returns  associated with an investment in bond or equity funds depend upon
many factors.  For bond funds these factors include, but are not limited to, the
Fund's overall  investment  objective,  the average portfolio  maturity,  credit
quality of the securities  held, and interest rate movements.  For equity funds,
factors  include the Fund's overall  investment  objective,  the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns  associated  with an  investment in  international  bond or equity
funds also will depend upon currency exchange rate fluctuation.


A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential  for less return  than  longer-term  bond  funds.  The same is true of
domestic bond funds relative to  international  bond funds,  and bond funds that
purchase  higher quality  securities  relative to bond funds that purchase lower
quality securities.  Growth and income equity funds are generally  considered to
be less risky and offer the  potential  for less return than  growth  funds.  In
addition,  international  equity funds  usually are  considered  more risky than
domestic equity funds but generally offer the potential for greater return.


Evaluation of Fund performance or other relevant statistical information made by
independent  sources  may also be used in  advertisements  concerning  the Fund,
including  reprints of, or selections  from,  editorials or articles  about this
Fund.

FUND ORGANIZATION
-----------------

The  Corporation  was organized as Scudder Fund of Canada Ltd. in Canada in 1953
by the investment management firm of Scudder, Stevens & Clark, Inc. On March 16,
1964,  the  name  of  the  Corporation  was  changed  to  Scudder  International
Investments Ltd. On July 31, 1975, the corporate domicile of the Corporation was
changed to the U.S.  through the  transfer  of its net assets to a newly  formed
Maryland  corporation,  Scudder International Fund, Inc., in exchange for shares
of the  Corporation  which  then were  distributed  to the  shareholders  of the
Corporation.


The authorized  capital stock of Scudder  International  Fund, Inc.  consists of
2,247,923,888  billion  shares of a par value of $.01 each,  which capital stock
has been divided  into five series:  Scudder  International  Fund,  the original
series;  Scudder Latin America Fund and Scudder Pacific Opportunities Fund, both
organized in December 1992,  Scudder  Greater  Europe Growth Fund,  organized in
October 1994, and Scudder Emerging  Markets Growth Fund,  organized in May 1996.
Each series consists of 320 million shares except for  International  Fund which
consists of 620,595,597  million shares.  Scudder  International Fund is further
divided into seven classes of shares, Class AARP, Class S, Barrett International
Shares,  Class A, Class B, Class C, and Class I shares.  Scudder  Latin  America
Fund, Scudder Pacific Opportunities Fund, Scudder Greater Europe Growth Fund and
Scudder  Emerging Markets Growth Fund are each further divided into five classes
of shares, Class AARP, Class S, Class A, Class B and Class C. The Directors have
the authority to issue


                                       22
<PAGE>

additional series of shares and to designate the relative rights and preferences
as between the different  series.  All shares issued and  outstanding  are fully
paid and  non-assessable,  transferable,  and  redeemable  at net  asset  value,
subject to such charges as may be applicable,  at the option of the shareholder.
Shares have no  pre-emptive or conversion  rights.  To the extent that the Funds
offer  additional  share  classes,  these  classes will be offered in a separate
prospectus and have different fees, requirements and services.

The Directors,  in their  discretion,  may authorize the additional  division of
shares of a series into different classes permitting shares of different classes
to be  distributed  by different  methods.  Although  shareholders  of different
classes of a series  would have an  interest  in the same  portfolio  of assets,
shareholders of different classes may bear different expenses in connection with
different methods of distribution.

The assets of the  Corporation  received  for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the  rights of  creditors,  are  specifically  allocated  to such  series and
constitute the underlying  assets of such series.  The underlying assets of each
series are  segregated  on the books of account,  and are to be charged with the
liabilities  in  respect  to such  series  and with such a share of the  general
liabilities of the Corporation. If a series were unable to meet its obligations,
the  assets  of all other  series  may in some  circumstances  be  available  to
creditors for that purpose,  in which case the assets of such other series could
be used to meet liabilities which are not otherwise properly chargeable to them.
Expenses  with  respect  to any  two or  more  series  are  to be  allocated  in
proportion to the asset value of the respective  series except where allocations
of  direct   expenses  can  otherwise  be  fairly  made.  The  officers  of  the
Corporation, subject to the general supervision of the Directors, have the power
to determine  which  liabilities  are allocable to a given series,  or which are
general or allocable to two or more series.  In the event of the  dissolution or
liquidation of the  Corporation or any series,  the holders of the shares of any
series are entitled to receive as a class the  underlying  assets of such shares
available for distribution to shareholders.

Shares of the Corporation entitle their holders to one vote per share;  however,
separate  votes are taken by each  series on  matters  affecting  an  individual
series and by class on matters  affecting an individual  class.  For example,  a
change  in  investment  policy  for  a  series  would  be  voted  upon  only  by
shareholders of the series  involved.  Additionally,  approval of the investment
advisory  agreement  is a matter to be  determined  separately  by each  series.
Approval  by the  shareholders  of one  series is  effective  as to that  series
whether or not enough  votes are  received  from the  shareholders  of the other
series to approve such agreement as to the other series.




Pursuant  to the  approval  of a majority  of  stockholders,  the  Corporation's
Directors  have the  discretion to retain the current  distribution  arrangement
while investing in a master fund in a master/feeder  fund structure if the Board
determines  that the  objectives of the Fund would be achieved more  efficiently
thereby.


The  Corporation's  Board of Directors  supervises  the Fund's  activities.  The
Corporation  adopted  a plan  pursuant  to Rule  18f-3  under  the 1940 Act (the
"Plan") to permit the  Corporation  to establish a multiple  class  distribution
system for the Fund.

                                       23
<PAGE>

Under the  Plan,  each  class of shares  will  represent  interests  in the same
portfolio of investments of the Series, and be identical in all respects to each
other class,  except as set forth below. The only differences  among the various
classes  of  shares  of  the  Series  will  relate   solely  to:  (a)  different
distribution fee payments or service fee payments associated with any Rule 12b-1
Plan  for a  particular  class  of  shares  and  any  other  costs  relating  to
implementing or amending such Rule 12b-1 Plan (including  obtaining  shareholder
approval of such Rule 12b-1 Plan or any amendment  thereto)  which will be borne
solely by shareholders of such class; (b) different  service fees; (c) different
account  minimums;  (d) the  bearing  by each  class of its Class  Expenses,  as
defined in Section 2(b) below;  (e) the voting rights  related to any Rule 12b-1
Plan affecting a specific class of shares; (f) separate exchange privileges; (g)
different  conversion  features and (h) different class names and  designations.
Expenses currently  designated as "Class Expenses" by the Corporation's Board of
Directors under the Plan include, for example, transfer agency fees attributable
to a specific class, and certain securities registration fees.

Shares of the Corporation have  non-cumulative  voting rights,  which means that
the holders of more than 50% of the shares  voting for the election of Directors
can elect 100% of the Directors if they choose to do so, and, in such event, the
holders of the remaining  less than 50% of the shares voting for the election of
Directors will not be able to elect any person or persons to the Board.

The  Corporation's   Amended  and  Restated   Articles  of  Incorporation   (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted  by  Maryland  General  Corporation  Law and the 1940 Act shall not be
liable  to the  Corporation  or  its  shareholders  for  damages.  Maryland  law
currently  provides that Directors shall not be liable for actions taken by them
in good faith,  in a manner  reasonably  believed to be in the best interests of
the  Corporation  and with the care that an ordinarily  prudent person in a like
position would use under similar  circumstances.  In so acting, a Director shall
be fully  protected in relying in good faith upon the records of the Corporation
and upon reports made to the  Corporation  by persons  selected in good faith by
the  Directors as qualified to make such  reports.  The Articles and the By-Laws
provide that the Corporation will indemnify its Directors,  officers,  employees
or  agents  against   liabilities  and  expenses  incurred  in  connection  with
litigation  in which  they may be  involved  because of their  offices  with the
Corporation consistent with applicable law.

INVESTMENT ADVISOR
------------------

Zurich   Scudder   Investments,   Inc.   (the   "Advisor"),   an
investment  counsel  firm,  acts as  investment  advisor  to the
Fund.  This  organization,  the predecessor of which is Scudder,
Stevens  &  Clark,   Inc.,  is  one  of  the  most   experienced
investment  counsel firms in the U. S. It was  established  as a
partnership  in 1919 and  pioneered  the  practice of  providing
investment  counsel to  individual  clients  on a fee basis.  In
1928  it  introduced  the  first  no-load  mutual  fund  to  the
public.  In 1953 the Advisor  introduced  Scudder  International
Fund,  Inc.,  the  first  mutual  fund  available  in  the  U.S.
investing  internationally  in  securities of issuers in several
foreign  countries.  The  predecessor  firm  reorganized  from a
partnership  to a corporation  on June 28, 1985. On December 31,
1997,  Zurich Insurance Company  ("Zurich")  acquired a majority
interest in Scudder,  and Zurich  Kemper  Investments,  Inc.,  a
Zurich  subsidiary,  became  part  of  Scudder.  Scudder's  name
changed to Scudder  Kemper  Investments,  Inc. On  September  7,
1998,   the  businesses  of  Zurich   (including   Zurich's  70%
interest  in  Scudder   Kemper)  and  the   financial   services
businesses  of  B.A.T.   Industries   p.l.c.   ("B.A.T.")   were
combined to form a new global  insurance and financial  services
company known as Zurich  Financial  Services  Group. By way of a
dual  holding  company  structure,  former  Zurich  shareholders
initially owned  approximately 57% of Zurich Financial  Services
Group,  with  the  balance  initially  owned  by  former  B.A.T.
shareholders.  On October 17,  2000,  the dual  holding  company
structure  of Zurich  Financial  Services  Group,  comprised  of
Allied  Zurich  p.l.c.  in the United  Kingdom and Zurich Allied
A.G. in  Switzerland,  was unified into a single  Swiss  holding
company,  Zurich  Financial  Services.  The Advisor  changed its
name from Scudder  Kemper  Investments,  Inc. to Zurich  Scudder
Investments, Inc.


Founded in 1872, Zurich is a multinational,  public corporation  organized under
the laws of  Switzerland.  Its home  office is  located  at  Mythenquai  2, 8002
Zurich,  Switzerland.  Historically,  Zurich's  earnings  have resulted from its
operations as an insurer as well as from its ownership of its  subsidiaries  and
affiliated  companies  (the  "Zurich  Insurance  Group").  Zurich and the Zurich
Insurance  Group provide an extensive  range of insurance  products and services
and have branch offices and  subsidiaries  in more than 40 countries  throughout
the world.


The principal source of the Advisor's income is professional  fees received from
providing  continuous  investment advice.  Today, it provides investment counsel
for many individuals and institutions,  including insurance companies,


                                       24
<PAGE>

colleges,  industrial  corporations,  and financial and banking organizations as
well as  providing  investment  advice  to over 280 open and  closed-end  mutual
funds.

The Advisor  maintains a large research  department,  which conducts  continuous
studies of the factors that affect the position of various industries, companies
and  individual   securities.   The  Advisor  receives   published  reports  and
statistical  compilations  from issuers and other  sources,  as well as analyses
from  brokers  and  dealers  who  may  execute  portfolio  transactions  for the
Advisor's clients. However, the Advisor regards this information and material as
an  adjunct  to  its  own  research  activities.   The  Advisor's  international
investment management team travels the world, researching hundreds of companies.
In selecting the securities in which the Fund may invest,  the  conclusions  and
investment decisions of the Advisor with respect to the Fund are based primarily
on the analyses of its own research department.

Certain  investments  may be appropriate for the Fund and also for other clients
advised by the Advisor.  Investment decisions for the Fund and other clients are
made with a view to achieving their respective  investment  objectives and after
consideration  of such factors as their current  holdings,  availability of cash
for  investment  and the  size of their  investments  generally.  Frequently,  a
particular  security  may be bought or sold for only one client or in  different
amounts  and at  different  times for more  than one but less than all  clients.
Likewise,  a particular  security may be bought for one or more clients when one
or more other clients are selling the security. In addition,  purchases or sales
of the same  security  may be made for two or more  clients on the same day.  In
such event,  such  transactions  will be allocated among the clients in a manner
believed by the Advisor to be equitable to each. In some cases,  this  procedure
could have an adverse effect on the price or amount of the securities  purchased
or sold by the Fund.  Purchase and sale orders for the Fund may be combined with
those of other  clients of the  Advisor in the  interest of  achieving  the most
favorable net results to the Fund.

In  certain  cases,  the  investments  for the  Fund  are  managed  by the  same
individuals  who manage one or more other mutual  funds  advised by the Advisor,
that have similar names,  objectives and investment  styles. You should be aware
that the Fund is likely to differ from these other  mutual  funds in size,  cash
flow pattern and tax matters.  Accordingly,  the holdings and performance of the
Fund can be expected to vary from those of other mutual funds.


                                       25
<PAGE>



Upon consummation of this transaction, the Fund's existing investment management
agreement with Scudder  Kemper was deemed to have been assigned and,  therefore,
terminated.  The Board  approved  a new  investment  management  agreement  (the
"Agreement")  with the Adviser,  which is  substantially  identical to the prior
investment  management  agreement,   except  for  the  dates  of  execution  and
termination.  The  Agreement  became  effective  September  7,  1998,  upon  the
termination of the then current investment management agreement and was approved
at a shareholder meeting held on December 15, 1998.


An Amended and Restated  investment  management  agreement (the "Agreement") for
the Fund was  approved by the  Directors  on July 10, 2000 and at a  shareholder
meeting  held on July 13,  2000 and became  effective  on August 14,  2000.  The
Agreement will continue in effect until September 30, 2001 and from year to year
thereafter  only  if its  continuance  is  approved  annually  by the  vote of a
majority of those  Directors who are not parties to such Agreement or interested
persons of the Advisor or the  Corporations,  cast in person at a meeting called
for  the  purpose  of  voting  on such  approval,  and  either  by a vote of the
Corporation's Directors or of a majority of the outstanding voting securities of
the respective Fund. The Agreement may be terminated at any time without payment
of penalty  by either  party on sixty  days'  written  notice and  automatically
terminates in the event of its assignment.

Under the Agreement,  the Advisor  regularly  provides the Fund with  continuing
investment  management  for the  Fund's  portfolio  consistent  with the  Fund's
investment objectives, policies and restrictions and determines which securities
shall be purchased,  held or sold and what portion of the Fund's assets shall be
held uninvested,  subject always to the Corporation's  Articles of Incorporation
and  By-Laws,  of the  1940  Act  and  the  Code  and to the  Fund's  investment
objective, policies and restrictions, and subject, further, to such policies and
instructions  as the Board of the  Corporation  may from time to time establish.
The Advisor also advises and assists the officers of the  Corporation  in taking
such steps as are  necessary or  appropriate  to carry out the  decisions of its
Directors and the appropriate  committees of the Directors regarding the conduct
of the business of the Corporation.

Under  the  Agreement,  the  Advisor  also  renders  significant  administrative
services  (not  otherwise   provided  by  third   parties)   necessary  for  the
Corporation's  operations as an open-end  investment company including,  but not
limited to,  preparing  reports and notices to the Directors  and  shareholders;
supervising,  negotiating contractual  arrangements with, and monitoring various
third-party  service  providers to the Fund (such as the Fund's  transfer agent,
pricing agents, custodian, accountants and others); preparing and making filings
with the SEC and other  regulatory  agencies;  assisting in the  preparation and
filing of the Fund's federal, state and local tax returns;  preparing and filing
the Fund's  federal  excise tax  returns;  assisting  with  investor  and public
relations matters; monitoring the valuation of securities and the calculation of
net asset  value;  monitoring  the  registration  of  shares  of the Fund  under
applicable  federal and state securities laws;  maintaining the Fund's books and
records to the extent not otherwise  maintained  by a third party;  assisting in
establishing  accounting  policies of the Fund;  assisting in the  resolution of
accounting and legal issues;  establishing  and monitoring the Fund's  operating
budget;  processing the payment of the Fund's bills;  assisting the Fund in, and
otherwise  arranging  for,  the  payment  of  distributions  and  dividends  and
otherwise  assisting  the Fund in the  conduct of its  business,  subject to the
direction and control of the Directors.

The Advisor pays the  compensation and expenses (except those of attending Board
and committee  meetings outside New York, New York or Boston,  Massachusetts) of
all Directors,  officers and executive employees of the Fund affiliated with the
Advisor and makes  available,  without expense to the Fund, the services of such
Directors,


                                       26
<PAGE>

officers  and  employees  of the Advisor as may duly be elected  officers of the
Fund,  subject  to their  individual  consent  to serve  and to any  limitations
imposed by law, and provides the Fund's office space and facilities.

For these  services,  the Fund pays the Advisor a fee equal to 0.675% of average
daily net assets on such  assets up to $6 billion,  0.625% of average  daily net
assets on the next $1  billion,  and 0.600% of average  daily net assets on such
assets exceeding $7 billion, computed and accrued daily and payable monthly.

Under the  Agreement  between the Fund and the Advisor,  effective  September 7,
1998 until August 14, 2000,  the  management fee payable under the Agreement was
equal to an annual  rate of  approximately  0.90% of the first  $500,000,000  of
average  daily net assets,  0.85% of the next  $500,000,000  of such net assets,
0.80%  of the  next  $1,000,000,000  of  such  net  assets,  0.75%  of the  next
$1,000,000,000  of such net  assets,  and 0.70% of such net  assets in excess of
$3,000,000,000, computed and accrued daily and payable monthly.


The investment  advisory fees for the fiscal years ended March 31, 1999 and 1998
were $23,819,941 and $22,491,681, respectively. For the five months ended August
31, 1999,  the  investment  advisory fees pursuant to the Agreement  amounted to
$11,269,103.  For the year ended August 31, 2000, the  investment  advisory fees
amounted to  $36,335,757,  which was  equivalent to an annual  effective rate of
0.76% of the Fund's average daily net assets.


Under  the  Agreement  the Fund is  responsible  for all of its  other  expenses
including:   fees  and  expenses  incurred  in  connection  with  membership  in
investment company  organizations;  brokers'  commissions;  legal,  auditing and
accounting expenses;  the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer  Agent;  the cost of preparing share
certificates or any other expenses of issue, sale,  underwriting,  distribution,
redemption or repurchase of shares; the expenses of and the fees for registering
or qualifying securities for sale; the fees and expenses of Directors,  officers
and employees of the Fund who are not affiliated  with the Advisor;  the cost of
printing and distributing reports and notices to stockholders;  and the fees and
disbursements  of custodians.  The Fund may arrange to have third parties assume
all or part of the expenses of sale,  underwriting and distribution of shares of
the  Fund.  The  Fund is also  responsible  for its  expenses  of  shareholders'
meetings,  the cost of responding to shareholders'  inquiries,  and its expenses
incurred in connection  with  litigation,  proceedings  and claims and the legal
obligation  it  may  have  to  indemnify  its  officers  and  Directors  of  the
Corporation with respect thereto.

The Agreement expressly provides that the Advisor shall not be required to pay a
pricing agent of the Fund for portfolio pricing services, if any.

The Agreement  identifies the Advisor as the exclusive licensee of the rights to
use and sublicense the names "Scudder," "Scudder Kemper  Investments,  Inc." and
"Scudder Stevens and Clark,  Inc." (together,  the "Scudder Marks").  Under this
license, the Corporation,  with respect to the Fund, has the non-exclusive right
to use and sublicense the Scudder name and marks as part of its name, and to use
the Scudder Marks in the Corporation's investment products and services.

In reviewing  the terms of the  Agreement  and in  discussions  with the Advisor
concerning  such  Agreement,  the  Directors  of the  Corporation  who  are  not
"interested  persons" of the Advisor are  represented by independent  counsel at
the Fund's expense.

The  Agreement  provides  that the Advisor  shall not be liable for any error of
judgment or mistake of law or for any loss  suffered  by the Fund in  connection
with  matters  to which the  Agreement  relates,  except a loss  resulting  from
willful misfeasance, bad faith or gross negligence on the part of the Advisor in
the  performance of its duties or from reckless  disregard by the Advisor of its
obligations and duties under the Agreement.

Officers and  employees  of the Advisor from time to time may have  transactions
with various  banks,  including the Fund's  custodian  bank. It is the Advisor's
opinion that the terms and conditions of those  transactions which have occurred
were  not   influenced  by  existing  or  potential   custodial  or  other  Fund
relationships.

The Advisor may serve as advisor to other funds with  investment  objectives and
policies  similar  to  those of the Fund  that may have  different  distribution
arrangements or expenses, which may affect performance.


None of the officers or Directors of the  Corporation may have dealings with the
Fund as principals in the purchase or sale of  securities,  except as individual
subscribers to or holders of shares of the Fund.

                                       27
<PAGE>


DIRECTORS AND OFFICERS
----------------------

<TABLE>
<CAPTION>
---------------------------------- ----------------------- --------------------------------------- -------------------------
                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Scudder Investor
Name, Age, and Address             Position with Fund      Principal Occupation**                  Services, Inc.
----------------------             ------------------      ----------------------                  --------------
---------------------------------- ----------------------- --------------------------------------- -------------------------

<S>                                <C>                     <C>                                    <C>
Henry P. Becton, Jr. (56)          Director                President and General Manager, WGBH    --
WGBH                                                       Educational Foundation
125 Western Avenue
Allston, MA 02134
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Linda C. Coughlin (48)+*           Director and President  Managing Director of Zurich Scudder     Senior Vice President
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Dawn-Marie Driscoll (53)           Director                Executive Fellow, Center for Business  --
4909 SW 9th Place                                          Ethics, Bentley College; President,
Cape Coral, FL  33914                                      Driscoll Associates (consulting firm)
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Edgar R. Fiedler (70)              Director                Senior Fellow and Economic             --
50023 Brogden                                              Counsellor, The Conference Board,
Chapel Hill, NC                                            Inc. (not-for-profit business
                                                           research organization)
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Keith R. Fox (45)                  Director                General Partner, Exeter Group of Funds --
10 East 53rd Street
New York, NY  10022
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Joan E. Spero (55)                 Director                President, Doris Duke Charitable       --
Doris Duke Charitable Foundation                           Foundation; Department of State -
650 Fifth Avenue                                           Undersecretary of State for Economic,
New York, NY  10128                                        Business and Agricultural Affairs
                                                           (March 1993 to January 1997)
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Jean Gleason Stromberg (56)        Director                Consultant; Director, Financial        --
3816 Military Road, NW                                     Institutions Issues, U.S. General
Washington, D.C.                                           Accounting Office (1996-1997);
                                                           Partner, Fulbright & Jaworski law
                                                           firm (1978-1996)
---------------------------------- ----------------------- --------------------------------------- -------------------------

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


                                       28
<PAGE>

---------------------------------- ----------------------- --------------------------------------- -------------------------
                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Scudder Investor
Name, Age, and Address             Position with Fund      Principal Occupation**                  Services, Inc.
----------------------             ------------------      ----------------------                  --------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Jean C. Tempel (56)                Director                Managing Director, First Light         --
One Boston Place                                           Capital, LLC (venture capital firm)
23rd Floor
Boston, MA 02108
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Steven Zaleznick (45)*             Director                President and CEO, AARP Services, Inc. --
601 E Street, N.W.
Washington, DC 20049

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

---------------------------------- ----------------------- --------------------------------------- -------------------------
Irene T. Cheng (46) #              Vice President          Managing Director of Zurich Scudder    --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Joyce E. Cornell (56) #            Vice President          Managing Director of Zurich Scudder    --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Carol L. Franklin (47) #           Vice President          Managing Director of Zurich Scudder    --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Edmund B. Games, Jr. (62)+         Vice President          Managing Director of Zurich Scudder    --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Joan R. Gregory (55) #             Vice President          Vice President of Zurich Scudder       --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Thomas V. Bruns (43)##             Vice President          Managing Director of Zurich Scudder    --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
William F. Glavin (41)+            Vice President          Managing Director of Zurich Scudder     Vice President
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
John R. Hebble (42)+               Treasurer               Senior Vice President of Zurich         Assistant Treasurer
                                                           Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
James E. Masur (40)+               Vice President          Senior Vice President of Zurich        --
                                                           Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Ann M. McCreary (43)#              Vice President          Managing Director of Zurich Scudder    --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Kathryn L. Quirk (48)#             Vice President and      Managing Director of Zurich Scudder     Director, Senior Vice
                                   Assistant Secretary     Investments, Inc.                       President, Chief Legal
                                                                                                   Officer and Assistant
                                                                                                   Clerk
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Howard Schneider (43)+             Vice President          Managing Director of Zurich Scudder    --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Brenda Lyons (37)+                 Assistant Treasurer     Senior Vice President of Zurich        --
                                                           Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
Tien Yu Sieh (31)#                 Vice President          Senior Vice President of Zurich        --
                                                           Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

                                       29
<PAGE>

---------------------------------- ----------------------- --------------------------------------- -------------------------
                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Scudder Investor
Name, Age, and Address             Position with Fund      Principal Occupation**                  Services, Inc.
----------------------             ------------------      ----------------------                  --------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Caroline Pearson (38)+             Assistant Secretary     Senior Vice President of Zurich         Clerk
                                                           Scudder Investments, Inc.; Associate,
                                                           Dechert Price & Rhoads (law firm)
                                                           1989 - 1997
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
John Millette (37)+                Vice President and      Vice President of Zurich Scudder       --
                                   Secretary               Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

---------------------------------- ----------------------- --------------------------------------- -------------------------
</TABLE>

*        Ms.  Coughlin and Mr.  Zaleznick  are  considered  by the Funds and its
         counsel to be "interested persons" of the Advisor or of the Corporation
         as defined in the 1940 Act.

**       Unless  otherwise   stated,   all  officers  and  directors  have  been
         associated  with their  respective  companies for more than five years,
         but not necessarily in the same capacity.

+        Address: Two International Place, Boston, Massachusetts 02110
#        Address:  345 Park Avenue, New York, New York 10154
##       Address: 222 South Riverside Plaza, Chicago, Illinois 60606

The Directors and officers of the Corporation  also serve in similar  capacities
with respect to other Scudder Funds. The  newly-constituted  Board may determine
to change its compensation structure.


To the best of the Fund's knowledge, as of November 30, 2000, no person owned of
record  more than 5% or more of the  outstanding  shares of any class of Scudder
International  Fund,  except  as  stated  below.  They may be  deemed  to be the
beneficial owner of certain of these shares.

As of November 30, 2000,  11,200,992  shares in the aggregate,  or 13.39% of the
outstanding  shares of Scudder  International  Fund - Class S - were held in the
name of Charles Schwab, 101 Montgomery  Street,  San Francisco,  CA 9410 who may
deemed to be the beneficial owner of such shares.


REMUNERATION
------------

Responsibilities of the Board -- Board and Committee Meetings


The Board is responsible  for the general  oversight of the Fund's  business.  A
majority  of the Board's  members are not  affiliated  with the  Advisor.  These
"Independent  Directors" have primary  responsibility for assuring that the Fund
is managed in the best interests of its shareholders.

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


                                       30
<PAGE>

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

Compensation of Officers and Directors

Each Independent Director receives  compensation for his or her services,  which
include an annual retainer and an attendance fee for each meeting attended.  The
Independent   Director  who  serves  as  Lead   Director   receives   additional
compensation for his or her services. No additional  compensation is paid to any
Independent  Director  for travel time to  meetings,  attendance  at  directors'
educational  seminars  or  conferences,   service  on  industry  or  association
committees,  participation  as speakers at directors'  conferences or service on
special  director  task forces or  subcommittees.  Independent  Directors do not
receive any employee  benefits such as pension or retirement  benefits or health
insurance.  Notwithstanding the schedule of fees, the Independent Directors have
in the past and may in the future waive a portion of their compensation.


The  Independent  Directors  also  serve in the same  capacity  for other  funds
managed by the Advisor. These funds differ broadly in type and complexity and in
some cases have substantially  different  Director fee schedules.  The following
table shows the aggregate  compensation  received by each  Independent  Director
during 1999 from the Corporation and from all of the Scudder funds as a group.



<TABLE>
<CAPTION>
-------------------------------- -------------------------------------- ----------------------

                                               Paid by
             Name                  Scudder International Fund, Inc.       All Scudder Funds
-------------------------------- -------------------------------------- ----------------------

-------------------------------- -------------------------------------- ----------------------
<S>                                            <C>                           <C>
Henry P. Becton, Jr.**                            $0                          $140,000
Director                                                                     (30 funds)
-------------------------------- -------------------------------------- ----------------------

-------------------------------- -------------------------------------- ----------------------
Dawn-Marie Driscoll**                             $0                          $150,000
Director                                                                     (30 funds)
-------------------------------- -------------------------------------- ----------------------

-------------------------------- -------------------------------------- ----------------------
Edgar R. Fiedler**                                $0                           $73,230
Director                                                                     (29 funds)
-------------------------------- -------------------------------------- ----------------------

-------------------------------- -------------------------------------- ----------------------
Keith R. Fox                                    $43,650                       $160,325
Director                                                                     (23 funds)
-------------------------------- -------------------------------------- ----------------------

-------------------------------- -------------------------------------- ----------------------
Joan E. Spero                                   $47,550                       $175,275
Director                                                                     (23 funds)
-------------------------------- -------------------------------------- ----------------------

-------------------------------- -------------------------------------- ----------------------
Jean Gleason Stromberg **                         $0                           $40,935
Director                                                                     (16 funds)
-------------------------------- -------------------------------------- ----------------------

-------------------------------- -------------------------------------- ----------------------
Jean C. Tempel**                                  $0                          $140,000
Director                                                                     (30 funds)
-------------------------------- -------------------------------------- ----------------------

-------------------------------- -------------------------------------- ----------------------
</TABLE>

*        In 1999,  Scudder  International  Fund, Inc.  consisted of eight funds:
         Scudder International Fund, Scudder Latin America Fund, Scudder Pacific
         Opportunities   Fund,  Scudder  Greater  Europe  Growth  Fund,  Scudder
         Emerging Markets Growth Fund, Scudder  International  Growth and Income
         Fund, Scudder International Value Fund and Scudder International Growth
         Fund.
**       Newly  elected  Director.  On July 13, 2000,  shareholders  of the Fund
         elected a new Board of  Directors.  See the  "Directors  and  Officers"
         section for the newly constituted Board.

                                       31
<PAGE>


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


DISTRIBUTOR
-----------


The Corporation has an underwriting  agreement with Scudder  Investor  Services,
Inc., Two International  Place,  Boston, MA 02110, a Massachusetts  corporation,
which is a subsidiary of the Advisor, a Delaware corporation.  The Corporation's
underwriting  agreement  dated May 8, 2000 will remain in effect until September
30, 2001 and from year to year  thereafter  only if its  continuance is approved
annually  by a majority  of the members of the Board who are not parties to such
agreement  or  interested  persons  of any such  party  and  either by vote of a
majority of the Board or a majority of the outstanding  voting securities of the
Fund.  The  underwriting  agreement was last approved by the Directors on May 8,
2000.


Under the  underwriting  agreement,  the Fund is responsible for: the payment of
all fees and expenses in connection with the preparation and filing with the SEC
of its registration  statement and prospectus and any amendments and supplements
thereto;  the registration  and  qualification of shares for sale in the various
states,  including  registering the Fund as a broker or dealer in various states
as  required;  the  fees  and  expenses  of  preparing,   printing  and  mailing
prospectuses  annually to existing shareholders (see below for expenses relating
to prospectuses paid by the Distributor);  notices, proxy statements, reports or
other  communications  to  shareholders  of the Fund;  the cost of printing  and
mailing  confirmations of purchases of shares and any prospectuses  accompanying
such  confirmations;  any issuance  taxes and/or any initial  transfer  taxes; a
portion of shareholder  toll-free  telephone charges and expenses of shareholder
service  representatives;  the cost of  wiring  funds for  share  purchases  and
redemptions (unless paid by the shareholder who initiates the transaction);  the
cost of printing and postage of business reply  envelopes;  and a portion of the
cost of computer terminals used by both the Fund and the Distributor.

The Distributor will pay for printing and  distributing  prospectuses or reports
prepared for its use in connection with the offering of the Fund's shares to the
public and preparing,  printing and mailing any other  literature or advertising
in  connection  with the  offering  of  shares  of the Fund to the  public.  The
Distributor will pay all fees and expenses in connection with its  qualification
and  registration  as a broker or dealer under federal and state laws, a portion
of the cost of toll-free  telephone service and expenses of shareholder  service
representatives,  a portion of the cost of computer  terminals,  and expenses of
any activity which is primarily  intended to result in the sale of shares issued
by the Fund,  unless a Rule 12b-1 Plan is in effect which provides that the Fund
shall bear some or all of such expenses.

As agent,  the Distributor  currently  offers shares of the Fund on a continuous
basis to  investors  in all states in which  shares of the Fund may from time to
time be  registered  or where  permitted by  applicable  law.  The  underwriting
agreement  provides that the Distributor  accepts orders for shares at net asset
value as no sales commission or load is charged to the investor. The Distributor
has made no firm commitment to acquire shares of the Fund.


CODE OF ETHICS
--------------

The Fund,  the Advisor and  principal  underwriter  have each  adopted  codes of
ethics under rule 17j-1 of the Investment  Company Act. Board members,  officers
of the Fund and employees of the Advisor and principal underwriter are permitted
to make personal securities  transactions,  including transactions in securities
that  may be  purchased  or held  by the  Funds,  subject  to  requirements  and
restrictions  set forth in the applicable Code of Ethics.  The Advisor's Code of
Ethics  contains  provisions and  requirements  designed to identify and address
certain  conflicts of interest  between personal  investment  activities and the
interests  of the  Fund.  Among  other  things,  the  Advisor's  Code of  Ethics
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
quarterly 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
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.

AMA InvestmentLink(SM) Program
------------------------------

Pursuant  to an  Agreement  between  the  Advisor  and AMA  Solutions,  Inc.,  a
subsidiary of the American Medical  Association (the "AMA"),  dated May 9, 1997,
the Advisor has agreed,  subject to  applicable  state  regulations,  to pay AMA
Solutions,  Inc.  royalties  in an  amount  equal  to 5% of the  management  fee
received  by the  Advisor


                                       32
<PAGE>

with respect to assets  invested by AMA members in Scudder  funds in  connection
with  the  AMA  InvestmentLink(SM)  Program.  The  Advisor  will  also  pay  AMA
Solutions,  Inc. a general monthly fee, currently in the amount of $833. The AMA
and AMA Solutions,  Inc. are not engaged in the business of providing investment
advice and neither is registered as an investment advisor or broker/dealer under
federal   securities   laws.   Any   person   who   participates   in  the   AMA
InvestmentLink(SM) Program will be a customer of the Advisor (or of a subsidiary
thereof)  and not the AMA or AMA  Solutions,  Inc. AMA  InvestmentLink(SM)  is a
service mark of AMA Solutions, Inc.


Administrative Fee
------------------


The Fund has entered  into an  administrative  services  agreement  with Scudder
Kemper (the "Administration  Agreement"),  pursuant to which Scudder Kemper will
provide  or pay  others  to  provide  substantially  all  of the  administrative
services required by the Fund (other than those provided by Scudder Kemper under
its  investment  management  agreements  with the Fund,  as described  above) in
exchange  for the  payment by the Fund of an  administrative  services  fee (the
"Administrative  Fee") of 0.375% of its average daily net assets.  One effect of
these arrangements is to make the Fund's future expense ratio more predictable.

Various third-party service providers (the "Service  Providers"),  some of which
are  affiliated  with  Scudder  Kemper,  provide  certain  services  to the Fund
pursuant  to  separate   agreements  with  the  Fund.  Scudder  Fund  Accounting
Corporation,  a subsidiary of Scudder  Kemper,  computes net asset value for the
Fund and maintains their accounting records. Scudder Service Corporation, also a
subsidiary  of  Scudder  Kemper,  is the  transfer,  shareholder  servicing  and
dividend-paying  agent for the shares of the Fund.  Scudder  Trust  Company,  an
affiliate of Scudder Kemper,  provides  subaccounting and recordkeeping services
for shareholders in certain retirement and employee benefit plans. As custodian,
Brown Brothers Harriman holds the portfolio securities of the Funds, pursuant to
a  custodian   agreement.   PricewaterhouseCoopers   LLP  audits  the  financial
statements  of the Funds and provides  other audit,  tax, and related  services.
Dechert acts as general counsel for the Fund.


Scudder  Kemper  will  pay the  Service  Providers  for the  provision  of their
services  to the Fund and will pay other  fund  expenses,  including  insurance,
registration,  printing and postage fees.  In return,  the Fund will pay Scudder
Kemper an Administrative Fee.

The  Administration  Agreement  has an initial term of three  years,  subject to
earlier  termination by the Fund's Board. The fee payable by the Fund to Scudder
Kemper pursuant to the Administration  Agreement is reduced by the amount of any
credit received from the Fund's custodian for cash balances.

Certain  expenses  of the Fund  will not be borne by  Scudder  Kemper  under the
Administration Agreement,  such as taxes, brokerage,  interest and extraordinary
expenses;  and the fees and expenses of the Independent Directors (including the
fees and expenses of their  independent  counsel).  In  addition,  the Fund will
continue to pay the fees required by its  investment  management  agreement with
Scudder Kemper.

For the period  August 14, 2000  through  August 31,  2000,  the  Administrative
Agreement  expense  charged to the Fund  amounted to $921,739,  all of which was
unpaid at August 31, 2000.

TAXES
-----

The Fund has  elected to be  treated as a  regulated  investment  company  under
Subchapter M of the Code,  or a  predecessor  statute and has  qualified as such
since  its  inception.   Such  qualification   does  not  involve   governmental
supervision or management of investment practices or policy.

A regulated  investment  company  qualifying  under  Subchapter M of the Code is
required to distribute to its shareholders at least 90 percent of its investment
company taxable income (including net short-term  capital gain) and generally is
not subject to federal income tax to the extent that it distributes annually its
investment  company taxable income and net realized  capital gains in the manner
required under the Code.

If for any taxable year the Fund does not qualify for special federal income tax
treatment afforded  regulated  investment  companies,  all of its taxable income
will be subject to federal  income tax at regular  corporate  rates (without any


                                       33
<PAGE>

deduction for  distributions to its  shareholders).  In such an event,  dividend
distributions  would be  taxable  to  shareholders  to the  extent of the Fund's
earnings and profits, and would be eligible for the dividends received deduction
in the case of corporate shareholders.

The Fund is subject to a 4%  nondeductible  excise tax on amounts required to be
but not distributed under a prescribed formula.  The formula requires payment to
shareholders  during a calendar year of distributions  representing at least 98%
of the Fund's  ordinary income for the calendar year, at least 98% of the excess
of its capital gains over capital losses  (adjusted for certain ordinary losses)
realized  during the one-year period ending October 31 during such year, and all
ordinary  income and  capital  gains for prior  years  that were not  previously
distributed.

Investment  company taxable income  generally is made up of dividends,  interest
and net short-term capital gains in excess of net long-term capital losses, less
expenses.  Net realized  capital  gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently,  the Fund has
no capital loss carryforwards.

If any net realized long-term capital gains in excess of net realized short-term
capital  losses are  retained by the Fund for  reinvestment,  requiring  federal
income taxes to be paid thereon by the Fund,  the Fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term  capital gains,  will be
able to claim a proportionate  share of federal income taxes paid by the Fund on
such gains as a credit against the  shareholder's  federal income tax liability,
and will be entitled to increase  the  adjusted  tax basis of the  shareholder's
Fund shares by the difference  between such reported gains and the shareholder's
tax credit.

Distributions  of investment  company taxable income are taxable to shareholders
as ordinary income.

Dividends from domestic  corporations are not expected to comprise a substantial
part of the Fund's gross income.  If any such dividends  constitute a portion of
the Fund's gross income,  a portion of the income  distributions of the Fund may
be eligible  for the 70%  deduction  for  dividends  received  by  corporations.
Shareholders will be informed of the portion of dividends which so qualify.  The
dividends-received  deduction  is  reduced  to the extent the shares of the Fund
with respect to which the  dividends  are received are treated as  debt-financed
under  federal  income tax law and is  eliminated  if either those shares or the
shares of the Fund are deemed to have been held by the Fund or the shareholders,
as the case may be, for less than 46 days during the 90-day period  beginning 45
days before the shares become ex-dividend.

Properly  designated  distributions of the excess of net long-term  capital gain
over net  short-term  capital  loss are  taxable to  shareholders  as  long-term
capital gains, regardless of the length of time the shares of the Fund have been
held  by  such  shareholders.  Such  distributions  are  not  eligible  for  the
dividends-received  deduction.  Any loss realized upon the  redemption of shares
held at the time of  redemption  for six  months  or less will be  treated  as a
long-term  capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.

Distributions  of investment  company  taxable  income and net realized  capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders  electing to receive distributions in the form of additional Shares
will have a cost basis for federal income tax purposes in each Share so received
equal to the net asset value of a Share on the reinvestment date.

All distributions of investment  company taxable income and net realized capital
gain,  whether  received  in  shares  or in  cash,  must  be  reported  by  each
shareholder  on his or her  federal  income tax  return.  Dividends  declared in
October,  November or December with a record date in such a month will be deemed
to have been received by  shareholders on December 31, if paid during January of
the following  year.  Redemptions of shares,  including  exchanges for shares of
another  Scudder  Fund,  may  result in tax  consequences  (gain or loss) to the
shareholder and are also subject to these reporting requirements.


A qualifying  individual  may make a deductible  Individual  Retirement  Account
("IRA") contribution for any taxable year only if (i) neither the individual nor
his or her spouse (unless filing separate  returns) is an active  participant in
an employer's retirement plan, or (ii) the individual (and his or her spouse, if
applicable) has an adjusted gross income below a certain level for 2001 ($53,000
for married individuals filing a joint return, with a phase-out of the deduction
for adjusted  gross  income  between  $53,000 and $63,000;  $33,000 for a single
individual,  with a phase-out  for  adjusted  gross income  between  $33,000 and
$43,000). However, an individual not permitted to make a deductible contribution
to an  IRA  for  any  such  taxable  year  may  nonetheless  make  nondeductible
contributions  up to $2,000 to an IRA (up to $2,000 per  individual  for married
couples if only one spouse has earned  income) for that year.  There are special
rules for  determining  how  withdrawals are to be taxed if an IRA contains both
deductible and nondeductible amounts. In general,


                                       34
<PAGE>

a  proportionate  amount  of each  withdrawal  will be  deemed  to be made  from
nondeductible  contributions;  amounts  treated  as a  return  of  nondeductible
contributions will not be taxable.  Also, annual  contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no  earnings  (for IRA  contribution  purposes)  for the
year.


Distributions  by the Fund result in a  reduction  in the net asset value of the
Fund's  shares.  Should  a  distribution  reduce  the net  asset  value  below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above,  even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount  of the  forthcoming  distribution.  Those  purchasing  just  prior  to a
distribution   will  then   receive  a  partial   return  of  capital  upon  the
distribution, which will nevertheless be taxable to them.

The Fund  intends  to  qualify  for and may make the  election  permitted  under
Section 853 of the Internal  Revenue Code (the "Code") so that  shareholders may
(subject to limitations) be able to claim a credit or deduction on their federal
income tax  returns  for,  and will be  required to treat as part of the amounts
distributed to them,  their pro rata portion of qualified taxes paid by the Fund
to foreign  countries (which taxes relate primarily to investment  income).  The
Fund may make an election under Section 853 of the Code, provided that more than
50% of the  value of the total  assets  of the Fund at the close of the  taxable
year  consists of  securities  in foreign  corporations.  The foreign tax credit
available to shareholders is subject to certain limitations imposed by the Code,
except in the case of certain  electing  individual  taxpayers  who have limited
creditable  foreign  taxes and no  foreign  source  income  other  than  passive
investment-type income.  Furthermore,  the foreign tax credit is eliminated with
respect to foreign taxes withheld on dividends if the dividend-paying  shares or
the shares of the Fund are held by the Fund or the shareholder,  as the case may
be, for less than 16 days (46 days in the case of preferred  shares)  during the
30-day period  (90-day period for preferred  shares)  beginning 15 days (45 days
for preferred shares) before the shares become ex-dividend.  In addition, if the
Fund fails to satisfy these holding period  requirements,  it cannot elect under
Section 853 to pass through to shareholders the ability to claim a deduction for
the related foreign taxes.

If the Fund does not make the election  permitted  under section 853 any foreign
taxes paid or accrued  will  represent  an expense to the Fund which will reduce
its investment company taxable income.  Absent this election,  shareholders will
not be able to claim  either a credit or a deduction  for their pro rata portion
of such taxes paid by the Fund,  nor will  shareholders  be required to treat as
part of the  amounts  distributed  to them their pro rata  portion of such taxes
paid.

Equity options  (including  covered call options written on portfolio stock) and
OTC options on debt securities  written or purchased by the Fund will be subject
to tax under Section 1234 of the Code. In general, no loss will be recognized by
the Fund upon payment of a premium in  connection  with the purchase of a put or
call option.  The character of any gain or loss recognized  (i.e.,  long-term or
short-term) will generally depend, in the case of a lapse or sale of the option,
on the Fund's holding period for the option,  and in the case of the exercise of
a put option,  on the Fund's  holding period for the  underlying  property.  The
purchase  of a put option may  constitute  a short sale for  federal  income tax
purposes, causing an adjustment in the holding period of any stock in the Fund's
portfolio  similar to the stocks on which the index is based. If the Fund writes
an option,  no gain is recognized  upon its receipt of a premium.  If the option
lapses or is closed out, any gain or loss is treated as short-term  capital gain
or loss.  If a call  option  is  exercised,  the  character  of the gain or loss
depends on the holding period of the underlying stock.

Positions of the Fund which consist of at least one stock and at least one stock
option or other position with respect to a related security which  substantially
diminishes  the Fund's risk of loss with  respect to such stock could be treated
as a "straddle"  which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stocks
or securities and conversion of short-term capital losses into long-term capital
losses.  An exception  to these  straddle  rules  exists for certain  "qualified
covered call options" on stock written by the Fund.

Many futures and forward contracts entered into by the Fund and listed nonequity
options written or purchased by the Fund (including  options on debt securities,
options on futures  contracts,  options on  securities  indices  and  options on
currencies), will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any  such  position  generally  will  be  treated  as 60%  long-term  and 40%
short-term,  and  on  the  last  trading  day of the  Fund's  fiscal  year,  all
outstanding Section 1256 positions will be marked to market (i.e., treated as if
such  positions  were closed out at their closing  price on such day),  with any
resulting  gain or loss  recognized as 60% long-term and 40%  short-term.  Under
Section 988 of the Code,  discussed  below,  foreign  currency


                                       35
<PAGE>

gain or loss from foreign  currency-related  forward contracts,  certain futures
and options and similar  financial  instruments  entered into or acquired by the
Fund will be treated as ordinary income or loss.

Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss)
from a constructive  sale of certain  "appreciated  financial  positions" if the
Fund enters into a short sale,  offsetting notional principal contract,  futures
or forward  contract  transaction  with respect to the  appreciated  position or
substantially  identical  property.  Appreciated  financial positions subject to
this constructive sale treatment are interests  (including options,  futures and
forward  contracts  and short sales) in stock,  partnership  interests,  certain
actively  traded trust  instruments and certain debt  instruments.  Constructive
sale  treatment of  appreciated  financial  positions  does not apply to certain
transactions  closed in the  90-day  period  ending  with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.

Similarly,  if the  Fund  enters  into a short  sale of  property  that  becomes
substantially  worthless, the Fund will recognize gain at that time as though it
had closed the short sale.  Future  regulations  may apply similar  treatment to
other   transactions  with  respect  to  property  that  becomes   substantially
worthless.

Under the Code,  gains or losses  attributable to fluctuations in exchange rates
which  occur  between  the time  the Fund  accrues  receivables  or  liabilities
denominated in a foreign  currency and the time the Fund actually  collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss.  Similarly,  on disposition of debt  securities  denominated in a
foreign  currency and on  disposition  of certain  options,  futures and forward
contracts,  gains or losses attributable to fluctuations in the value of foreign
currency  between the date of  acquisition  of the  security or contract and the
date of  disposition  are also treated as ordinary gain or loss.  These gains or
losses,  referred  to under  the Code as  "Section  988"  gains or  losses,  may
increase or decrease the amount of the Fund's investment  company taxable income
to be distributed to its shareholders as ordinary income.

If the Fund invests in stock of certain foreign investment  companies,  the Fund
may be subject  to U.S.  federal  income  taxation  on a portion of any  "excess
distribution"  with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such  distribution or gain ratably to each
day of the Fund's  holding  period for the stock.  The  distribution  or gain so
allocated  to any taxable  year of the Fund,  other than the taxable year of the
excess  distribution or  disposition,  would be taxed to the Fund at the highest
ordinary  income  rate in effect  for such  year,  and the tax would be  further
increased by an interest  charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign  company's  stock. Any amount
of  distribution  or gain allocated to the taxable year of the  distribution  or
disposition  would be included in the Fund's  investment  company taxable income
and, accordingly,  would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.

The Fund may make an  election  to mark to market  its  shares of these  foreign
investment  companies in lieu of being subject to U.S.  federal income taxation.
At the end of each taxable year to which the  election  applies,  the Fund would
report as  ordinary  income  the  amount by which the fair  market  value of the
foreign  company's stock exceeds the Fund's adjusted basis in these shares;  any
mark-to-market losses and any loss from an actual disposition of shares would be
reported as ordinary loss to the extent of any net mark-to-market gains included
in income in prior years.  The effect of the  election  would be to treat excess
distributions  and gain on  dispositions as ordinary income which is not subject
to  a  fund  level  tax  when   distributed  to   shareholders  as  a  dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign  investment  companies
in lieu of being taxed in the manner described above.

If the Fund invests in certain high yield original  issue  discount  obligations
issued by corporations, a portion of the original issue discount accruing on the
obligation  may  be  eligible  for  the  deduction  for  dividends  received  by
corporations.  In such event,  dividends of investment  company  taxable  income
received from the Fund by its corporate shareholders, to the extent attributable
to such portion of accrued  original  issue  discount,  may be eligible for this
deduction for dividends received by corporations if so designated by the Fund in
a written notice to shareholders.


The Fund will be required to report to the IRS all  distributions  of investment
company  taxable  income and capital  gains as well as gross  proceeds  from the
redemption  or exchange  of Fund  shares,  except in the case of certain  exempt
shareholders.  Under the backup  withholding  provisions  of Section 3406 of the
Code,  distributions of investment  company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to  withholding  of federal income tax at the rate of 31%
in the case of  non-exempt  shareholders  who  fail to  furnish  the  investment
company  with  their   taxpayer   identification   numbers  and  with   required
certifications  regarding  their  status  under  the  federal  income  tax  law.
Withholding  may also be required if the Fund is notified by the IRS or a broker
that  the  taxpayer  identification  number  furnished  by  the  shareholder  is
incorrect or that the  shareholder  has previously  failed to report interest or
dividend  income.  If  the  withholding  provisions  are  applicable,


                                       36
<PAGE>

any such  distributions  and  proceeds,  whether  taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.


Shareholders   of  the  Fund  may  be  subject  to  state  and  local  taxes  on
distributions received from the Fund and on redemptions of the Fund's shares.

The foregoing  discussion of U.S.  federal  income tax law relates solely to the
application of that law to U.S.  persons,  i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund,  including the possibility that such a shareholder may be
subject to a U.S.  withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts  constituting  ordinary income received
by him or her, where such amounts are treated as income from U.S.  sources under
the Code.


Shareholders  should  consult their tax advisors  about the  application  of the
provisions of tax law described in this  statement of additional  information in
light of their particular tax situations.


PORTFOLIO TRANSACTIONS
----------------------

Brokerage Commissions


Allocation of brokerage is supervised by the Advisor.

The primary objective of the Advisor in placing orders for the purchase and sale
of securities for the Fund is to obtain the most  favorable net results,  taking
into account such factors as price, commission where applicable,  size of order,
difficulty of execution and skill required of the executing  broker/dealer.  The
Advisor seeks to evaluate the overall  reasonableness  of brokerage  commissions
paid (to the extent applicable)  through the familiarity of the Distributor with
commissions  charged  on  comparable  transactions,  as  well  as  by  comparing
commissions paid by the Fund to reported commissions paid by others. The Advisor
routinely reviews commission rates,  execution and settlement services performed
and makes internal and external comparisons.

The Fund's  purchases and sales of fixed-income  securities are generally placed
by the Advisor with primary  market makers for these  securities on a net basis,
without any brokerage  commission being paid by the Fund. Trading does, however,
involve  transaction costs.  Transactions with dealers serving as primary market
makers  reflect  the  spread  between  the bid and asked  prices.  Purchases  of
underwritten  issues may be made, which will include an underwriting fee paid to
the underwriter.

When it can be done consistently with the policy of obtaining the most favorable
net  results,   it  is  the  Advisor's   practice  to  place  such  orders  with
broker/dealers  who supply brokerage and research services to the Advisor or the
Fund.  The  term  "research  services"  includes  advice  as  to  the  value  of
securities;  the advisability of investing in, purchasing or selling securities;
the  availability  of securities or  purchasers  or sellers of  securities;  and
analyses  and  reports  concerning  issuers,  industries,  securities,  economic
factors and trends,  portfolio  strategy and the  performance  of accounts.  The
Advisor is authorized when placing portfolio  transactions,  if applicable,  for
the Fund to pay a brokerage  commission in excess of that which  another  broker
might charge for executing the same transaction on account of execution services
and the receipt of research services.  The Advisor has negotiated  arrangements,
which  are  not  applicable  to most  fixed-income  transactions,  with  certain
broker/dealers  pursuant to which a broker/dealer will provide research services
to the  Advisor or the Fund in  exchange  for the  direction  by the  Advisor of
brokerage  transactions  to  the  broker/dealer.  These  arrangements  regarding
receipt of research  services  generally apply to equity security  transactions.
The  Advisor  will not place  orders with  broker/dealers  on the basis that the
broker/dealer has or has not sold shares of the Fund. In effecting  transactions
in  over-the-counter  securities,  orders are placed with the  principal  market
makers for the security being traded unless,  after  exercising care, it appears
that more favorable results are available elsewhere.

To the  maximum  extent  feasible,  it is expected  that the Advisor  will place
orders  for  portfolio   transactions  through  the  Distributor,   which  is  a
corporation  registered as a broker/dealer and a subsidiary of the Advisor;  the
Distributor  will place orders on behalf of the Fund with issuers,  underwriters
or other brokers and dealers.  The Distributor  will not receive any commission,
fee or other remuneration from the Fund for this service.



                                       37
<PAGE>

Although certain research services from broker/dealers may be useful to the Fund
and to the Advisor,  it is the opinion of the Advisor that such information only
supplements the Advisor's own research  effort since the information  must still
be analyzed,  weighed, and reviewed by the Advisor's staff. Such information may
be useful to the Advisor in providing  services to clients  other than the Fund,
and not all such information is used by the Advisor in connection with the Fund.
Conversely,  such information provided to the Advisor by broker/dealers  through
whom other clients of the Advisor effect  securities  transactions may be useful
to the Advisor in providing services to the Fund.


The Directors  review from time to time whether the recapture for the benefit of
the Fund of some portion of the  brokerage  commissions  or similar fees paid by
the Fund on portfolio transactions is legally permissible and advisable.


For the year ended August 31, 2000, the Fund paid brokerage commissions of $[ ].
For the five month period  beginning  April 1, 1999 through  August 31, 1999 and
for the  fiscal  years  ended  March  31,  1999,  1998 and  1997,  the Fund paid
brokerage  commissions  of  $4,793,968,  $9,926,570,  $6,904,372  and $5,275,727
respectively.

For the year ended August 31, 2000, $[ ] ( % of the total brokerage  commissions
paid by the Fund) resulted from orders for transactions,  placed consistent with
the policy of seeking to obtain the most favorable net results, with brokers and
dealers who provided supplementary research,  market and statistical information
to the Fund or the Advisor. The amount of such transactions  aggregated $[ ] ( %
of all brokerage transactions).  The balance of such brokerage was not allocated
to  particular  broker or dealer  with  regard to the  above-mentioned  or other
special factors.

For the five-month  period ended August 31, 1999,  $3,625,740  (75% of the total
brokerage  commissions paid by the Fund) resulted from orders for  transactions,
placed  consistent  with the policy of seeking to obtain the most  favorable net
results, with brokers and dealers who provided  supplementary  research,  market
and  statistical  information  to the Fund or the  Advisor.  The  amount of such
transactions aggregated $2,316,472,713 (72% of all brokerage transactions).  The
balance of such brokerage was not allocated to particular  broker or dealer with
regard to the above-mentioned or other special factors.


Portfolio Turnover


The Fund's average annual portfolio  turnover rate is the ratio of the lesser of
sales or  purchases to the monthly  average  value of the  portfolio  securities
owned during the year,  excluding all securities  with  maturities or expiration
dates at the time of  acquisition  of one year or  less.  The  Fund's  portfolio
turnover  rates for the fiscal  years ended  August 31, 2000 and the five months
ended August 31,  1999,  and the fiscal years ended March 31, 1999 and 1998 were
83%, 82% (annualized),  80% and 56%, respectively.  Purchases and sales are made
for the Fund's portfolio whenever  necessary,  in management's  opinion, to meet
the Fund's objective.


NET ASSET VALUE
---------------

The net asset value of shares of the Fund is computed as of the close of regular
trading  on the  Exchange  on each day the  Exchange  is open for  trading.  The
Exchange is scheduled to be closed on the  following  holidays:  New Year's Day,
Dr. Martin  Luther King Jr. Day,  Presidents'  Day,  Good Friday,  Memorial Day,
Independence  Day,  Labor Day,  Thanksgiving  and Christmas and on the preceding
Friday or subsequent  Monday when one of these holidays falls on a Saturday or a
Sunday,  respectively.  Net asset value per share is  determined by dividing the
value of the total assets of the Fund  attributable to the shares of that class,
less all  liabilities  attributable  to the shares of that  class,  by the total
number of shares of that class outstanding.

An  exchange-traded  equity  security  is valued at its most  recent sale price.
Lacking any sales,  the  security is valued at the  calculated  mean between the
most recent bid quotation and the most recent asked  quotation (the  "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation.  An equity security which is traded on the Nasdaq Stock Market,  Inc.
("Nasdaq")  is valued at its most  recent sale  price.  Lacking  any sales,  the
security  is valued at the most  recent  bid  quotation.  The value of an equity
security not quoted on the Nasdaq System, but traded in another over-the-counter
market, is its most recent sale price. Lacking any sales, the security is valued
at the Calculated Mean. Lacking a Calculated Mean, the security is valued at the
most recent bid quotation.

                                       38
<PAGE>


Debt securities, other than short-term securities, are valued at prices supplied
by the Fund's pricing agent(s) which reflect  broker/dealer  supplied valuations
and electronic data processing techniques.  Short-term securities purchased with
remaining maturities of sixty days or less shall be valued by the amortized cost
method,  which  the  Board  believes  approximates  market  value.  If it is not
possible  to value a  particular  debt  security  pursuant  to  these  valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona  fide  marketmaker.  If it is not  possible  to value a  particular  debt
security  pursuant to the above methods,  the Advisor may calculate the price of
that debt security, subject to limitations established by the Board.


An exchange traded options contract on securities, currencies, futures and other
financial  instruments is valued at its most recent sale price on such exchange.
Lacking  any sales,  the  options  contract  is valued at the  Calculated  Mean.
Lacking any Calculated  Mean, the options  contract is valued at the most recent
bid quotation in the case of a purchased  options  contract,  or the most recent
asked quotation in the case of a written options  contract.  An options contract
on   securities,    currencies   and   other   financial    instruments   traded
over-the-counter  is valued at the most  recent bid  quotation  in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written  options  contract.  Futures  contracts  are valued at the most recent
settlement price.  Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon one or more exchanges
and in the  over-the-counter  market,  quotations  are taken  from the market in
which the security is traded most extensively.

If, in the  opinion of the  Corporation's  Valuation  Committee,  the value of a
portfolio  asset as  determined  in accordance  with these  procedures  does not
represent  the  fair  market  value of the  portfolio  asset,  the  value of the
portfolio  asset is taken to be an amount which, in the opinion of the Valuation
Committee,   represents  fair  market  value  on  the  basis  of  all  available
information.  The  value  of  other  portfolio  holdings  owned  by the  Fund is
determined in a manner which, in the discretion of the Valuation  Committee most
fairly reflects fair market value of the property on the valuation date.

Following the valuations of securities or other portfolio assets in terms of the
currency in which the market quotation used is expressed ("Local Currency"), the
value of these  portfolio  assets  in terms of U.S.  dollars  is  calculated  by
converting  the Local  Currency  into U.S.  dollars at the  prevailing  currency
exchange rate on the valuation date.



ADDITIONAL INFORMATION
----------------------

Experts

The  Financial  Highlights  of the  Fund  included  in the  prospectus  and  the
Financial  Statements  incorporated by reference in this Statement of Additional
Information  have been so included or  incorporated  by reference in reliance on
the  report  of   PricewaterhouseCoopers   LLP,  160  Federal  Street,   Boston,
Massachusetts 02110, independent accountants, and given on the authority of that
firm as experts  in  accounting  and  auditing.  PricewaterhouseCoopers,  LLP is
responsible  for  performing  annual  and  semiannual  audits  of the  financial
statements  and financial  highlights of the Fund in accordance  with  generally
accepted auditing standards, and the preparation of federal tax returns.

Other Information


Many of the investment changes in the Fund will be made at prices different from
those  prevailing  at the time  they may be  reflected  in a  regular  report to
shareholders of the Fund. These transactions will reflect  investment  decisions
made by the  Advisor  in the  light  of its  other  portfolio  holdings  and tax
considerations and should not be construed as recommendations for similar action
by other investors.


The CUSIP number of the Shares is 811165703.

The Fund has a fiscal year end of August 31. On June 7, 1999,  the  Directors of
the Fund changed the fiscal year end of the Fund from March 31 to August 31.

The Fund employs Brown  Brothers  Harriman & Company,  40 Water Street,  Boston,
Massachusetts 02109 as Custodian for the Fund.



                                       39
<PAGE>


The law firm of Dechert is counsel to the Fund.

Scudder Service Corporation  ("Service  Corporation"),  P.O. Box 219669,  Kansas
City,  Missouri,  64121-9669,  a subsidiary of the Advisor,  is the transfer and
dividend  disbursing  agent for the Fund.  Service  Corporation  also  serves as
shareholder service agent and provides  subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. Prior
to the  implementation of the  Administration  Agreement,  the Fund paid Service
Corporation  an annual fee of $26.00 for each retail account and $29.00 for each
retirement  account.  For the year ended August 31, 2000, the Fund incurred fees
of $10,603 for the Shares and $3,420,086  for the Class S Shares,  respectively,
of which  $602,732  was unpaid at August 31,  2000.  The Fund  incurred  fees of
$4,632  for the  Shares  and  $1,258,902  for the Class S Shares,  respectively,
during the five months ended August 31,  1999.The  Fund  incurred fees of $4,857
for the Shares and $3,098,197 for the Class S shares,  respectively,  during the
fiscal  year  ended  March  31,  1999.  Prior to the  inception  of the  Barrett
International Shares, the Class S shares of the Fund incurred fees of $3,394,358
during the fiscal year ended March 31, 1998.

The Fund, or the Advisor (including any affiliate of the Advisor),  or both, may
pay   unaffiliated   third  parties  for  providing   recordkeeping   and  other
administrative  services with respect to accounts of  participants in retirement
plans or other  beneficial  owners of Fund shares whose interests are held in an
omnibus account.

Scudder  Fund  Accounting   Corporation,   Two  International   Place,   Boston,
Massachusetts, 02110-4103, a subsidiary of the Advisor, computes net asset value
for the Fund. Prior to the implementation of the Administration  Agreement,  the
Fund paid Scudder Fund  Accounting  Corporation an annual fee equal to 0.065% of
the first $150  million of average  daily net  assets,  0.040% of such assets in
excess of $150  million,  0.020% of such  assets in excess of $1  billion,  plus
holding and  transaction  charges for this  service.  The Fund  incurred fees of
$893,682  and  $838,885  during the fiscal  years ended March 31, 1999 and 1998,
respectively.  For the five months ended August 31, 1999,  the fee was $402,576.
Prior to August  14,  2000,  the amount  charged to the Fund by SFAC  aggregated
$1,250,099, of which $219,547 was unpaid at August 31, 2000.

Kemper Service Corporation  ("KSvC"),  811 Main Street,  Kansas City,  Missouri,
64105-2005,  a subsidiary of the Advisor,  is the transfer,  dividend-paying and
shareholder  service  agent  for  Class A, B and C  shares  of the Fund and also
provides  subaccounting and recordkeeping  services for shareholder  accounts in
certain  retirement and employee benefit plans.  Prior to the  implementation of
the  Administration  Agreement,  the Fund  paid KSvC a fee of $5.00 for each new
account,  an annual fee of $18.00 for each account maintained for a participant,
an asset-based fee of 0.08% and out-of-pocket reimbursement.

Scudder Trust Company, an affiliate of the Advisor,  provides  subaccounting and
recordkeeping  services  for  shareholder  accounts  in certain  retirement  and
employee  benefit  plans.  Prior  to the  implementation  of the  Administration
Agreement,  annual  service  fees were paid by the Class S shares of the Fund to
Scudder  Trust  Company,   Two  International   Place,   Boston,   Massachusetts
02110-4103,  an affiliate of the Advisor, for such accounts.  The Class S shares
of the Fund paid  Scudder  Trust  Company an annual  fee of $29 per  shareholder
account.  The  Class S  shares  of the  Fund  incurred  fees of  $2,067,603  and
$1,561,049 during the fiscal years ended March 31, 1999 and 1998,  respectively.
For the five  months  ended  August  31,  1999,  the  Class S shares of the Fund
incurred fees of  $1,202,021.  Prior to August 14, 2000,  the amount  charged to
Class S shares of the Fund aggregated $3,776,386, of which $731,678 is unpaid at
August 31, 2000.


The Shares' prospectus and this Statement of Additional Information omit certain
information  contained in the  Registration  Statement  which the Fund 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 Fund and
the securities  offered hereby.  This 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  portfolio  of the Fund,
together with the Report of Independent  Accountants,  Financial  Highlights and
notes to financial  statements in the Annual Report to the  Shareholders  of the
Fund dated August 31, 2000 are  incorporated  herein by reference and are hereby
deemed to be a part of this Statement of Additional  Information by reference in
its entirety.



                                       40
<PAGE>

APPENDIX
--------

The  following  is a  description  of the  ratings  given by Moody's  and S&P to
corporate bonds.

Ratings of Corporate Bonds

S&P:  Debt rated AAA has the highest  rating  assigned  by S&P.  Capacity to pay
interest  and repay  principal  is  extremely  strong.  Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated  issues only in small  degree.  Debt rated A has a strong  capacity to pay
interest and repay  principal  although it is somewhat more  susceptible  to the
adverse effects of changes in circumstances and economic conditions than debt in
higher  rated  categories.  Debt  rated BBB is  regarded  as having an  adequate
capacity to pay  interest  and repay  principal.  Whereas it  normally  exhibits
adequate  protection   parameters,   adverse  economic  conditions  or  changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.

Debt rated BB, B, CCC, CC and C is regarded as having predominantly  speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates  the least degree of  speculation  and C the highest.  While such debt
will  likely  have  some  quality  and  protective  characteristics,  these  are
outweighed by large uncertainties or major exposures to adverse conditions.

Debt rated BB has less near-term vulnerability to default than other speculative
issues.  However,  it faces major ongoing  uncertainties  or exposure to adverse
business,  financial,  or economic  conditions  which  could lead to  inadequate
capacity to meet timely interest and principal payments.  The BB rating category
is also used for debt  subordinated to senior debt that is assigned an actual or
implied BBB-  rating.  Debt rated B has a greater  vulnerability  to default but
currently has the capacity to meet interest  payments and principal  repayments.
Adverse business,  financial, or economic conditions will likely impair capacity
or willingness  to pay interest and repay  principal.  The B rating  category is
also used for debt  subordinated  to senior  debt that is  assigned an actual or
implied BB or BB- rating.

Debt rated CCC has a currently  identifiable  vulnerability  to default,  and is
dependent upon favorable  business,  financial,  and economic conditions to meet
timely  payment of interest and repayment of principal.  In the event of adverse
business,  financial,  or  economic  conditions,  it is not  likely  to have the
capacity to pay interest and repay  principal.  The CCC rating  category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
B or B- rating.  The rating CC  typically  is  applied to debt  subordinated  to
senior  debt that is  assigned  an actual or implied  CCC  rating.  The rating C
typically  is applied to debt  subordinated  to senior debt which is assigned an
actual  or  implied  CCC-  debt  rating.  The C  rating  may be used to  cover a
situation where a bankruptcy  petition has been filed, but debt service payments
are  continued.  The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest  payments or principal  payments are not made on the date due even
if the  applicable  grace period had not expired,  unless S&P believes that such
payments will be made during such grace  period.  The D rating also will be used
upon  the  filing  of  a  bankruptcy  petition  if  debt  service  payments  are
jeopardized.

Moody's:  Bonds which are rated Aaa are judged to be of the best  quality.  They
carry the smallest  degree of investment  risk and are generally  referred to as
"gilt edge." Interest  payments are protected by a large or by an  exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change,  such changes as can be visualized are most unlikely to impair
the fundamentally  strong position of such issues.  Bonds which are rated Aa are
judged to be of high quality by all standards.  Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best  bonds  because  margins  of  protection  may not be as large as in Aaa
securities or fluctuation of protective  elements may be of greater amplitude or
there  may be other  elements  present  which  make the long term  risks  appear
somewhat  larger than in Aaa  securities.  Bonds which are rated A possess  many
favorable  investment  attributes and are to be considered as upper medium grade
obligations.  Factors  giving  security to principal and interest are considered
adequate  but  elements  may  be  present  which  suggest  a  susceptibility  to
impairment sometime in the future.

Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective  elements may be
lacking or may be  characteristically  unreliable over any great length of time.
Such  bonds  lack  outstanding  investment  characteristics  and  in  fact  have
speculative characteristics as well. Bonds which are rated Ba are judged to have
speculative elements;  their future cannot be considered as well assured.  Often
the  protection  of interest and  principal


<PAGE>

payments may be very moderate and thereby not well safeguarded  during both good
and bad times over the future.  Uncertainty of position  characterizes  bonds in
this  class.  Bonds  which are rated B  generally  lack  characteristics  of the
desirable  investment.  Assurance  of  interest  and  principal  payments  or of
maintenance  of other terms of the contract  over any long period of time may be
small.

Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present  elements of danger with  respect to principal or interest.
Bonds which are rated Ca represent  obligations  which are speculative in a high
degree.  Such  issues are often in default  or have other  marked  shortcomings.
Bonds which are rated C are the lowest  rated class of bonds and issues so rated
can be regarded as having  extremely  poor  prospects of ever attaining any real
investment standing.


                                       42
<PAGE>

                       STATEMENT OF ADDITIONAL INFORMATION
                                December 29, 2000

          SCUDDER INTERNATIONAL FUND (Class A, B, C and Class I Shares)
               222 South Riverside Plaza, Chicago, Illinois 60606
                                 1-800-621-1048


     This  Statement of Additional  Information  is not a prospectus.  It is the
Statement of  Additional  Information  for Class A (formerly  known as Class R),
Class B, Class C and Class I Shares (the "Shares") of Scudder International Fund
(the "Fund"),  a diversified  series of Scudder  International  Fund,  Inc. (the
"Corporation"),  an open-end management investment company. It should be read in
conjunction  with the  prospectus  of the Shares dated  December  29, 2000.  The
prospectus  may be  obtained  without  charge  from the Fund at the  address  or
telephone  number  on this  cover or the  firm  from  which  this  Statement  of
Additional Information was received.

     Scudder  International  Fund offers the following classes of shares:  Class
AARP, Class S, Barrett International Shares, Class A, Class B, Class C and Class
I shares  (the  "Shares").  Only Class A, Class B, Class C and Class I shares of
Scudder International Fund are offered herein.


                                TABLE OF CONTENTS


Investment Restrictions.....................................................2

Investment Policies and Techniques..........................................4

Dividends, Distributions and Taxes.........................................23

Performance................................................................28

Investment Manager and Underwriter.........................................31

Portfolio Transactions.....................................................37

Purchase of Shares.........................................................41

Redemption or Repurchase of Shares.........................................46

Special Features...........................................................50

Officers and Directors.....................................................55

Shareholder Rights.........................................................59


Zurich  Scudder  Investments,  Inc.  (the  "Advisor")   serves  as  the   Fund's
investment manager.


The financial  statements  appearing in the Fund's August 31, 2000 Annual Report
to Shareholders are incorporated herein by reference.  The Annual Report for the
Fund accompanies this document.



<PAGE>

Investment Restrictions

The Fund has adopted certain fundamental investment restrictions which cannot be
changed without  approval of a "majority" of its outstanding  voting Shares.  As
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), this
means the lesser of (1) 67% of the Fund's Shares present at a meeting where more
than 50% of the  outstanding  Shares are  present in person or by proxy;  or (2)
more than 50% of the Fund's  outstanding  Shares.

Any  investment  restrictions  herein  which  involve  a maximum  percentage  of
securities  or assets shall not be  considered  to be violated  unless an excess
over the percentage occurs  immediately after and is caused by an acquisition or
encumbrance of securities or assets of, or borrowings by, the Fund.

The Fund has elected to be  classified  as a  diversified  series of an open-end
management investment company.


If a percentage  restriction on investment or utilization of assets as set forth
under "Investment Restrictions" and "Other Investment Policies" above is adhered
to at the time an  investment  is made, a later change in  percentage  resulting
from  changes in the value or the total cost of the  Fund's  assets  will not be
considered a violation of the restriction.


The Fund may not, as a fundamental policy:

1.   borrow money, except as permitted under the 1940 Act, and as interpreted or
     modified by regulatory authority having
     jurisdiction, from time to time;

2.   issue senior  securities,  except as  permitted  under the 1940 Act, and as
     interpreted or modified by regulatory authority having  jurisdiction,  from
     time to time;

3.   concentrate its investments in a particular industry,  as that term is used
     in the 1940 Act, and as  interpreted  or modified by  regulatory  authority
     having jurisdiction, from time to time;

4.   engage in the business of underwriting  securities issued by others, except
     to  the  extent  that  the  Fund  may be  deemed  to be an  underwriter  in
     connection with the disposition of portfolio securities;

5.   purchase or sell real  estate,  which term does not include  securities  of
     companies which deal in real estate or mortgages or investments  secured by
     real estate or interests therein,  except that the Fund reserves freedom of
     action to hold and to sell real  estate  acquired as a result of the Fund's
     ownership of securities;

6.   purchase   physical   commodities   or   contracts   relating  to  physical
     commodities; or

7.   make loans to other persons, except as permitted under the 1940 Act, and as
     interpreted or modified by regulatory authority having  jurisdiction,  from
     time to time.

With respect to  fundamental  policy number five above,  the Fund has no current
intention  to hold and sell  real  estate  acquired  as a result  of the  Fund's
ownership.

Other Investment Policies

The Directors of the Corporation have  voluntarily  adopted certain policies and
restrictions  which are  observed  in the conduct of the Fund's  affairs.  These
represent  intentions of the Directors  based upon current  circumstances.  They
differ  from  fundamental  investment  policies  in that they may be  changed or
amended by action of the Directors without requiring prior notice to or approval
of shareholders.

As a matter of nonfundamental policy, the Fund currently does not intend to:

1.   borrow money in an amount  greater than 5% of its total assets,  except (i)
     for  temporary  or  emergency  purposes  and (ii) by  engaging  in  reverse
     repurchase  agreements,  dollar rolls, or other investments or transactions
     described in the Fund's  registration  statement  which may be deemed to be
     borrowings;

2.   enter into either of reverse  repurchase  agreements  or dollar rolls in an
     amount greater than 5% of its total assets;

                                       2
<PAGE>

3.   purchase  securities on margin or make short sales,  except (i) short sales
     against the box, (ii) in connection with arbitrage transactions,  (iii) for
     margin  deposits in  connection  with futures  contracts,  options or other
     permitted  investments,  (iv) that  transactions  in futures  contracts and
     options shall not be deemed to constitute selling securities short, and (v)
     that the Fund may obtain such  short-term  credits as may be necessary  for
     the clearance of securities transactions;

4.   purchase  options,  unless the aggregate  premiums paid on all such options
     held by the Fund at any time do not exceed 20% of its total assets; or sell
     put  options,  if as a  result,  the  aggregate  value  of the  obligations
     underlying such put options would exceed 50% of its total assets;

5.   enter into futures contracts or purchase options thereon unless immediately
     after the purchase,  the value of the aggregate initial margin with respect
     to such  futures  contracts  entered  into on  behalf  of the  Fund and the
     premiums paid for such options on futures  contracts  does not exceed 5% of
     the fair market value of the Fund's total assets; provided that in the case
     of an option that is in-the-money at the time of purchase, the in-the-money
     amount may be excluded in computing the 5% limit;

6.   purchase  warrants if as a result,  such securities,  taken at the lower of
     cost or  market  value,  would  represent  more than 5% of the value of the
     Fund's  total  assets  (for this  purpose,  warrants  acquired  in units or
     attached to securities will be deemed to have no value); and

7.   lend portfolio securities in an amount greater than 5% of its total assets.

The  foregoing  nonfundamental  policies  are in addition to policies  otherwise
stated  in the  Prospectus  or in  this  Statement  of  Additional  Information.

Master/feeder  Fund  Structure.  The Board of Directors  has the  discretion  to
retain the current  distribution  arrangement  for the Fund while investing in a
master fund in a master/feeder fund structure as described below.

         A  master/feeder  fund  structure  is one in  which a fund  (a  "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment  objective and policies as
the feeder fund.  Such a structure  permits the pooling of assets of two or more
feeder funds,  preserving  separate  identities or distribution  channels at the
feeder  fund  level.  Based on the  premise  that  certain  of the  expenses  of
operating an investment  portfolio are  relatively  fixed,  a larger  investment
portfolio may eventually  achieve a lower ratio of operating expenses to average
net assets. An existing  investment  company is able to convert to a feeder fund
by  selling  all  of  its  investments,   which  involves  brokerage  and  other
transaction  costs and realization of a taxable gain or loss, or by contributing
its assets to the master  fund and  avoiding  transaction  costs and,  if proper
procedures are followed, the realization of taxable gain or loss.


Interfund Borrowing and Lending Program.  The Fund has received exemptive relief
from the Securities and Exchange Commission (the "SEC") that permits the Fund to
participate in an interfund lending program among certain  investment  companies
advised by the Advisor.  The interfund  lending program allows the participating
funds to  borrow  money  from and loan  money to each  other  for  temporary  or
emergency purposes. The program is subject to a number of conditions designed to
ensure fair and equitable  treatment of all participating  funds,  including the
following: (1) no fund may borrow money through the program unless it receives a
more favorable  interest rate than a rate approximating the lowest interest rate
at which bank loans would be available to any of the participating funds under a
loan  agreement;  and (2) no fund may lend money  through the program  unless it
receives a more  favorable  return than that  available  from an  investment  in
repurchase  agreements  and, to the extent  applicable,  money market cash sweep
arrangements.  In addition, a fund may participate in the program only if and to
the extent that such  participation  is  consistent  with the fund's  investment
objectives  and  policies  (for  instance,  money  market  funds would  normally
participate  only as lenders and tax exempt funds only as borrowers).  Interfund
loans and borrowings may extend overnight,  but could have a maximum duration of
seven days.  Loans may be called on one day's notice.  A fund may have to borrow
from a bank at a higher  interest  rate if an  interfund  loan is  called or not
renewed.  Any  delay in  repayment  to a  lending  fund  could  result in a lost
investment  opportunity  or  additional  costs.  The  program  is subject to the
oversight and periodic review of the Boards of the  participating  funds. To the
extent the Fund is actually engaged in borrowing  through the interfund  lending
program,  the Fund, as a matter of  non-fundamental  policy,  may not borrow for


                                       3
<PAGE>

other than temporary or emergency purposes (and not for leveraging), except that
the Fund may engage in reverse  repurchase  agreements  and dollar rolls for any
purpose.


Investment Policies and Techniques

Except as otherwise indicated,  the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment  objective,  shareholders  should consider whether the Fund
remains  an  appropriate  investment  in light of their then  current  financial
position and needs.  There can be no assurance that the Fund's objective will be
met.


Descriptions  in  this  Statement  of  Additional  Information  of a  particular
investment  practice or  technique  in which the Fund may engage  (such as short
selling, hedging, etc.) or a financial instrument in which the Fund may purchase
(such as  options,  forward  foreign  currency  contracts,  etc.)  are  meant to
describe the spectrum of investments that the Advisor, in its discretion, might,
but is not required to, use in managing the Fund's portfolio assets. The Advisor
may,  in  its  discretion,  at any  time  employ  such  practice,  technique  or
instrument  for  one or  more  funds  but  not  for  all  funds  advised  by it.
Furthermore,  it is possible  that  certain  types of financial  instruments  or
investment  techniques  described  herein  may  not be  available,  permissible,
economically  feasible or effective for their intended  purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but,  to the extent  employed,  could from time to time have a material
impact on the Fund's performance.


Changes  in  portfolio   securities   are  made  on  the  basis  of   investment
considerations  and it is against the policy of  management  to make changes for
trading purposes.

The Fund  seeks  long-term  growth of  capital  primarily  from  foreign  equity
securities.  These  securities  are  selected  primarily  to permit  the Fund to
participate  in  non-U.S.  companies  and  economies  that are  believed to have
prospects for growth.


The Fund generally invests in equity securities of established companies, listed
on foreign  exchanges  (although the Fund may also invest in  securities  traded
over the counter),  which the Advisor  believes have favorable  characteristics.
The  Fund's  equity   investments   include   common  stock,   convertible   and
non-convertible  preferred stock, sponsored and unsponsored depository receipts,
and warrants.

When the Advisor  believes that it is  appropriate  to do so in order to achieve
the Fund's investment objective of long-term capital growth, the Fund may invest
up to 20% of its total assets in debt securities.  Such debt securities  include
debt   securities   of   governments,   governmental   agencies,   supranational
organizations  and private issuers,  including bonds denominated in the European
Currency Unit (the "Euro").  Portfolio debt  investments will be selected on the
basis of,  among  other  things,  yield,  credit  quality,  and the  fundamental
outlooks for currency and interest rate trends in different  parts of the globe,
taking  into  account  the  ability to hedge a degree of  currency or local bond
price risk. The value of fixed-income investments will fluctuate with changes in
interest  rates and bond market  conditions,  tending to rise as interest  rates
decline and decline as interest rates rise. The Fund will predominantly purchase
"investment-grade"  bonds,  which are those  rated Aaa,  Aa, A or Baa by Moody's
Investors  Service,  Inc.  ("Moody's") or AAA, AA, A or BBB by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies,  Inc., ("S&P") or, if
unrated,  judged by the Advisor to be of equivalent  quality.  The Fund may also
invest up to 5% of its total  assets in debt  securities  which are rated  below
investment-grade (see "Risk factors").

The Fund intends to diversify  investments  among several countries and normally
to have  investments in securities of at least three  different  countries other
than the U.S. The Fund will invest  primarily in securities of issuers in the 21
developed foreign countries included in the Morgan Stanley Capital International
("MSCI")  World ex-US  Index,  but may invest in  "emerging  markets."  The Fund
considers  "emerging  markets"  to  include  any  country  that is defined as an
emerging  or   developing   economy  by  any  of  the   International   Bank  of
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation  or the United Nations or its  authorities.  It is expected that the
Fund's investments will include companies of varying size as measured by assets,
sales or market capitalization.


                                       4
<PAGE>


The  major  portion  of the  Fund's  assets  consists  of equity  securities  of
established companies listed on recognized  exchanges;  the Advisor expects this
condition to  continue,  although  the Fund may invest in other  securities.  In
selecting   securities  for  the  Fund's   portfolio,   the  Advisor  applies  a
disciplined,  multi-part  investment approach for selecting stocks for the Fund.
In analyzing  companies for investment,  the Advisor ordinarily looks for one or
more  of  the  following   characteristics:   strong  competitive   positioning,
above-average  earnings  growth  per share,  high  return on  invested  capital,
healthy balance sheets and overall  financial  strength,  strength of management
and general operating characteristics which will enable the companies to compete
successfully  in the  marketplace.  The Advisor  will further seek to have broad
country  representation,  favoring  those  countries that it believes have sound
economic   conditions  and  open  markets.   The  Advisor  will  also  look  for
opportunities  on a macro-economic  level,  seeking to identify major changes in
the business  environment  and  companies  that are poised to benefit from these
changes.  Investment  decisions are made without regard to arbitrary criteria as
to minimum  asset  size,  debt-equity  ratios or dividend  history of  portfolio
companies.  The Advisor will typically sell an investment when certain  criteria
are met,  including  but not limited to: the price of the  security  reaches the
Advisor's  assessment  of its fair value;  the  underlying  investment  theme is
judged by the Advisor to have matured;  or if the original  reason for investing
in the security no longer applies or is no longer valid.

In applying the disciplined, multi-part investment approach for selecting stocks
for the Fund,  the Advisor  first  analyzes the pool of foreign  dividend-paying
securities, primarily from the world's more mature markets, and targeting stocks
that have high relative yields compared to the average for their markets. In the
Advisor's opinion, this group of higher-yielding stocks offers the potential for
returns that is greater than or equal to the average market  return,  with price
volatility  that is lower  than  the  overall  market  volatility.  The  Advisor
believes that these potentially favorable risk and return  characteristics exist
because the higher  dividends  offered by these  stocks act as a "cushion"  when
markets are volatile and because the stocks with higher yields tend to have more
attractive   valuations   (e.g.,   lower   price-to-earning   ratios  and  lower
price-to-book  ratios).  The second stage of portfolio  construction  involves a
fundamental  analysis  of  each  company's  financial  strength,  profitability,
projected earnings,  competitive positioning, and ability of management.  During
this step, the Advisor's  research team identifies what it believes are the most
promising  stocks for the Fund's  portfolio.  The third stage of the  investment
process involves  diversifying the portfolio among different  industry  sectors.
The key element of this stage is evaluating how the stocks in different  sectors
react to economic  factors such as interest  rates,  inflation,  Gross  Domestic
Product, and consumer spending, and then attaining a proper balance of stocks in
these  sectors based on the Advisor's  economic  forecast.  The fourth and final
stage of this ongoing  process is  diversifying  the portfolio  among  different
countries. The Advisor will seek to have broad country representation,  favoring
those  countries  that it  believes  have  sound  economic  conditions  and open
markets. The Fund's strategy is to manage risk and create opportunity at each of
the four stages in its  investment  process,  starting  with the focus on stocks
with high relative yields.

The Fund may hold up to 20% of its net assets in U.S.  and foreign  fixed income
securities  for  temporary  defensive  purposes  when the Advisor  believes that
market  conditions  so warrant.  The Fund may invest up to 20% of its net assets
under normal conditions,  and without limit for temporary defensive purposes, in
cash  or  cash   equivalents   including   domestic  and  foreign  money  market
instruments,  short-term  government  and corporate  obligations  and repurchase
agreements,  when  the  Advisor  deems  such a  position  advisable  in light of
economic or market conditions.  It is impossible to predict how long alternative
strategies  may be  utilized.  In  addition,  the Fund  may  engage  in  reverse
repurchase agreements, illiquid securities and strategic transactions, which may
include derivatives.


Foreign securities such as those purchased by the Fund may be subject to foreign
governmental  taxes which could reduce the yield on such securities,  although a
shareholder  of the Fund may,  subject to certain  limitations,  be  entitled to
claim a credit or deduction for U.S.  federal income tax purposes for his or her
proportionate share of such foreign taxes paid by the Fund. (See "Taxes.")

From time to time,  the Fund may be a purchaser of illiquid  securities  such as
restricted  debt or  equity  securities  (i.e.,  securities  which  may  require
registration under the Securities Act of 1933, as amended,  (the "1933 Act"), or


                                       5
<PAGE>

an exemption therefrom,  in order to be sold in the ordinary course of business)
in a private placement. (See "Illiquid Securities".)

The Fund invests in companies,  wherever organized,  which do business primarily
outside the United  States.  The Fund cannot  guarantee a gain or eliminate  the
risk of loss. The net asset value of the Fund's shares will increase or decrease
with  changes in the market  price of the  Fund's  investments,  and there is no
assurance that the Fund's objectives will be achieved.

Foreign Investment Risk

While the Fund offers the potential for substantial appreciation over time, they
also  involve  above-average  investment  risk in  comparison  to a mutual  fund
investing in a broad range of U.S. equity securities.  The Fund is designed as a
long-term  investment and not for short-term  trading purposes.  The Fund should
not be considered a complete  investment  program,  although it could serve as a
core international holding for an individual's  portfolio.  The Fund's net asset
value,  or price,  can  fluctuate  significantly  with  changes in stock  market
levels, political developments, movements in currencies, global investment flows
and other factors.

Special Considerations

Investing in Emerging Markets.  The Fund's investments in foreign securities may
be in developed  countries or in countries  considered by the Fund's  Advisor to
have  developing  or "emerging"  markets,  which  involves  exposure to economic
structures that are generally less diverse and mature than in the United States,
and to  political  systems that may be less  stable.  A  developing  or emerging
market  country can be considered to be a country that is in the initial  stages
of its industrialization  cycle.  Currently,  emerging markets generally include
every  country  in the  world  other  than the  United  States,  Canada,  Japan,
Australia,   New  Zealand,  Hong  Kong,  Singapore  and  most  Western  European
countries. Currently, investing in many emerging markets may not be desirable or
feasible  because of the lack of adequate  custody  arrangements  for the Fund's
assets,  overly burdensome  repatriation and similar  restrictions,  the lack of
organized and liquid securities markets,  unacceptable  political risks or other
reasons.  As  opportunities to invest in securities in emerging markets develop,
the Fund may expand and further  broaden the group of emerging  markets in which
it invests. In the past, markets of developing or emerging market countries have
been more  volatile  than the  markets of  developed  countries;  however,  such
markets  often have provided  higher rates of return to  investors.  The Advisor
believes that these characteristics may be expected to continue in the future.


Most  emerging  securities  markets may have  substantially  less volume and are
subject  to  less  governmental   supervision  than  U.S.   securities  markets.
Securities  of many  issuers in  emerging  markets  may be less  liquid and more
volatile than securities of comparable domestic issuers.  In addition,  there is
less  regulation of securities  exchanges,  securities  dealers,  and listed and
unlisted companies in emerging markets than in the U.S.


Emerging markets also have different clearance and settlement procedures, and in
certain markets there have been times when  settlements  have not kept pace with
the volume of  securities  transactions.  Delays in  settlement  could result in
temporary  periods when a portion of the assets of the Fund is uninvested and no
return is earned  thereon.  The inability of the Fund to make intended  security
purchases due to  settlement  problems  could cause the Fund to miss  attractive
investment  opportunities.  Inability to dispose of portfolio  securities due to
settlement  problems could result either in losses to the Fund due to subsequent
declines in value of the  portfolio  security or, if the Fund has entered into a
contract  to sell the  security,  could  result  in  possible  liability  to the
purchaser.   Costs  associated  with  transactions  in  foreign  securities  are
generally  higher than costs  associated with  transactions in U.S.  securities.
Such  transactions  also  involve  additional  costs for the purchase or sale of
foreign currency.


Certain emerging markets require prior  governmental  approval of investments by
foreign  persons,  limit the  amount  of  investment  by  foreign  persons  in a
particular  company,  limit the investment by foreign persons only to a specific
class of securities of a company that may have less advantageous rights than the
classes  available for purchase by  domiciliaries of the countries and/or impose
additional  taxes  on  foreign  investors.  Certain  emerging  markets  may also
restrict  investment  opportunities in issuers in industries deemed important to
national interest.

                                       6
<PAGE>

Certain emerging markets may require governmental  approval for the repatriation
of investment income,  capital or the proceeds of sales of securities by foreign
investors.  In  addition,  if a  deterioration  occurs in an  emerging  market's
balance of payments  or for other  reasons,  a country  could  impose  temporary
restrictions  on  foreign  capital  remittances.  The Fund  could  be  adversely
affected by delays in, or a refusal to grant, any required governmental approval
for  repatriation  of capital,  as well as by the application to the Fund of any
restrictions on investments.


In the course of investment in emerging markets, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in one
or more emerging markets. While the Fund will manage its assets in a manner that
will seek to minimize the exposure to such risks, there can be no assurance that
adverse political,  social or economic changes will not cause the Fund to suffer
a loss of value in respect of the securities in the Fund's portfolio.

The risk  also  exists  that an  emergency  situation  may  arise in one or more
emerging  markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's securities in such markets may
not be readily available.  The Fund may suspend redemption of its shares for any
period during which an emergency exists, as determined by the SEC.  Accordingly,
if the Fund  believes that  appropriate  circumstances  exist,  it will promptly
apply to the SEC for a  determination  that an emergency is present.  During the
period  commencing  from the Fund's  identification  of such condition until the
date of the SEC action,  the Fund's  securities in the affected  markets will be
valued at fair value  determined  in good faith by or under the direction of the
Fund's Board of Directors.


Volume and  liquidity  in most  foreign  markets are less than in the U.S.,  and
securities  of many foreign  companies  are less liquid and more  volatile  than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally  higher than negotiated  commissions on U.S.  exchanges,
although  the Fund  endeavors to achieve the most  favorable  net results on its
portfolio  transactions.  There is generally less  governmental  supervision and
regulation of business and industry practices,  securities  exchanges,  brokers,
dealers and listed  companies than in the U.S. Mail service between the U.S. and
foreign  countries  may be slower or less  reliable  than within the U.S.,  thus
increasing the risk of delayed settlements of portfolio  transactions or loss of
certificates for certificated portfolio securities. In addition, with respect to
certain  emerging  markets,   there  is  the  possibility  of  expropriation  or
confiscatory   taxation,   political  or  social   instability,   or  diplomatic
developments  which  could  affect the Fund's  investments  in those  countries.
Moreover,   individual   emerging  market  economies  may  differ  favorably  or
unfavorably  from the U.S.  economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment,  resource self-sufficiency and
balance of payments position.


The Fund may have limited legal  recourse in the event of a default with respect
to certain debt  obligations it holds. If the issuer of a fixed-income  security
owned by the Fund  defaults,  the Fund may  incur  additional  expenses  to seek
recovery.  Debt obligations issued by emerging market country governments differ
from debt  obligations  of private  entities;  remedies  from  defaults  on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. The Fund's ability
to enforce its rights  against  private  issuers may be limited.  The ability to
attach assets to enforce a judgment may be limited.  Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other  countries.  The  political  context,  expressed  as  an  emerging  market
governmental issuer's willingness to meet the terms of the debt obligation,  for
example, is of considerable  importance.  In addition, no assurance can be given
that the holders of commercial bank debt may not contest payments to the holders
of  debt  obligations  in the  event  of  default  under  commercial  bank  loan
agreements.

Income from securities held by the Fund could be reduced by a withholding tax at
the source or other taxes imposed by the emerging market  countries in which the
Fund makes its  investments.  The Fund's net asset value may also be affected by
changes  in the  rates  or  methods  of  taxation  applicable  to the Fund or to
entities in which the Fund has  invested.  The Advisor will consider the cost of
any taxes in determining whether to acquire any particular investments,  but can
provide no assurance that the taxes will not be subject to change.


Many  emerging  markets  have  experienced  substantial,  and, in some  periods,
extremely  high  rates  of  inflation  for  many  years.   Inflation  and  rapid
fluctuations  in  inflation  rates  have had and may  continue  to have  adverse


                                       7
<PAGE>

effects on the  economies  and  securities  markets of certain  emerging  market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain  countries.  Of these countries,  some, in recent years, have
begun to control inflation through prudent economic policies.

Emerging market governmental issuers are among the largest debtors to commercial
banks,  foreign  governments,  international  financial  organizations and other
financial  institutions.  Certain emerging market governmental  issuers have not
been able to make  payments of interest on or principal of debt  obligations  as
those  payments  have  come due.  Obligations  arising  from past  restructuring
agreements  may  affect  the  economic  performance  and  political  and  social
stability of those issuers.


Governments  of many emerging  market  countries  have exercised and continue to
exercise  substantial  influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in any
given  country.  As a result,  governmental  actions in the future  could have a
significant  effect on economic  conditions in emerging markets,  which in turn,
may adversely affect companies in the private sector,  general market conditions
and prices and yields of  certain  of the  securities  in the Fund's  portfolio.
Expropriation,  confiscatory taxation,  nationalization,  political, economic or
social instability or other similar  developments have occurred  frequently over
the history of certain  emerging  markets and could adversely  affect the Fund's
assets should these conditions recur.

The  ability of  emerging  market  country  governmental  issuers to make timely
payments  on their  obligations  is  likely  to be  influenced  strongly  by the
issuer's balance of payments,  including export  performance,  and its access to
international  credits and  investments.  An emerging  market whose  exports are
concentrated  in a few  commodities  could be  vulnerable  to a  decline  in the
international   prices   of  one  or  more  of  those   commodities.   Increased
protectionism  on the part of an emerging  market's  trading partners could also
adversely  affect the country's  exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for their exports in
currencies other than dollars or non-emerging  market currencies,  their ability
to make debt payments  denominated in dollars or non-emerging  market currencies
could be affected.


Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country.  Fluctuations
in the level of these  reserves  affect the amount of foreign  exchange  readily
available  for  external  debt  payments  and thus  could  have a bearing on the
capacity  of  emerging   market   countries  to  make  payments  on  these  debt
obligations.

To the extent that an emerging  market country cannot  generate a trade surplus,
it must  depend on  continuing  loans  from  foreign  governments,  multilateral
organizations or private commercial banks, aid payments from foreign governments
and inflows of foreign investment. The access of emerging markets to these forms
of external  funding may not be certain,  and a withdrawal  of external  funding
could  adversely  affect the capacity of emerging  market  country  governmental
issuers  to make  payments  on  their  obligations.  In  addition,  the  cost of
servicing  emerging  market  debt  obligations  can be  affected  by a change in
international  interest  rates  since the  majority of these  obligations  carry
interest rates that are adjusted periodically based upon international rates.


Common Stocks. Under normal circumstances,  the Fund invests primarily in common
stocks.  Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund  participates  in the  success or failure of any  company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market  movements.  Despite the risk of price  volatility,
however,  common  stock  have  historically  offered  a  greater  potential  for
long-term gain on investment, compared to other classes of financial assets such
as bonds or cash equivalents,  although there can be no assurance that this will
be true in the future.

Depository  Receipts.  The Fund may invest  sponsored  or  unsponsored  American
Depository  Receipts ("ADRs"),  European  Depositary  Receipts ("EDRs"),  Global
Depository  Receipts ("GDRs"),  International  Depository  Receipts ("IDRs") and
other types of Depository Receipts (which, together with ADRs, GDRs and IDRs are
hereinafter referred to as "Depository  Receipts").  Depositary receipts provide


                                       8
<PAGE>

indirect  investment  in securities of foreign  issuers.  Prices of  unsponsored
Depository  Receipts may be more volatile  than if the issuer of the  underlying
securities   sponsored  them.   Depository   Receipts  may  not  necessarily  be
denominated  in the same currency as the underlying  securities  into which they
may be  converted.  In  addition,  the  issuers  of  the  stock  of  unsponsored
Depository  Receipts are not obligated to disclose  material  information in the
United  States  and,  therefore,  there may not be a  correlation  between  such
information and the market value of the Depository Receipts. ADRs are Depository
Receipts which are bought and sold in the United States and are typically issued
by a  U.S.  bank  or  trust  company  which  evidence  ownership  of  underlying
securities by a foreign  corporation.  GDRs,  IDRs and other types of Depository
Receipts are typically issued by foreign banks or trust companies, although they
may also be issued by  United  States  banks or trust  companies,  and  evidence
ownership of underlying securities issued by either a foreign or a United States
corporation.  Generally, Depository Receipts in registered form are designed for
use in the United States  securities  markets and Depository  Receipts in bearer
form are designed for use in securities  markets outside the United States.  For
purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depository  Receipts will be deemed to be  investments in the
underlying securities.  Depository Receipts, including those denominated in U.S.
dollars will be subject to foreign  currency  exchange  rate risk.  However,  by
investing in US dollar-denominated ADRs rather than directly in foreign issuers'
stock, the Fund avoids currency risks during the settlement  period. In general,
there is a large,  liquid  market in the United  States for most ADRs.  However,
certain  Depository  Receipts may not be listed on an exchange and therefore may
be illiquid securities.

Warrants.  The Fund may  invest  in  warrants  up to 5% of the  value of its net
assets.  The holder of a warrant has the right,  until the warrant  expires,  to
purchase a given number of shares of a particular  issuer at a specified  price.
Such  investments  can  provide a greater  potential  for profit or loss than an
equivalent  investment  in the  underlying  security.  Prices of warrants do not
necessarily  move,  however,  in  tandem  with  the  prices  of  the  underlying
securities and are, therefore, considered speculative investments.  Warrants pay
no  dividends  and confer no rights  other than a purchase  option.  Thus,  if a
warrant held by the Fund were not exercised by the date of its  expiration,  the
Fund would lose the entire purchase price of the warrant.


Specialized Investment Techniques


Foreign  Currencies.  Because  investments  in foreign  securities  usually will
involve currencies of foreign  countries,  and because the Fund may hold foreign
currencies  and  forward  contracts,  futures  contracts  and options on foreign
currencies and foreign  currency futures  contracts,  the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the  Fund  may  incur  costs  and   experience   conversion   difficulties   and
uncertainties  in  connection  with  conversions   between  various  currencies.
Fluctuations in exchange rates may also affect the earning power and asset value
of the foreign entity issuing the security.

The  strength  or  weakness  of the U.S.  dollar  against  these  currencies  is
responsible for part of the Fund's investment  performance.  If the dollar falls
in value  relative to the  Japanese  yen,  for  example,  the dollar  value of a
Japanese  stock  held in the  portfolio  will rise even  though the price of the
stock remains  unchanged.  Conversely,  if the dollar rises in value relative to
the yen,  the  dollar  value of the  Japanese  stock  will  fall.  Many  foreign
currencies have experienced significant devaluation relative to the dollar.


 Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its  holdings  of foreign  currencies  into U.S.  dollars on a
daily basis.  It will do so from time to time, and investors  should be aware of
the costs of  currency  conversion.  Although  foreign  exchange  dealers do not
charge a fee for  conversion,  they do realize a profit based on the  difference
(the "spread")  between the prices at which they are buying and selling  various
currencies.  Thus, a dealer may offer to sell a foreign  currency to the Fund at
one rate,  while  offering a lesser rate of  exchange  should the Fund desire to
resell that currency to the dealer.  The Fund will conduct its foreign  currency
exchange  transactions  either  on a spot  (i.e.,  cash)  basis at the spot rate
prevailing in the foreign  currency  exchange  market,  or through entering into
options or forward or futures contracts to purchase or sell foreign currencies.

                                       9
<PAGE>

Trust Preferred  Securities.  The 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 1933 Act, 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.


Debt  Securities.  When the Advisor  believes that it is appropriate to do so in
order to achieve International Fund's objective of long-term capital growth, the
Fund may invest up to 20% of its total assets in debt securities including bonds
of  foreign  governments,   supranational  organizations  and  private  issuers,
including  bonds  denominated in the Euro.  Portfolio debt  investments  will be
selected on the basis of, among other things,  yield,  credit  quality,  and the
fundamental  outlooks  for  currency,  economic  and  interest  rate  trends  in
different parts of the globe,  taking into account the ability to hedge a degree
of currency or local bond price risk.

Investment-Grade  Bonds. The Fund may purchase  "investment-grade"  bonds, which
are those rated Aaa,  Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if
unrated,  judged to be of  equivalent  quality  as  determined  by the  Advisor.
Moody's  considers  bonds it rates Baa to have  speculative  elements as well as
investment-grade  characteristics.  To the  extent  that  the  Fund  invests  in
higher-grade  securities,  the  Fund  will  not  be  able  to  avail  itself  of
opportunities for higher income which may be available at lower grades.

High  Yield/High  Risk Bonds.  The Fund may also purchase,  to a limited extent,
debt securities which are rated below investment-grade  (commonly referred to as
"junk  bonds"),  that is,  rated  below Baa by  Moody's  or below BBB by S&P and
unrated  securities  judged to be of  equivalent  quality as  determined  by the
Advisor. These securities usually entail greater risk (including the possibility
of default or bankruptcy of the issuers of such  securities),  generally involve
greater  volatility of price and risk to principal  and income,  and may be less
liquid,  than  securities in the higher  rating  categories  and are  considered
speculative. The lower the ratings of such debt securities, the more their risks
render them like equity  securities.  The International Fund will invest no more
than 5% of its total assets in securities  rated BB or lower by Moody's or Ba by
S&P, and may invest in securities  which are rated D by S&P.  Securities rated D
may be in default with  respect to payment of  principal  or  interest.  See the
Appendix  to  this  Statement  of  Additional  Information  for a more  complete
description  of  the  ratings  assigned  by  ratings   organizations  and  their
respective characteristics.

Issuers of such high yielding  securities often are highly leveraged and may not
have available to them more  traditional  methods of financing.  Therefore,  the
risk  associated  with  acquiring the  securities  of such issuers  generally is
greater than is the case with higher rated  securities.  For example,  during an


                                       10
<PAGE>

economic  downturn  or a  sustained  period of  rising  interest  rates,  highly
leveraged  issues may experience  financial  stress.  During such periods,  such
issuers  may not  have  sufficient  revenues  to  meet  their  interest  payment
obligations.  The issuer's  ability to service its debt  obligations may also be
adversely affected by specific corporate developments, or the issuer's inability
to  meet  specific  projected  business  forecasts,  or  the  unavailability  of
additional  financing.   The  risk  of  loss  from  default  by  the  issuer  is
significantly  greater for the  holders of high yield  securities  because  such
securities are generally unsecured and are often subordinated to other creditors
of the issuer.  Prices and yields of high yield  securities  will fluctuate over
time and,  during  periods of  economic  uncertainty,  volatility  of high yield
securities  may  adversely  affect  the  Fund's net asset  value.  In  addition,
investments  in high  yield  zero  coupon  or  pay-in-kind  bonds,  rather  than
income-bearing high yield securities, may be more speculative and may be subject
to greater fluctuations in value due to changes in interest rates.

The Fund may have  difficulty  disposing  of  certain  high  yield  (high  risk)
securities because they may have a thin trading market.  Because not all dealers
maintain  markets in all high yield  securities,  the Fund anticipates that such
securities  could be sold only to a limited  number of dealers or  institutional
investors.  The lack of a liquid  secondary market may have an adverse effect on
the market price and the Fund's ability to dispose of particular  issues and may
also make it more difficult for the Fund to obtain  accurate  market  quotations
for  purposes of valuing the Fund's  assets.  Market  quotations  generally  are
available  on many high yield  issues only from a limited  number of dealers and
may not  necessarily  represent  firm bids of such  dealers or prices for actual
sales.  Adverse  publicity and investor  perceptions may decrease the values and
liquidity of high yield  securities.  These  securities may also involve special
registration   responsibilities,   liabilities  and  costs,  and  liquidity  and
valuation difficulties.

Credit  quality in the  high-yield  securities  market can change  suddenly  and
unexpectedly,  and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
generally the policy of the Advisor not to rely exclusively on ratings issued by
established credit rating agencies,  but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment  objective by investment in such  securities may be more dependent on
the Advisor's credit analysis than is the case for higher quality bonds.  Should
the rating of a portfolio  security be  downgraded,  the Advisor will  determine
whether  it is in the best  interests  of the Fund to retain or  dispose of such
security.

Prices for below investment-grade  securities may be affected by legislative and
regulatory  developments.  Also,  Congress  has  from  time to  time  considered
legislation  which would  restrict or eliminate  the corporate tax deduction for
interest  payments in these  securities and regulate  corporate  restructurings.
Such legislation may significantly depress the prices of outstanding  securities
of this type.

On average,  for the period  ended  August 31, 2000,  the  International  Fund's
holdings  in  debt  securities  rated  below  investment  grade  by one or  more
nationally  recognized  rating  services,  or  judged  by the  Advisor  to be of
equivalent  quality  to the  established  categories  of  such  rating  services
comprised  less  than  5% of the  Fund's  total  assets.  For  more  information
regarding tax issues related to high yield securities, see "Taxes."

Illiquid Securities and Restricted Securities.


                                       11
<PAGE>



The Fund  may  purchase  securities  that are  subject  to legal or  contractual
restrictions on resale ("restricted securities"). Generally speaking, restricted
securities  may be sold (i) only to qualified  institutional  buyers;  (ii) in a
privately negotiated transaction to a limited number of purchasers;  or (iii) in
limited  quantities after they have been held for a specified period of time and
other conditions are met pursuant to an exemption from registration.  Issuers of
restricted  securities  may not be subject to the  disclosure and other investor
protection  requirements  that  would be  applicable  if their  securities  were
publicly traded.

Restricted  securities  are often  illiquid,  but they may also be  liquid.  For
example,  restricted securities that are eligible for resale under Rule 144A are
often deemed to be liquid.

The  Corporation's  Board of Directors  has approved  guidelines  for use by the
Advisor in  determining  whether a security is  illiquid.  Among the factors the
Investment Manager may consider in reaching liquidity decisions relating to Rule
144A  securities  are: (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 other potential  purchasers;  (3) dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the market
for the security (i.e.,  the time needed to dispose of the security,  the method
of soliciting offers, and the mechanics of the transfer.

Issuers of restricted  securities may not be subject to the disclosure and other
investor  protection  requirement  that would be applicable if their  securities
were publicly traded. Where a registration  statement is required for the resale
of  restricted  securities,  the Fund may be required to bear all or part of the
registration  expenses.  The  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,  the Fund may be liable to purchasers  of such  securities if the
registration  statement  prepared  by the  issuer is  materially  inaccurate  or
misleading.

The  Fund  may  also  purchase  securities  that  are not  subject  to  legal or
contractual   restrictions  on  resale,  but  that  are  deemed  illiquid.  Such
securities  may be illiquid,  for example,  because  there is a limited  trading
market for them.

The Fund may be unable to sell a restricted or illiquid  security.  In addition,
it may be more  difficult to determine a market value for restricted or illiquid
securities.  Moreover,  if adverse market  conditions were to develop during the
period between the Fund's decision to sell a restricted or illiquid security and
the point at which the Fund is permitted or able to sell such security, the Fund
might  obtain a price  less  favorable  than the price  that  prevailed  when it
decided to sell.

This  investment  practice,  therefore,  could have the effect of increasing the
level  of  illiquidity  of the  Fund.  It is the  Fund's  policy  that  illiquid
securities  (including  repurchase  agreements of more than seven days duration,
certain  restricted  securities,  and other  securities  which  are not  readily
marketable)  may not constitute,  at the time of purchase,  more than 15% of the
value of the Fund's net assets.

Repurchase Agreements.


                                       12
<PAGE>
The  Fund  may  invest  in  repurchase  agreements  pursuant  to its  investment
guidelines. In a repurchase agreement, the Fund acquires ownership of a security
and  simultaneously  commits to resell that security to the seller,  typically a
bank or broker/dealer.





A repurchase agreement provides a means for the Fund to earn income on funds for
periods as short as overnight.  It is an  arrangement  under which the purchaser
(i.e., the Fund) acquires a security  ("Obligation")  and the seller agrees,  at
the time of sale, to repurchase  the  Obligation at a specified  time and price.
Securities  subject to a repurchase  agreement are held in a segregated  account
and the value of such securities kept at least equal to the repurchase  price on
a daily basis.  The repurchase  price may be higher than the purchase price, the
difference  being income to the Fund, or the purchase and repurchase  prices may
be the same,  with  interest at a stated rate due to the Fund  together with the
repurchase  price upon  repurchase.  In either  case,  the income to the Fund is
unrelated to the interest rate on the  Obligation  itself.  Obligations  will be
held by the Custodian or in the Federal Reserve Book Entry System.

It is not clear whether a court would consider the  Obligation  purchased by the
Fund  subject to a  repurchase  agreement as being owned by the Fund or as being
collateral  for a  loan  by  the  Fund  to  the  seller.  In  the  event  of the
commencement of bankruptcy or insolvency  proceedings with respect to the seller
of the  Obligation  before  repurchase  of the  Obligation  under  a  repurchase
agreement,  the Fund may  encounter  delay and incur costs  before being able to
sell the  security.  Delays may involve  loss of interest or decline in price of
the  Obligation.  If the court  characterizes  the transaction as a loan and the
Fund has not perfected a security  interest in the  Obligation,  the Fund may be
required to return the  Obligation  to the seller's  estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk  of  losing  some  or all of  the  principal  and  income  involved  in the
transaction.  As with any unsecured debt instrument  purchased for the Fund, the
Advisor  seeks to  reduce  the risk of loss  through  repurchase  agreements  by
analyzing the  creditworthiness  of the obligor,  in this case the seller of the
Obligation.  Apart from the risk of bankruptcy or insolvency proceedings,  there
is also the risk that the seller may fail to repurchase the Obligation, in which
case  the  Fund may  incur a loss if the  proceeds  to the Fund of the sale to a
third party are less than the  repurchase  price.  However,  if the market value
(including  interest)  of the  Obligation  subject to the  repurchase  agreement
becomes  less than the  repurchase  price  (including  interest),  the Fund will
direct the seller of the Obligation to deliver additional securities so that the
market value of all securities subject to the repurchase agreement will equal or
exceed the repurchase  price.  It is possible that the Fund will be unsuccessful
in seeking to enforce the seller's contractual  obligation to deliver additional
securities.

Reverse  Repurchase  Agreements.  The Fund may enter  into  "reverse  repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities,  agrees to repurchase such securities at an agreed upon time and
price.  The Fund maintains a segregated  account in connection with  outstanding
reverse  repurchase  agreements.  The Fund will  enter into  reverse  repurchase
agreements only when the Advisor  believes that the interest income to be earned
from the investment of the proceeds of the transaction  will be greater than the
interest expense of the transaction. Such transactions may increase fluctuations
in the market value of Fund assets and its yield.

Dollar Roll  Transactions.  Dollar roll transactions  consist of the sale by the
Fund to a bank or broker/dealer  (the  "counterparty")  of GNMA  certificates or
other mortgage-backed securities together with a commitment to purchase from the
counterparty  similar,  but not  identical,  securities at a future date, at the
same price.  The  counterparty  receives all  principal  and interest  payments,
including  prepayments,  made on the security  while it is the holder.  The Fund
receives a fee from the  counterparty  as  consideration  for entering  into the
commitment  to  purchase.  Dollar  rolls may be renewed over a period of several
months  with  a  different  purchase  and  repurchase  price  fixed  and a  cash
settlement  made  at each  renewal  without  physical  delivery  of  securities.
Moreover,  the  transaction  may  be  preceded  by a firm  commitment  agreement
pursuant to which the Fund agrees to buy a security on a future date.


                                       13
<PAGE>

The Fund will segregate cash, U.S. Government  securities or other liquid assets
in  an  amount   sufficient  to  meet  their  purchase   obligations  under  the
transactions.  The Fund will also maintain  asset  coverage of at least 300% for
all outstanding firm commitments, dollar rolls and other borrowings.

Dollar rolls may be treated for purposes of the Investment  Company Act of 1940,
as amended as borrowings of the Fund because they involve the sale of a security
coupled with an agreement to  repurchase.  A dollar roll  involves  costs to the
Fund. For example,  while the Fund receives a fee as consideration  for agreeing
to repurchase the security,  the Fund forgoes the right to receive all principal
and interest payments while the counterparty holds the security.  These payments
to the counterparty may exceed the fee received by the Fund, thereby effectively
charging  the Fund  interest on its  borrowing.  Further,  although the Fund can
estimate the amount of expected principal prepayment over the term of the dollar
roll, a variation in the actual amount of prepayment  could increase or decrease
the cost of the Fund's borrowing.

The entry into dollar rolls involves  potential risks of loss that are different
from those related to the securities  underlying the transactions.  For example,
if the  counterparty  becomes  insolvent,  the Fund's right to purchase from the
counterparty might be restricted. Additionally, the value of such securities may
change adversely before the Fund is able to purchase them.  Similarly,  the Fund
may be required to purchase  securities  in  connection  with a dollar roll at a
higher price than may otherwise be available on the open market. Since, as noted
above,  the  counterparty  is required to deliver a similar,  but not  identical
security to the Fund,  the  security  that the Fund is required to buy under the
dollar roll may be worth less than an identical security.  Finally, there can be
no assurance that the Fund's use of the cash that it receives from a dollar roll
will provide a return that exceeds borrowing costs.


Investment  Company  Securities.  The  Fund  may  acquire  securities  of  other
investment  companies to the extent consistent with its investment objective and
subject to the  limitations of the 1940 Act. The Fund will  indirectly  bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.

For example, the Fund may invest in a variety of investment companies which seek
to track the  composition  and  performance  of  specific  indexes or a specific
portion of an index.  These  index-based  investments hold  substantially all of
their assets in securities representing their specific index.  Accordingly,  the
main risk of investing in index-based  investments is the same as investing in a
portfolio  of equity  securities  comprising  the index.  The  market  prices of
index-based  investments  will fluctuate in accordance  with both changes in the
market  value of their  underlying  portfolio  securities  and due to supply and
demand for the  instruments on the exchanges on which they are traded (which may
result in their  trading at a discount  or premium to their  NAVs).  Index-based
investments  may not replicate  exactly the performance of their specified index
because of  transaction  costs and because of the  temporary  unavailability  of
certain component securities of the index.

Examples of index-based investments include:


SPDRs(R):  SPDRs,  an acronym for "Standard & Poor's  Depositary  Receipts," are
based on the S&P 500  Composite  Stock Price Index.  They are issued by the SPDR
Trust,  a unit  investment  trust that  holds  shares of  substantially  all the
companies  in the S&P 500 in  substantially  the  same  weighting  and  seeks to
closely track the price performance and dividend yield of the Index.


MidCap  SPDRs(R):  MidCap SPDRs are based on the S&P MidCap 400 Index.  They are
issued by the MidCap SPDR Trust, a unit investment  trust that holds a portfolio
of securities  consisting of  substantially  all of the common stocks in the S&P
MidCap 400 Index in substantially  the same weighting and seeks to closely track
the price performance and dividend yield of the Index.

Select Sector SPDRs(R):  Select Sector SPDRs are based on a particular sector or
group of  industries  that are  represented  by a specified  Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end  management  investment  company with nine
portfolios  that each seeks to closely track the price  performance and dividend
yield of a particular Select Sector Index.

                                       14
<PAGE>

DIAMONDS(SM):  DIAMONDS are based on the Dow Jones Industrial Average(SM).  They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.

Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100  Trust, a unit investment  trust that holds a portfolio
consisting of substantially  all of the securities,  in  substantially  the same
weighting,  as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.

WEBs(SM):  WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific  Morgan Stanley Capital International  Indexes. They are issued
by the WEBs Index Fund,  Inc., an open-end  management  investment  company that
seeks to correspond  generally to the price and yield  performance of a specific
Morgan Stanley Capital International Index.

Strategic  Transactions and Derivatives.  The Fund may, but are not required to,
utilize various other investment  strategies as described below for a variety of
purposes,  such as hedging various market risks, managing the effective maturity
or duration of  fixed-income  securities in the Fund's  portfolio,  or enhancing
potential gain.  These  strategies may be executed through the use of derivative
contracts.


In the course of pursuing these investment strategies, the Fund may purchase and
sell  exchange-listed and  over-the-counter  put and call options on securities,
equity and fixed-income indices and other instruments, purchase and sell futures
contracts and options thereon,  enter into various  transactions  such as swaps,
caps, floors, collars,  currency forward contracts,  currency futures contracts,
currency swaps or options on currencies,  or currency  futures and various other
currency  transactions  (collectively,  all  the  above  are  called  "Strategic
Transactions").  In  addition,  strategic  transactions  may  also  include  new
techniques,  instruments or strategies that are permitted as regulatory  changes
occur.  Strategic  Transactions  may be used without  limit  (subject to certain
limitations  imposed by the 1940 Act) to attempt  to  protect  against  possible
changes in the market value of  securities  held in or to be  purchased  for the
Fund's  portfolio  resulting from securities  markets or currency  exchange rate
fluctuations,  to  protect  the  Fund's  unrealized  gains  in the  value of its
portfolio  securities,  to facilitate the sale of such securities for investment
purposes,   to  manage  the  effective  maturity  or  duration  of  fixed-income
securities  in  the  Fund's  portfolio,  or  to  establish  a  position  in  the
derivatives  markets  as a  substitute  for  purchasing  or  selling  particular
securities.  Some Strategic  Transactions may also be used to enhance  potential
gain  although  no more  than 5% of the  Fund's  assets  will  be  committed  to
Strategic  Transactions  entered into for  non-hedging  purposes.  Any or all of
these investment techniques may be used at any time and in any combination,  and
there is no particular  strategy  that dictates the use of one technique  rather
than  another,  as use of any  Strategic  Transaction  is a function of numerous
variables including market conditions.  The ability of the Fund to utilize these
Strategic  Transactions  successfully  will depend on the  Advisor's  ability to
predict  pertinent  market  movements,  which  cannot be assured.  The Fund will
comply  with  applicable   regulatory   requirements  when  implementing   these
strategies, techniques and instruments.  Strategic Transactions will not be used
to alter fundamental  investment  purposes and  characteristics of the Fund, and
the Fund will segregate assets (or as provided by applicable regulations,  enter
into certain  offsetting  positions)  to cover its  obligations  under  options,
futures and swaps to limit leveraging of the Fund.

Strategic  Transactions,  including derivative contracts,  have risks associated
with them  including  possible  default by the other  party to the  transaction,
illiquidity and, to the extent the Advisor's view as to certain market movements
is incorrect,  the risk that the use of such Strategic Transactions could result
in losses  greater  than if they had not been used.  Use of put and call options
may  result  in losses to the Fund,  force  the sale or  purchase  of  portfolio
securities  at  inopportune  times or for prices higher than (in the case of put
options)  or lower than (in the case of call  options)  current  market  values,
limit the amount of  appreciation  the Fund can  realize on its  investments  or
cause the Fund to hold a security it might  otherwise  sell. The use of currency
transactions  can result in the Fund incurring losses as a result of a number of
factors   including  the   imposition  of  exchange   controls,   suspension  of
settlements,  or the inability to deliver or receive a specified  currency.  The
use of  options  and  futures  transactions  entails  certain  other  risks.  In
particular,  the  variable  degree of  correlation  between  price  movements of
futures contracts and price movements in the related  portfolio  position of the
Fund  creates  the  possibility  that losses on the  hedging  instrument  may be
greater than gains in the value of the Fund's position. In addition, futures and


                                       15
<PAGE>

options   markets   may  not  be  liquid  in  all   circumstances   and  certain
over-the-counter  options may have no markets.  As a result, in certain markets,
the  Fund  might  not be able  to  close  out a  transaction  without  incurring
substantial  losses,  if at  all.  Although  the  use  of  futures  and  options
transactions  for  hedging  should  tend to  minimize  the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any  potential  gain  which  might  result  from an  increase  in  value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential  financial risk than would purchases of
options,  where the  exposure  is  limited to the cost of the  initial  premium.
Losses resulting from the use of Strategic  Transactions  would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.

General  Characteristics of Options. Put options and call options typically have
similar structural  characteristics and operational  mechanics regardless of the
underlying  instrument on which they are purchased or sold.  Thus, the following
general  discussion relates to each of the particular types of options discussed
in greater  detail below.  In addition,  many Strategic  Transactions  involving
options  require  segregation of Fund assets in special  accounts,  as described
below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option,  upon payment of a premium,  the
right to sell, and the writer the  obligation to buy, the  underlying  security,
commodity,  index,  currency or other  instrument  at the  exercise  price.  For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying  instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such  instrument at the option  exercise price. A call option,
upon payment of a premium,  gives the  purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price.  The Fund's  purchase of a call option on a security,  financial  future,
index,  currency  or other  instrument  might be  intended  to protect  the Fund
against an increase in the price of the underlying instrument that it intends to
purchase  in the  future  by  fixing  the  price at which it may  purchase  such
instrument.  An American  style put or call option may be  exercised at any time
during  the  option  period  while a  European  style put or call  option may be
exercised only upon expiration or during a fixed period prior thereto.  The Fund
is authorized to purchase and sell exchange listed options and  over-the-counter
options  ("OTC  options").  Exchange  listed  options  are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"),  which guarantees
the  performance  of the  obligations  of  the  parties  to  such  options.  The
discussion  below uses the OCC as an example,  but is also  applicable  to other
financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally settle
by physical  delivery of the  underlying  security or currency,  although in the
future cash  settlement  may become  available.  Index  options  and  Eurodollar
instruments are cash settled for the net amount,  if any, by which the option is
"in-the-money"  (i.e., where the value of the underlying  instrument exceeds, in
the case of a call  option,  or is less than,  in the case of a put option,  the
exercise  price of the option) at the time the option is exercised.  Frequently,
rather than taking or making delivery of the underlying  instrument  through the
process of  exercising  the option,  listed  options are closed by entering into
offsetting  purchase or sale transactions that do not result in ownership of the
new option.

The Fund's  ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent,  in part, upon the liquidity
of the option  market.  Among the  possible  reasons for the absence of a liquid
option market on an exchange are: (i)  insufficient  trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts,  suspensions  or other  restrictions  imposed with respect to  particular
classes or series of options or underlying  securities  including reaching daily
price  limits;  (iv)  interruption  of the  normal  operations  of the OCC or an
exchange;  (v)  inadequacy  of the  facilities  of an  exchange or OCC to handle
current  trading  volume;  or  (vi)  a  decision  by one or  more  exchanges  to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant  market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed  options may not coincide  with the hours during
which the underlying  financial  instruments are traded.  To the extent that the
option   markets  close  before  the  markets  for  the   underlying   financial
instruments,  significant  price  and  rate  movements  can  take  place  in the
underlying markets that cannot be reflected in the option markets.

                                       16
<PAGE>

OTC  options  are  purchased  from  or  sold to  securities  dealers,  financial
institutions  or  other  parties  ("Counterparties")  through  direct  bilateral
agreement with the Counterparty.  In contrast to exchange listed options,  which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement,  term, exercise price,
premium,  guarantees and security,  are set by  negotiation of the parties.  The
Fund will only sell OTC  options  (other  than OTC  currency  options)  that are
subject to a buy-back provision  permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula  price within  seven days.  The
Fund  expects  generally  to enter into OTC  options  that have cash  settlement
provisions, although they are not required to do so.


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 the Fund or fails to make a cash  settlement
payment due in accordance with the terms of that option,  the Fund will lose any
premium  they paid for the  option  as well as any  anticipated  benefit  of the
transaction.  Accordingly,  the Advisor 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.  The Fund  will  engage  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 Advisor.  The staff of the
SEC  currently  takes the position that OTC options  purchased by the Fund,  and
portfolio securities  "covering" the amount of the 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 the Fund's  limitation  on
investing no more than 15% of its net assets in illiquid securities.


If the Fund sells a call  option,  the premium  that they receive may serve as a
partial hedge,  to the extent of the option  premium,  against a decrease in the
value of the underlying  securities or  instruments  in their  portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may  purchase  and sell  call  options  on  securities  including  U.S.
Treasury and agency securities,  mortgage-backed  securities,  foreign sovereign
debt,  corporate  debt  securities,  equity  securities  (including  convertible
securities)  and  Eurodollar  instruments  that are traded on U.S.  and  foreign
securities  exchanges  and in the  over-the-counter  markets,  and on securities
indices,  currencies and futures  contracts.  All calls sold by the Fund must be
"covered" (i.e., the Fund must own the securities or futures contract subject to
the call) or must meet the asset  segregation  requirements  described  below as
long as the call is  outstanding.  Even though the Fund will  receive the option
premium to help protect  them against  loss, a call sold by the Fund exposes the
Fund during the term of the option to possible  loss of  opportunity  to realize
appreciation  in the market price of the  underlying  security or instrument and
may require the Fund to hold a security or instrument which they might otherwise
have sold.

The Fund may purchase and sell put options on securities including U.S. Treasury
and agency  securities,  mortgage-backed  securities,  foreign  sovereign  debt,
corporate debt securities,  equity securities (including convertible securities)
and  Eurodollar  instruments  (whether or not they hold the above  securities in
their portfolios),  and on securities indices,  currencies and futures contracts
other  than  futures  on  individual   corporate  debt  and  individual   equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's  assets  would be required to be  segregated  to cover its  potential
obligations  under such put options other than those with respect to futures and
options  thereon.  In selling put options,  there is a risk that the Fund may be
required to buy the  underlying  security at a  disadvantageous  price above the
market price.

General Characteristics of Futures. The Fund may enter into futures contracts or
purchase  or sell  put and  call  options  on such  futures  as a hedge  against
anticipated  interest rate, currency or equity market changes,  and for duration
management,  risk  management  and  return  enhancement  purposes.  Futures  are
generally  bought and sold on the  commodities  exchanges  where they are listed
with payment of initial and variation  margin as described  below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to


                                       17
<PAGE>

the buyer the specific type of financial  instrument  called for in the contract
at a specific  future  time for a  specified  price (or,  with  respect to index
futures and  Eurodollar  instruments,  the net cash amount).  Options on futures
contracts  are  similar  to  options on  securities  except  that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.

The Fund's use of futures and options  thereon  will in all cases be  consistent
with  applicable  regulatory  requirements  and  in  particular  the  rules  and
regulations of the Commodity Futures Trading Commission and will be entered into
for bona fide hedging,  risk management (including duration management) or other
portfolio and return enhancement management purposes.  Typically,  maintaining a
futures  contract or selling an option thereon requires the Fund to deposit with
a financial  intermediary  as security for its  obligations an amount of cash or
other specified  assets (initial  margin) which initially is typically 1% to 10%
of the face amount of the  contract  (but may be higher in some  circumstances).
Additional  cash or assets  (variation  margin) may be required to be  deposited
thereafter  on a  daily  basis  as the  mark to  market  value  of the  contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option  without any further  obligation on the part of the Fund.
If the Fund  exercise an option on a futures  contract they will be obligated to
post  initial  margin  (and  potential  subsequent  variation  margin)  for  the
resulting  futures  position  just  as they  would  for  any  position.  Futures
contracts  and  options  thereon  are  generally  settled  by  entering  into an
offsetting  transaction  but there can be no assurance  that the position can be
offset prior to  settlement  at an  advantageous  price,  nor that delivery will
occur.

The Fund will not enter into a futures  contract or related  option  (except for
closing transactions) if, immediately  thereafter,  the sum of the amount of its
initial margin and premiums on open futures  contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value);  however,  in the
case of an  option  that  is  in-the-money  at the  time  of the  purchase,  the
in-the-money  amount may be  excluded  in  calculating  the 5%  limitation.  The
segregation  requirements  with respect to futures contracts and options thereon
are described below.

Options on Securities  Indices and Other  Financial  Indices.  The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through  the sale or  purchase  of options  on  individual  securities  or other
instruments.  Options on  securities  indices  and other  financial  indices are
similar to options on a security or other  instrument  except that,  rather than
settling by physical delivery of the underlying instrument,  they settle by cash
settlement,  i.e.,  an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds,  in the case of a call, or is less than,
in the case of a put, the exercise  price of the option  (except if, in the case
of an OTC option, physical delivery is specified).  This amount of cash is equal
to the excess of the closing  price of the index over the exercise  price of the
option,  which  also may be  multiplied  by a formula  value.  The seller of the
option is  obligated,  in return for the premium  received,  to make delivery of
this  amount.  The  gain or loss on an  option  on an  index  depends  on  price
movements in the instruments making up the market,  market segment,  industry or
other  composite  on which the  underlying  index is based,  rather  than  price
movements in  individual  securities,  as is the case with respect to options on
securities.


Currency  Transactions.  The Fund  may  engage  in  currency  transactions  with
Counterparties  primarily in order to hedge,  or manage the risk of the value of
portfolio holdings denominated in particular  currencies against fluctuations in
relative  value.  Currency  transactions  include  forward  currency  contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately  negotiated
obligation  to purchase or sell (with  delivery  generally  required) a specific
currency at a future  date,  which may be any fixed number of days from the date
of the contract  agreed upon by the  parties,  at a price set at the time of the
contract.  A currency  swap is an agreement to exchange  cash flows based on the
notional  difference  among two or more currencies and operates  similarly to an
interest rate swap,  which is described  below. The Fund may enter into currency
transactions with  Counterparties  which have received (or the guarantors of the
obligations  which  have  received)  a  credit  rating  of  A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency  options) are determined to be of equivalent  credit quality by
the Advisor.


                                       18
<PAGE>

The  Fund's   dealings  in  forward   currency   contracts  and  other  currency
transactions  such as futures,  options,  options on futures and swaps generally
will be limited to hedging  involving either specific  transactions or portfolio
positions  except as described  below.  Transaction  hedging is entering  into a
currency transaction with respect to specific assets or liabilities of the Fund,
which will  generally  arise in  connection  with the  purchase or sale of their
portfolio  securities or the receipt of income  therefrom.  Position  hedging is
entering  into  a  currency  transaction  with  respect  to  portfolio  security
positions denominated or generally quoted in that currency.

The Fund generally will not enter into a transaction to hedge currency  exposure
to an  extent  greater,  after  netting  all  transactions  intended  wholly  or
partially to offset other transactions,  than the aggregate market value (at the
time of entering into the  transaction)  of the securities held in its portfolio
that are denominated or generally  quoted in or currently  convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.

The Fund may also  cross-hedge  currencies  by  entering  into  transactions  to
purchase or sell one or more  currencies  that are  expected to decline in value
relative to other  currencies to which the Fund have or in which the Fund expect
to have portfolio exposure.


To reduce  the  effect of  currency  fluctuations  on the value of  existing  or
anticipated holdings of portfolio securities,  the Fund may also engage in proxy
hedging.  Proxy  hedging  is often  used when the  currency  to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging  entails  entering into a commitment or option to sell a currency  whose
changes in value are  generally  considered  to be  correlated  to a currency or
currencies in which some or all of the Fund's  portfolio  securities  are or are
expected to be  denominated,  in exchange  for U.S.  dollars.  The amount of the
commitment  or  option  would not  exceed  the  value of the  Fund's  securities
denominated in correlated currencies. For example, if the Advisor considers that
the Austrian schilling is correlated to the German  deutschemark (the "D-mark"),
the Fund holds  securities  denominated in schillings  and the Advisor  believes
that the value of schillings will decline against the U.S.  dollar,  the Advisor
may enter into a commitment or option to sell D-marks and buy dollars.  Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency  being hedged  fluctuates in value to a degree or in a direction
that  is  not  anticipated.  Further,  there  is the  risk  that  the  perceived
correlation  between various currencies may not be present or may not be present
during the particular  time that the Fund is engaging in proxy  hedging.  If the
Fund enters into a currency hedging  transaction,  the Fund will comply with the
asset segregation requirements described below.


Risks of  Currency  Transactions.  Currency  transactions  are  subject to risks
different from those of other portfolio  transactions.  Because currency control
is of great  importance  to the  issuing  governments  and  influences  economic
planning and policy, purchases and sales of currency and related instruments can
be  negatively  affected  by  government  exchange  controls,   blockages,   and
manipulations or exchange restrictions imposed by governments.  These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations  and could also cause hedges it has entered into to be
rendered  useless,  resulting  in full  currency  exposure as well as  incurring
transaction  costs.  Buyers and sellers of  currency  futures are subject to the
same risks that apply to the use of futures generally.  Further, settlement of a
currency  futures  contract for the purchase of most  currencies must occur at a
bank  based in the  issuing  nation.  Trading  options  on  currency  futures is
relatively  new,  and the ability to establish  and close out  positions on such
options is subject to the maintenance of a liquid market which may not always be
available.  Currency  exchange rates may fluctuate based on factors extrinsic to
that country's economy.


Combined Transactions. The Fund may enter into multiple transactions,  including
multiple options transactions,  multiple futures transactions, multiple currency
transactions  (including forward currency  contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions   ("component"   transactions),   instead  of  a  single  Strategic
Transaction,  as part of a single or combined  strategy  when, in the opinion of
the  Advisor,  it is in the best  interests  of the  Fund to do so.  A  combined
transaction  will usually  contain  elements of risk that are present in each of
its component transactions.  Although combined transactions are normally entered
into based on the Advisor's  judgment that the combined  strategies  will reduce
risk or otherwise  more  effectively  achieve the desired  portfolio  management


                                       19
<PAGE>

goal, it is possible that the  combination  will instead  increase such risks or
hinder achievement of the portfolio management objective.


Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter  are  interest  rate,  currency,  index  and other  swaps and the
purchase or sale of related caps, floors and collars.  The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment  or  portion  of  its   portfolio,   to  protect   against   currency
fluctuations,  as a duration  management  technique  or to protect  against  any
increase in the price of securities the Fund  anticipates  purchasing at a later
date.  The Fund will not sell interest rate caps or floors where they do not own
securities  or other  instruments  providing  the income  stream the Fund may be
obligated  to pay.  Interest  rate swaps  involve the  exchange by the Fund with
another party of their respective commitments to pay or receive interest,  e.g.,
an exchange of floating  rate payments for fixed rate payments with respect to a
notional  amount of principal.  A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them, and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference  indices.  The
purchase  of a cap  entitles  the  purchaser  to receive  payments on a notional
principal  amount from the party selling such cap to the extent that a specified
index exceeds a predetermined  interest rate or amount.  The purchase of a floor
entitles the purchaser to receive  payments on a notional  principal amount from
the party selling such floor to the extent that a specified  index falls below a
predetermined  interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a  predetermined  range of interest
rates or values.


The Fund will  usually  enter into swaps on a net basis,  i.e.,  the two payment
streams  are  netted  out in a cash  settlement  on the  payment  date or  dates
specified in the instrument,  with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter into  offsetting  positions) to cover their  obligations  under
swaps,  the Advisor and the Fund believes  such  obligations  do not  constitute
senior  securities under the 1940 Act and,  accordingly,  will not treat them as
being subject to their borrowing restrictions.  The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements,  is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent  credit  quality by the
Advisor.  If  there  is a  default  by  the  Counterparty,  the  Fund  may  have
contractual remedies pursuant to the agreements related to the transaction.  The
swap market has grown substantially in recent years with a large number of banks
and investment  banking firms acting both as principals and as agents  utilizing
standardized  swap  documentation.  As a  result,  the swap  market  has  become
relatively  liquid.  Caps,  floors and collars are more recent  innovations  for
which  standardized   documentation  has  not  yet  been  fully  developed  and,
accordingly, they are less liquid than swaps.


Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S.  dollar-denominated futures contracts or options
thereon  which are  linked  to the  London  Interbank  Offered  Rate  ("LIBOR"),
although  foreign  currency-denominated  instruments  are available from time to
time.  Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use  Eurodollar  futures  contracts  and options  thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.

Risks of Strategic  Transactions  outside the U.S.  When  conducted  outside the
U.S., Strategic  Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees,  and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities,  currencies and other instruments.  The value of such positions also
could be adversely affected by: (i) other complex foreign  political,  legal and
economic factors,  (ii) lesser availability than in the U.S. of data on which to
make trading decisions,  (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during  non-business hours in the U.S., (iv)
the  imposition of different  exercise and  settlement  terms and procedures and
margin  requirements  than  in the  U.S.,  and  (v)  lower  trading  volume  and
liquidity.

Use of Segregated and Other Special Accounts.  Many Strategic  Transactions,  in
addition to other  requirements,  require that the Fund segregate cash or liquid
assets with its  custodian  to the extent  Fund  obligations  are not  otherwise
"covered" through ownership of the underlying security,  financial instrument or


                                       20
<PAGE>

currency.  In general,  either the full amount of any  obligation by the Fund to
pay or  deliver  securities  or  assets  must be  covered  at all  times  by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory  restrictions,  an amount of cash or liquid  assets at least equal to
the current amount of the obligation must be segregated with the custodian.  The
segregated  assets cannot be sold or transferred  unless  equivalent  assets are
substituted in their place or it is no longer  necessary to segregate  them. For
example,  a call  option  written by the Fund will  require the Fund to hold the
securities  subject  to the  call (or  securities  convertible  into the  needed
securities  without  additional  consideration)  or to segregate  cash or liquid
assets  sufficient  to  purchase  and  deliver  the  securities  if the  call is
exercised.  A call option sold by the Fund on an index will  require the Fund to
own portfolio  securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise  price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.

Except when the Fund enters into a forward  contract for the purchase or sale of
a security denominated in a particular currency,  which requires no segregation,
a  currency  contract  which  obligates  the Fund to buy or sell  currency  will
generally  require the Fund to hold an amount of that  currency or liquid assets
denominated  in that currency  equal to the Fund's  obligations  or to segregate
cash or liquid assets equal to the amount of the Fund's obligation.

OTC options entered into by the Fund,  including those on securities,  currency,
financial  instruments  or  indices  and OCC issued and  exchange  listed  index
options, will generally provide for cash settlement.  As a result, when the Fund
sells  these  instruments  it will  only  segregate  an amount of cash or liquid
assets  equal to its accrued net  obligations,  as there is no  requirement  for
payment or delivery of amounts in excess of the net amount.  These  amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money  amount
plus any sell-back  formula amount in the case of a cash-settled put or call. In
addition,  when  the Fund  sells a call  option  on an index at a time  when the
in-the-money  amount exceeds the exercise price, the Fund will segregate,  until
the option expires or is closed out, cash or cash equivalents  equal in value to
such excess.  OCC issued and exchange listed options sold by the Fund other than
those above  generally  settle with  physical  delivery,  or with an election of
either  physical  delivery or cash  settlement  and the Fund will  segregate  an
amount of cash or  liquid  assets  equal to the full  value of the  option.  OTC
options  settling with physical  delivery or with an election of either physical
delivery or cash settlement  will be treated the same as other options  settling
with physical delivery.

In the case of a futures  contract or an option  thereon,  the Fund must deposit
initial  margin and possible daily  variation  margin in addition to segregating
cash or liquid assets sufficient to meet their obligation to purchase or provide
securities  or  currencies,  or to pay the amount owed at the  expiration  of an
index-based  futures  contract.  Such liquid  assets may  consist of cash,  cash
equivalents, liquid debt or equity securities or other acceptable assets.

With  respect to swaps,  the Fund will accrue the net amount of the  excess,  if
any, of their  obligations over its entitlements  with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess.  Caps,  floors and collars  require  segregation of
assets with a value equal to the Fund's net obligation, if any.


Strategic  Transactions  may be covered  by other  means  when  consistent  with
applicable  regulatory  policies.  The  Fund  may  also  enter  into  offsetting
transactions so that its combined position,  coupled with any segregated assets,
equals  its  net  outstanding   obligation  in  related  options  and  Strategic
Transactions.  For example,  the Fund could  purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund.  Moreover,  if the Fund held a futures  or  forward  contract,
instead of  segregating  cash or liquid assets it could purchase a put option on
the same futures or forward  contract with a strike price as high or higher than
the price of the contract held. Other Strategic  Transactions may also be offset
in  combinations.  If the  offsetting  transaction  terminates at the time of or
after the primary  transaction no segregation is required,  but if it terminates
prior to such time,  cash or liquid  assets  equal to any  remaining  obligation
would need to be segregated.


The Fund's  activities  involving  Strategic  Transactions may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company. (See "Taxes.")

                                       21
<PAGE>


Lending of  Portfolio  Securities.  The Fund may seek to increase  its income by
lending   portfolio   securities.   Such   loans  may  be  made  to   registered
broker/dealers  and are required to be secured  continuously  by  collateral  in
cash,  U.S.  Government  Securities  and  liquid  high  grade  debt  obligations
maintained  on a current  basis at an amount at least equal to the market  value
and accrued interest of the securities  loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice.  During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions  paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral.  As with other extensions of
credit  there  are  risks of  delay  in  recovery  and a loss of  rights  in the
collateral should the borrower of the securities fail financially.  However, the
loans will be made only to firms  deemed by the Advisor to be in good  standing.
The value of the securities loaned will not exceed 5% of the value of the Fund's
total assets at the time any loan is made.

Borrowing. The Fund may not borrow money, except as permitted under Federal law.
The Fund will borrow only when the Advisor  believes that borrowing will benefit
the Fund  after  taking  into  account  considerations  such as the costs of the
borrowing.  Borrowing  by the Fund will  involve  special  risk  considerations.
Although the principal of the Fund's borrowings will be fixed, the Fund's assets
may  change  in  value  during  the  time  that  a  borrowing  is   outstanding,
proportionately increasing exposure to capital risk.

When-Issued Securities.  The Fund may from time to time purchase equity and debt
securities on a "when-issued",  "delayed  delivery" or "forward delivery" basis.
The price of such securities, which may be expressed in yield terms, is fixed at
the time the  commitment  to purchase is made,  but delivery and payment for the
securities  takes place at a later date.  During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest accrues
to the Fund.

While  when-issued  or  forward  delivery  securities  may be sold  prior to the
settlement  date, the Fund intends to purchase such  securities with the purpose
of  actually  acquiring  them unless a sale  appears  desirable  for  investment
reasons.  At the time the Fund makes the  commitment to purchase a security on a
when-issued  or forward  delivery  basis,  it will  record the  transaction  and
reflect the value of the security in  determining  its net asset  value.  At the
time of  settlement,  the market value of the  when-issued  or forward  delivery
securities  may be more or less  than the  purchase  price.  The  Fund  does not
believe  that its net asset  value or income will be  adversely  affected by its
purchase of securities on a when-issued or forward delivery basis.

Investment of  Uninvested  Cash  Balances.  The Fund may have cash balances that
have not been invested in portfolio securities  ("Uninvested Cash").  Uninvested
Cash may result  from a variety of  sources,  including  dividends  or  interest
received from portfolio securities, unsettled securities transactions,  reserves
held for  investment  strategy  purposes,  scheduled  maturity  of  investments,
liquidation  of  investment  securities  to  meet  anticipated  redemptions  and
dividend payments, and new cash received from investors.  Uninvested Cash may be
invested  directly  in  money  market   instruments  or  other  short-term  debt
obligations.  Pursuant to an Exemptive Order issued by the SEC, the Fund may use
Uninvested  Cash to purchase  shares of affiliated  funds including money market
funds,  short-term bond funds and Scudder Cash Management  Investment  Trust, or
one or more future entities for which Zurich Scudder Investments acts as trustee
or investment  advisor that operate as cash management  investment  vehicles and
that are excluded from the definition of investment  company pursuant to section
3(c)(1) or 3(c)(7) of the 1940 Act (collectively, the "Central Funds") in excess
of the limitations of Section 12(d)(1) of the Investment Company Act. Investment
by the Fund in shares of the Central Funds will be in accordance with the Fund's
investment policies and restrictions as set forth in its registration statement.


Certain of the  Central  Funds  comply  with rule 2a-7 under the Act.  The other
Central Funds are or will be short-term  bond funds that invest in  fixed-income
securities  and maintain a dollar  weighted  average  maturity of three years or
less.  Each of the  Central  Funds will be managed  specifically  to  maintain a
highly liquid  portfolio,  and access to them will enhance the Fund's ability to
manage Uninvested Cash.

                                       22
<PAGE>

The Fund will invest  Uninvested  Cash in Central  Funds only to the extent that
the Fund's aggregate  investment in the Central Funds does not exceed 25% of its
total  assets in shares of the Central  Funds.  Purchase  and sales of shares of
Central Funds are made at net asset value.

DIVIDENDS, DISTRIBUTIONS AND TAXES

The Fund intends to follow the practice of distributing  all of their investment
company  taxable  income,  which includes any excess of net realized  short-term
capital gains over net realized  long-term  capital losses.  The Fund may follow
the practice of distributing the entire excess of net realized long-term capital
gains over net realized short-term capital losses.  However, the Fund may retain
all or part of such gain for  reinvestment  after  paying  the  related  federal
income  taxes  for which  the  shareholders  may then be asked to claim a credit
against their federal income tax liability. (See "Taxes" hereafter.)

If the Fund does not  distribute  the amount of  capital  gain  and/or  ordinary
income  required to be  distributed  by an excise tax provision of the Code, the
Fund may be subject to that  excise tax.  (See  "Taxes"  hereafter.)  In certain
circumstances, the Fund may determine that it is in the interest of shareholders
to distribute less than the required amount.

Earnings and profits  distributed to  shareholders on redemptions of Fund shares
may be utilized by the Fund,  to the extent  permissible,  as part of the Fund's
dividends paid deduction on its federal tax return.

The Fund intends to distribute its investment company taxable income and any net
realized  capital  gains in November or  December to avoid  federal  excise tax,
although an additional distribution may be made if necessary.

Both types of distributions will be made in Shares of the Fund and confirmations
will be mailed to each  shareholder  unless a shareholder has elected to receive
cash, in which case a check will be sent.  Distributions  of investment  company
taxable  income  and  net  realized  capital  gains  are  taxable  (See  "Taxes"
hereafter.), whether made in Shares or cash.

Each  distribution  is  accompanied  by a  brief  explanation  of the  form  and
character of the  distribution.  The  characterization  of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund  issues to each  shareholder  a  statement  of the
federal income tax status of all distributions in the prior calendar year.


Dividends  paid by the Fund with  respect to each  class of its  shares  will be
calculated  in the same manner,  at the same time and on the same day. The level
of income dividends per share (as a percentage of net asset value) will be lower
for Class B and Class C Shares than for Class A Shares  primarily as a result of
the distribution services fee applicable to Class B and Class C Shares.
Distributions  of capital gains, if any, will be paid in the same proportion for
each class.

Income and  capital  gain  dividends,  if any,  of the Fund will be  credited to
shareholder accounts in full and fractional shares of the same class of the Fund
at net asset value on the reinvestment  date,  except that, upon written request
to the Shareholder  Service Agent, a shareholder may select one of the following
options:

o    To  receive  income  and  short-term  capital  gain  dividends  in cash and
     long-term  capital gain  dividends in shares of the same class at net asset
     value; or

o    To receive income and capital gain dividends in cash.

Dividends  will be  reinvested  in Shares of the same  class of the Fund  unless
shareholders  indicate in writing  that they wish to receive  them in cash or in
shares of other Scudder Funds with multiple classes of shares or Kemper Funds as
provided in the prospectus.  See "Special Features -- Class A Shares -- Combined
Purchases"  for a list of such other Funds.  To use this  privilege of investing
dividends of the Fund in shares of another Scudder or Kemper Fund,  shareholders
must  maintain a minimum  account value of $1,000 in the Fund  distributing  the
dividends.  The Fund will  reinvest  dividend  checks (and future  dividends) in
shares of that same Fund and class if  checks  are  returned  as  undeliverable.


                                       23
<PAGE>

Dividends and other  distributions of the Fund in the aggregate amount of $10 or
less are  automatically  reinvested in shares of the Fund unless the shareholder
requests that such policy not be applied to the shareholder's account.


TAXES.  The Fund has  elected to be treated as a  regulated  investment  company
under  Subchapter M of the Code, or a  predecessor  statute and has qualified as
such since its  inception.  Such  qualification  does not  involve  governmental
supervision or management of investment practices or policy.

A regulated  investment  company  qualifying  under  Subchapter M of the Code is
required to distribute to its shareholders at least 90 percent of its investment
company taxable income (including net short-term  capital gain) and generally is
not subject to federal income tax to the extent that it distributes annually its
investment  company taxable income and net realized  capital gains in the manner
required under the Code.

If for any taxable year the Fund does not qualify for special federal income tax
treatment afforded  regulated  investment  companies,  all of its taxable income
will be subject to federal  income tax at regular  corporate  rates (without any
deduction for  distributions to its  shareholders).  In such an event,  dividend
distributions  would be  taxable  to  shareholders  to the  extent of the Fund's
earnings and profits, and would be eligible for the dividends received deduction
in the case of corporate shareholders.

The Fund is subject to a 4%  nondeductible  excise tax on amounts required to be
but not distributed under a prescribed formula.  The formula requires payment to
shareholders  during a calendar year of distributions  representing at least 98%
of the Fund's  ordinary income for the calendar year, at least 98% of the excess
of its capital gains over capital losses  (adjusted for certain ordinary losses)
realized  during the one-year period ending October 31 during such year, and all
ordinary  income and  capital  gains for prior  years  that were not  previously
distributed.

Investment  company taxable income  generally is made up of dividends,  interest
and net short-term capital gains in excess of net long-term capital losses, less
expenses.  Net realized  capital  gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently,  the Fund has
no capital loss carryforwards.

If any net realized long-term capital gains in excess of net realized short-term
capital  losses are  retained by the Fund for  reinvestment,  requiring  federal
income taxes to be paid thereon by the Fund,  the Fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term  capital gains,  will be
able to claim a proportionate  share of federal income taxes paid by the Fund on
such gains as a credit against the  shareholder's  federal income tax liability,
and will be entitled to increase  the  adjusted  tax basis of the  shareholder's
Fund shares by the difference  between such reported gains and the shareholder's
tax credit.

Distributions  of investment  company taxable income are taxable to shareholders
as ordinary income.

Dividends from domestic  corporations are not expected to comprise a substantial
part of the Fund's gross income.  If any such dividends  constitute a portion of
the Fund's gross income,  a portion of the income  distributions of the Fund may
be eligible  for the 70%  deduction  for  dividends  received  by  corporations.
Shareholders will be informed of the portion of dividends which so qualify.  The
dividends-received  deduction  is  reduced  to the extent the shares of the Fund
with respect to which the  dividends  are received are treated as  debt-financed
under  federal  income tax law and is  eliminated  if either those shares or the
shares of the Fund are deemed to have been held by the Fund or the shareholders,
as the case may be, for less than 46 days during the 90-day period  beginning 45
days before the shares become ex-dividend.

Properly  designated  distributions of the excess of net long-term  capital gain
over net  short-term  capital  loss are  taxable to  shareholders  as  long-term
capital gains, regardless of the length of time the shares of the Fund have been
held  by  such  shareholders.  Such  distributions  are  not  eligible  for  the
dividends-received  deduction.  Any loss realized upon the  redemption of shares
held at the time of  redemption  for six  months  or less will be  treated  as a


                                       24
<PAGE>

long-term  capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.

Distributions  of investment  company  taxable  income and net realized  capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders  electing to receive distributions in the form of additional Shares
will have a cost basis for federal income tax purposes in each Share so received
equal to the net asset value of a Share on the reinvestment date.

All distributions of investment  company taxable income and net realized capital
gain,  whether  received  in  shares  or in  cash,  must  be  reported  by  each
shareholder  on his or her  federal  income tax  return.  Dividends  declared in
October,  November or December with a record date in such a month will be deemed
to have been received by  shareholders on December 31, if paid during January of
the following  year.  Redemptions of shares,  including  exchanges for shares of
another  Scudder  Fund,  may  result in tax  consequences  (gain or loss) to the
shareholder and are also subject to these reporting requirements.


A qualifying  individual may make a deductible IRA  contribution for any taxable
year only if (i) neither the  individual  nor his or her spouse  (unless  filing
separate returns) is an active participant in an employer's  retirement plan, or
(ii) the individual (and his or her spouse, if applicable) has an adjusted gross
income below a certain level for 2001 ($53,000 for married  individuals filing a
joint  return,  with a phase-out  of the  deduction  for  adjusted  gross income
between $53,000 and $63,000;  $33,000 for a single individual,  with a phase-out
for adjusted gross income between $33,000 and $43,000).  However,  an individual
not permitted to make a deductible  contribution  to an IRA for any such taxable
year may nonetheless make nondeductible contributions up to $2,000 to an IRA (up
to $2,000  per  individual  for  married  couples  if only one spouse has earned
income) for that year.  There are special rules for  determining how withdrawals
are to be taxed if an IRA contains both deductible and nondeductible amounts. In
general,  a  proportionate  amount of each  withdrawal will be deemed to be made
from nondeductible  contributions;  amounts treated as a return of nondeductible
contributions will not be taxable.  Also, annual  contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no  earnings  (for IRA  contribution  purposes)  for the
year.

Distributions  by the Fund result in a  reduction  in the net asset value of the
Fund's  shares.  Should  a  distribution  reduce  the net  asset  value  below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above,  even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount  of the  forthcoming  distribution.  Those  purchasing  just  prior  to a
distribution   will  then   receive  a  partial   return  of  capital  upon  the
distribution, which will nevertheless be taxable to them.





In some cases,  shareholders  of the Fund will not be permitted to take all or a
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the  disposition of their shares.  This  prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder  subsequently acquires
shares in the Fund or another  regulated  investment  company and the  otherwise
applicable  sales charge is reduced under a  "reinvestment  right" received upon
the initial  purchase of Fund shares.  The term " reinvestment  right" means any
right to acquire shares of one or more regulated  investment  companies  without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges  affected by this rule are treated as if they were incurred with respect
to the shares  acquired  under the  reinvestment  right.  This  provision may be
applied to successive acquisitions of fund shares.

The Fund  intends  to  qualify  for and may make the  election  permitted  under
Section 853 of the Code so that  shareholders  may (subject to  limitations)  be
able to claim a credit or deduction on their federal income tax returns for, and


                                       25
<PAGE>

will be required to treat as part of the amounts  distributed to them, their pro
rata portion of  qualified  taxes paid by the Fund to foreign  countries  (which
taxes relate  primarily  to  investment  income).  The Fund may make an election
under  Section 853 of the Code,  provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign  corporations.  The foreign tax credit  available to  shareholders is
subject  to  certain  limitations  imposed  by the  Code,  except in the case of
certain electing individual  taxpayers who have limited creditable foreign taxes
and  no  foreign  source  income  other  than  passive  investment-type  income.
Furthermore,  the foreign tax credit is eliminated with respect to foreign taxes
withheld on  dividends if the  dividend-paying  shares or the shares of the Fund
are held by the Fund or the  shareholder,  as the case may be,  for less than 16
days (46 days in the case of preferred  shares) during the 30-day period (90-day
period for preferred  shares)  beginning 15 days (45 days for preferred  shares)
before the shares become ex-dividend.  In addition, if the Fund fails to satisfy
these  holding  period  requirements,  it cannot elect under Section 853 to pass
through to shareholders the ability to claim a deduction for the related foreign
taxes.

If the Fund does not make the election  permitted  under section 853 any foreign
taxes paid or accrued  will  represent  an expense to the Fund which will reduce
its investment company taxable income.  Absent this election,  shareholders will
not be able to claim  either a credit or a deduction  for their pro rata portion
of such taxes paid by the Fund,  nor will  shareholders  be required to treat as
part of the  amounts  distributed  to them their pro rata  portion of such taxes
paid.

Equity options  (including  covered call options written on portfolio stock) and
over-the-counter  options on debt  securities  written or  purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general,  no loss will
be  recognized  by the Fund upon  payment  of a premium in  connection  with the
purchase of a put or call option.  The character of any gain or loss  recognized
(i.e.  long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on the Fund's holding period for the option, and in the case
of the exercise of a put option, on the Fund's holding period for the underlying
property.  The purchase of a put option may  constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any stock in
the Fund's  portfolio  similar to the stocks on which the index is based. If the
Fund writes an option,  no gain is recognized upon its receipt of a premium.  If
the option  lapses or is closed out,  any gain or loss is treated as  short-term
capital gain or loss. If a call option is  exercised,  the character of the gain
or loss depends on the holding period of the underlying stock.

Positions of the Fund which consist of at least one stock and at least one stock
option or other position with respect to a related security which  substantially
diminishes  the Fund's risk of loss with  respect to such stock could be treated
as a "straddle"  which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stocks
or securities and conversion of short-term capital losses into long-term capital
losses.  An exception  to these  straddle  rules  exists for certain  "qualified
covered call options" on stock written by the Fund.

Many futures and forward contracts entered into by the Fund and listed nonequity
options written or purchased by the Fund (including  options on debt securities,
options on futures  contracts,  options on  securities  indices  and  options on
currencies), will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any  such  position  generally  will  be  treated  as 60%  long-term  and 40%
short-term,  and  on  the  last  trading  day of the  Fund's  fiscal  year,  all
outstanding Section 1256 positions will be marked to market (i.e., treated as if
such  positions  were closed out at their closing  price on such day),  with any
resulting  gain or loss  recognized as 60% long-term and 40%  short-term.  Under
Section 988 of the Code,  discussed  below,  foreign  currency gain or loss from
foreign  currency-related  forward  contracts,  certain  futures and options and
similar  financial  instruments  entered  into or  acquired  by the Fund will be
treated as ordinary income or loss.

Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss)
from a constructive  sale of certain  "appreciated  financial  positions" if the
Fund enters into a short sale,  offsetting notional principal contract,  futures
or forward  contract  transaction  with respect to the  appreciated  position or
substantially  identical  property.  Appreciated  financial positions subject to
this constructive sale treatment are interests  (including options,  futures and
forward  contracts  and short sales) in stock,  partnership  interests,  certain
actively  traded trust  instruments and certain debt  instruments.  Constructive
sale  treatment of  appreciated  financial  positions  does not apply to certain


                                       26
<PAGE>

transactions  closed in the  90-day  period  ending  with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.

Similarly,  if the  Fund  enters  into a short  sale of  property  that  becomes
substantially  worthless, the Fund will recognize gain at that time as though it
had closed the short sale.  Future  regulations  may apply similar  treatment to
other   transactions  with  respect  to  property  that  becomes   substantially
worthless.

Under the Code,  gains or losses  attributable to fluctuations in exchange rates
which  occur  between  the time  the Fund  accrues  receivables  or  liabilities
denominated in a foreign  currency and the time the Fund actually  collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss.  Similarly,  on disposition of debt  securities  denominated in a
foreign  currency and on  disposition  of certain  options,  futures and forward
contracts,  gains or losses attributable to fluctuations in the value of foreign
currency  between the date of  acquisition  of the  security or contract and the
date of  disposition  are also treated as ordinary gain or loss.  These gains or
losses,  referred  to under  the Code as  "Section  988"  gains or  losses,  may
increase or decrease the amount of the Fund's investment  company taxable income
to be distributed to its shareholders as ordinary income.

If the Fund invests in stock of certain foreign investment  companies,  the Fund
may be subject  to U.S.  federal  income  taxation  on a portion of any  "excess
distribution"  with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such  distribution or gain ratably to each
day of the Fund's  holding  period for the stock.  The  distribution  or gain so
allocated  to any taxable  year of the Fund,  other than the taxable year of the
excess  distribution or  disposition,  would be taxed to the Fund at the highest
ordinary  income  rate in effect  for such  year,  and the tax would be  further
increased by an interest  charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign  company's  stock. Any amount
of  distribution  or gain allocated to the taxable year of the  distribution  or
disposition  would be included in the Fund's  investment  company taxable income
and, accordingly,  would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.

The Fund may make an  election  to mark to market  its  shares of these  foreign
investment  companies in lieu of being subject to U.S.  federal income taxation.
At the end of each taxable year to which the  election  applies,  the Fund would
report as  ordinary  income  the  amount by which the fair  market  value of the
foreign  company's stock exceeds the Fund's adjusted basis in these shares;  any
mark-to-market losses and any loss from an actual disposition of shares would be
reported as ordinary loss to the extent of any net mark-to-market gains included
in income in prior years.  The effect of the  election  would be to treat excess
distributions  and gain on  dispositions as ordinary income which is not subject
to  a  fund  level  tax  when   distributed  to   shareholders  as  a  dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign  investment  companies
in lieu of being taxed in the manner described above.

If the Fund invests in certain high yield original  issue  discount  obligations
issued by corporations, a portion of the original issue discount accruing on the
obligation  may  be  eligible  for  the  deduction  for  dividends  received  by
corporations.  In such event,  dividends of investment  company  taxable  income
received from the Fund by its corporate shareholders, to the extent attributable
to such portion of accrued  original  issue  discount,  may be eligible for this
deduction for dividends received by corporations if so designated by the Fund in
a written notice to shareholders.

The Fund will be required to report to the IRS all  distributions  of investment
company  taxable  income and capital  gains as well as gross  proceeds  from the
redemption  or exchange  of Fund  shares,  except in the case of certain  exempt
shareholders.  Under the backup  withholding  provisions  of Section 3406 of the
Code,  distributions of investment  company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to  withholding  of federal income tax at the rate of 31%
in the case of  non-exempt  shareholders  who  fail to  furnish  the  investment
company  with  their   taxpayer   identification   numbers  and  with   required
certifications  regarding  their  status  under  the  federal  income  tax  law.
Withholding  may also be required if the Fund is notified by the IRS or a broker
that  the  taxpayer  identification  number  furnished  by  the  shareholder  is
incorrect or that the  shareholder  has previously  failed to report interest or
dividend  income.  If  the  withholding  provisions  are  applicable,  any  such
distributions  and  proceeds,  whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.

                                       27
<PAGE>

Shareholders   of  the  Fund  may  be  subject  to  state  and  local  taxes  on
distributions received from the Fund and on redemptions of the Fund's shares.

The foregoing  discussion of U.S.  federal  income tax law relates solely to the
application of that law to U.S.  persons,  i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund,  including the possibility that such a shareholder may be
subject to a U.S.  withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts  constituting  ordinary income received
by him or her, where such amounts are treated as income from U.S.  sources under
the Code.


Shareholders  should  consult their tax advisors  about the  application  of the
provisions of tax law described in this  statement of additional  information in
light of their particular tax situations.


PERFORMANCE


From time to time,  quotations  of the Fund's  performance  may be  included  in
advertisements,  sales  literature  or reports to  shareholders  or  prospective
investors.  Performance  information will be computed separately for each class.
Class  B and C  shares  are  newly  offered  and  therefore  have  no  available
performance information.

Performance figures for the period before a class existed (August 2, 1999 in the
case of Class A and  December  29, 2000 in the case of Class B andC  shares) are
derived from the historical  performance of Class S shares,  adjusted to reflect
the higher gross total annual operating expenses  applicable to Class A, B and C
shares.  The performance  figures are also adjusted to reflect the maximum sales
charge of 5.75% for Class A shares and the maximum current  contingent  deferred
sales  charge of 4% for Class B shares and 1% for Class C shares.  In  addition,
since Class A shares  (formerly,  Class R) were  offered  without a sales charge
from August 2, 1999 to December 29, 2000,  the  performance  of Class A for this
period has been adjusted to reflect the current sales charge applicable to Class
A shares.

The returns in the chart below assume reinvestment of distributions at net asset
value  and  represent  both  actual  past   performance   figures  and  adjusted
performance  figures  of the  Class A, B and C shares  of the Fund as  described
above;  they do not guarantee  future results.  Investment  return and principal
value will fluctuate so that an investor's shares,  when redeemed,  may be worth
more or less than their original cost.


Average Annual Total Return

Average  annual total return is the average  annual  compound rate of return for
the periods of one year,  five years and ten years (or such  shorter  periods as
may be applicable  dating from the commencement of the Fund's  operations),  all
ended on the last day of a recent calendar quarter.  Average annual total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains  distributions  during the  respective  periods were
reinvested  in Fund  shares.  Average  annual  total  return  is  calculated  by
computing  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:

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


                                       28
<PAGE>

                            period, of a hypothetical $1,000 investment made at
                            the beginning of the applicable period.

    Average Annual Total Returns for the Period Ended August 31, 2000 ^(1)(2)


                                             1 Year      5 Years      10 Years

Scudder International Fund -- Class A         9.88%       14.20%       10.64%
Scudder International Fund -- Class B        12.36%       14.42%       10.41%
Scudder International Fund -- Class C        15.86%       14.68%       10.44%



(1)  Because Class A (formerly, Class R) shares were not introduced until August
     2, 1999 and B and C shares were not introduced until December 29, 2000, the
     total  returns  for Class A, B and C shares for the  period  prior to their
     introduction  are based upon the performance of Class S shares as described
     above. In addition,  since Class A shares (formerly,  Class R) were offered
     without a sales  charge  from  August 2, 1999 to  December  29,  2000,  the
     performance  of Class A for this  period has been  adjusted  to reflect the
     current sales charge applicable to Class A shares.

(2)  As described  above,  average  annual  total return is based on  historical
     earnings and is not intended to indicate future performance. Average annual
     total  return  for the Fund or class  will vary  based on changes in market
     conditions and the level of the Fund's and class' expenses.

In connection with  communicating  its average annual total return to current or
prospective  shareholders,  the  Fund  also may  compare  these  figures  to the
performance  of other mutual funds tracked by mutual fund rating  services or to
unmanaged  indices which may assume  reinvestment  of dividends but generally do
not reflect deductions for administrative and management costs.

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 the Fund's shares and assume that all
dividends and capital gains  distributions  during the period were reinvested in
Fund shares.  Cumulative  total return is calculated by computing 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 of a hypothetical
                           $1,000 investment made at the beginning of the
                           applicable period.

       Cumulative Total Returns for the Period Ended August 31, 2000 ^(1)

                                             1 Year      5 Years      10 Years

Scudder International Fund -- Class A         9.88%       94.26%        174.83%
Scudder International Fund -- Class B        12.36%       96.13%        169.28%
Scudder International Fund -- Class C        15.86%       98.35%        169.95%



(1)  Because Class A (formerly, Class R) shares were not introduced until August
     2, 1999 and B and C shares were not introduced until December 29, 2000, the
     total  returns  for Class A, B and C shares for the  period  prior to their
     introduction  are based upon the performance of Class S shares as described
     above. In addition,  since Class A shares (formerly,  Class R) were offered
     without a sales  charge  from  August 2, 1999 to  December  29,  2000,  the
     performance  of Class A for this  period has been  adjusted  to reflect the

                                       29
<PAGE>

     current sales charge applicable to Class A shares.


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.

From  time  to  time,  in  advertisements,  sales  literature,  and  reports  to
shareholders  or prospective  investors,  figures  relating to the growth in the
total net assets of the Fund apart from capital  appreciation  will be cited, as
an update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital  appreciation  generally will be covered
by marketing literature as part of the Fund's and classes' performance data.


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




Comparison of Fund Performance

A  comparison  of  the  quoted  non-standard  performance  offered  for  various
investments is valid only if performance is calculated in the same manner. Since
there  are  different  methods  of  calculating  performance,  investors  should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.

In connection  with  communicating  its  performance  to current or  prospective
shareholders,  the Fund also may compare  these  figures to the  performance  of
unmanaged  indices  which may assume  reinvestment  of dividends or interest but
generally do not reflect deductions for administrative and management costs.

Historical  information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Fund. Such historical
information  is not indicative of future  fluctuations  in the value of the U.S.
dollar  against  these  currencies.  In addition,  marketing  materials may cite
country and economic  statistics and historical stock market performance for any
of the countries in which the Fund invests.

From  time  to  time,  in  advertising  and  marketing  literature,  the  Fund's
performance  may be compared to the  performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.


From time to time, in marketing and other Fund literature,  members of the Board
and  officers  of the Fund,  the  Fund's  portfolio  manager,  or members of the
portfolio  management  team may be depicted and quoted to give  prospective  and
current  shareholders  a better  sense of the outlook and  approach of those who
manage the Fund.  In  addition,  the amount of assets that the Advisor has under
management  in  various  geographical  areas may be quoted  in  advertising  and
marketing materials.


Marketing and other Fund  literature  may include a description of the potential
risks and rewards associated with an investment in the Fund. The description may
include a "risk/return  spectrum" which compares the Fund to other Scudder funds
or broad  categories of funds,  such as money market,  bond or equity funds,  in
terms of  potential  risks and  returns.  Money  market  funds are  designed  to
maintain a constant $1.00 share price and have a fluctuating yield. Share price,
yield and total return of a bond fund will fluctuate. The share price and return
of an equity fund also will fluctuate. The description may also compare the Fund
to  bank  products,  such as  certificates  of  deposit.  Unlike  mutual  funds,
certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.

                                       30
<PAGE>

Because bank products  guarantee the principal  value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than  investments  in either bond or equity funds,  which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an  investment as prices  increase over a long time period.  The
risks/returns  associated with an investment in bond or equity funds depend upon
many factors.  For bond funds these factors  include,  but are not limited to, a
fund's overall  investment  objective,  the average portfolio  maturity,  credit
quality of the securities  held and interest rate  movements.  For equity funds,
factors  include  a fund's  overall  investment  objective,  the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns  associated  with an  investment in  international  bond or equity
funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential  for less return  than  longer-term  bond  funds.  The same is true of
domestic bond funds relative to  international  bond funds,  and bond funds that
purchase  higher quality  securities  relative to bond funds that purchase lower
quality securities.  Growth and income equity funds are generally  considered to
be less risky and offer the  potential  for less return than  growth  funds.  In
addition,  international  equity funds  usually are  considered  more risky than
domestic equity funds but generally offer the potential for greater return.

Evaluation of Fund performance or other relevant statistical information made by
independent  sources  may also be used in  advertisements  concerning  the Fund,
including  reprints of, or selections  from,  editorials  or articles  about the
Fund.

INVESTMENT MANAGER AND UNDERWRITER


Investment Manager.  Zurich Scudder Investments,  Inc., Two International Place,
Boston, Massachusetts, an investment counsel firm, acts as investment advisor to
the Fund.  This  organization,  the  predecessor of which is Scudder,  Stevens &
Clark, Inc., ("Scudder") is one of the most experienced investment counsel firms
in the U.S.  It was  established  as a  partnership  in 1919 and  pioneered  the
practice of providing  investment  counsel to individual clients on a fee basis.
In 1928 it introduced the first no-load  mutual fund to the public.  In 1953 the
Advisor  introduced  Scudder  International  Fund,  Inc.,  the first mutual fund
available in the U.S.  investing  internationally  in  securities  of issuers in
several foreign  countries.  The predecessor firm reorganized from a partnership
to a  corporation  on June 28, 1985. On June 26, 1997,  Scudder  entered into an
agreement with Zurich Insurance Company ("Zurich") pursuant to which Scudder and
Zurich  agreed to form an  alliance.  On December 31,  1997,  Zurich  acquired a
majority  interest in Scudder,  and Zurich  Kemper  Investments,  Inc., a Zurich
subsidiary, became part of Scudder. Scudder's name was changed to Scudder Kemper
Investments,  Inc. On September 7, 1998,  the  businesses  of Zurich  (including
Zurich's 70% interest in the Advisor) and the financial  services  businesses of
B.A.T Industries  p.l.c.  ("B.A.T") were combined to form a new global insurance
and financial  services company known as Zurich Financial Services Group. By way
of a dual holding company structure,  former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former  B.A.T  shareholders.  On October  17,  2000,  the dual  holding
company structure of Zurich Financial Services Group, comprised of Allied Zurich
p.l.c. in the United Kingdom and Zurich Allied A.G. in Switzerland,  was unified
into a single Swiss holding  company,  Zurich  Financial  Services.  The Advisor
changed  its name from  Scudder  Kemper  Investments,  Inc.  to  Zurich  Scudder
Investments,  Inc. The Advisor manages the Fund's daily  investment and business
affairs  subject  to the  policies  established  by the  Corporation's  Board of
Directors.  The Directors have overall  responsibility for the management of the
Fund under Massachusetts law.


Founded in 1872, Zurich is a multinational,  public corporation  organized under
the laws of  Switzerland.  Its home  office is  located  at  Mythenquai  2, 8002
Zurich,  Switzerland.  Historically,  Zurich's  earnings  have resulted from its
operations as an insurer as well as from its ownership of its  subsidiaries  and
affiliated  companies  (the  "Zurich  Insurance  Group").  Zurich and the Zurich
Insurance  Group provide an extensive  range of insurance  products and services
and have branch offices and  subsidiaries  in more than 40 countries  throughout
the world.

                                       31
<PAGE>


Pursuant to an investment  management  agreement with the Fund, the Advisor acts
as the  Fund's  investmentadvisor,  manages  its  investments,  administers  its
business affairs,  furnishes office facilities and equipment,  provides clerical
and  administrative  services  and permits any of its  officers or  employees to
serve  without  compensation  as  trustees or officers of the Fund if elected to
such positions.

The principal source of the Advisor's income is professional  fees received from
providing  continuous  investment  advice,  and the firm  derives no income from
brokerage or underwriting of securities.  Today it provides  investment  counsel
for many individuals and institutions, including insurance companies, industrial
corporations,  and  financial  and banking  organizations,  as well as providing
investment advice to over 280 open and closed-end mutual funds.

The Advisor  maintains a large research  department,  which conducts  continuous
studies of the factors that affect the position of various industries, companies
and  individual   securities.   The  Advisor  receives   published  reports  and
statistical  compilations  from issuers and other  sources,  as well as analyses
from  brokers  and  dealers  who  may  execute  portfolio  transactions  for the
Advisor's clients. However, the Advisor regards this information and material as
an  adjunct  to  its  own  research  activities.   The  Advisor's  international
investment  management team travels the world researching hundreds of companies.
In  selecting  securities  in which the Fund may  invest,  the  conclusions  and
investment decisions of the Advisor with respect to the Fund are based primarily
on the analyses of its own research department.

Certain  investments  may be appropriate for the Fund and also for other clients
advised by the Advisor.  Investment decisions for the Fund and other clients are
made with a view to achieving their respective  investment  objectives and after
consideration  of such factors as their current  holdings,  availability of cash
for  investment  and the  size of their  investments  generally.  Frequently,  a
particular  security  may be bought or sold for only one client or in  different
amounts  and at  different  times for more  than one but less than all  clients.
Likewise,  a particular  security may be bought for one or more clients when one
or more other clients are selling the security. In addition,  purchases or sales
of the same  security  may be made for two or more  clients on the same day.  In
such event,  such  transactions  will be allocated among the clients in a manner
believed by the Advisor to be equitable to each. In some cases,  this  procedure
could have an adverse effect on the price or amount of the securities  purchased
or sold by the Fund.  Purchase and sale orders for the Fund may be combined with
those of other  clients of the  Advisor in the  interest of  achieving  the most
favorable net results to the Fund.

In  certain  cases,  the  investments  for the  fund  are  managed  by the  same
individuals  who manage one or more other mutual  funds  advised by the Advisor,
that have similar names,  objectives and investment  styles. You should be aware
that the Funds are likely to differ from these other mutual funds in size,  cash
flow pattern and tax matters.  Accordingly,  the holdings and performance of the
Funds can be expected to vary from those of these other mutual funds.

Upon  consummation  of the  transaction  between  Zurich and  B.A.T,  the Fund's
existing investment management agreement with Scudder Kemper were deemed to have
been assigned and,  therefore,  terminated.  The Board approved a new investment
management agreement with Scudder Kemper,  which was substantially  identical to
the prior investment management agreement,  except for the date of execution and
termination.  The  agreement  became  effective  September  7,  1998,  upon  the
termination of the then current investment management agreement and was approved
at a shareholder meeting held on December 15, 1998.

An Amended and Restated  investment  management  agreement (the "Agreement") was
most  recently  approved by the  Directors on July 10, 2000 and at a shareholder
meeting  held on July 13,  2000 and became  effective  on August 14,  2000.  The
Agreement will continue in effect until from year to year thereafter only if its
continuance  is approved  annually by the vote of a majority of those  Directors
who are not parties to such  Agreement or  interested  persons of the Advisor or
the Fund,  cast in person at a meeting  called for the purpose of voting on such
approval,  and either by a vote of the Corporation's  Directors or of a majority
of  the  outstanding  voting  securities  of  the  Fund.  The  Agreement  may be
terminated at any time without payment of penalty by either party on sixty days'
written notice and automatically terminates in the event of its assignment.

                                       32
<PAGE>

Under the Agreement,  the Advisor  regularly  provides the Fund with  continuing
investment  management  for the  Fund's  portfolio  consistent  with the  Fund's
investment  objective,  policies and restrictions and determines what securities
shall be purchased,  held or sold and what portion of the Fund's assets shall be
held uninvested, subject to the Corporation's Declaration of Trust, By-Laws, the
1940  Act,  the  Code  and to the  Fund's  investment  objective,  policies  and
restrictions,  and subject,  further,  to such policies and  instructions as the
Board of  Directors  of the  Corporation  may from time to time  establish.  The
Advisor also advises and assists the officers of the  Corporation in taking such
steps  as are  necessary  or  appropriate  to  carry  out the  decisions  of its
Directors and the appropriate  committees of the Directors regarding the conduct
of the business of the Fund.

Under the Agreement,  the Advisor renders  significant  administrative  services
(not otherwise provided by third parties) necessary for the Fund's operations as
an open-end investment company including,  but not limited to, preparing reports
and  notices  to  the  Directors  and  shareholders;   supervising,  negotiating
contractual  arrangements  with,  and  monitoring  various  third-party  service
providers  to the Fund  (such as the  Fund's  transfer  agent,  pricing  agents,
Custodian,  accountants  and others);  preparing and making filings with the SEC
and other  regulatory  agencies;  assisting in the preparation and filing of the
Fund's  federal,  state and local tax returns;  preparing  and filing the Fund's
federal  excise tax  returns;  assisting  with  investor  and  public  relations
matters; monitoring the valuation of securities and the calculation of net asset
value;  monitoring  the  registration  of  shares of the Fund  under  applicable
federal and state securities  laws;  maintaining the Fund's books and records to
the extent not otherwise maintained by a third party;  assisting in establishing
accounting  policies of the Fund;  assisting in the resolution of accounting and
legal  issues;   establishing  and  monitoring  the  Fund's  operating   budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging  for,  the  payment of  distributions  and  dividends;  and  otherwise
assisting the Fund in the conduct of its business,  subject to the direction and
control of the Directors.

The Advisor pays the  compensation  and expenses of all Directors,  officers and
executive  employees  (except  expenses  incurred  attending Board and committee
meetings  outside  New  York,  New  York;  Boston,  Massachusetts  and  Chicago,
Illinois) of the Fund affiliated with the Advisor and makes  available,  without
expense  to the  Corporation,  the  services  of such  Directors,  officers  and
employees  of the Advisor as may duly be elected  officers or  Directors  of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law, and provides the Fund's office space and facilities.


For these  services as of August 14, 2000,  the management fee payable under the
Agreement  is equal to an  annual  rate of 0.675%  on the  first $6  billion  of
average daily net assets,  0.625% on the next $1 billion of such net assets, and
0.600% of such net assets in excess of $7 billion,  computed  and accrued  daily
and payable monthly.


Under the  Agreement  between the Fund and the Advisor,  effective  September 7,
1998 until August 14, 2000,  the  management fee payable under the Agreement was
equal to an annual  rate of  approximately  0.90% of the first  $500,000,000  of
average  daily net assets,  0.85% of the next  $500,000,000  of such net assets,
0.80%  of the  next  $1,000,000,000  of  such  net  assets,  0.75%  of the  next
$1,000,000,000  of such net  assets,  and 0.70% of such net  assets in excess of
$3,000,000,000, computed and accrued daily and payable monthly.

Accordingly,  for the year ended August 31, 2000, the  investment  advisory fees
amounted to  $36,335,757,  which was  equivalent to an annual  effective rate of
0.76% of the Fund's  average daily net assets.  For the five months ended August
31, 1999, the net investment advisory fees were $11,269,103.  The net investment
advisory fees for the fiscal year ended March 31, 1999 and 1998 were $23,819,941
and $22,491,681, respectively.

Under  the  Agreement  the Fund is  responsible  for all of its  other  expenses
including:  organizational  costs, fees and expenses incurred in connection with
membership in investment company  organizations;  brokers'  commissions;  legal,
auditing and  accounting  expenses;  taxes and  governmental  fees; the fees and
expenses of the Transfer Agent; any other expenses of issue, sale, underwriting,
distribution,  redemption or repurchase of shares;  the expenses of and the fees
for  registering  or qualifying  securities  for sale;  the fees and expenses of
Directors,  officers and employees of the Fund who are not  affiliated  with the
Advisor;   the  cost  of  printing  and  distributing  reports  and  notices  to
stockholders; and the fees and disbursements of custodians. The Fund may arrange
to have third parties  assume all or part of the expenses of sale,  underwriting
and  distribution  of shares of the Fund. The Fund is also  responsible  for its
expenses of  shareholders'  meetings,  the cost of responding  to  shareholders'


                                       33
<PAGE>

inquiries, and its expenses incurred in connection with litigation,  proceedings
and claims and the legal  obligation  it may have to indemnify  its officers and
Directors of the Fund with respect thereto.

The Agreement  identifies the Advisor as the exclusive licensee of the rights to
use and sublicense the names "Scudder," "Scudder Kemper  Investments,  Inc." and
"Scudder,  Stevens and Clark, Inc." (together,  the "Scudder Marks"). Under this
license, the Corporation,  with respect to the Fund, has the non-exclusive right
to use and sublicense the Scudder name and marks as part of its name, and to use
the Scudder Marks in the Corporation's investment products and services.

In reviewing  the terms of the  Agreement  and in  discussions  with the Advisor
concerning  such  Agreement,  the  Directors  of the  Corporation  who  are  not
"interested  persons" of the Advisor are  represented by independent  counsel at
the Fund's expense.

The  Agreement  provides  that the Advisor  shall not be liable for any error of
judgment or mistake of law or for any loss  suffered  by the Fund in  connection
with  matters  to which the  Agreement  relates,  except a loss  resulting  from
willful misfeasance, bad faith or gross negligence on the part of the Advisor in
the  performance of its duties or from reckless  disregard by the Advisor of its
obligations and duties under the Agreement.

Officers and  employees  of the Advisor from time to time may have  transactions
with various  banks,  including the Fund's  custodian  bank. It is the Advisor's
opinion that the terms and conditions of those  transactions which have occurred
were  not   influenced  by  existing  or  potential   custodial  or  other  Fund
relationships.

The Advisor may serve as advisor to other funds with  investment  objectives and
policies  similar  to  those of the Fund  that may have  different  distribution
arrangements or expenses, which may affect performance.


None of the officers or Directors of the  Corporation may have dealings with the
Fund as principals in the purchase or sale of  securities,  except as individual
subscribers to or holders of Shares of the Fund.


The term Scudder  Investments is the designation  given to the services provided
by Zurich Scudder Investments,  Inc. and its affiliates to the Scudder Family of
Funds.


AMA InvestmentLink(SM) Program


Pursuant  to an  Agreement  between  the  Advisor  and AMA  Solutions,  Inc.,  a
subsidiary of the American Medical  Association (the "AMA"),  dated May 9, 1997,
the Advisor has agreed,  subject to  applicable  state  regulations,  to pay AMA
Solutions,  Inc.  royalties  in an  amount  equal  to 5% of the  management  fee
received  by the  Advisor  with  respect to assets  invested  by AMA  members in
Scudder funds in connection with the AMA  InvestmentLinkSM  Program. The Advisor
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833.  The AMA and AMA  Solutions,  Inc.  are not engaged in the  business of
providing  investment advice and neither is registered as an investment  advisor
or broker/dealer  under federal  securities laws. Any person who participates in
the AMA  InvestmentLinkSM  Program  will be a customer  of the  Advisor (or of a
subsidiary thereof) and not the AMA or AMA Solutions,  Inc. AMA InvestmentLinkSM
is a service mark of AMA Solutions, Inc.


Code of Ethics


The Fund,  the Advisor and  principal  underwriter  have each  adopted  codes of
ethics under rule 17j-1 of the Investment  Company Act. Board members,  officers
of the  Corporation  and employees of the Advisor and principal  underwriter are
permitted to make personal securities  transactions,  including  transactions in
securities  that may be purchased or held by the Fund,  subject to  requirements
and restrictions set forth in the applicable Code of Ethics.  The Advisor's Code
of Ethics contains provisions and requirements  designed to identify and address
certain  conflicts of interest  between personal  investment  activities and the
interests  of the  Fund.  Among  other  things,  the  Advisor's  Code of  Ethics
prohibits  certain types of  transactions  absent prior  approval,  imposes time


                                       34
<PAGE>

periods  during  which  personal   transactions  may  not  be  made  in  certain
securities,  and requires the submission of duplicate broker  confirmations  and
quarterly 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
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.

Principal  Underwriter.  Pursuant  to  separate  underwriting  and  distribution
services  agreements  ("distribution  agreements"),  Kemper  Distributors,  Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of the
Advisor,  is the principal  underwriter and distributor for the Class A, B and C
shares of the Fund and acts as agent of the Fund in the  continuous  offering of
its Shares.  KDI bears all of its expenses of providing services pursuant to the
distribution agreement,  including the payment of any commissions. The Fund pays
the  cost  for the  prospectus  and  shareholder  reports  to be set in type and
printed for existing shareholders,  and KDI, as principal underwriter,  pays for
the printing and  distribution  of copies  thereof used in  connection  with the
offering of Shares to  prospective  investors.  KDI also pays for  supplementary
sales literature and advertising costs.


The distribution agreement continues in effect from year to year so long as such
continuance  is approved for each class at least annually by a vote of the Board
of Directors of the Fund, including the Directors who are not interested persons
of the  Fund  and who have no  direct  or  indirect  financial  interest  in the
agreement. The agreement automatically terminates in the event of its assignment
and may be terminated for a class at any time without  penalty by the Fund or by
KDI upon 60 days' notice. Termination by the Fund with respect to a class may be
by vote of a majority of the Board of Directors  or a majority of the  Directors
who are not  interested  persons of the Fund and who have no direct or  indirect
financial  interest  in  the  distribution  agreement  or  a  "majority  of  the
outstanding  voting  securities"  of the class of the Fund, as defined under the
1940 Act. The distribution  agreement may not be amended for a class to increase
the fee to be paid by the Fund with respect to such class without  approval by a
majority of the outstanding voting securities of such class of the Fund, and all
material  amendments  must in any event be approved by the Board of Directors in
the manner  described above with respect to the continuation of the distribution
agreement.

Class B Shares and Class C Shares.  The Fund has adopted a plan under Rule 12b-1
(the "Rule 12b-1  Plan")  that  provides  for fees  payable as an expense of the
Class B shares and Class C shares  that are used by KDI to pay for  distribution
and services for those  classes.  Because 12b-1 fees are paid out of fund assets
on an ongoing basis they will, over time, increase the cost of an investment and
cost more than other types of sales charges.

Rule 12b-1 Plan. Since the distribution  agreement  provides for fees payable as
an expense of the Class B shares and the Class C shares  that are used by KDI to
pay for distribution  services for those classes, that agreement is approved and
reviewed  separately for the Class B shares and the Class C shares in accordance
with Rule  12b-1  under the 1940 Act,  which  regulates  the  manner in which an
investment   company  may,   directly  or  indirectly,   bear  the  expenses  of
distributing its shares.


If a Rule 12b-1 Plan (the "Plan") is terminated  in  accordance  with its terms,
the  obligation  of the Fund to make  payments to KDI  pursuant to the Plan will
cease  and  the  Fund  will  not be  required  to make  any  payments  past  the
termination  date.  Thus,  there is no legal  obligation for the Fund to pay any
expenses  incurred by KDI in excess of its fees under a Plan,  if for any reason
the Plan is terminated in accordance with its terms.  Future fees under the Plan
may or may not be sufficient to reimburse KDI for its expenses incurred.

For its services under the distribution  agreement,  KDI receives a fee from the
Fund,  payable monthly,  at the annual rate of 0.75% of average daily net assets
of the Fund  attributable  to Class B shares.  This fee is  accrued  daily as an
expense of Class B shares.  KDI also  receives  any  contingent  deferred  sales
charges.  KDI  currently  compensates  firms  for  sales of Class B shares  at a
commission rate of 3.75%.

For its services under the distribution  agreement,  KDI receives a fee from the
Fund,  payable monthly,  at the annual rate of 0.75% of average daily net assets
of the Fund  attributable  to Class C shares.  This fee is  accrued  daily as an
expense  of Class C shares.  KDI  currently  advances  to firms  the first  year
distribution fee at a rate of 0.75% of the purchase price of Class C shares. For
periods  after the first  year,  KDI  currently  pays firms for sales of Class C
shares a distribution fee, payable quarterly,  at an annual rate of 0.75% of net
assets  attributable  to Class C shares  maintained and serviced by the firm and


                                       35
<PAGE>

the fee continues  until  terminated  by KDI or the Fund.  KDI also receives any
contingent deferred sales charges.

Administrative  Fee.  The  Fund  has  entered  into an  administrative  services
agreement with the Advisor (the "Administration  Agreement"),  pursuant to which
the  Advisor  will  provide or pay others to  provide  substantially  all of the
administrative  services  required by the Fund (other than those provided by the
Advisor under its investment  management  agreements with the Fund, as described
above) in exchange for the payment by the Fund of an administrative services fee
(the "Administrative Fee") of 0.40% for Class A, 0.45% for Class B and 0.43% for
Class C. One effect of this  arrangement is to make the future expense ratio for
each class more predictable.

Various third party service providers (the "Service  Providers"),  some of which
are affiliated with the Advisor,  provide certain  services to the Fund pursuant
to separate  agreements with the Fund.  Scudder Fund Accounting  Corporation,  a
subsidiary  of the Advisor,  computes net asset value for the Fund and maintains
their  accounting  records.  PricewaterhouseCoopers  LLP  audits  the  financial
statements  of the Fund and  provides  other audit,  tax, and related  services.
Dechert acts as general counsel for the Fund.

The Advisor will pay the Service  Providers for the provision of their  services
to the Fund and will pay other fund expenses, including insurance, registration,
printing  and  postage  fees.  In  return,  the  Fund  will pay the  Advisor  an
Administrative Fee.

Each  Administration  Agreement  has an initial term of three years,  subject to
earlier  termination  by the Fund's  Board.  The fee  payable by the Fund to the
Advisor pursuant to the Administration Agreement is reduced by the amount of any
credit received from the Fund's custodian for cash balances.

Certain  expenses  of the  Fund  will  not be borne  by the  Advisor  under  the
Administration Agreement,  such as taxes, brokerage,  interest and extraordinary
expenses;  and the fees and expenses of the Independent Directors (including the
fees and expenses of their  independent  counsel).  In  addition,  the Fund will
continue to pay the fees required by its  investment  management  agreement with
the  Advisor.  For the period  August 14,  2000  through  August 31,  2000,  the
Administrative  Agreement expense charged to the Fund amounted to $921,739,  all
of which was unpaid at August 31, 2000.


Administrative  Services.  Administrative  services  are provided to the Fund on
behalf  of  Class  A, B and C  shareholders  under  an  administrative  services
agreement  ("administrative  agreement") with KDI. KDI bears all its expenses of
providing services pursuant to the administrative  agreement between KDI and the
Fund, including the payment of service fees. The Fund pays KDI an administrative
services fee, payable monthly,  at an annual rate of up to 0.25% for Class A and
1.00% for Class B and Class C of the average daily net assets of each class.

KDI enters into related arrangements with various  broker-dealer firms and other
service or  administrative  firms ("firms") that provide services and facilities
for their  customers or clients who are investors in the Fund. The firms provide
such office  space and  equipment,  telephone  facilities  and  personnel  as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include,  but are not limited to,  establishing
and  maintaining  accounts  and  records,  processing  purchase  and  redemption
transactions,  answering  routine  inquiries  regarding the Fund,  assistance to
clients in changing dividend and investment  options,  account  designations and
addresses and such other administrative services as may be agreed upon from time
to time and permitted by applicable statute, rule or regulation. With respect to
Class A  Shares,  KDI pays each firm a service  fee,  payable  quarterly,  at an
annual rate of up to 0.25% of the net assets in Fund  accounts that it maintains
and services  attributable  to Class A Shares,  commencing  with the month after
investment.  With respect to Class B and Class C Shares,  KDI currently advances
to firms the  first-year  service  fee at a rate of up to 0.25% of the  purchase
price of such Shares. For periods after the first year, KDI currently intends to
pay firms a service  fee at a rate of up to 0.25%  (calculated  monthly and paid
quarterly)  of the  net  assets  attributable  to  Class B and  Class  C  Shares
maintained  and  serviced  by the firm.  After the first  year,  a firm  becomes
eligible for the quarterly service fee and the fee continues until terminated by
KDI or the Fund.  Firms to which service fees may be paid include  affiliates of
KDI. In addition KDI may, from time to time,  from its own resources pay certain


                                       36
<PAGE>

firms  additional  amounts for ongoing  administrative  services and  assistance
provided to their customers and clients who are shareholders of the Fund.

KDI also may provide  some of the above  services  and may retain any portion of
the fee  under  the  administrative  agreement  not paid to firms to  compensate
itself for  administrative  functions  performed  for the Fund.  Currently,  the
administrative services fee payable to KDI is payable at an annual rate of 0.25%
based upon Fund  assets in  accounts  for which a firm  provides  administrative
services  and at the annual rate of 0.15% based upon Fund assets in accounts for
which there is no firm of record (other than KDI) listed on the Fund's  records.
The effective  administrative services fee rate to be charged against all assets
of the Fund while this procedure is in effect will depend upon the proportion of
Fund  assets  that  is  in  accounts  for  which  a  firm  of  record   provides
administrative  services. The Board of Directors of the Fund, in its discretion,
may approve basing the fee to KDI at the annual rate of 0.25% on all Fund assets
in the future


Certain  trustees or officers of the Fund are also  directors or officers of the
Advisor or KDI, as indicated under "Officers and Directors."

Fund  Accounting  Agent.  Scudder  Fund  Accounting  Corporation  ("SFAC"),  Two
International  Place,  Boston,  Massachusetts,  a  subsidiary  of  the  Advisor,
computes  net  asset  value  for the Fund.  Prior to the  implementation  of the
Administration  Agreement,  the Fund paid SFAC an annual  fee equal to 0.065% of
the first $150  million of average  daily net  assets,  0.040% of such assets in
excess of $150  million,  0.020% of such  assets in excess of $1  billion,  plus
holding and  transaction  charges for this  service.  For the fiscal years ended
March 31, 1998 and 1999,  SFAC charged the Fund  aggregate  fees of $838,885 and
$893,682,  respectively, and $402,576 for the five months ended August 31, 1999.
Prior to August  14,  2000,  the amount  charged to the Fund by SFAC  aggregated
$1,250,099, of which $219,547 was unpaid at August 31, 2000.



Custodian,  Transfer Agent and Shareholder Service Agent. The Fund employs Brown
Brothers Harriman & Company,  40 Water Street,  Boston,  Massachusetts  02109 as
Custodian for the Fund. The Custodian attends to the collection of principal and
income, and payment for and collection of proceeds of securities bought and sold
by the Fund.  Kemper Service  Company  ("KSVC"),  811 Main Street,  Kansas City,
Missouri 64105-2005,  an affiliate of the Advisor, is the Fund's transfer agent,
dividend-paying  agent and  shareholder  service agent for the Fund's Class A, B
and C shares. Prior to the implementation of the Administration  Agreement, KSVC
received as transfer agent,  annual account fees of $5 per account,  transaction
and maintenance  charges,  annual fees  associated with the contingent  deferred
sales charge  (Class B shares  only) and  out-of-pocket  expense  reimbursement.
Prior to August  14,  2000,  the  amount  charged  to Class R Shares  aggregated
$71,173.

Independent Accountants and Reports to Shareholders. The financial highlights of
the  Fund  included  in the  Fund's  prospectus  and  the  Financial  Statements
incorporated by reference in this Statement of Additional  Information have been
so  included  or  incorporated  by  reference  in  reliance  on  the  report  of
PricewaterhouseCoopers  LLP, 160 Federal Street,  Boston,  Massachusetts  02110,
independent  accountants,  given on the  authority  of said firm as  experts  in
auditing  and  accounting.   PricewaterhouseCoopers  LLP  audits  the  financial
statements  of the Fund and  provides  other  audit,  tax and related  services.
Shareholders  will receive annual audited and  semi-annual  unaudited  financial
statements.


PORTFOLIO TRANSACTIONS


Brokerage Commissions.  Allocation of brokerage may be placed by the Advisor.





                                       37
<PAGE>




The primary objective of the Advisor in placing orders for the purchase and sale
of securities for the Fund is to obtain the most  favorable net results,  taking
into account such factors as price, commission where applicable,  size of order,
difficulty of execution and skill required of the executing  broker/dealer.  The
Advisor seeks to evaluate the overall  reasonableness  of brokerage  commissions
paid (to the extent applicable)  through the familiarity of the Distributor with
commissions  charged  on  comparable  transactions,  as  well  as  by  comparing
commissions paid by the Fund to reported commissions paid by others. The Advisor
routinely reviews commission rates,  execution and settlement services performed
and makes internal and external comparisons.

The Fund's  purchases and sales of fixed-income  securities are generally placed
by the Advisor with primary  market makers for these  securities on a net basis,
without any brokerage  commission being paid by the Fund. Trading does, however,
involve  transaction costs.  Transactions with dealers serving as primary market
makers  reflect  the  spread  between  the bid and asked  prices.  Purchases  of
underwritten  issues may be made, which will include an underwriting fee paid to
the underwriter.

When it can be done consistently with the policy of obtaining the most favorable
net  results,   it  is  the  Advisor's   practice  to  place  such  orders  with
broker/dealers  who supply brokerage and research services to the Advisor or the
Fund.  The  term  "research  services"  includes  advice  as  to  the  value  of
securities;  the advisability of investing in, purchasing or selling securities;
the  availability  of securities or  purchasers  or sellers of  securities;  and
analyses  and  reports  concerning  issuers,  industries,  securities,  economic
factors and trends,  portfolio  strategy and the  performance  of accounts.  The
Advisor is authorized when placing portfolio  transactions,  if applicable,  for
the Fund to pay a brokerage  commission in excess of that which  another  broker
might charge for executing the same transaction on account of execution services
and the receipt of research services.  The Advisor has negotiated  arrangements,
which  are  not  applicable  to most  fixed-income  transactions,  with  certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the  Advisor or the Fund in  exchange  for the  direction  by the  Advisor of
brokerage  transactions  to  the  broker/dealer.  These  arrangements  regarding
receipt of research  services  generally apply to equity security  transactions.
The Advisor  will not place  orders with a  broker/dealer  on the basis that the
broker/dealer has or has not sold shares of the Fund. In effecting  transactions
in  over-the-counter  securities,  orders are placed with the  principal  market
makers for the security being traded unless,  after  exercising care, it appears
that more favorable results are available elsewhere.

To the  maximum  extent  feasible,  it is expected  that the Advisor  will place
orders  for  portfolio   transactions  through  the  Distributor,   which  is  a
corporation  registered as a broker/dealer and a subsidiary of the Adviser;  the
Distributor  will place orders on behalf of the Fund with issuers,  underwriters
or other brokers and dealers.  The Distributor  will not receive any commission,
fee or other remuneration from the Fund for this service.

                                       38
<PAGE>

Although   certain   research,   market   and   statistical   information   from
broker/dealers  may be useful to the Fund and to the Advisor,  it is the opinion
of the Advisor that such  information  only  supplements its own research effort
since the  information  must still be  analyzed,  weighed  and  reviewed  by the
Advisor's  staff.  Such  information  may be useful to the Advisor in  providing
services to clients other than the Fund and not all such  information is used by
the Advisor in connection with the Fund.  Conversely,  such information provided
to the  Advisor by  broker/dealers  through  whom other  clients of the  Advisor
effect  securities  transactions  may be  useful  to the  Advisor  in  providing
services to the Fund.


The Directors of the Fund review,  from time to time,  whether the recapture for
the benefit of the Fund of some portion of the brokerage  commissions or similar
fees paid by the Fund on  portfolio  transactions  is  legally  permissible  and
advisable.


For the fiscal  years  ended March 31,  1999 and 1998,  the Fund paid  brokerage
commissions  of $9,926,570  and  $6,904,371,  respectively.  For the fiscal year
ended March 31, 1999,  $9,741,020  (98.13%) of the total  brokerage  commissions
paid by the Fund resulted from orders for  transactions,  placed consistent with
the policy of seeking to obtain the most favorable net results, with brokers and
dealers who provided supplementary research services to the Fund or the Advisor.
The  amount  of  such  transactions  aggregated  $4,239,712,028  (95.76%  of all
brokerage  transactions).  The balance of such  brokerage  was not  allocated to
particular broker or dealer with regard to the  above-mentioned or other special
factors.

For the fiscal year ended August 31, 2000, the Fund paid  brokerage  commissions
of $_________.  For the fiscal year ended August 31, 2000, $________ (_____%) of
the total  brokerage  commissions  paid by the Fund  resulted  from  orders  for
transactions,  placed  consistent  with the policy of seeking to obtain the most
favorable  net  results,  with  brokers and dealers who  provided  supplementary
research  services to the Fund or the Advisor.  The amount of such  transactions
aggregated $_________ (____% of all brokerage transactions). The balance of such
brokerage was not  allocated to  particular  broker or dealer with regard to the
above-mentioned or other special factors.


Portfolio Turnover

The Fund's average annual portfolio  turnover rate is the ratio of the lesser of
sales or  purchases to the monthly  average  value of the  portfolio  securities
owned during the year,  excluding all securities  with  maturities or expiration
dates at the time of acquisition of one year or less. For the fiscal years ended
March 31,  1999 and 1998 the  Fund's  portfolio  turnover  rates  were 79.9% and
55.7%,  respectively,  and for the five  months  ended  August 31,  1999 and the
fiscal year ended  August 31, 2000 were 81.5% and 83%,  respectively.  Purchases
and sales are made for the Fund's portfolio whenever necessary,  in management's
opinion, to meet the Fund's objective.

NET ASSET VALUE

The net asset value of shares of the Fund is computed as of the close of regular
trading on the Exchange on each day the Exchange is open for trading (the "Value
Time").  The Exchange is scheduled to be closed on the following  holidays:  New
Year's Day, Dr.  Martin  Luther King,  Jr. Day,  Presidents'  Day,  Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas and on the
preceding  Friday or  subsequent  Monday when one of these  holidays  falls on a
Saturday  or  Sunday,  respectively.  Net asset  value  per share is  determined
separately for each class of shares by dividing the value of the total assets of
the  Fund  attributable  to the  shares  of that  class,  less  all  liabilities
attributable  to that  class,  by the  total  number  of  shares  of that  class
outstanding.  The per share net asset value of the Class B and Class C Shares of
the Fund  will  generally  be lower  than that of the Class A Shares of the Fund
because of the higher expenses borne by the Class B and Class C Shares.

                                       39
<PAGE>

An  exchange-traded  equity  security is valued at its most recent sale price on
the exchange it is traded as of the Value Time.  Lacking any sales, the security
is valued at the  calculated  mean between the most recent bid quotation and the
most recent asked quotation (the "Calculated Mean").  Lacking a Calculated Mean,
the  security is valued at the most recent bid  quotation.  An equity  security,
which is traded on the Nasdaq Stock Market,  Inc.  ("Nasdaq"),  is valued at its
most recent sale price.  Lacking any sales,  the  security is valued at the most
recent bid quotation.  The value of an equity  security not quoted on the Nasdaq
System, but traded in another  over-the-counter  market, is its most recent sale
price. Lacking any sales, the security is valued at the Calculated Mean. Lacking
a Calculated Mean, the security is valued at the most recent bid quotation.


Debt securities, other than short-term securities, are valued at prices supplied
by the Fund's pricing agent(s) which reflect  broker/dealer  supplied valuations
and electronic data processing techniques.  Short-term securities purchased with
remaining maturities of sixty days or less shall be valued by the amortized cost
method,  which  the  Board  believes  approximates  market  value.  If it is not
possible  to value a  particular  debt  security  pursuant  to  these  valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona  fide  marketmaker.  If it is not  possible  to value a  particular  debt
security  pursuant to the above methods,  the Advisor may calculate the price of
that debt security, subject to limitations established by the Board.


An exchange traded options contract on securities, currencies, futures and other
financial  instruments is valued at its most recent sale price on such exchange.
Lacking  any sales,  the  options  contract  is valued at the  Calculated  Mean.
Lacking any Calculated  Mean, the options  contract is valued at the most recent
bid quotation in the case of a purchased  options  contract,  or the most recent
asked quotation in the case of a written options  contract.  An options contract
on   securities,    currencies   and   other   financial    instruments   traded
over-the-counter  is valued at the most  recent bid  quotation  in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written  options  contract.  Futures  contracts  are valued at the most recent
settlement price.  Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon one or more exchanges
and in the  over-the-counter  market,  quotations  are taken  from the market in
which the security is traded most extensively.

If, in the  opinion of the  Corporation's  Valuation  Committee,  the value of a
portfolio  asset as  determined  in accordance  with these  procedures  does not
represent  the  fair  market  value of the  portfolio  asset,  the  value of the
portfolio  asset is taken to be an amount which, in the opinion of the Valuation
Committee,   represents  fair  market  value  on  the  basis  of  all  available
information.  The  value  of  other  portfolio  holdings  owned  by the  Fund is
determined in a manner,  which,  in the  discretion of the Valuation  Committee,
most fairly reflects fair market value of the property on the valuation date.

Following the valuations of securities or other portfolio assets in terms of the
currency in which the market quotation used is expressed ("Local Currency"), the
value of these  portfolio  assets  in terms of U.S.  dollars  is  calculated  by
converting  the Local  Currency  into U.S.  dollars at the  prevailing  currency
exchange rate on the valuation date.

Purchase, Repurchase and Redemption of Shares


Fund  Shares are sold at their  public  offering  price,  which is the net asset
value per such shares next determined  after an order is received in proper form
plus,  with  respect to Class A Shares,  an initial  sales  charge.  The minimum
initial  investment  for Class A, B or C is $1,000  and the  minimum  subsequent
investment is $100 but such minimum amounts may be changed at any time. The Fund
may  waive the  minimum  for  purchases  by  trustees,  directors,  officers  or
employees  of the Fund or the  Advisor  and its  affiliates.  An  order  for the
purchase of Shares that is accompanied by a check drawn on a foreign bank (other
than a check drawn on a Canadian bank in U.S. Dollars) will not be considered in
proper form and will not be processed  unless and until the Fund determines that
it has received payment of the proceeds of the check. The time required for such
a determination will vary and cannot be determined in advance.


                                       40
<PAGE>

PURCHASE OF SHARES

Alternative  Purchase  Arrangements.  Class A  shares  of the  Fund  are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial  sales charge but are subject to higher  ongoing  expenses  than Class A
shares and a contingent deferred sales charge payable upon certain  redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares  are sold  without  an initial  sales  charge but are  subject to
higher  ongoing  expenses  than  Class A shares,  are  subject  to a  contingent
deferred  sales charge  payable upon certain  redemptions  within the first year
following purchase, and do not convert into another class. When placing purchase
orders,  investors  must  specify  whether  the order is for Class A, Class B or
Class C shares.


The primary  distinctions  among the  classes of the Fund's  shares lie in their
initial and  contingent  deferred  sales charge  structures and in their ongoing
expenses,  including  asset-based  sales  charges  in the  form  of  Rule  12b-1
distribution/services fees. These differences are summarized in the table below.
Each class has distinct  advantages and disadvantages  for different  investors,
and  investors  may choose the class that best  suits  their  circumstances  and
objectives.



<TABLE>
<CAPTION>

                                                    Annual 12b-1 Fees^(1)
                                                    (as a % of average
              Sales Charge                           daily net assets)          Other Information
              ------------                           -----------------          -----------------

<S>           <C>                                          <C>                  <C>
Class A       Maximum initial sales charge of              0.25%(1)             Initial sales charge
              5.75% of the public offering                                      waived or reduced for
              price^(2)                                                         certain purchases

Class B       Maximum contingent deferred                    1.00%              Shares convert to Class
              sales charge of 4% of redemption                                  A shares six years after
              proceeds; declines to zero after                                  issuance
              six years

Class C       Contingent deferred sales charge               1.00%              No conversion feature
              of 1% of redemption proceeds
              for redemptions made during
              first year after purchase
</TABLE>


(1)  There is a service fee of 0.25% for each class.

(2)  Class A shares  purchased  at net asset  value  under the "Large  Order NAV
     Purchase Privilege" may be subject to a 1% contingent deferred sales charge
     if redeemed  within one year of purchase  and a 0.50%  contingent  deferred
     sales charge if redeemed within the second year of purchase.


The  minimum  initial  investment  for  each of  Class A, B and C of the Fund is
$1,000 and the  minimum  subsequent  investment  is $100.  The  minimum  initial
investment  for an  Individual  Retirement  Account  is  $250  and  the  minimum
subsequent  investment is $50. Under an automatic  investment plan, such as Bank
Direct Deposit, Payroll Direct Deposit or Government Direct Deposit, the minimum
initial and subsequent  investment is $50. These minimum  amounts may be changed
at any time in management's discretion.

Share certificates will not be issued unless requested in writing and may not be
available for certain types of account  registrations.  It is  recommended  that
investors not request share  certificates  unless needed for a specific purpose.
You cannot  redeem  shares by  telephone or wire  transfer or use the  telephone
exchange  privilege if share  certificates have been issued. A lost or destroyed
certificate  is difficult to replace and can be expensive to the  shareholder (a
bond worth 2% or more of the certificate value is normally required).

Initial Sales Charge  Alternative - Class A Shares. The public offering price of
Class A shares for purchasers  choosing the initial sales charge  alternative is
the net asset value plus a sales charge, as set forth below.

                                       41
<PAGE>


<TABLE>
<CAPTION>
                                                                       Sales Charge
                                                                       ------------
                                                                                       Allowed to Dealers
                                           As a Percentage       As a Percentatge      as a Percentage of
                                           of Offering Price     Net Asset Value*         Offering Price
                                           -----------------     ----------------         --------------
<S>                                               <C>                      <C>                <C>
Less than $50,000                                 5.75%                   6.10%               5.20%
$50,000 but less than $100,000                     4.50                    4.71                4.00
$100,000 but less than $250,000                    3.50                    3.63                3.00
$250,000 but less than $500,000                    2.60                    2.67                2.25
$500,000 but less than $1 million                  2.00                    2.04                1.75
$1 million and over                               .00**                   .00**                 ***
</TABLE>

*    Rounded to the nearest one-hundredth percent.

**   Redemption of shares may be subject to a contingent  deferred  sales charge
     as discussed below.

***  Commission is payable by KDI as discussed below.

The Fund  receives the entire net asset value of all its shares  sold.  KDI, the
Fund's  principal  underwriter,  retains  the  sales  charge on sales of Class A
shares from which it allows discounts from the applicable  public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories.  The normal discount allowed to dealers is set forth
in the  above  table.  Upon  notice  to  all  dealers  with  whom  it has  sales
agreements,  KDI may re-allow to dealers up to the full applicable sales charge,
as shown in the above table,  during periods and for  transactions  specified in
such notice and such re-allowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is re-allowed,  such
dealers  may be deemed to be  underwriters  as that term is  defined in the 1933
Act.

Class A shares  of the Fund may be  purchased  at net asset  value  by:  (a) any
purchaser,  provided  that the  amount  invested  in such Fund or other  Scudder
Kemper Mutual Fund listed under "Special  Features -- Class A Shares -- Combined
Purchases"  totals at least  $1,000,000  including  purchases  of Class A shares
pursuant  to the  "Combined  Purchases,"  "Letter  of  Intent"  and  "Cumulative
Discount"   features   described   under   "Special   Features";    or   (b)   a
participant-directed qualified retirement plan described in Code Section 401(a),
a  participant-directed  non-qualified  deferred  compensation plan described in
Code Section 457 or a  participant-directed  qualified retirement plan described
in Code Section  403(b)(7)  which is not  sponsored  by a K-12 school  district,
provided  in each case that such plan has not less than 200  eligible  employees
(the "Large Order NAV Purchase  Privilege").  Redemption within two years of the
purchase of shares purchased under the Large Order NAV Purchase Privilege may be
subject to a contingent  deferred sales charge. See "Redemption or Repurchase of
Shares  --  Contingent  Deferred  Sales  Charge  --  Large  Order  NAV  Purchase
Privilege."

KDI may at its  discretion  compensate  investment  dealers  or other  financial
services firms in connection  with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase  Privilege up to the
following amounts:  1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The  commission  schedule  will be reset on a  calendar  year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to  employer-sponsored
employee benefit plans using the subaccount  recordkeeping system made available
through Kemper Service  Company.  For purposes of  determining  the  appropriate
commission  percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in the Fund and other Scudder Kemper
Mutual  Fund  listed  under  "Special  Features  -- Class A Shares  --  Combined
Purchases," including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative  Discount"  features referred to above. The privilege of
purchasing  Class A shares of the Fund at net asset  value under the Large Order
NAV  Purchase  Privilege is not  available  if another net asset value  purchase
privilege also applies.

Class A shares of the Fund or of any other  Scudder  Kemper  Mutual  Fund listed
under  "Special  Features  --  Class A  Shares  --  Combined  Purchases"  may be
purchased at net asset value in any amount by members of the plaintiff  class in
the proceeding known as Howard and Audrey Tabankin,  et al. v. Kemper Short-Term
Global  Income Fund, et al.,  Case No. 93 C 5231 (N.D.  IL).  This  privilege is
generally  non-transferable  and continues for the lifetime of individual  class


                                       42
<PAGE>

members and for a ten-year period for  non-individual  class members.  To make a
purchase at net asset value under this privilege, the investor must, at the time
of  purchase,  submit a written  request  that the  purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin  Class." Shares purchased under this privilege will be
maintained in a separate  account that includes only shares purchased under this
privilege.  For more details  concerning  this  privilege,  class members should
refer to the Notice of (1) Proposed Settlement with Defendants;  and (2) Hearing
to Determine Fairness of Proposed  Settlement,  dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset  value  pursuant  to this  privilege,  KDI may in its  discretion  pay
investment  dealers and other  financial  services  firms a concession,  payable
quarterly,  at an annual rate of up to 0.25% of net assets  attributable to such
shares  maintained  and serviced by the firm.  A firm  becomes  eligible for the
concession based upon assets in accounts  attributable to shares purchased under
this  privilege  in the month  after the month of  purchase  and the  concession
continues until terminated by KDI. The privilege of purchasing Class A shares of
the Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.

Class A shares of the Fund may be  purchased  at net asset  value by persons who
purchase  such shares  through bank trust  departments  that process such trades
through an  automated,  integrated  mutual fund clearing  program  provided by a
third party clearing firm.

Class A shares of the Fund may be  purchased at net asset value in any amount by
certain professionals who assist in the promotion of Scudder Kemper Mutual Funds
pursuant to personal  services  contracts with KDI, for themselves or members of
their families.  KDI in its discretion may compensate  financial  services firms
for sales of Class A shares under this  privilege at a commission  rate of 0.50%
of the amount of Class A shares purchased.

Class A shares of the Fund may be  purchased  at net asset  value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction  program  administered  by  RewardsPlus  of America for the benefit of
employees of participating employer groups.


Class A shares may be sold at net asset  value in any  amount to: (a)  officers,
trustees,  employees (including retirees) and sales representatives of the Fund,
its  investment  manager,  its  principal   underwriter  or  certain  affiliated
companies,   for  themselves  or  members  of  their  families;  (b)  registered
representatives and employees of broker-dealers  having selling group agreements
with KDI and officers,  directors  and employees of service  agents of the Fund,
for themselves or their spouses or dependent children;  (c) any trust,  pension,
profit-sharing  or other  benefit  plan for only such  persons;  (d) persons who
purchase  such shares  through bank trust  departments  that process such trades
through an  automated,  integrated  mutual fund clearing  program  provided by a
third party  clearing  firm;  and (e) persons  who  purchase  shares of the Fund
through  KDI  as  part  of an  automated  billing  and  wage  deduction  program
administered  by  RewardsPlus  of  America  for  the  benefit  of  employees  of
participating  employer groups. Class A shares may be sold at net asset value in
any  amount  to  selected  employees  (including  their  spouses  and  dependent
children)   of  banks  and  other   financial   services   firms  that   provide
administrative  services  related to order  placement  and payment to facilitate
transactions  in shares of the Fund for their  clients  pursuant to an agreement
with KDI or one of its affiliates.  Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may  purchase  Fund Class A shares at net asset value  hereunder.
Class A shares may be sold at net asset  value in any amount to unit  investment
trusts sponsored by Ranson & Associates,  Inc. In addition,  unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase  the  Fund's  Class A shares at net asset  value  through  reinvestment
programs  described in the  prospectuses of such trusts that have such programs.
Class A shares  of the  Fund  may be sold at net  asset  value  through  certain
investment  advisors  registered under the 1940 Act and other financial services
firms acting solely as agent for their clients, that adhere to certain standards
established  by KDI,  including a  requirement  that such shares be sold for the
benefit of their  clients  participating  in an investment  advisory  program or
agency  commission  program under which such clients pay a fee to the investment
advisor or other firm for  portfolio  management or agency  brokerage  services.
Such shares are sold for investment purposes and on the condition that they will
not be resold except through  redemption or repurchase by the Fund. The Fund may
also issue Class A shares at net asset value in connection  with the acquisition
of the assets of or merger or consolidation with another investment  company, or
to  shareholders in connection with the investment or reinvestment of income and
capital gain dividends.


                                       43
<PAGE>

The  sales  charge  scale is  applicable  to  purchases  made at one time by any
"purchaser" which includes: an individual;  or an individual,  his or her spouse
and  children  under the age of 21; or a trustee or other  fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income  tax  under  Section  501(c)(3)  or  (13)  of  the  Code;  or a  pension,
profit-sharing  or other  employee  benefit plan whether or not qualified  under
Section  401  of  the  Code;  or  other   organized  group  of  persons  whether
incorporated  or not,  provided the  organization  has been in existence  for at
least six months and has some  purpose  other than the  purchase  of  redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales  charge,  all orders from an  organized  group will have to be
placed  through a single  investment  dealer  or other  firm and  identified  as
originating from a qualifying purchaser.

Deferred  Sales Charge  Alternative  -- Class B Shares.  Investors  choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are  being  sold  without  an  initial  sales  charge,  the full  amount  of the
investor's  purchase  payment  will be invested in Class B shares for his or her
account.  A contingent  deferred sales charge may be imposed upon  redemption of
Class B shares.  See "Redemption or Repurchase of Shares -- Contingent  Deferred
Sales Charge -- Class B Shares."

KDI  compensates  firms  for  sales of  Class B shares  at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated  by the Fund for services as distributor  and principal  underwriter
for Class B shares. See "Investment Manager and Underwriter."

Class B shares of the Fund will  automatically  convert to Class A shares of the
Fund six years after  issuance on the basis of the  relative net asset value per
share of the Class B shares. The purpose of the conversion feature is to relieve
holders of Class B shares from the distribution services fee when they have been
outstanding  long  enough  for KDI to have  been  compensated  for  distribution
related expenses. For purposes of conversion to Class A shares, shares purchased
through the reinvestment of dividends and other  distributions paid with respect
to Class B shares in a  shareholder's  Fund account will be converted to Class A
shares on a pro rata basis.

Purchase of Class C Shares.  The public  offering price of the Class C shares of
the Fund is the next  determined  net asset  value.  No initial  sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account.  A contingent  deferred sales charge may be imposed upon the
redemption  of Class C shares if they are redeemed  within one year of purchase.
See  "Redemption or Repurchase of Shares -- Contingent  Deferred Sales Charge --
Class C Shares." KDI currently advances to firms the first year distribution fee
at a rate of 0.75% of the purchase  price of such shares.  For periods after the
first  year,  KDI  currently  intends to pay firms for sales of Class C shares a
distribution  fee, payable  quarterly,  at an annual rate of 0.75% of net assets
attributable  to Class C shares  maintained  and  serviced  by the firm.  KDI is
compensated  by the Fund for services as distributor  and principal  underwriter
for Class C shares. See "Investment Manager and Underwriter."

Purchase  of Class I Shares.  Class I shares  are  offered  at net  asset  value
without an initial  sales  charge and are not subject to a  contingent  deferred
sales charge or a Rule 12b-1  distribution fee. Also, there is no administration
services  fee  charged to Class I shares.  As a result of the  relatively  lower
expenses  for Class I shares,  the  level of  income  dividends  per share (as a
percentage of net asset value) and,  therefore,  the overall  investment  value,
will  typically be higher for Class I shares than for Class A, Class B, or Class
C shares.


Class  I  shares  are  available  for  purchase  exclusively  by  the  following
categories of institutional  investors:  (1) tax-exempt retirement plans (Profit
Sharing,  401(k),  Money Purchase  Pension and Defined  Benefit Plans) of Zurich
Scudder  Investments,  Inc. and its affiliates and rollover  accounts from those
plans; (2) the following  investment  advisory clients of Zurich Scudder and its
investment  advisory  affiliates  that  invest  at least $1  million  in a Fund:
unaffiliated  benefit  plans,  such as  qualified  retirement  plans (other than
individual retirement accounts and self-directed retirement plans); unaffiliated
banks and insurance companies  purchasing for their own accounts;  and endowment
funds of unaffiliated non-profit organizations; (3) investment-only accounts for
large  qualified  plans,  with at least $50  million in total plan  assets or at
least 1,000  participants;  (4) trust and fiduciary  accounts of trust companies
and bank trust departments  providing fee based advisory services that invest at
least $1 million in a Fund on behalf of each  trust;  (5) policy  holders  under


                                       44
<PAGE>

Zurich-American  Insurance Group's  collateral  investment  program investing at
least $200,000 in a Fund; and (6) investment companies managed by Zurich Scudder
that invest  primarily in other investment  companies.  Class I shares currently
are available for purchase only from KDI,  principal  underwriter  for the Fund,
and, in the case of category  (4) above,  selected  dealers  authorized  by KDI.
Share certificates are not available for Class I shares.


Which  Arrangement  is Better for You?  The decision as to which class of shares
provides  a more  suitable  investment  for an  investor  depends on a number of
factors,  including the amount and intended length of the investment.  In making
this decision,  investors should review their particular circumstances carefully
with their financial  representative.  Investors making investments that qualify
for reduced sales charges might  consider  Class A shares.  Investors who prefer
not to pay an initial  sales  charge and who plan to hold their  investment  for
more than six years might consider  Class B shares.  Investors who prefer not to
pay an initial sales charge but who plan to redeem their shares within six years
might  consider Class C shares.  KDI has  established  the following  procedures
regarding the purchase of Class A, Class B and Class C shares.  These procedures
do not reflect in any way the suitability of a particular  class of shares for a
particular  investor and should not be relied upon as such.  That  determination
must be made by investors with the assistance of their financial representative.
Orders  for  Class B shares  or  Class C shares  for  $500,000  or more  will be
declined.  Orders  for Class B shares or Class C shares  by  employer  sponsored
employee  benefit  plans (not  including  plans  under Code  Section  403 (b)(7)
sponsored by a K-12 school district) using the subaccount  record keeping system
made available  through the Shareholder  Service Agent ("KemFlex Plans") will be
invested  instead  in Class A shares  at net  asset  value  where  the  combined
subaccount  value in a Fund or other Kemper  Mutual Funds listed under  "Special
Features - Class A Shares - Combined  Purchases"  is in excess of $1 million for
Class B shares or $5 million for Class C shares including  purchases pursuant to
the "Combined  Purchases," "Letter of Intent" and "Cumulative Discount" features
described  under "Special  Features."  KemFlex Plans that on May 1, 2000 have in
excess of $1 million  invested in Class B shares of Kemper Mutual Funds, or have
in excess of $850,000  invested in Class B shares of Kemper Mutual Funds and are
able to qualify for the  purchase  of Class A shares at net asset  value  (e.g.,
pursuant to a Letter of Intent),  will have future  investments  made in Class A
shares and will have the option to covert  their  holdings  in Class B shares to
Class A shares free of any contingent  deferred sales charge on May 1, 2002. For
more  information  about the three sales  arrangements,  consult your  financial
representative or the Shareholder  Service Agent.  Financial  services firms may
receive different  compensation  depending upon which class of shares they sell.
Class I shares are available only to certain institutional investors.

General.  Banks and other  financial  services firms may provide  administrative
services  related to order  placement and payment to facilitate  transactions in
shares of the Fund for their clients,  and KDI may pay them a transaction fee up
to the level of the discount or commission  allowable or payable to dealers,  as
described  above.  Banks or other  financial  services  firms may be  subject to
various state laws regarding the services described above and may be required to
register as dealers pursuant to state law. If banking firms were prohibited from
acting in any capacity or providing  any of the described  services,  management
would consider what action,  if any, would be appropriate.  KDI does not believe
that  termination  of a  relationship  with a bank would  result in any material
adverse consequences to the Fund.

KDI may, from time to time,  pay or allow to firms a 1% commission on the amount
of shares of the Fund sold under the  following  conditions:  (i) the  purchased
shares are held in a Kemper IRA  account,  (ii) the  shares are  purchased  as a
direct "roll over" of a distribution  from a qualified  retirement  plan account
maintained on a participant  subaccount record keeping system provided by Kemper
Service  Company,  (iii) the  registered  representative  placing the trade is a
member of ProStar,  a group of persons  designated by KDI in  acknowledgment  of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.

In addition to the discounts or commissions described above, KDI will, from time
to  tome,  pay  or  allow  additional  discounts,   commissions  or  promotional
incentives,  in the form of cash, to firms that sell shares of the Fund. In some
instances, such discounts,  commissions or other incentives will be offered only
to certain firms that sell or are expected to sell during specified time periods
certain  minimum  amounts of shares of the Fund, or other Funds  underwritten by
KDI.

                                       45
<PAGE>

Orders for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value of the Fund next  determined  after receipt in good order
by KDI of the order accompanied by payment.  However, orders received by dealers
or other financial  services firms prior to the determination of net asset value
(see "Net Asset  Value") and received in good order by KDI prior to the close of
its  business  day will be  confirmed  at a price  based on the net asset  value
effective on that day ("trade  date").  The Fund reserves the right to determine
the net asset value more frequently than once a day if deemed desirable. Dealers
and other financial  services firms are obligated to transmit  orders  promptly.
Collection  may take  significantly  longer for a check drawn on a foreign  bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign  bank,  funds must  normally be  collected  before
shares will be purchased. See "Purchase and Redemption of Shares."

Investment  dealers  and other  firms  provide  varying  arrangements  for their
clients to purchase  and redeem the Fund's  shares.  Some may  establish  higher
minimum  investment  requirements  than set forth above.  Firms may arrange with
their clients for other investment or  administrative  services.  Such firms may
independently  establish and charge additional amounts to their clients for such
services,  which charges would reduce the clients'  return.  Firms also may hold
the Fund's  shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with  respect to or control  over the  accounts of specific  shareholders.  Such
shareholders  may obtain access to their  accounts and  information  about their
accounts only from their firm.  Certain of these firms may receive  compensation
from the Fund through the Shareholder  Service Agent for recordkeeping and other
expenses relating to these nominee  accounts.  In addition,  certain  privileges
with respect to the purchase and  redemption  of shares or the  reinvestment  of
dividends may not be available through such firms. Some firms may participate in
a  program  allowing  them  access  to their  clients'  accounts  for  servicing
including,  without  limitation,  transfers of  registration  and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive  compensation  from the Fund through the  Shareholder  Service Agent for
these services.  This  prospectus  should be read in connection with such firms'
material regarding their fees and services.

The Fund  reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders for any reason. Also, from time to
time, the Fund may  temporarily  suspend the offering of any class of its shares
to new investors. During the period of such suspension,  persons who are already
shareholders  of such class of such Fund  normally are  permitted to continue to
purchase additional shares of such class and to have dividends reinvested.

Tax  Identification  Number. Be sure to complete the Tax  Identification  Number
section of the Fund's  application  when you open an  account.  Federal  tax law
requires  the  Fund  to  withhold  31%  of  taxable  dividends,   capital  gains
distributions  and  redemption and exchange  proceeds from accounts  (other than
those of certain exempt payees) without a correct  certified  Social Security or
tax  identification  number and  certain  other  certified  information  or upon
notification  from the IRS or a broker that  withholding  is required.  The Fund
reserves  the  right to  reject  new  account  applications  without  a  correct
certified Social Security or tax  identification  number. The Fund also reserves
the right, following 30 days' notice, to redeem all shares in accounts without a
correct  certified Social Security or tax  identification  number. A shareholder
may avoid  involuntary  redemption by providing the  applicable  Fund with a tax
identification number during the 30-day notice period.

Shareholders  should direct their inquiries to Kemper Service Company,  811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.

REDEMPTION OR REPURCHASE OF SHARES

General.  Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's  transfer  agent,
the  shareholder  may  redeem  such  shares by  sending a written  request  with
signatures  guaranteed to Scudder  Kemper Mutual  Funds,  Attention:  Redemption
Department, P.O. Box 219153, Kansas City, Missouri 64141-9153. When certificates
for  shares  have been  issued,  they must be  mailed to or  deposited  with the
Shareholder   Service  Agent,  along  with  a  duly  endorsed  stock  power  and
accompanied by a written request for redemption. Redemption requests and a stock
power must be endorsed by the account  holder with  signatures  guaranteed  by a


                                       46
<PAGE>

commercial bank, trust company,  savings and loan  association,  federal savings
bank, member firm of a national  securities exchange or other eligible financial
institution.  The  redemption  request and stock power must be signed exactly as
the  account is  registered  including  any special  capacity of the  registered
owner. Additional  documentation may be requested,  and a signature guarantee is
normally  required,  from  institutional and fiduciary account holders,  such as
corporations,  custodians  (e.g.,  under the Uniform  Transfers  to Minors Act),
executors, administrators, trustees or guardians.

The  redemption  price  for  shares of a class of the Fund will be the net asset
value per share of that class of the Fund next determined  following  receipt by
the Shareholder  Service Agent of a properly  executed request with any required
documents as described  above.  Payment for shares redeemed will be made in cash
as promptly as  practicable  but in no event later than seven days after receipt
of a properly executed request accompanied by any outstanding share certificates
in proper form for  transfer.  When the Fund is asked to redeem shares for which
it  may  not  have  yet  received  good  payment  (i.e.,   purchases  by  check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. The redemption within two years of Class A shares purchased
at net asset value under the Large Order NAV Purchase  Privilege  may be subject
to a contingent  deferred sales charge (see "Purchase of Shares -- Initial Sales
Charge Alternative -- Class A Shares"),  the redemption of Class B shares within
six years may be subject to a contingent  deferred sales charge (see "Contingent
Deferred Sales Charge -- Class B Shares"  below),  and the redemption of Class C
shares within the first year  following  purchase may be subject to a contingent
deferred sales charge (see "Contingent  Deferred Sales Charge -- Class C Shares"
below).

Because of the high cost of maintaining  small  accounts,  the Fund may assess a
quarterly  fee of $9 on any account  with a balance  below $800 for the quarter.
The fee will not apply to accounts enrolled in an automatic  investment program,
Individual  Retirement  Accounts or  employer-sponsored  employee  benefit plans
using  the  subaccount   record-keeping   system  made  available   through  the
Shareholder Service Agent.

Shareholders  can request the following  telephone  privileges:  expedited  wire
transfer redemptions and EXPRESS-Transfer  transactions (see "Special Features")
and  exchange  transactions  for  individual  and  institutional   accounts  and
pre-authorized  telephone  redemption  transactions  for  certain  institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone  exchange  privilege is automatic unless the shareholder
refuses it on the account application.  The Fund or its agents may be liable for
any  losses,  expenses  or  costs  arising  out of  fraudulent  or  unauthorized
telephone  requests  pursuant to these privileges  unless the Fund or its agents
reasonably  believe,  based upon reasonable  verification  procedures,  that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized  transactions,  so long
as reasonable  verification  procedures  are followed.  Verification  procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.

Telephone  Redemptions.  If  the  proceeds  of  the  redemption  (prior  to  the
imposition of any contingent  deferred sales charge) are $50,000 or less and the
proceeds  are  payable to the  shareholder  of record at the  address of record,
normally a  telephone  request or a written  request by any one  account  holder
without a signature  guarantee is sufficient  for  redemptions  by individual or
joint  account  holders,  and  trust,  executor  and  guardian  account  holders
(excluding  custodial accounts for gifts and transfers to minors),  provided the
trustee,  executor  or  guardian  is named in the  account  registration.  Other
institutional account holders and guardian account holders of custodial accounts
for gifts and  transfers  to minors  may  exercise  this  special  privilege  of
redeeming  shares by  telephone  request or written  request  without  signature
guarantee  subject to the same  conditions  as  individual  account  holders and
subject  to the  limitations  on  liability  described  under  "General"  above,
provided  that  this  privilege  has been  pre-authorized  by the  institutional
account  holder  or  guardian  account  holder  by  written  instruction  to the
Shareholder Service Agent with signatures guaranteed.  Telephone requests may be
made  by  calling   1-800-621-1048.   Shares   purchased  by  check  or  through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming  shares by telephone  request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone  request or by
written request  without a signature  guarantee may not be used to redeem shares
held in certificated form and may not be used if the  shareholder's  account has
had an address change within 30 days of the redemption  request.  During periods


                                       47
<PAGE>

when it is difficult to contact the Shareholder  Service Agent by telephone,  it
may be difficult to use the telephone redemption  privilege,  although investors
can still  redeem by mail.  The Fund  reserves  the right to terminate or modify
this privilege at any time.

Repurchases   (Confirmed   Redemptions).   A  request  for   repurchase  may  be
communicated  by a shareholder  through a securities  dealer or other  financial
services firm to KDI, which the Fund has  authorized to act as its agent.  There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders  promptly.  The repurchase price
will be the net  asset  value of the Fund next  determined  after  receipt  of a
request by KDI. However,  requests for repurchases  received by dealers or other
firms prior to the  determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's  business  day will be  confirmed at
the net asset  value  effective  on that day.  The  offer to  repurchase  may be
suspended at any time. Requirements as to stock powers,  certificates,  payments
and delay of payments are the same as for redemptions.

Expedited   Wire  Transfer   Redemptions.   If  the  account  holder  has  given
authorization for expedited wire redemption to the account holder's brokerage or
bank  account,  shares of the Fund can be redeemed and proceeds  sent by federal
wire transfer to a single previously  designated  account.  Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being  redeemed  that day at the net asset value per Share Fund
effective on that day and normally the proceeds  will be sent to the  designated
account  the  following  business  day.  Delivery  of  the  proceeds  of a  wire
redemption  of  $250,000 or more may be delayed by the Fund for up to seven days
if the  Fund  or the  Shareholder  Service  Agent  deems  it  appropriate  under
then-current  market conditions.  Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at  1-800-621-1048 or in writing,
subject to the limitations on liability  described under  "General"  above.  The
Fund is not  responsible  for the  efficiency  of the federal wire system or the
account  holder's  financial  services firm or bank. The Fund currently does not
charge the account holder for wire transfers.  The account holder is responsible
for any charges imposed by the account  holder's firm or bank. There is a $1,000
wire redemption  minimum  (including any contingent  deferred sales charge).  To
change the  designated  account  to receive  wire  redemption  proceeds,  send a
written request to the Shareholder  Service Agent with signatures  guaranteed as
described  above or  contact  the firm  through  which  shares  of the Fund were
purchased.  Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be redeemed by wire  transfer  until such shares have been owned
for at least 10 days.  Account  holders  may not use this  privilege  to  redeem
shares held in certificated form. During periods when it is difficult to contact
the  Shareholder  Service  Agent by  telephone,  it may be  difficult to use the
expedited  wire  transfer  redemption  privilege,  although  investors can still
redeem  by mail.  The Fund  reserves  the  right to  terminate  or  modify  this
privilege at any time.

Contingent  Deferred  Sales  Charge - Large  Order  NAV  Purchase  Privilege.  A
contingent  deferred  sales  charge may be imposed  upon  redemption  of Class A
shares  that are  purchased  under the Large  Order NAV  Purchase  Privilege  as
follows:  1% if they are redeemed  within one year of purchase and 0.50% if they
are  redeemed  during the second  year after  purchase.  The charge  will not be
imposed upon  redemption  of  reinvested  dividends or share  appreciation.  The
charge is applied to the value of the shares  redeemed,  excluding  amounts  not
subject to the charge.  The  contingent  deferred sales charge will be waived in
the event of: (a)  redemptions by a  participant-directed  qualified  retirement
plan  described in Code Section  401(a),  a  participant-directed  non-qualified
deferred    compensation   plan   described   in   Code   Section   457   or   a
participant-directed   qualified  retirement  plan  described  in  Code  Section
403(b)(7) which is not sponsored by a K-12 school  district;  (b) redemptions by
employer-sponsored  employee  benefit plans using the subaccount  record keeping
system made available  through the Shareholder  Service Agent; (c) redemption of
shares of a shareholder  (including a registered  joint owner) who has died; (d)
redemption of shares of a shareholder  (including a registered  joint owner) who
after  purchase  of the shares  being  redeemed  becomes  totally  disabled  (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic  Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account;  and (f) redemptions of shares whose
dealer of  record at the time of the  investment  notifies  KDI that the  dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.

Contingent  Deferred Sales Charge - Class B Shares. A contingent  deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon  redemption of any share  appreciation  or reinvested  dividends on Class B


                                       48
<PAGE>

shares.  The charge is computed at the  following  rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.

                 Year of Redemption            Contingent Deferred
                 After Purchase                     Sales Charge
                 --------------                     ------------
                 First                                  4%
                 Second                                 3%
                 Third                                  3%
                 Fourth                                 2%
                 Fifth                                  2%
                 Sixth                                  1%

The  contingent  deferred  sales charge will be waived:  (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration)  of  the  shareholder   (including  a  registered  joint  owner)
occurring after the purchase of the shares being  redeemed,  (b) in the event of
the death of the  shareholder  (including a  registered  joint  owner),  (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special Features
-- Systematic  Withdrawal Plan" below), (d) for redemptions made pursuant to any
IRA systematic  withdrawal based on the shareholder's life expectancy including,
but not limited to,  substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions
to satisfy required minimum  distributions  after age 70 1/2 from an IRA account
(with the  maximum  amount  subject  to this  waiver  being  based only upon the
shareholder's  Kemper IRA accounts).  The contingent  deferred sales charge will
also be waived in connection  with the following  redemptions  of shares held by
employer  sponsored  employee benefit plans maintained on the subaccount  record
keeping system made available by the Shareholder  Service Agent: (a) redemptions
to satisfy  participant loan advances (note that loan repayments  constitute new
purchases  for  purposes  of  the  contingent  deferred  sales  charge  and  the
conversion   privilege),   (b)   redemptions  in  connection   with   retirement
distributions  (limited at any one time to 10% of the total value of plan assets
invested  in  the  Fund),  (c)  redemptions  in  connection  with  distributions
qualifying  under the hardship  provisions of the Internal  Revenue Code and (d)
redemptions representing returns of excess contributions to such plans.

Contingent  Deferred Sales Charge -- Class C Shares. A contingent deferred sales
charge  of 1% may be  imposed  upon  redemption  of Class C  shares  if they are
redeemed  within  one year of  purchase.  The charge  will not be  imposed  upon
redemption of reinvested dividends or share appreciation.  The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The  contingent  deferred  sales charge will be waived:  (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration)  of  the  shareholder   (including  a  registered  joint  owner)
occurring after the purchase of the shares being  redeemed,  (b) in the event of
the death of the  shareholder  (including a  registered  joint  owner),  (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year,  see "Special  Features --
Systematic  Withdrawal  Plan"),  (d) for  redemptions  made  pursuant to any IRA
systematic withdrawal based on the shareholder's life expectancy including,  but
not limited to,  substantially  equal  periodic  payments  described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy  required  minimum  distributions  after age 70 1/2 from an IRA  account
(with the  maximum  amount  subject  to this  waiver  being  based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed  redemption
of shares held by employer  sponsored  employee  benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service Agent
(g)  redemption of shares by an employer  sponsored  employee  benefit plan that
offers  funds in addition to Scudder  Kemper  Mutual  Funds and whose  dealer of
record has waived the  advance  of the first  year  administrative  service  and
distribution  fees  applicable  to such  shares and agrees to receive  such fees
quarterly,  and (g) redemption of shares  purchased  through a  dealer-sponsored
asset allocation program maintained on an omnibus record-keeping system provided
the dealer of record had  waived  the  advance of the first year  administrative
services  and  distribution  fees  applicable  to such  shares and has agreed to
receive such fees quarterly.

                                       49
<PAGE>

Contingent  Deferred  Sales  Charge  -  General.   The  following  example  will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor  makes a single  purchase  of $10,000 of the Fund's  Class B shares and
that 16  months  later  the value of the  shares  has  grown by  $1,000  through
reinvested  dividends and by an  additional  $1,000 of share  appreciation  to a
total of  $12,000.  If the  investor  were then to redeem the entire  $12,000 in
share value,  the  contingent  deferred  sales charge would be payable only with
respect to $10,000  because  neither the $1,000 of reinvested  dividends nor the
$1,000 of share  appreciation  is subject to the charge.  The charge would be at
the rate of 3% ($300)  because it was in the second year after the  purchase was
made.

The rate of the contingent  deferred sales charge is determined by the length of
the period of ownership.  Investments are tracked on a monthly basis. The period
of  ownership  for this  purpose  begins the first day of the month in which the
order for the investment is received.  For example,  an investment made in March
1998 will be eligible for the second year's charge if redeemed on or after March
1, 1999.  In the event no specific  order is  requested  when  redeeming  shares
subject to a contingent deferred sales charge, the redemption will be made first
from  shares  representing  reinvested  dividends  and then  from  the  earliest
purchase of shares. KDI receives any contingent deferred sales charge directly.

Reinvestment  Privilege.  A shareholder  who has redeemed  Class A shares of the
Fund or any other Scudder Kemper Mutual Fund listed under  "Special  Features --
Class A Shares --  Combined  Purchases"  (other  than  shares of the Kemper Cash
Reserves Fund purchased directly at net asset value) may reinvest up to the full
amount  redeemed at net asset value at the time of the  reinvestment  in Class A
shares  of the Fund or of the  other  listed  Scudder  Kemper  Mutual  Funds.  A
shareholder of the Fund or other Scudder Kemper Mutual Funds who redeems Class A
shares purchased under the Large Order NAV Purchase  Privilege (see "Purchase of
Shares -- Initial Sales Charge Alternative -- Class A Shares") or Class B shares
or Class C shares and incurs a contingent  deferred sales charge may reinvest up
to the full amount redeemed at net asset value at the time of the  reinvestment,
in the same class of shares as the case may be, of the Fund or of other  Scudder
Kemper Mutual Funds.  The amount of any  contingent  deferred  sales charge also
will be reinvested.  These reinvested shares will retain their original cost and
purchase date for purposes of the  contingent  deferred  sales charge  schedule.
Also, a holder of Class B shares who has redeemed  shares may reinvest up to the
full amount redeemed,  less any applicable contingent deferred sales charge that
may have been imposed upon the redemption of such shares,  at net asset value in
Class A shares of the Fund or of the other  Scudder  Kemper  Mutual Funds listed
under  "Special  Features  -- Class A Shares -- Combined  Purchases."  Purchases
through  the  reinvestment  privilege  are  subject  to the  minimum  investment
requirements  applicable to the shares being  purchased and may only be made for
Scudder  Kemper Mutual Funds  available for sale in the  shareholder's  state of
residence  as  listed  under  "Special  Features  --  Exchange  Privilege."  The
reinvestment  privilege  can be used only  once as to any  specific  shares  and
reinvestment must be effected within six months of the redemption.  If a loss is
realized on the redemption of shares of the Fund, the  reinvestment in shares of
the Fund may be subject to the "wash  sale"  rules if made within 30 days of the
redemption,  resulting in a  postponement  of the  recognition  of such loss for
federal  income tax purposes.  The  reinvestment  privilege may be terminated or
modified at any time.

Redemption in Kind.  Although it is the Fund's present policy to redeem in cash,
if the Board of Directors  determines  that a material  adverse  effect would be
experienced by the remaining  shareholders  if payment were made wholly in cash,
the  Fund  will  satisfy  the  redemption  request  in  whole  or in  part  by a
distribution  of portfolio  securities in lieu of cash,  in conformity  with the
applicable  rules of the SEC,  taking such  securities at the same value used to
determine net asset value,  and  selecting the  securities in such manner as the
Board of Directors may deem fair and equitable. If such a distribution occurred,
shareholders  receiving  securities and selling them could receive less than the
redemption  value  of  such  securities  and in  addition  would  incur  certain
transaction  costs.  Such a  redemption  would not be as liquid as a  redemption
entirely in cash. The Corporation has elected,  however,  to be governed by Rule
18f-1 under the 1940 Act, as a result of which the Fund is  obligated  to redeem
shares, with respect to any one shareholder during any 90-day period,  solely in
cash up to the lesser of $250,000 or 1% of the net asset value of a Share at the
beginning of the period.

SPECIAL FEATURES


Class A  Shares  --  Combined  Purchases.  The  Fund's  Class A  shares  (or the
equivalent)  may be purchased  at the rate  applicable  to the discount  bracket
attained by  combining  concurrent  investments  in Class A shares of any of the


                                       50
<PAGE>

following Funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund,  Kemper  Small  Capitalization  Equity  Fund,  Kemper  Income and  Capital
Preservation  Fund,  Kemper  Municipal Bond Fund,  Kemper Strategic Income Fund,
Kemper  High Yield  Series,  Kemper  U.S.  Government  Securities  Fund,  Kemper
International Fund, Kemper State Tax-Free Income Series,  Kemper Blue Chip Fund,
Kemper  Global  Income Fund,  Kemper Target Equity Fund (series are subject to a
limited offering period),  Kemper Intermediate  Municipal Bond Fund, Kemper Cash
Reserves Fund (available only upon exchange or conversion from Class A shares of
another  Scudder  Kemper  Mutual  Fund),   Kemper  U.S.  Mortgage  Fund,  Kemper
Short-Intermediate  Government  Fund,  Kemper  Value Plus  Growth  Fund,  Kemper
Horizon Fund,  Kemper New Europe Fund,  Inc.,  Kemper Asian Growth Fund,  Kemper
Aggressive Growth Fund, Kemper Global/International  Series, Inc., Kemper Equity
Trust and Kemper Securities  Trust,  Scudder 21st Century Growth Fund, The Japan
Fund, Inc.,  Scudder High Yield Tax Free Fund,  Scudder Pathway Series -Moderate
Portfolio,  Scudder  Pathway Series - Conservative  Portfolio,  Scudder  Pathway
Series - Growth Portfolio, Scudder International Fund, Scudder Growth and Income
Fund,  Scudder  Large Company  Growth Fund,  Scudder  Health Care Fund,  Scudder
Technology  Innovation  Fund,  Global  Discovery  Fund,  Value Fund, and Classic
Growth Fund ("Scudder Kemper Mutual Funds").  Except as noted below, there is no
combined  purchase credit for direct  purchases of shares of Zurich Money Funds,
Cash  Equivalent  Fund,  Tax-Exempt  California  Money Market Fund, Cash Account
Trust,  Investor's  Municipal  Cash Fund or Investors  Cash Trust ("Money Market
Funds"),  which are not  considered a "Scudder  Kemper Mutual Fund" for purposes
hereof.  For purposes of the Combined  Purchases feature described above as well
as for the Letter of Intent and Cumulative  Discount  features  described below,
employer  sponsored  employee benefit plans using the subaccount  record keeping
system made available  through the  Shareholder  Service Agent may include:  (a)
Money Market Funds as "Kemper  Mutual  Funds",  (b) all classes of shares of any
Scudder Kemper Mutual Fund and (c) the value of any other plan investments, such
as  guaranteed  investment  contracts  and employer  stock,  maintained  on such
subaccount record keeping system.


Class A Shares - Letter of Intent.  The same reduced  sales  charges for Class A
shares,  as shown in the  applicable  prospectus,  also  apply to the  aggregate
amount of purchases of such Scudder Kemper Mutual Funds listed above made by any
purchaser  within a 24-month period under a written Letter of Intent  ("Letter")
provided by KDI. The Letter,  which  imposes no  obligation  to purchase or sell
additional Class A shares,  provides for a price  adjustment  depending upon the
actual amount purchased  within such period.  The Letter provides that the first
purchase following  execution of the Letter must be at least 5% of the amount of
the  intended  purchase,  and that 5% of the  amount  of the  intended  purchase
normally will be held in escrow in the form of shares pending  completion of the
intended  purchase.  If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the  appropriate  number of escrowed  shares are redeemed and the proceeds
used toward  satisfaction  of the obligation to pay the increased  sales charge.
The Letter for an  employer-sponsored  employee  benefit plan  maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special  provisions  regarding  payment of any  increased  sales charge
resulting from a failure to complete the intended  purchase under the Letter.  A
shareholder may include the value (at the maximum  offering price) of all shares
of such Scudder  Kemper  Mutual Funds held of record as of the initial  purchase
date under the Letter as an  "accumulation  credit" toward the completion of the
Letter, but no price adjustment will be made on such shares. Only investments in
Class A shares are included for this privilege.

Class A Shares -  Cumulative  Discount.  Class A shares  of the Fund may also be
purchased at the rate applicable to the discount  bracket  attained by adding to
the cost of shares of the Fund being purchased,  the value of all Class A shares
of the above  mentioned  Scudder  Kemper  Mutual Funds  (computed at the maximum
offering price at the time of the purchase for which the discount is applicable)
already owned by the investor.

Class A  Shares  -  Availability  of  Quantity  Discounts.  An  investor  or the
investor's  dealer or other financial  services firm must notify the Shareholder
Service  Agent or KDI  whenever a quantity  discount or reduced  sales charge is
applicable to a purchase. Upon such notification,  the investor will receive the
lowest  applicable  sales  charge.  Quantity  discounts  described  above may be
modified or terminated at any time.

Exchange  Privilege.  Shareholders  of Class A,  Class B and Class C shares  may
exchange  their shares for shares of the  corresponding  class of other  Scudder
Kemper Mutual Funds in accordance with the provisions below.

                                       51
<PAGE>

Class A Shares.  Class A shares of the Scudder Kemper Mutual Funds and shares of
the Money  Market  Funds  listed  under  "Special  Features -- Class A Shares --
Combined  Purchases" above may be exchanged for each other at their relative net
asset  values.  Shares of Money Market Funds and the Kemper Cash  Reserves  Fund
that were  acquired  by  purchase  (not  including  shares  acquired by dividend
reinvestment) are subject to the applicable sales charge on exchange.  Series of
Kemper  Target  Equity Fund are  available on exchange  only during the Offering
Period  for  such  series  as  described  in  the  applicable  prospectus.  Cash
Equivalent  Fund,  Tax-Exempt  California Money Market Fund, Cash Account Trust,
Investors Municipal Cash Fund and Investors Cash Trust are available on exchange
but only through a financial services firm having a services agreement with KDI.

Class A shares  of the  Fund  purchased  under  the  Large  Order  NAV  Purchase
Privilege may be exchanged for Class A shares of another  Scudder  Kemper Mutual
Fund or a Money Market Fund under the exchange privilege described above without
paying any  contingent  deferred  sales charge at the time of  exchange.  If the
Class A shares  received on  exchange  are  redeemed  thereafter,  a  contingent
deferred  sales  charge  may  be  imposed  in  accordance   with  the  foregoing
requirements  provided that the shares  redeemed will retain their original cost
and purchase date for purposes of  calculating  the  contingent  deferred  sales
charge.

Class B  Shares.  Class B shares  of the Fund and  Class B shares  of any  other
Scudder Kemper Mutual Fund listed under  "Special  Features -- Class A Shares --
Combined  Purchases" may be exchanged for each other at their relative net asset
values.  Class B shares may be  exchanged  without a contingent  deferred  sales
charge being imposed at the time of exchange.  For purposes of  calculating  the
contingent  deferred sales charge that may be imposed upon the redemption of the
Class B shares  received on exchange,  amounts  exchanged  retain their original
cost and purchase date.

Class C  Shares.  Class C shares  of the Fund and  Class C shares  of any  other
Scudder Kemper Mutual Fund listed under  "Special  Features -- Class A Shares --
Combined  Purchases" may be exchanged for each other at their relative net asset
values.  Class C shares may be  exchanged  without a contingent  deferred  sales
charge  being  imposed at the time of  exchange.  For  purposes  of  determining
whether there is a contingent deferred sales charge that may be imposed upon the
redemption of the Class C shares received by exchange,  they retain the cost and
purchase date of the shares that were originally purchased and exchanged.


General.  Shares  of a  Scudder  Kemper  Mutual  Fund  with a value in excess of
$1,000,000  (except  Kemper Cash  Reserves  Fund)  acquired by exchange  through
another  Scudder  Kemper  Mutual Fund,  or from a Money Market Fund,  may not be
exchanged  thereafter  until they have been owned for 15 days (the  "15-Day Hold
Policy").  In addition,  shares of a Scudder  Kemper Mutual Fund with a value of
$1,000,000 or less (except  Kemper Cash Reserves Fund) acquired by exchange from
another  Scudder  Kemper  Mutual Fund,  or from a money market fund,  may not be
exchanged  thereafter  until  they  have  been  owned  for 15 days,  if,  in the
Advisor's  judgment,  the exchange  activity  may have an adverse  effect on the
fund.  In  particular,  a pattern of  exchanges  that  coincides  with a "market
timing"  strategy  may be  disruptive  to the  Scudder  Kemper  Mutual  Fund and
therefore may be subject to the 15-Day Hold Policy.


For  purposes  of  determining  whether  the  15-Day  Hold  Policy  applies to a
particular  exchange,  the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control,   discretion  or  advice,  including,   without  limitation,   accounts
administered  by  a  financial  services  firm  offering  market  timing,  asset
allocation or similar  services.  The total value of shares being exchanged must
at least equal the minimum  investment  requirement of the Scudder Kemper Mutual
Fund into which they are being  exchanged.  Exchanges are made based on relative
dollar values of the shares  involved in the  exchange.  There is no service fee
for an exchange;  however,  dealers or other firms may charge for their services
in effecting exchange transactions.  Exchanges will be effected by redemption of
shares of the fund held and  purchase of shares of the other  fund.  For federal
income tax purposes,  any such exchange  constitutes a sale upon which a gain or
loss may be  realized,  depending  upon  whether  the value of the shares  being
exchanged  is more or less than the  shareholder's  adjusted  cost basis of such
shares.  Shareholders interested in exercising the exchange privilege may obtain
prospectuses of the other Funds from dealers,  other firms or KDI. Exchanges may
be  accomplished  by a written  request to Kemper  Service  Company,  Attention:
Exchange Department,  P.O. Box 419557,  Kansas City, Missouri 64141-6557,  or by
telephone if the shareholder has given authorization.  Once the authorization is
on file,  the  Shareholder  Service  Agent will honor  requests by  telephone at
1-800-621-1048,  subject to the  limitations on liability  under  "Redemption or


                                       52
<PAGE>

Repurchase of Shares -- General." Any share certificates must be deposited prior
to any exchange of such shares.  During  periods when it is difficult to contact
the  Shareholder  Service  Agent by  telephone,  it may be  difficult to use the
telephone exchange  privilege.  The exchange privilege is not a right and may be
suspended,  terminated  or modified at any time.  Exchanges may only be made for
Funds  that are  available  for sale in the  shareholder's  state of  residence.
Currently, Tax-Exempt California Money Market Fund is available for sale only in
California  and  Investors  Municipal  Cash Fund is  available  for sale only in
certain  states.  Except as otherwise  permitted by applicable  regulations,  60
days'  prior  written  notice of any  termination  or  material  change  will be
provided.

Systematic Exchange  Privilege.  The owner of $1,000 or more of any class of the
shares of a Scudder  Kemper  Mutual Fund or Money Market Fund may  authorize the
automatic exchange of a specified amount ($50 minimum) of such shares for shares
of the same class of another  such  Scudder  Kemper  Mutual  Fund.  If selected,
exchanges will be made automatically until the shareholder or the Scudder Kemper
Mutual Fund  terminates  the  privilege.  Exchanges are subject to the terms and
conditions  described above under "Exchange  Privilege,"  except that the $1,000
minimum  investment  requirement  for the Scudder Kemper Mutual Fund acquired on
exchange is not  applicable.  This privilege may not be used for the exchange of
shares held in certificated form.

EXPRESS-Transfer.  EXPRESS-Transfer  permits  the  transfer  of  money  via  the
Automated  ClearingHouse  System  (minimum  $100  and  maximum  $50,000)  from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund.  Shareholders  can also  redeem  Shares  (minimum  $100 and maximum
$50,000)  from their Fund  account  and  transfer  the  proceeds  to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through  EXPRESS-Transfer  or Bank Direct Deposit may not be redeemed under this
privilege  until such Shares have been owned for at least 10 days.  By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon  telephone  instructions  from any person to  transfer  the  specified
amounts  between the  shareholder's  Fund  account and the  predesignated  bank,
savings  and  loan or  credit  union  account,  subject  to the  limitations  on
liability  under  "Redemption or Repurchase of Shares -- General." Once enrolled
in EXPRESS-Transfer,  a shareholder can initiate a transaction by calling Kemper
Shareholder  Services toll free at 1-800-621-1048,  Monday through Friday,  8:00
a.m. to 3:00 p.m.  Chicago time.  Shareholders  may terminate  this privilege by
sending written notice to Kemper Service Company,  P.O. Box 419415, Kansas City,
Missouri   64141-6415.   Termination  will  become  effective  as  soon  as  the
Shareholder  Service  Agent has had a reasonable  amount of time to act upon the
request.  EXPRESS-Transfer  cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").


Bank Direct Deposit.  A shareholder may purchase  additional  shares of the Fund
through an automatic  investment program.  With the Bank Direct Deposit Purchase
Plan ("Bank Direct Deposit"),  investments are made  automatically  (minimum $50
and maximum $50,000) from the shareholder's  account at a bank, savings and loan
or credit union into the shareholder's Fund account. By enrolling in Bank Direct
Deposit,  the  shareholder  authorizes  the Fund and its  agents to either  draw
checks or initiate Automated ClearingHouse debits against the designated account
at a bank or other  financial  institution.  This  privilege  may be selected by
completing the appropriate  section on the Account  Application or by contacting
the Shareholder Service Agent for appropriate forms. A shareholder may terminate
his or her Plan by sending  written notice to Kemper Service  Company,  P.O. Box
419415,  Kansas City,  Missouri  64141-6415.  Termination by a shareholder  will
become  effective  within  thirty days after the  Shareholder  Service Agent has
received the request. The Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the  shareholder's  financial  institution.
The Fund may terminate or modify this privilege at any time.


Payroll Direct Deposit and Government  Direct Deposit.  A shareholder may invest
in the Fund through Payroll Direct Deposit or Government  Direct Deposit.  Under
these programs,  all or a portion of a shareholder's net pay or government check
is automatically invested in the Fund account each payment period. A shareholder
may terminate  participation  in these  programs by giving written notice to the
shareholder's employer or government agency, as appropriate.  (A reasonable time
to act is  required.)  The Fund is not  responsible  for the  efficiency  of the
employer or government  agency making the payment or any financial  institutions
transmitting payments.

                                       53
<PAGE>

Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the  offering  price (net  asset  value  plus,  in the case of Class A
shares,  the initial  sales charge) may provide for the payment from the owner's
account of any  requested  dollar amount to be paid to the owner or a designated
payee monthly,  quarterly,  semiannually or annually. The $5,000 minimum account
size is not applicable to Individual  Retirement Accounts.  The minimum periodic
payment is $50. The maximum  annual rate at which Class B shares may be redeemed
(and Class A shares  purchased under the Large Order NAV Purchase  Privilege and
Class C shares in their first year  following the  purchase)  under a systematic
withdrawal  plan  is 10% of the net  asset  value  of the  account.  Shares  are
redeemed so that the payee will receive payment  approximately  the first of the
month. Any income and capital gain dividends will be automatically reinvested at
net asset  value.  A  sufficient  number of full and  fractional  shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested  and  fluctuations  in the net  asset  value of the  shares  redeemed,
redemptions  for the purpose of making such  payments may reduce or even exhaust
the account.

The purchase of Class A shares while  participating  in a systematic  withdrawal
plan will  ordinarily be  disadvantageous  to the investor  because the investor
will be paying a sales  charge on the  purchase  of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid.  Therefore,  the Fund will not knowingly permit additional  investments of
less  than  $2,000  if  the  investor  is at the  same  time  making  systematic
withdrawals.  KDI will waive the contingent deferred sales charge on redemptions
of Class A shares purchased under the Large Order NAV Purchase Privilege,  Class
B shares and Class C shares made pursuant to a systematic  withdrawal  plan. The
right is reserved to amend the  systematic  withdrawal  plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Fund.

Tax-Sheltered   Retirement   Plans.  The  Shareholder   Service  Agent  provides
retirement plan services and documents and KDI can establish  investor  accounts
in any of the following types of retirement plans:

o    Traditional,  Roth and Education  Individual  Retirement Accounts ("IRAs").
     This includes Savings Incentive Match Plan for Employees of Small Employers
     ("SIMPLE"),  Simplified  Employee  Pension  Plan  ("SEP") IRA  accounts and
     prototype documents.

o    403(b)(7) Custodial  Accounts.  This type of plan is available to employees
     of most non-profit organizations.

o    Prototype money purchase pension and profit-sharing plans may be adopted by
     employers. The maximum annual contribution per participant is the lesser of
     25% of compensation or $30,000.

Brochures  describing  the above plans as well as model defined  benefit  plans,
target benefit plans, 457 plans, 401(k) plans, simple 401(k) plans and materials
for  establishing  them are available  from the  Shareholder  Service Agent upon
request.   Investors   should  consult  with  their  own  tax  advisors   before
establishing a retirement plan.

The Fund may suspend the right of  redemption  or delay  payment more than seven
days (a) during any period  when the  Exchange  is closed  other than  customary
weekend  and  holiday  closings  or during  any  period in which  trading on the
Exchange  is  restricted,  (b) during any period when an  emergency  exists as a
result  of which  (i)  disposal  of the  Fund's  investments  is not  reasonably
practicable,  or (ii) it is not reasonably practicable for the Fund to determine
the value of its net  assets,  or (c) for such  other  periods as the SEC may by
order permit for the protection of the Fund's shareholders.



                                       54
<PAGE>



The  conversion  of Class B  Shares  to Class A  Shares  may be  subject  to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other  assurance  acceptable  to the Fund to the effect  that (a) the
assessment of the  distribution  services fee with respect to Class B Shares and
not  Class A  Shares  does  not  result  in the  Fund's  dividends  constituting
"preferential  dividends"  under the  Internal  Revenue  Code,  and (b) that the
conversion  of Class B Shares to Class A Shares  does not  constitute  a taxable
event under the Internal Revenue Code. The conversion of Class B Shares to Class
A Shares may be suspended if such assurance is not available.  In that event, no
further  conversions of Class B Shares would occur, and Shares might continue to
be subject to the  distribution  services fee for an indefinite  period that may
extend beyond the proposed conversion date as described in the prospectus.

OFFICERS AND DIRECTORS


The  officers and  Directors of the  Corporation,  their ages,  their  principal
occupations  and  their  affiliations,  if any,  with the  Advisor,  and  Kemper
Distributors, Inc., are as follows:


<TABLE>
<CAPTION>

                                                                                                         Position with
                                                                                                          Underwriter,
                                      Position with                                                          Kemper
     Name, Age, and Address                Fund                 Principal Occupation**                  Distributors, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------


<S>                                <C>                     <C>                                      <C>
Henry P. Becton, Jr. (56)          Director                President, WGBH Educational Foundation            --
WGBH
125 Western Avenue
Allston, MA 02134
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------

Linda C. Coughlin (48)+*           Director and President  Managing Director of Zurich Scudder     Director and Vice
                                                           Investments, Inc.                       Chairman

---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Dawn-Marie Driscoll (53)           Director                Executive Fellow, Center for                      --
4909 SW 9th Place                                          Business Ethics, Bentley College;
Cape Coarl, FL 33914                                       President, Driscoll Associates
                                                           (consulting firm)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------

Edgar R. Fiedler (70)              Director                Senior Fellow and Economic                        --
50023 Brogden                                              Counselor, The Conference Board,
Chapel Hill, NC                                            Inc.(not-for-profit business
                                                           research organization)

---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Keith R. Fox (45)                  Director                General Partner, The Exeter Group of              --
10 East 53rd Street                                        Funds; Private Equity Investor
New York, NY  10022
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------


                                       55
<PAGE>


                                                                                                         Position with
                                                                                                          Underwriter,
                                      Position with                                                          Kemper
     Name, Age, and Address                Fund                 Principal Occupation**                  Distributors, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------


Joan E. Spero (55)                 Director                President, Doris Duke Charitable                  --
Doris Duke Charitable Foundation                           Foundation; Department of State -
650 Fifth Avenue                                           Undersecretary of State for Economic,
New York, NY  10128                                        Business and Agricultural Affairs
                                                           (March 1993 to January 1997)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Jean Gleason Stromberg (56)        Director                Consultant; Director, Financial                   --
3816 Military Road, NW                                     Institutions Issues, U.S. General
Washington, D.C.                                           Accounting Office (1996-1997);
                                                           Partner, Fulbright & Jaworski (law
                                                           firm) (1978-1996)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Jean C. Tempel (56)                Director                Managing  Director, First Light                   --
One Boston Place 23rd Floor                                Capital, LLC (venture capital firm)
Boston, MA 02108
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Steven Zaleznick (45)*             Director                President and CEO, AARP Services, Inc.            --
601 E Street
Washington, D.C. 20004
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------

Thomas V. Bruns (43)#              Vice President          Managing Director of Zurich Scudder     President
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Irene T. Cheng (44)++              Vice President          Managing Director of Zurich Scudder                --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Joyce E. Cornell (55)++            Vice President          Managing Director of Zurich Scudder                --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Carol L. Franklin (46)++           Vice President          Managing Director of Zurich Scudder                --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Edmund B. Games, Jr. (61)+         Vice President          Managing Director of Zurich Scudder                --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
William F. Glavin (41)+            Vice President          Managing Director of Zurich Scudder     Managing Director
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Joan Gregory (55)++                Vice President          Vice President of Zurich Scudder                   --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
James E. Masur (40)+               Vice President          Senior Vice President of Zurich                    --
                                                           Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------


                                       56
<PAGE>


                                                                                                         Position with
                                                                                                          Underwriter,
                                      Position with                                                          Kemper
     Name, Age, and Address                Fund                 Principal Occupation**                  Distributors, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------



Ann M. McCreary (43)++             Vice President          Managing Director of Zurich Scudder               --
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Kathryn L. Quirk (47)++            Vice President and      Managing Director of Zurich Scudder     Director, Secretary,
                                   Assistant Secretary     Investments, Inc.                       Chief Legal Officer and
                                                                                                   Vice President
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Howard S. Schneider (43)+          Vice President          Managing Director of Zurich Scudder                __
                                                           Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Tien-Yu Sieh (31)++                Vice President          Senior Vice President of Zurich                    __
                                                           Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
John R. Hebble (42)+               Treasurer               Senior Vice President of Zurich                    __
                                                           Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Brenda Lyons (37)+                 Assistant Treasurer     Senior Vice President of Zurich
                                                           Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Caroline Pearson (38)+             Assistant Secretary     Senior Vice President of Zurich                    __
                                                           Scudder Investments, Inc.; Associate,
                                                           Dechert Price & Rhoads (law firm)
                                                           1989 - 1997
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
John Millette (37)+                Vice President and      Vice President of Zurich Scudder                  --
                                   Secretary               Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------

</TABLE>

*    Ms.  Coughlin and Mr.  Zaleznick are considered by the Fund and its counsel
     to be  persons  who  are  "interested  persons"  of the  Advisor  or of the
     Corporation, within the meaning of the 1940 Act.

**   Unless  otherwise  stated,  all of the  Directors  and  officers  have been
     associated with their  respective  companies for more than five years,  but
     not necessarily in the same capacity.
+    Address: Two International Place, Boston, Massachusetts
++   Address:  345 Park Avenue, New York, New York
#    222 South Riverside Plaza, Chicago, Illinois

The Directors and Officers of the Corporation  also serve in similar  capacities
with other Scudder Funds.




To the  best of the  Corporation's  knowledge,  as of  November  30,  2000,  all
Directors and officers of the Corporation,  as a group,  owned  beneficially (as
that term is  defined in Section  13 (d) under the  Securities  Exchange  Act of
1934)  less  than  1%  of  the  outstanding  shares  of  any  class  of  Scudder
International Fund.

                                       57
<PAGE>

To the best of the Fund's knowledge, as of November 30, 2000, no person owned of
record  more than 5% or more of the  outstanding  shares of any class of Scudder
International  Fund,  except  as  stated  below.  They may be  deemed  to be the
beneficial owner of certain of these shares.

As of November 30, 2000,  11,200,992  shares in the aggregate,  or 13.39% of the
outstanding shares of Scudder International Fund Class S - were held in the name
of Charles Schwab, 101 Montgomery Street, San Francisco,  CA 9410 who may deemed
to be the beneficial owner of such shares.


REMUNERATION

Responsibilities of the Board--Board and Committee Meetings


The  Board of  Directors  of the  Corporation  is  responsible  for the  general
oversight  of the Fund's  business.  A majority of the  Board's  members are not
affiliated with Zurich Scudder Investments,  Inc. These "Independent  Directors"
have primary  responsibility  for assuring  that the Fund is managed in the best
interests of its shareholders.


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

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

Compensation of Officers and Directors of the Fund

Each Independent Director receives  compensation for his or her services,  which
includes an annual retainer and an attendance fee for each meeting attended. The
Independent Director who serves as lead trustee receives additional compensation
for his or her service.  No additional  compensation  is paid to any Independent
Director  for travel time to  meetings,  attendance  at  directors'  educational
seminars  or  conferences,   service  on  industry  or  association  committees,
participation  as  speakers  at  directors'  conferences  or  service on special
trustee task forces or subcommittees.  Independent  Directors do not receive any
employee  benefits such as pension or retirement  benefits or health  insurance.
Notwithstanding the schedule of fees, the Independent Directors have in the past
and may in the future waive a portion of their compensation.


The  Independent  Directors  also  serve in the same  capacity  for other  funds
managed by the Advisor. These funds differ broadly in type and complexity and in
some cases have substantially  different  Director fee schedules.  The following
table shows the aggregate  compensation  received by each  Independent  Director
during 1999 from the Corporation and from all of the Scudder funds as a group.


<TABLE>
<CAPTION>
                                    Scudder International
             Name                        Fund, Inc.*                All Scudder Funds
-------------------------------- --------------------------- -----------------------------
<S>                                          <C>               <C>         <C>
Henry P. Becton, Jr.**                       $0                $140,000    (30 funds)
-------------------------------- --------------------------- -----------------------------
Dawn-Marie Driscoll**                        $0                $150,000    (30 funds)
-------------------------------- --------------------------- -----------------------------
Edgar R. Fiedler+**                          $0                 $73,230    (29 funds)
-------------------------------- --------------------------- -----------------------------
Keith R. Fox                              $43,650              $160,325    (23 funds)
-------------------------------- --------------------------- -----------------------------


                                       58
<PAGE>

                                    Scudder International
             Name                        Fund, Inc.*                All Scudder Funds
-------------------------------- --------------------------- -----------------------------
Joan E. Spero                             $47,550              $175,275    (23 funds)
-------------------------------- --------------------------- -----------------------------
Jean Gleason Stromberg**                     $0                 $40,935    (16 funds)
-------------------------------- --------------------------- -----------------------------
Jean C. Tempel**                             $0                $140,000    (30 funds)
-------------------------------- --------------------------- -----------------------------
</TABLE>

*    In 1999, Scudder International Fund, Inc. consisted of eight funds: Scudder
     International   Fund,   Scudder  Latin  America   Fund,   Scudder   Pacific
     Opportunities  Fund,  Scudder Greater Europe Growth Fund,  Scudder Emerging
     Markets Growth Fund, Scudder  International Growth and Income Fund, Scudder
     International Value Fund and Scudder International Growth Fund.

**   Newly elected Director. On July 7, 2000, shareholders of the Fund elected a
     new Board of Directors.  See the "Directors  and Officers"  section for the
     newly constituted Board of Directors.

+    Mr.  Fiedler's  total  compensation  includes the $9,900  accrued,  but not
     received, through the deferred compensation program.


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


SHAREHOLDER RIGHTS

Scudder International Fund, Inc. was organized as Scudder Fund of Canada Ltd. in
Canada in 1953 by the investment  management  firm of Scudder,  Stevens & Clark,
Inc.  On March 16,  1964,  the name of the  Corporation  was  changed to Scudder
International  Investments Ltd. On July 31, 1975, the corporate  domicile of the
Corporation was changed to the U.S.  through the transfer of its net assets to a
newly formed Maryland corporation, Scudder International Fund, Inc., in exchange
for shares of the Corporation which then were distributed to the shareholders of
the Corporation.


The  authorized  capital  stock of the  Corporation  consists  of  2,247,923,888
billion shares of a par value of $.01 each, which capital stock has been divided
into five series: Scudder International Fund, the original series; Scudder Latin
America Fund and Scudder Pacific  Opportunities Fund, both organized in December
1992, Scudder Greater Europe Growth Fund, organized in October 1994, and Scudder
Emerging Markets Growth Fund, organized in May 1996. Each series consists of 320
million  shares  except for  International  Fund which  consists of  620,595,597
million shares. Scudder International Fund is further divided into seven classes
of shares, Class AARP, Class S, Barrett  International Shares, Class A (formerly
known as Class R shares),  Class B, Class C, and Class I shares.  Scudder  Latin
America Fund, Scudder Pacific  Opportunities Fund, Scudder Greater Europe Growth
Fund and Scudder Emerging Markets Growth Fund are each further divided into five
classes  of  shares,  Class  AARP,  Class S,  Class A,  Class B and Class C. The
Directors  have the  authority  to issue  additional  series  of  shares  and to
designate the relative rights and  preferences as between the different  series.
All  shares  issued  and   outstanding   are  fully  paid  and   non-assessable,
transferable,  and redeemable at net asset value, subject to such charges as may
be applicable,  at the option of the shareholder.  Shares have no pre-emptive or
conversion  rights. To the extent that the Funds offer additional share classes,
these classes will be offered in a separate  prospectus and have different fees,
requirements and services.




                                       59
<PAGE>



The  Directors  of the  Corporation,  in their  discretion,  may  authorize  the
additional  division of shares of a series  into  different  classes  permitting
shares of different  classes to be  distributed by different  methods.  Although
shareholders of different classes of a series would have an interest in the same
portfolio  of assets,  shareholders  of  different  classes  may bear  different
expenses in connection with different methods of distribution.

The assets of the  Corporation  received  for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the  rights of  creditors,  are  specifically  allocated  to such  series and
constitute the underlying  assets of such series.  The underlying assets of each
series are  segregated  on the books of account,  and are to be charged with the
liabilities  in  respect  to such  series  and with such a share of the  general
liabilities of the Corporation. If a series were unable to meet its obligations,
the  assets  of all other  series  may in some  circumstances  be  available  to
creditors for that purpose,  in which case the assets of such other series could
be used to meet liabilities which are not otherwise properly chargeable to them.
Expenses  with  respect  to any  two or  more  series  are  to be  allocated  in
proportion to the asset value of the respective  series except where allocations
of  direct   expenses  can  otherwise  be  fairly  made.  The  officers  of  the
Corporation, subject to the general supervision of the Directors, have the power
to determine  which  liabilities  are allocable to a given series,  or which are
general or allocable to two or more series.  In the event of the  dissolution or
liquidation of the  Corporation or any series,  the holders of the shares of any
series are entitled to receive as a class the  underlying  assets of such shares
available for distribution to shareholders.

Shares of the Corporation entitle their holders to one vote per share;  however,
separate  votes are taken by each  series on  matters  affecting  an  individual
series and by class on matters  affecting an individual  class.  For example,  a
change  in  investment  policy  for  a  series  would  be  voted  upon  only  by
shareholders of the series  involved.  Additionally,  approval of the investment
advisory  agreement  is a matter to be  determined  separately  by each  series.
Approval  by the  shareholders  of one  series is  effective  as to that  series
whether or not enough  votes are  received  from the  shareholders  of the other
series to approve such agreement as to the other series.


Pursuant  to the  approval  of a majority  of  stockholders,  the  Corporation's
Directors  have the  discretion to retain the current  distribution  arrangement
while investing in a master fund in a master/feeder  fund structure if the Board
determines  that the  objectives of the Fund would be achieved more  efficiently
thereby.

The  Corporation's  Board of Directors  supervises  the Fund's  activities.  The
Corporation  adopted  a plan  pursuant  to Rule  18f-3  under  the 1940 Act (the
"Plan") to permit the  Corporation  to establish a multiple  class  distribution
system for the Fund.

Under the  Plan,  each  class of shares  will  represent  interests  in the same
portfolio of investments of the Series, and be identical in all respects to each
other class,  except as set forth below. The only differences  among the various
classes  of  shares  of  the  Series  will  relate   solely  to:  (a)  different
distribution fee payments or service fee payments associated with any Rule 12b-1
Plan  for a  particular  class  of  shares  and  any  other  costs  relating  to
implementing or amending such Rule 12b-1 Plan (including  obtaining  shareholder
approval of such Rule 12b-1 Plan or any amendment  thereto)  which will be borne
solely by shareholders of such class; (b) different  service fees; (c) different
account  minimums;  (d) the  bearing  by each  class of its Class  Expenses,  as
defined in Section 2(b) below;  (e) the voting rights  related to any Rule 12b-1
Plan affecting a specific class of shares; (f) separate exchange privileges; (g)
different  conversion  features and (h) different class names and  designations.


                                       60
<PAGE>

Expenses currently  designated as "Class Expenses" by the Corporation's Board of
Directors under the Plan include, for example, transfer agency fees attributable
to a specific class, and certain securities registration fees.


Shares of the Corporation have  non-cumulative  voting rights,  which means that
the holders of more than 50% of the shares  voting for the election of Directors
can elect 100% of the Directors if they choose to do so, and, in such event, the
holders of the remaining  less than 50% of the shares voting for the election of
Directors  will not be able to elect  any  person  or  persons  to the  Board of
Directors.

The  Corporation's   Amended  and  Restated   Articles  of  Incorporation   (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland  General  Corporation  Law and the 1940 Act,  shall not be
liable  to the  Corporation  or  its  shareholders  for  damages.  Maryland  law
currently  provides that Directors shall not be liable for actions taken by them
in good faith,  in a manner  reasonably  believed to be in the best interests of
the  Corporation  and with the care that an ordinarily  prudent person in a like
position would use under similar  circumstances.  In so acting, a Director shall
be fully  protected in relying in good faith upon the records of the Corporation
and upon reports made to the  Corporation  by persons  selected in good faith by
the Directors as qualified to make such reports. The Articles and the By-Laws of
the  Corporation  provide that the  Corporation  will  indemnify its  Directors,
officers,  employees or agents  against  liabilities  and  expenses  incurred in
connection  with  litigation  in which  they may be  involved  because  of their
offices with the Corporation consistent with applicable law.

ADDITIONAL INFORMATION

Other Information

The CUSIP numbers of the classes are:


Class A: 811165-810

Class B: 811165-794

Class C: 811165-786

Class I: 811165-778




The Fund has a fiscal year ending  August 31. On June 7, 1999,  the Directors of
the Fund changed the fiscal year end of the Fund from March 31 to August 31.


Many of the investment changes in the Fund will be made at prices different from
those  prevailing  at the time  they may be  reflected  in a  regular  report to
shareholders of the Fund. These transactions will reflect  investment  decisions


                                       61
<PAGE>

made by the Advisor in light of the Fund's  investment  objectives and policies,
its other portfolio holdings and tax considerations, and should not be construed
as recommendations for similar action by other investors.


The Fund employs Brown  Brothers  Harriman & Company,  40 Water Street,  Boston,
Massachusetts 02109 as Custodian for the Fund.

The law firm of Dechert is counsel to the Fund.

The Fund's Shares  prospectus and this Statement of Additional  Information omit
certain information  contained in the Registration  Statement and its amendments
which the Fund has filed with the SEC under the 1933 Act and reference is hereby
made to the Registration  Statement for further  information with respect to the
Fund 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  portfolio  of the Fund,
together with the Report of Independent  Accountants,  Financial  Highlights and
notes to financial  statements in the Annual Report to the  Shareholders  of the
Fund dated August 31, 2000, are incorporated  herein by reference and are hereby
deemed to be a part of this Statement of Additional Information.



                                       62
<PAGE>



APPENDIX
--------

         The following is a description  of the ratings given by Moody's and S&P
to corporate bonds.

Ratings of Corporate Bonds

         S&P: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely  strong.  Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated  issues only in small  degree.  Debt rated A has a strong  capacity to pay
interest and repay  principal  although it is somewhat more  susceptible  to the
adverse effects of changes in circumstances and economic conditions than debt in
higher  rated  categories.  Debt  rated BBB is  regarded  as having an  adequate
capacity to pay  interest  and repay  principal.  Whereas it  normally  exhibits
adequate  protection   parameters,   adverse  economic  conditions  or  changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.

         Debt rated BB, B, CCC,  CC and C is  regarded  as having  predominantly
speculative  characteristics  with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and  protective  characteristics,  these
are outweighed by large uncertainties or major exposures to adverse conditions.

         Debt rated BB has less  near-term  vulnerability  to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse  business,  financial,  or  economic  conditions  which  could  lead  to
inadequate  capacity to meet timely  interest  and  principal  payments.  The BB
rating  category  is also  used for debt  subordinated  to  senior  debt that is
assigned  an  actual  or  implied  BBB-  rating.  Debt  rated  B has  a  greater
vulnerability  to  default  but  currently  has the  capacity  to meet  interest
payments and principal  repayments.  Adverse  business,  financial,  or economic
conditions  will likely impair capacity or willingness to pay interest and repay
principal.  The B rating  category is also used for debt  subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.

         Debt rated CCC has a currently  identifiable  vulnerability to default,
and is dependent upon favorable business,  financial, and economic conditions to
meet timely  payment of interest  and  repayment of  principal.  In the event of
adverse business,  financial,  or economic conditions,  it is not likely to have
the  capacity to pay interest and repay  principal.  The CCC rating  category is
also used for debt  subordinated  to senior  debt that is  assigned an actual or
implied B or B- rating.  The rating CC typically is applied to debt subordinated
to senior debt that is  assigned  an actual or implied CCC rating.  The rating C
typically  is applied to debt  subordinated  to senior debt which is assigned an
actual  or  implied  CCC-  debt  rating.  The C  rating  may be used to  cover a
situation where a bankruptcy  petition has been filed, but debt service payments
are  continued.  The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest  payments or principal  payments are not made on the date due even
if the  applicable  grace period had not expired,  unless S&P believes that such
payments will be made during such grace  period.  The D rating also will be used
upon  the  filing  of  a  bankruptcy  petition  if  debt  service  payments  are
jeopardized.

         Moody's:  Bonds  which  are  rated  Aaa are  judged  to be of the  best
quality.  They carry the smallest  degree of  investment  risk and are generally
referred to as "gilt edge." Interest  payments are protected by a large or by an
exceptionally   stable  margin  and  principal  is  secure.  While  the  various
protective  elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally  strong position of such issues. Bonds
which are rated Aa are judged to be of high quality by all  standards.  Together
with the Aaa group they comprise  what are generally  known as high grade bonds.
They are rated lower than the best bonds because  margins of protection  may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater  amplitude or there may be other  elements  present  which make the long
term risks appear somewhat larger than in Aaa securities.  Bonds which are rated
A possess many favorable investment attributes and are to be considered as upper
medium grade obligations.  Factors giving security to principal and interest are
considered  adequate but elements may be present which suggest a  susceptibility
to impairment sometime in the future.

                                       63
<PAGE>

         Bonds which are rated Baa are  considered as medium grade  obligations,
i.e., they are neither highly  protected nor poorly secured.  Interest  payments
and principal  security appear  adequate for the present but certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have  speculative  characteristics  as well.  Bonds  which are rated Ba are
judged to have speculative  elements;  their future cannot be considered as well
assured.  Often the  protection of interest and  principal  payments may be very
moderate  and thereby not well  safeguarded  during both good and bad times over
the future.  Uncertainty of position  characterizes  bonds in this class.  Bonds
which are rated B generally lack  characteristics  of the desirable  investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

         Bonds which are rated Caa are of poor  standing.  Such issues may be in
default or there may be present  elements of danger with respect to principal or
interest.  Bonds which are rated Ca represent  obligations which are speculative
in a high  degree.  Such  issues  are  often in  default  or have  other  marked
shortcomings.  Bonds  which are rated C are the lowest  rated class of bonds and
issues so rated can be  regarded  as having  extremely  poor  prospects  of ever
attaining any real investment standing.


                                       64
<PAGE>
<PAGE>

                        SCUDDER INTERNATIONAL FUND, INC.
                                     PART C.

                                OTHER INFORMATION

<TABLE>
<CAPTION>
Item 23.      Exhibits
--------      --------

<S>             <C>                   <C>       <C>
                (a)                   (a)(1)    Articles of Amendment and Restatement of the Registrant as of
                                                January 24, 1991.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (a)(2)    Articles Supplementary dated September 17, 1992.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (a)(3)    Articles Supplementary dated December 1, 1992.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (a)(4)    Articles Supplementary dated August 3, 1994.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (a)(5)    Articles Supplementary dated February 20, 1996.
                                                (Incorporated by reference to Exhibit 1(e) to Post-Effective
                                                Amendment No. 46 to the Registration Statement.)

                                      (a)(6)    Articles Supplementary dated September 5, 1996.
                                                (Incorporated by reference to Exhibit 1(f) to Post-Effective
                                                Amendment No. 52 to the Registration Statement.)

                                      (a)(7)    Articles Supplementary dated December 12, 1996.
                                                (Incorporated by reference to Post-Effective Amendment No. 55 to
                                                the Registration Statement.)

                                      (a)(8)    Articles Supplementary dated March 3, 1997.
                                                (Incorporated by reference to Post-Effective Amendment No. 55 to
                                                the Registration Statement.)

                                      (a)(9)    Articles of Amendment dated December 23, 1997.  (Incorporated by
                                                reference to Post-Effective Amendment No. 65 to the Registration
                                                Statement.)

                                      (a)(10)   Articles Supplementary dated March 2,1998. (Incorporated by
                                                reference to Post-Effective Amendment No. 65 to the Registration
                                                Statement.)

                                      (a)(11)   Articles Supplementary dated March 31, 1998. (Incorporated by
                                                reference to Post-Effective Amendment No. 65 to the Registration
                                                Statement.)
<PAGE>

                                      (a)(12)   Articles of Transfer from Scudder Institutional Fund Inc., dated
                                                April 3, 1998. (Incorporated by reference to Post-Effective
                                                Amendment No. 67 to the Registration Statement.)

                                      (a)(13)   Articles Supplementary dated June 7, 1999.
                                                (Incorporated by reference to Post-Effective Amendment No. 72 to
                                                the Registration Statement.)

                                      (a)(14)   Articles Supplementary dated March 31, 2000 is incorporated by
                                                reference to Post-Effective Amendment No. 79 to the Registration
                                                Statement.

                                      (a)(15)   Articles of Amendment dated August 11, 2000 is filed herein.

                                      (a)(16)   Articles Supplementary dated November 30, 2000 is filed herein.

                                      (a)(17)   Articles Supplementary dated November 30, 2000 is filed herein.

                                      (a)(18)   Articles Supplementary dated December 26, 2000 is filed herein.

                                      (a)(19)   Articles of Amendment dated December 26, 2000 is filed herein.

                                      (a)(20)   Articles Supplementary dated December 26, 2000 is filed herein.

                (b)                   (b)(1)    Amended and Restated By-Laws of the Registrant dated March 4,
                                                1991. (Incorporated by reference to Post-Effective Amendment No.
                                                56 to the Registration Statement.)

                                      (b)(2)    Amended and Restated By-Laws of the Registrant dated September 20,
                                                1991. (Incorporated by reference to Post-Effective Amendment No.
                                                56 to the Registration Statement.)

                                      (b)(3)    Amended and Restated By-Laws of the Registrant dated December 12,
                                                1991. (Incorporated by reference to Post-Effective Amendment No.
                                                56 to the Registration Statement.)

                                      (b)(4)    Amended and Restated By-Laws of the Registrant dated September 4,
                                                1996. (Incorporated by reference to Post-Effective Amendment No.
                                                55 to the Registration Statement.)

                                       2
<PAGE>

                                      (b)(5)    Amended and Restated By-Laws of the Registrant dated December 3,
                                                1997. (Incorporated by reference to Post-Effective Amendment No.
                                                59 to the Registration Statement.)

                                      (b)(6)    Amended and Restated By-Laws of the Registrant dated February 7,
                                                2000 is incorporated by reference to Post-Effective Amendment No.
                                                80 to the Registration Statement.

                                      (b)(7)    Amendment to the By-laws, dated November 13, 2000, is filed herein.

                (c)                             Inapplicable.

                (d)                   (d)(1)    Investment Management Agreement between the Registrant, on behalf
                                                of Scudder International Fund, and Scudder Kemper Investments,
                                                Inc. dated September 7, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                      (d)(2)    Investment Management Agreement between the Registrant, on behalf
                                                of Scudder Latin America Fund, and Scudder Kemper Investments,
                                                Inc. dated September 7, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                      (d)(3)    Investment Management Agreement between the Registrant, on behalf
                                                of Scudder Pacific Opportunities Fund, and Scudder Kemper
                                                Investments, Inc. dated September 7, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                      (d)(4)    Investment Management Agreement between the Registrant, on behalf
                                                of Scudder Greater Europe Growth Fund, and Scudder Kemper
                                                Investments, Inc. dated September 7, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                      (d)(5)    Investment Management Agreement between the Registrant, on behalf
                                                of Scudder Emerging Markets Growth Fund, and Scudder Kemper
                                                Investments, Inc. dated September 7, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                       3
<PAGE>

                                      (d)(6)    Investment Management Agreement between the Registrant, on behalf
                                                of Scudder International Growth and Income Fund, and Scudder
                                                Kemper Investments, Inc. dated September 7, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                      (d)(7)    Investment Management Agreement between the Registrant, on behalf
                                                of Scudder International Value Fund, and Scudder Kemper
                                                Investments, Inc. dated September 7, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                      (d)(8)    Investment Management Agreement between the Registrant, on behalf
                                                of Scudder International Growth Fund, and Scudder Kemper
                                                Investments, Inc. dated September 7, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                      (d)(9)    Investment Management Agreement between the Registrant, on behalf
                                                of Scudder International Fund, Inc. and Scudder Kemper
                                                Investments, Inc. dated August 14, 2000 is  filed herein.

                                      (d)(10)   Amended and Restated Investment Management Agreement between the
                                                Registrant, on behalf of Scudder Pacific Opportunities Fund and
                                                Scudder Kemper Investments, Inc. dated May 8, 2000 is
                                                incorporated by reference to Post-Effective Amendment No. 80 to
                                                the Registration Statement.

                (e)                   (e)(1)    Underwriting Agreement between the Registrant and Scudder Investor
                                                Services, Inc. dated September 7, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                      (e)(2)    Underwriting Agreement between the Registrant and Scudder Investor
                                                Services, Inc. dated May 8, 2000 is incorporated by reference to
                                                Post-Effective Amendment No. 80 to the Registration Statement.

                                      (e)(3)    Underwriting and Distribution Services Agreement between the
                                                Registrant and Kemper Distributors, Inc. (on behalf of Scudder
                                                Emerging Markets Growth Fund, Scudder Greater Europe Growth Fund,
                                                Scudder International Fund, Scudder Latin America Fund and Scudder
                                                Pacific Opportunities Fund), dated November 9, 2000, is filed
                                                herein.

                                       4
<PAGE>

                (f)                             Inapplicable.

                (g)                   (g)(1)    Custodian Contract between the Registrant, on behalf of Scudder
                                                Latin America Fund, and Brown Brothers Harriman & Co. dated
                                                November 25, 1992.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (g)(2)    Custodian Contract between the Registrant, on behalf of Scudder
                                                Pacific Opportunities Fund, and Brown Brothers Harriman & Co.
                                                dated November 25, 1992.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (g)(3)    Custodian Contract between the Registrant, on behalf of Scudder
                                                Greater Europe Growth Fund, and Brown Brothers Harriman & Co.
                                                dated October 10, 1994.
                                                (Incorporated by reference to Post-Effective Amendment No. 44 to
                                                the Registration Statement.)

                                      (g)(4)    Custodian Contract between the Registrant and Brown Brothers
                                                Harriman & Co. dated March 7, 1995.
                                                (Incorporated by reference to Post-Effective Amendment No. 55 to
                                                the Registration Statement.)

                                      (g)(5)    Fee schedule for Exhibit (g)(4).
                                                (Incorporated by reference to Post-Effective Amendment No. 55 to
                                                the Registration Statement.)

                                      (g)(6)    Revised fee schedule for Exhibit (g)(4) is filed herein.

                                      (g)(7)    Master Subcustodian Agreement between Brown Brothers Harriman &
                                                Co. and Morgan Guaranty Trust Company of New York, Brussels
                                                office, dated November 15, 1976.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (g)(8)    Fee schedule for Exhibit (g)(6).
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (g)(9)    Subcustodian Agreement between Brown Brothers Harriman & Co. and
                                                The Bank of New York, London office, dated January 30, 1979.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (g)(10)   Fee schedule for Exhibit (g)(8).
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                       5
<PAGE>

                                      (g)(11)   Master Subcustodian Agreement between Brown Brothers Harriman &
                                                Co. and The Chase Manhattan Bank, N.A., Singapore office, dated
                                                June 9, 1980.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (g)(12)   Fee schedule for Exhibit (g)(10).
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.).

                                      (g)(13)   Master Subcustodian Agreement between Brown Brothers Harriman &
                                                Co. and The Chase Manhattan Bank, N.A., Hong Kong office, dated
                                                June 4, 1979.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (g)(14)   Fee schedule for Exhibit (g)(12).
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (g)(15)   Master Subcustodian Agreement between Brown Brothers Harriman &
                                                Co. and Citibank, N.A. New York office, dated July 16, 1981.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (g)(16)   Fee schedule for Exhibit (g)(14).
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                (h)                   (h)(1)    Transfer Agency and Service Agreement between the Registrant and
                                                Scudder Service Corporation dated October 2, 1989.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (h)(2)    Fee schedule for Exhibit (h)(1).
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (h)(3)    Agency Agreement between the Registrant (on behalf of Scudder
                                                International Fund) and Kemper Service Company, dated November 8,
                                                2000, is filed herein.

                                      (h)(4)    Service Agreement between Copeland Associates, Inc. and Scudder
                                                Service Corporation dated June 8, 1995.
                                                (Incorporated by reference to Post-Effective Amendment No. 45 to
                                                the Registration Statement.)

                                       6
<PAGE>

                                      (h)(5)    Letter Agreement between the Registrant and Cazenove, Inc. dated
                                                January 23, 1978, with respect to the pricing of securities.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (h)(6)    COMPASS and TRAK 2000 Service Agreement between the Registrant and
                                                Scudder Trust Company dated October 1, 1995.
                                                (Incorporated by reference to Exhibit 9(c)(3) to Post-Effective
                                                Amendment No. 47 to the Registration Statement.)

                                      (h)(7)    Shareholder Services Agreement between the Registrant and Charles
                                                Schwab & Co., Inc. dated June 1, 1990.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (h)(8)    Administrative Services Agreement between the Registrant and
                                                McGladrey & Pullen, Inc. dated September 30, 1995.
                                                (Incorporated by reference to Exhibit 9(d)(2) to Post-Effective
                                                Amendment No. 47 to the Registration Statement.)

                                      (h)(9)    Fund Accounting Services Agreement between the Registrant, on
                                                behalf of Scudder Greater Europe Growth Fund, and Scudder Fund
                                                Accounting Corporation dated October 10, 1994.
                                                (Incorporated by reference to Post-Effective Amendment No. 44 to
                                                the Registration Statement.)

                                      (h)(10)   Fund Accounting Services Agreement between the Registrant, on
                                                behalf of Scudder International Fund, and Scudder Fund Accounting
                                                Corporation dated April 12, 1995 is
                                                incorporated by reference to Post-Effective Amendment No. 45 to
                                                the Registration Statement.

                                      (h)(11)   Fund Accounting Services Agreement between the Registrant, on
                                                behalf of Scudder Latin America Fund, dated May 17, 1995.
                                                (Incorporated by reference to Exhibit 9(e)(3) to Post-Effective
                                                Amendment No. 47 to the Registration Statement.)

                                      (h)(12)   Fund Accounting Services Agreement between the Registrant, on
                                                behalf of Scudder Pacific Opportunities Fund, dated May 5, 1995.
                                                (Incorporated by reference to Exhibit 9(e)(4) to Post-Effective
                                                Amendment No. 47 to the Registration Statement.)

                                       7
<PAGE>

                                      (h)(13)   Fund Accounting Services Agreement between the Registrant, on
                                                behalf of Scudder Emerging Markets Growth Fund dated May 8, 1996.
                                                (Incorporated by reference to Exhibit 9(e)(5) to Post-Effective
                                                Amendment No. 49 to the Registration Statement.)

                                      (h)(14)   Fund Accounting Services Agreement between the Registrant, on
                                                behalf of Scudder International Growth and Income Fund dated June
                                                3, 1997.
                                                (Incorporated by reference to Post-Effective Amendment No. 56 to
                                                the Registration Statement.)

                                      (h)(15)   Fund Accounting Services Agreement between the Registrant, on
                                                behalf of Scudder International Growth Fund dated June 30, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                      (h)(16)   Fund Accounting Services Agreement between the Registrant, on
                                                behalf of Scudder International Value Fund dated June 30, 1998.
                                                (Incorporated by reference to Post-Effective Amendment No. 67 to
                                                the Registration Statement.)

                                      (h)(17)   Revised Fund Accounting Services Agreement between the Registrant
                                                (on behalf of Scudder International Fund) and Scudder Fund
                                                Accounting Corporation, dated November 13, 2000, is filed herein.

                                      (h)(18)   Administrative Services Agreement between Scudder International
                                                Fund, Inc., on behalf of Scudder International Fund, and Scudder
                                                Investors Service Company.
                                                (Incorporated by reference to Post-Effective Amendment No. 72 to
                                                the Registration Statement.)

                                      (h)(19)   Fee schedule for Exhibit (h)(16).
                                                (Incorporated by reference to Post-Effective Amendment No. 72 to
                                                the Registration Statement.)

                                      (h)(20)   Agency Agreement between Scudder International Fund, Inc., and
                                                Kemper Service Company dated June 7, 1999.
                                                (Incorporated by reference to Post-Effective Amendment No. 72 to
                                                the Registration Statement.)

                                      (h)(21)   Administrative Agreement between the Registrant on behalf of
                                                Scudder International Fund, Inc. and Scudder Kemper Investments,
                                                Inc. dated October 2, 2000 is filed herein.

                                       8
<PAGE>

                                      (h)(22)   Amended and Restated Administrative Agreement between the
                                                Registrant and Scudder Kemper Investments, Inc., dated November
                                                13, 2000, is filed herein.

                                      (h)(23)   Shareholder Services Agreement between the Registrant and Kemper
                                                Distributors, Inc., dated November 13, 2000, is filed herein.

                (i)                             Opinion and Consent of Counsel is filed herein.

                (j)                             Consent of Independent Accountants is filed herein.

                (k)                             Inapplicable.

                (l)                             Inapplicable.

                (m)                   (m)(1)    Rule 12(b)-1 and Administrative Services Plan with respect to
                                                Scudder International Fund Class R shares.
                                                (Incorporated by reference to Post-Effective Amendment No. 72 to
                                                the Registration Statement.)

                                      (m)(2)    Amended and Restated Rule 12b-1 Plan for Scudder International
                                                Fund, dated November 13, 2000, is filed herein.

                (n)                   (n)(1)    Plan with respect to Scudder International Fund pursuant to
                                                Rule 18f-3.
                                                (Incorporated by reference to Post-Effective Amendment No. 58
                                                Exhibit (o)(1) to the Registration Statement.)

                                      (n)(2)    Amended Plan with respect to Scudder International Fund pursuant
                                                to Rule 18f-3 dated June 7, 1999. (Incorporated by reference to
                                                Post-Effective Amendment No. 72 Exhibit (o)(2) to the Registration
                                                Statement.)

                                      (n)(3)    Amended and Restated Plan with respect to Scudder International
                                                Fund pursuant to Rule 18f-3 is filed herein.

                                      (n)(4)    Plan with respect to Scudder Latin America Fund pursuant to
                                                Rule 18f-3 is incorporated by reference to Post-Effective
                                                Amendment No. 80 to the Registration Statement.

                                      (n)(5)    Plan with respect to Scudder Pacific Opportunities Fund pursuant
                                                to Rule 18f-3 is incorporated by reference to Post-Effective
                                                Amendment No. 80 to the Registration Statement.

                                      (n)(6)    Plan with respect to Scudder Greater Europe Growth Fund pursuant
                                                to Rule 18f-3 is incorporated by reference to Post-Effective
                                                Amendment No. 80 to the Registration Statement.

                                       9
<PAGE>

                                      (n)(7)    Plan with respect to Scudder Emerging Markets Growth Fund pursuant
                                                to Rule 18f-3 is incorporated by reference to Post-Effective
                                                Amendment No. 80 to the Registration Statement.

                                      (n)(8)    Amended and Restated Plan with respect to Scudder International
                                                Fund pursuant to Rule 18f-3 is incorporated by reference to
                                                Post-Effective Amendment No. 80 to the Registration Statement.

                                      (n)(9)    Amended and Restated Plan with respect to Scudder Pacific
                                                Opportunities Fund pursuant to Rule 18f-3 is incorporated by
                                                reference to Post-Effective Amendment No. 80 to the Registration
                                                Statement.

                                      (n)(10)   Amended and Restated Plan with respect to Scudder Latin America
                                                Fund pursuant to Rule 18f-3 is incorporated by reference to
                                                Post-Effective Amendment No. 80 to the Registration Statement.

                                      (n)(11)   Amended and Restated Plan with respect to Scudder Greater Europe
                                                Growth Fund pursuant to Rule 18f-3 is  incorporated by reference
                                                to Post-Effective Amendment No. 80 to the Registration Statement.

                                      (n)(12)   Amended and Restated Plan with respect to Scudder Emerging Markets
                                                Growth Fund pursuant to Rule 18f-3 is  incorporated by reference
                                                to Post-Effective Amendment No. 80 to the Registration Statement.

                                      (n)(13)   Amended and Restated Plan with respect to Scudder International
                                                Fund pursuant to Rule 18f-3 is incorporated by reference to
                                                Post-Effective Amendment No. 80 to the Registration Statement.

                (p)                   (p)(1)    Scudder Kemper Investments, Inc. and Scudder Investor Services,
                                                Inc. Code of Ethics is incorporated by reference to Post-Effective
                                                Amendment No. 79 Exhibit p to the Registration Statement.

                                      (p)(2)    Code of Ethics of Scudder International Fund, Inc. is
                                                incorporated by reference to Post-Effective Amendment No. 80 to
                                                the Registration Statement.
</TABLE>

Item 24.          Persons Controlled by or under Common Control with Registrant.
--------          --------------------------------------------------------------

                  None

                                       10
<PAGE>

Item 25.          Indemnification.
--------          ----------------

                  A policy of insurance covering Scudder Kemper Investments,
                  Inc., its affiliates including Scudder Investor Services,
                  Inc., and all of the registered investment companies advised
                  by Scudder Kemper Investments, Inc. insures the Registrant's
                  directors and officers and others against liability arising by
                  reason of an alleged breach of duty caused by any negligent
                  act, error or accidental omission in the scope of their
                  duties.

                  Article Tenth of Registrant's Articles of Incorporation state
                  as follows:

                  TENTH:  Liability and Indemnification
                  ------  -----------------------------

                           To the fullest extent permitted by the Maryland
                  General Corporation Law and the Investment Company Act of
                  1940, no director or officer of the Corporation shall be
                  liable to the Corporation or to its stockholders for damages.
                  The limitation on liability applies to events occurring at the
                  time a person serves as a director or officer of the
                  Corporation, whether or not such person is a director or
                  officer at the time of any proceeding in which liability is
                  asserted. No amendment to these Articles of Amendment and
                  Restatement or repeal of any of its provisions shall limit or
                  eliminate the benefits provided to directors and officers
                  under this provision with respect to any act or omission which
                  occurred prior to such amendment or repeal.

                           The Corporation, including its successors and
                  assigns, shall indemnify its directors and officers and make
                  advance payment of related expenses to the fullest extent
                  permitted, and in accordance with the procedures required by
                  Maryland law, including Section 2-418 of the Maryland General
                  Corporation law, as may be amended from time to time, and the
                  Investment Company Act of 1940. The By-Laws may provide that
                  the Corporation shall indemnify its employees and/or agents in
                  any manner and within such limits as permitted by applicable
                  law. Such indemnification shall be in addition to any other
                  right or claim to which any director, officer, employee or
                  agent may otherwise be entitled.

                           The Corporation may purchase and maintain insurance
                  on behalf of any person who is or was a director, officer,
                  employee or agent of the Corporation or is or was serving at
                  the request of the Corporation as a director, officer,
                  partner, trustee, employee or agent of another foreign or
                  domestic corporation, partnership, joint venture, trust or
                  other enterprise or employee benefit plan against any
                  liability asserted against and incurred by such person in any
                  such capacity or arising out of such person's position,
                  whether or not the Corporation would have had the power to
                  indemnify against such liability.

                           The rights provided to any person by this Article
                  shall be enforceable against the Corporation by such person
                  who shall be presumed to have relied upon such rights in
                  serving or continuing to serve in the capacities indicated
                  herein. No amendment of these Articles of Amendment and
                  Restatement shall impair the rights of any person arising at
                  any time with respect to events occurring prior to such
                  amendment.

                           Nothing in these Articles of Amendment and
                  Restatement shall be deemed to (i) require a waiver of
                  compliance with any provision of the Securities Act of 1933,
                  as


                                       11
<PAGE>

                  amended, or the Investment Company Act of 1940, as amended, or
                  of any valid rule, regulation or order of the Securities and
                  Exchange Commission under those Acts or (ii) protect any
                  director or officer of the Corporation against any liability
                  to the Corporation or its stockholders to which he would
                  otherwise be subject by reason of willful misfeasance, bad
                  faith or gross negligence in the performance of his or her
                  duties or by reason of his or her reckless disregard of his or
                  her obligations and duties hereunder.

                  Article V of Registrant's Amended and Restated By-Laws states
as follows:

                                    ARTICLE V
                                    ---------

                          INDEMNIFICATION AND INSURANCE
                          -----------------------------

         SECTION 1. Indemnification of Directors and Officers. Any person who
was or is a party or is threatened to be made a party in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is a current or former
Director or officer of the Corporation, or is or was serving while a Director or
officer of the Corporation at the request of the Corporation as a Director,
officer, partner, trustee, employee, agent or fiduciary or another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments, penalties, fines, excise
taxes, settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding to
the fullest extent permissible under the Maryland General Corporation Law, the
Securities Act of 1933 and the 1940 Act, as such statutes are now or hereafter
in force, except that such indemnity shall not protect any such person against
any liability to the Corporation or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office ("disabling conduct").

         SECTION 2. Advances. Any current or former Director or officer of the
Corporation claiming indemnification within the scope of this Article V shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with proceedings to which he is a party in the
manner and to the fullest extent permissible under the Maryland General
Corporation Law, the Securities Act of 1933 and the 1940 Act, as such statutes
are now or hereafter in force; provided however, that the person seeking
indemnification shall provide to the Corporation a written affirmation of his
good faith belief that the standard of conduct necessary for indemnification by
the Corporation has been met and a written undertaking by or on behalf of the
Director to repay any such advance if it is ultimately determined that he is not
entitled to indemnification, and provided further that at least one of the
following additional conditions is met: (1) the person seeking indemnification
shall provide a security in form and amount acceptable to the Corporation for
his undertaking; (2) the Corporation is insured against losses arising by reason
of the advance; or (3) a majority of a quorum of Directors of the Corporation
who are neither "interested persons" as defined in Section 2(a)(19) of the 1940
Act, as amended, nor parties to the proceeding ("disinterested non-party
Directors") or independent legal counsel, in a written opinion, shall determine,
based on a review of facts readily available to the Corporation at the time the
advance is proposed to be made, that there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.

         SECTION 3. Procedure. At the request of any current or former Director
or officer, or any employee or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation


                                       12
<PAGE>

Law, the Securities Act of 1933 and the 1940 Act, as such statutes are now or
hereafter in force, whether the standards required by this Article V have been
met; provided, however, that indemnification shall be made only following: (1) a
final decision on the merits by a court or other body before whom the proceeding
was brought that the person to be indemnified was not liable by reason of
disabling conduct or (2) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the person to be
indemnified was not liable by reason of disabling conduct, by (a) the vote of
the majority of a quorum of disinterested non-party Directors or (b) an
independent legal counsel in a written opinion.

         SECTION 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or Directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, in
accordance with the procedures set forth in this Article V to the extent
permissible under the Maryland General Corporation Law, the Securities Act of
1933 and the 1940 Act, as such statutes are now or hereafter in force, and to
such further extent, consistent with the foregoing, as may be provided by action
of the Board of Directors or by contract.

         SECTION 5. Other Rights. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action by a Director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a Director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.

         SECTION 6. Constituent, Resulting or Surviving Corporations. For the
purposes of this Article V, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a Director,
officer, employee or agent of a constituent corporation or is or was serving at
the request of a constituent corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under this Article V with respect to
the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.

Item 26.          Business or Other Connections of Investment Adviser
--------          ---------------------------------------------------

                  Scudder Kemper Investments, Inc. has stockholders and
                  employees who are denominated officers but do not as such have
                  corporation-wide responsibilities. Such persons are not
                  considered officers for the purpose of this Item 26.


<TABLE>
<CAPTION>
                 Business and Other Connections of Board
    Name                                of Directors of Registrant's Adviser
    ----                                ------------------------------------

                                       13
<PAGE>

<S>                   <C>
Stephen R. Beckwith   Treasurer, Scudder Kemper Investments, Inc.**
                      Director, Kemper Service Company
                      Director, Vice President and Treasurer, Scudder Fund Accounting Corporation*
                      Director and Treasurer, Scudder Stevens & Clark Corporation**
                      Director and Chairman, Scudder Defined Contribution Services, Inc.**
                      Director and President, Scudder Capital Asset Corporation**
                      Director and President, Scudder Capital Stock Corporation**
                      Director and President, Scudder Capital Planning Corporation**
                      Director and President, SS&C Investment Corporation**
                      Director and President, SIS Investment Corporation**
                      Director and President, SRV Investment Corporation**
                      Director and Chairman, Scudder Threadneedle International Ltd.
                      Director, Scudder Kemper Holdings (UK) Ltd. oo
                      Director and President, Scudder Realty Holdings Corporation *
                      Director, Scudder, Stevens & Clark Overseas Corporation o
                      Director and Treasurer, Zurich Investment Management, Inc. xx
                      Director and Treasurer, Zurich Kemper Investments, Inc.

Lynn S. Birdsong      Director, Vice President and Chief Investment Officer, Scudder Kemper Investments,
                            Inc.**
                      Director and Chairman, Scudder Investments (Luxembourg) S.A.#
                      Director, Scudder Investments (U.K.) Ltd. oo
                      Director and Chairman of the Board, Scudder Investments Asia, Ltd. ooo
                      Director and Chairman, Scudder Investments Japan, Inc. +
                      Senior Vice President, Scudder Investor Services, Inc.
                      Director and Chairman, Scudder Trust (Cayman) Ltd. @@@
                      Director, Scudder, Stevens & Clark Australia x
                      Director and Vice President, Zurich Investment Management, Inc. xx
                      Director and President, Scudder, Stevens & Clark Corporation **
                      Director and President, Scudder , Stevens & Clark Overseas Corporation o
                      Director, Scudder Threadneedle International Ltd.
                      Director, Korea Bond Fund Management Co., Ltd. @@

William H. Bolinder   Director, Scudder Kemper Investments, Inc.**
                      Member Group Executive Board, Zurich Financial Services, Inc. ##
                      Chairman, Zurich-American Insurance Company  xxx

Nicholas Bratt        Director, Scudder Kemper Investments, Inc.**
                      Vice President, Scudder, Stevens & Clark Corporation **
                      Vice President, Scudder, Stevens & Clark Overseas Corporation o

Laurence W. Cheng     Director, Scudder Kemper Investments, Inc.**
                      Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
                      Director, ZKI Holding Corporation xx

Gunther Gose          Director, Scudder Kemper Investments, Inc.**
                      CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
                      CEO/Branch Offices, Zurich Life Insurance Company ##

Rolf Huppi            Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
                      Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
                      Director, Chairman of the Board, Zurich Holding Company of America xxx
                      Director, ZKI Holding Corporation xx

                                       14
<PAGE>

Harold D. Kahn        Chief Financial Officer, Scudder Kemper Investments, Inc.**

Kathryn L. Quirk      Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
                            Investments, Inc.**
                      Director, Vice President, Chief Legal Officer and Secretary, Kemper Distributors,
                            Inc.
                      Director and Secretary, Kemper Service Company
                      Director, Senior Vice President, Chief Legal Officer & Assistant Clerk, Scudder
                            Investor Services, Inc.
                      Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
                      Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
                      Director & Assistant Clerk, Scudder Service Corporation*
                      Director and Secretary, SFA, Inc.*
                      Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
                      Director, Scudder, Stevens & Clark Japan, Inc. ###
                      Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
                      Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
                      Director, Vice President and Secretary, Scudder Realty Advisers, Inc. @
                      Director and Secretary, Scudder, Stevens & Clark Corporation**
                      Director and Secretary, Scudder, Stevens & Clark Overseas Corporation o
                      Director, Vice President and Secretary, Scudder Defined Contribution Services,
                            Inc.**
                      Director, Vice President and Secretary, Scudder Capital Asset Corporation**
                      Director, Vice President and Secretary, Scudder Capital Stock Corporation**
                      Director, Vice President and Secretary, Scudder Capital Planning Corporation**
                      Director, Vice President and Secretary, SS&C Investment Corporation**
                      Director, Vice President and Secretary, SIS Investment Corporation**
                      Director, Vice President and Secretary, SRV Investment Corporation**
                      Director, Vice President, Chief Legal Officer and Secretary, Scudder Financial
                            Services, Inc.*
                      Director, Korea Bond Fund Management Co., Ltd. @@
                      Director, Scudder Threadneedle International Ltd.
                      Director, Chairman of the Board and Secretary, Scudder Investments Canada, Ltd.
                      Director, Scudder Investments Japan, Inc. +
                      Director and Secretary, Scudder Kemper Holdings (UK) Ltd. oo
                      Director and Secretary, Zurich Investment Management, Inc. xx

Edmond D. Villani     Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
                      Director, Scudder, Stevens & Clark Japan, Inc. ###
                      President and Director, Scudder, Stevens & Clark Overseas Corporation o
                      President and Director, Scudder, Stevens & Clark Corporation**
                      Director, Scudder Realty Advisors, Inc.  @
                      Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of
                            Luxembourg
                      Director, Scudder Threadneedle International Ltd.
                      Director, Scudder Investments Japan, Inc. +
                      Director, Scudder Kemper Holdings (UK) Ltd. oo
                      President and Director, Zurich Investment Management, Inc. xx
                      Director and Deputy Chairman, Scudder Investment Holdings Ltd.
</TABLE>


     *    Two International Place, Boston, MA


                                       15
<PAGE>

     @    333 South Hope Street, Los Angeles, CA
     **   345 Park Avenue, New York, NY
     #    Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
          Luxembourg B 34.564
     ***  Toronto, Ontario, Canada
     @@@  Grand Cayman, Cayman Islands, British West Indies
     o    20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
     ###  1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
     xx   222 S. Riverside, Chicago, IL
     xxx  Zurich Towers, 1400 American Ln., Schaumburg, IL
     @@   P.O. Box 309, Upland House, S. Church St., Grand Cayman,
          British West Indies
     ##   Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
     oo   One South Place, 5th Floor, London EC2M 2ZS England
     ooo  One Exchange Square, 29th Floor, Hong Kong
     +    Kamiyachyo Mori Building, 12F1, 4-3-20, Toranomon, Minato-ku,
          Tokyo 105-0001
     x    Level 3, Five Blue Street, North Sydney, NSW 2060

Item 27.          Principal Underwriters.
--------          ----------------------

         (a)

         Scudder Investor Services, Inc. acts as principal underwriter of the
         Registrant's shares and also acts as principal underwriter for other
         funds managed by Scudder Kemper Investments, Inc.

         (b)

         The Underwriter has employees who are denominated officers of an
         operational area. Such persons do not have corporation-wide
         responsibilities and are not considered officers for the purpose of
         this Item 27.

<TABLE>
<CAPTION>
         (1)                               (2)                                     (3)

<S>   <C>                                  <C>                                   <C>
      Scudder Investor Services, Inc.         Position and Offices with               Positions and
             Name and Principal            Scudder Investor Services, Inc.       Offices with Registrant
              Business Address             -------------------------------       -----------------------
              ----------------


<S>  <C>                               <C>                                     <C>
     Lynn S. Birdsong                  Senior Vice President                   None
     345 Park Avenue
     New York, NY 10154-0010

     Ann P. Burbank                    Vice President                          None
     Two International Place
     Boston, MA  02110-4103

     Mark S. Casady                    President, Director and Assistant       None
     Two International Place           Treasurer
     Boston, MA  02110-4103

     Linda C. Coughlin                 Director and Senior Vice President      Trustee and President
     Two International Place
     Boston, MA  02110-4103

                                       16
<PAGE>
      Scudder Investor Services, Inc.         Position and Offices with               Positions and
             Name and Principal            Scudder Investor Services, Inc.       Offices with Registrant
              Business Address             -------------------------------       -----------------------
              ----------------

     Scott B. David                    Vice President                          None
     Two International Place
     Boston, MA 02110-4103

     Richard W. Desmond                Vice President                          None
     345 Park Avenue
     New York, NY  10154-0010

     William F. Glavin                 Vice President                          None
     Two International Place
     Boston, MA 02110-4103

     Robert J. Guerin                  Vice President                          None
     Two International Place
     Boston, MA 02110-4103

     John R. Hebble                    Assistant Treasurer                     Treasurer
     Two International Place
     Boston, MA  02110-4103

     James J. McGovern                 Chief Financial Officer and Treasurer   None
     345 Park Avenue
     New York, NY  10154-0010

     Kimberly S. Nassar                Vice President                          None
     Two International Place
     Boston, MA  02110-4103

     Gloria S. Nelund                  Vice President                          None
     345 Park Avenue
     New York, NY 10154-0010

     Lorie C. O'Malley                 Vice President                          None
     Two International Place
     Boston, MA 02110-4103

     Caroline Pearson                  Clerk                                   Assistant Secretary
     Two International Place
     Boston, MA  02110-4103

     Kevin G. Poole                    Vice President                          None
     Two International Place
     Boston, MA  02110-4103

     Kathryn L. Quirk                  Director, Senior Vice President, Chief  Vice President and
     345 Park Avenue                   Legal Officer and Assistant Clerk       Assistant Secretary
     New York, NY  10154-0010

     Howard S. Schneider               Vice President                          None
     Two International Place
     Boston, MA 02110-4103

                                       17
<PAGE>

      Scudder Investor Services, Inc.         Position and Offices with               Positions and
             Name and Principal            Scudder Investor Services, Inc.       Offices with Registrant
              Business Address             -------------------------------       -----------------------
              ----------------
     Linda J. Wondrack                 Vice President and Chief Compliance     None
     Two International Place           Officer
     Boston, MA  02110-4103
</TABLE>

         (c)

<TABLE>
<CAPTION>
                     (1)                     (2)                 (3)                 (4)                 (5)
                                       Net Underwriting   Compensation on
              Name of Principal         Discounts and        Redemptions          Brokerage             Other
                 Underwriter             Commissions       And Repurchases       Commissions        Compensation
                 -----------             -----------       ---------------       -----------        ------------

<S>            <C>                           <C>                 <C>                 <C>                <C>
               Scudder Investor              None                None                None               None
                Services, Inc.
</TABLE>

         (d)

         Kemper Distributors, Inc. acts as principal underwriter of the
         Registrant's shares (on behalf of Scudder International Fund - Class A,
         B, C and I) and acts as principal underwriter of the Scudder Kemper
         Funds.

         (e)

         Information on the officers and directors of Kemper Distributors, Inc.,
         principal underwriter for the Registrant is set forth below. The
         principal business address is 222 South Riverside Plaza, Chicago,
         Illinois 60606.

<TABLE>
<CAPTION>
         (1)                    (2)                                         (3)


                                Positions and Offices with                   Positions and
         Name                   Kemper Distributors, Inc.                    Offices with Registrant
         ----                   -------------------------                    -----------------------

<S>      <C>                    <C>                                          <C>
         Thomas V. Bruns        President                                    None

         Linda C. Coughlin      Director and Vice Chairman                   None

         Kathryn L. Quirk       Director, Secretary, Chief Legal             Vice President
                                Officer and Vice President

         James J. McGovern      Chief Financial Officer and Treasurer        None

         Linda J. Wondrack      Vice President and Chief Compliance Officer  Vice President

         Paula Gaccione         Vice President                               None

         Michael E. Harrington  Managing Director                            None

         Todd N. Gierke         Assistant Treasurer                          None

         Philip J. Collora      Assistant Secretary                          Vice President and Secretary

                                       18
<PAGE>

         Diane E. Ratekin       Assistant Secretary                          None

         Mark S. Casady         Director and Chairman                        President

         Terrence S. McBride    Vice President                               None

         Robert Froelich        Managing Director                            None

         C. Perry Moore         Senior Vice President and Managing Director  None

         Lorie O'Malley         Managing Director                            None

         William F. Glavin      Managing Director                            None

         Gary N. Kocher         Managing Director                            None

         Susan K. Crenshaw      Vice President                               None

         Johnston A. Norris     Managing Director and Senior Vice President  None

         John H. Robison, Jr.   Managing Director and Senior Vice President  None

         Robert J. Guerin       Vice President                               None

         Kimberly S. Nassar     Vice President                               None

         Scott B. David         Vice President                               None
</TABLE>

(f)      Not applicable

Item 28.          Location of Accounts and Records.
--------          ---------------------------------

                  Certain accounts, books and other documents required to be
                  maintained by Section 31(a) of the 1940 Act and the Rules
                  promulgated thereunder are maintained by Scudder Kemper
                  Investments, Inc., 345 Park Avenue, New York, New York 10154.
                  Records relating to the duties of the Registrant's custodian
                  are maintained by Brown Brothers Harriman & Co., 40 Water
                  Street, Boston, Massachusetts. Records relating to the duties
                  of the Registrant's transfer agent are maintained by Scudder
                  Service Corporation, Two International Place, Boston,
                  Massachusetts 02110-4103.

Item 29.          Management Services.
--------          --------------------

                  Inapplicable.

Item 30.          Undertakings.
--------          -------------

                  Inapplicable




                                       19
<PAGE>

                           SIGNATURES
                           ----------

         Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 22nd day of December 2000.



                                                SCUDDER INTERNATIONAL FUND, INC.


                                                By /s/John Millette
                                                   ----------------
                                                   John Millette
                                                   Secretary

         Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

SIGNATURE                                   TITLE                                        DATE
---------                                   -----                                        ----
<S>                                         <C>                                          <C>

/s/ Linda C. Coughlin
--------------------------------------
Linda C. Coughlin                           President (Chief Executive Officer)          December 22, 2000

/s/ Henry P. Becton, Jr.
--------------------------------------
Henry P. Becton, Jr.*                       Director                                     December 22, 2000

/s/Dawn-Marie Driscoll
--------------------------------------
Dawn-Marie Driscoll*                        Director                                     December 22, 2000

/s/ Edgar R. Fiedler
--------------------------------------
Edgar R. Fiedler *                          Director                                     December 22, 2000

/s/ Keith R. Fox
--------------------------------------
Keith R. Fox*                               Director                                     December 22, 2000

/s/ Joan E. Spero
--------------------------------------
Joan E. Spero*                              Director                                     December 22, 2000

/s/ Jean Gleason Stromberg
--------------------------------------
Jean Gleason Stromberg *                    Director                                     December 22, 2000

/s/ Jean C. Tempel
--------------------------------------
Jean C. Tempel*                             Director                                     December 22, 2000

/s/ Steven Zaleznick
--------------------------------------
Steven Zaleznick*                           Director                                     December 22, 2000

/s/John R. Hebble
--------------------------------------
John R. Hebble                              Treasurer (Chief Financial Officer)          December 22, 2000
</TABLE>




<PAGE>


*By:     /s/John Millette
         ----------------
         John Millette**
         Secretary

**Attorney-in-fact pursuant to the powers of attorney contained in and
incorporated by reference to Post- Effective Amendment No. 80 to the
Registration Statement, as filed on July 14, 2000.




<PAGE>


                                                                File No. 2-14400
                                                                File No. 811-642


                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    EXHIBITS

                                       TO

                                    FORM N-1A


                         POST-EFFECTIVE AMENDMENT No. 83

                            TO REGISTRATION STATEMENT

                                      UNDER

                           THE SECURITIES ACT OF 1933

                                       AND

                                AMENDMENT NO. 63

                            TO REGISTRATION STATEMENT

                                      UNDER

                       THE INVESTMENT COMPANY ACT OF 1940



                        SCUDDER INTERNATIONAL FUND, INC.


<PAGE>



                        SCUDDER INTERNATIONAL FUND, INC.

                                  EXHIBIT INDEX

                                     (a)(15)
                                     (a)(16)
                                     (a)(17)
                                     (a)(18)
                                     (a)(19)
                                     (a)(20)
                                     (b)(7)
                                     (e)(3)
                                     (g)(6)
                                     (h)(3)
                                     (h)(17)
                                     (h)(21)
                                     (h)(22)
                                     (h)(23)
                                       (i)
                                       (j)
                                     (m)(2)
                                     (n)(3)


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