SCUDDER PORTFOLIO TRUST/
485APOS, 1998-06-15
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    Filed electronically with the Securities and Exchange Commission on June
                                   15, 1998.

                                                         File No. 2-13627
                                                         File No. 811-42

                       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.     73

                                and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

     Amendment No.     34


                             Scudder Portfolio Trust
                                 
               (Exact Name of Registrant as Specified in Charter)
                                 
         Two International Place, Boston, MA          02110-4103
      (Address of Principal Executive Offices)    (Zip Code)
                                 
       Registrant's Telephone Number, including Area Code: (617) 295-2567
                                 
                               Thomas F. McDonough
                        Scudder Kemper Investments, Inc.
                    Two International Place, Boston, MA 02110
                     (Name and Address of Agent for Service)


It is proposed that this filing will become effective

          immediately upon filing pursuant to paragraph (b)
      
                
          on _____________ pursuant to paragraph (b)
      
                
          60 days after filing pursuant to paragraph (a)(i)
      
                
          on ____________ pursuant to paragraph (a)(i)
      
                
          75 days after filing pursuant to paragraph
          (a)(ii)
      
          on August 31, 1998 pursuant to paragraph (a)(ii)
      X   of Rule 485.
      
<PAGE>

                      SCUDDER PORTFOLIO TRUST
                        SCUDDER INCOME FUND
                       CROSS-REFERENCE SHEET
                                 
                    Items Required By Form N-1A
PART A

Item No.   Item Caption     Prospectus Caption
                            
   1.      Cover Page       COVER PAGE
                            
   2.      Synopsis         EXPENSE INFORMATION
                            
   3.      Condensed        FINANCIAL HIGHLIGHTS
           Financial        DISTRIBUTION AND PERFORMANCE
           Information        INFORMATION
                            
   4.      General          INVESTMENT OBJECTIVE AND POLICIES
           Description of   WHY INVEST IN THE FUND?
           Registrant       ADDITIONAL INFORMATION ABOUT POLICIES
                            AND INVESTMENTS
                            FUND ORGANIZATION
                            
   5.      Management of    FINANCIAL HIGHLIGHTS
           the Fund         A MESSAGE FROM SCUDDER'S CHAIRMAN
                            FUND ORGANIZATION-Investment adviser,
                              Transfer agent
                            SHAREHOLDER BENEFITS-A team approach
                              to investing
                            TRUSTEES AND OFFICERS
                            
  5A.      Management's     NOT APPLICABLE
           Discussion of
           Fund
           Performance
                            
   6.      Capital Stock    DISTRIBUTION AND PERFORMANCE
           and Other          INFORMATION- Dividends and capital
           Securities         gains distributions
                            FUND ORGANIZATION
                            TRANSACTION INFORMATION-Tax
                              information
                            SHAREHOLDER BENEFITS-SAILT-Scudder
                              Automated Information Line,
                              Dividend reinvestment plan, T.D.D.
                              service for the hearing impaired
                            HOW TO CONTACT SCUDDER
                            
   7.      Purchase of      PURCHASES
           Securities       FUND ORGANIZATION-Underwriter
           Being Offered    TRANSACTION INFORMATION-Purchasing
                              shares, Share price, Processing
                              time, Minimum balances, Third party
                              transactions
                            SHAREHOLDER BENEFITS-Dividend
                              reinvestment plan
                            SCUDDER TAX-ADVANTAGED RETIREMENT
                              PLANS
                            INVESTMENT PRODUCTS AND SERVICES
                            
   8.      Redemption or    EXCHANGES AND REDEMPTIONS
           Repurchase       TRANSACTION INFORMATION-Redeeming
                              shares, Tax identification number,
                              Minimum balances
                            
   9.      Pending Legal    NOT APPLICABLE
           Proceedings


                             Cross Reference-Page 1
<PAGE>

                        SCUDDER INCOME FUND
                       CROSS-REFERENCE SHEET
                            (continued)

PART B

                              Caption in Statement of
Item No.  Item Caption        Additional Information
                              
  10.     Cover Page          COVER PAGE
                              
  11.     Table of Contents   TABLE OF CONTENTS
                              
  12.     General             FUND ORGANIZATION
          Information and
          History
                              
  13.     Investment          THE FUND'S INVESTMENT OBJECTIVE AND
          Objectives and         POLICIES
          Policies            PORTFOLIO TRANSACTIONS-Brokerage
                                 Commissions, Portfolio Turnover
                              
  14.     Management of the   INVESTMENT ADVISER
          Fund                TRUSTEES AND OFFICERS
                              REMUNERATION
                              
  15.     Control Persons     TRUSTEES AND OFFICERS
          and Principal
          Holders of
          Securities
                              
  16.     Investment          INVESTMENT ADVISER
          Advisory and        DISTRIBUTOR
          Other Services      ADDITIONAL INFORMATION-Experts,
                                 Other Information
                              
  17.     Brokerage           PORTFOLIO TRANSACTIONS-Brokerage
          Allocation and         Commissions, Portfolio Turnover
          Other Practices
                              
  18.     Capital Stock and   FUND ORGANIZATION
          Other Securities    DIVIDENDS AND CAPITAL GAINS
                                 DISTRIBUTIONS
                              
  19.     Purchase,           PURCHASES
          Redemption and      EXCHANGES AND REDEMPTIONS
          Pricing of          FEATURES AND SERVICES OFFERED BY
          Securities Being    THE FUND-
          Offered              Dividend and Capital Gain
                              Distribution Options
                              SPECIAL PLAN ACCOUNTS
                              NET ASSET VALUE
                              
  20.     Tax Status          DIVIDENDS AND CAPITAL GAINS
                                 DISTRIBUTIONS
                              TAXES
                              
  21.     Underwriters        DISTRIBUTOR
                              
  22.     Calculation of      PERFORMANCE INFORMATION
          Performance Data
                              
  23.     Financial           FINANCIAL STATEMENTS
          Statements


                             Cross Reference-Page 2
<PAGE>

                      SCUDDER PORTFOLIO TRUST
                       SCUDDER BALANCED FUND
                       CROSS-REFERENCE SHEET
                                 
                    Items Required By Form N-1A

PART A

Item   Item Caption    Prospectus Caption
No.
                       
 1.    Cover Page      COVER PAGE
                       
 2.    Synopsis        EXPENSE INFORMATION
                       
 3.    Condensed       FINANCIAL HIGHLIGHTS
       Financial       DISTRIBUTION AND PERFORMANCE INFORMATION
       Information
                       
 4.    General         INVESTMENT OBJECTIVES AND POLICIES
       Description of  WHY INVEST IN THE FUND?
       Registrant      ADDITIONAL INFORMATION ABOUT POLICIES AND
                       INVESTMENTS
                       FUND ORGANIZATION
                       
 5.    Management of   FINANCIAL HIGHLIGHTS
       the Fund        A MESSAGE FROM SCUDDER'S CHAIRMAN
                       FUND ORGANIZATION-Investment adviser, Transfer
                          agent
                       SHAREHOLDER BENEFITS-A team approach to
                          investing
                       TRUSTEES AND OFFICERS
                       
5A.    Management's    NOT APPLICABLE
       Discussion of
       Fund
       Performance
                       
 6.    Capital Stock   DISTRIBUTION AND PERFORMANCE INFORMATION-
       and Other          Dividends and capital gains distributions
       Securities      FUND ORGANIZATION
                       TRANSACTION INFORMATION-Tax information
                       SHAREHOLDER BENEFITS-SAILT-Scudder Automated
                          Information Line, Dividend reinvestment plan,
                          T.D.D. service
                          for the hearing impaired
                       HOW TO CONTACT SCUDDER
                       
 7.    Purchase of     PURCHASES
       Securities      FUND ORGANIZATION-Underwriter
       Being Offered   TRANSACTION INFORMATION-Purchasing shares,
                          Share
                          price, Processing time, Minimum balances,
                          Third party transactions
                       SHAREHOLDER BENEFITS-Dividend reinvestment plan
                       SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
                       INVESTMENT PRODUCTS AND SERVICES
                       
 8.    Redemption or   EXCHANGES AND REDEMPTIONS
       Repurchase      TRANSACTION INFORMATION-Redeeming shares, Tax
                          identification number, Minimum balances
                       
 9.    Pending Legal   NOT APPLICABLE
       Proceedings


                             Cross Reference-Page 3
<PAGE>

                       SCUDDER BALANCED FUND
                       CROSS-REFERENCE SHEET
                            (continued)
                                 
PART B

                              Caption in Statement of
Item No.  Item Caption        Additional Information
                              
  10.     Cover Page          COVER PAGE
                              
  11.     Table of Contents   TABLE OF CONTENTS
                              
  12.     General             FUND ORGANIZATION
          Information and
          History
                              
  13.     Investment          THE FUND'S INVESTMENT OBJECTIVES
          Objectives and         AND POLICIES
          Policies            PORTFOLIO TRANSACTIONS-Brokerage
                                 Commissions, Portfolio Turnover
                              
  14.     Management of the   INVESTMENT ADVISER
          Fund                TRUSTEES AND OFFICERS
                              REMUNERATION
                              
  15.     Control Persons     TRUSTEES AND OFFICERS
          and Principal
          Holders of
          Securities
                              
  16.     Investment          INVESTMENT ADVISER
          Advisory and        DISTRIBUTOR
          Other Services      ADDITIONAL INFORMATION-Experts,
                                 Other Information
                              
  17.     Brokerage           PORTFOLIO TRANSACTIONS-Brokerage
          Allocation and         Commissions, Portfolio Turnover
          Other Practices
                              
  18.     Capital Stock and   FUND ORGANIZATION
          Other Securities    DIVIDENDS AND CAPITAL GAINS
                                 DISTRIBUTIONS
                              
  19.     Purchase,           PURCHASES
          Redemption and      EXCHANGES AND REDEMPTIONS
          Pricing of          FEATURES AND SERVICES OFFERED BY
          Securities Being    THE FUND-
          Offered              Dividend and Capital Gain
                              Distribution Options
                              SPECIAL PLAN ACCOUNTS
                              NET ASSET VALUE
                              
  20.     Tax Status          DIVIDENDS AND CAPITAL GAINS
                                 DISTRIBUTIONS
                              TAXES
                              
  21.     Underwriters        DISTRIBUTOR
                              
  22.     Calculation of      PERFORMANCE INFORMATION
          Performance Data
                              
  23.     Financial           FINANCIAL STATEMENTS
          Statements
                                 

                             Cross Reference-Page 4
<PAGE>
                                 
                      SCUDDER PORTFOLIO TRUST
                   SCUDDER HIGH YIELD BOND FUND
                       CROSS-REFERENCE SHEET
                                 
                    Items Required By Form N-1A
PART A

Item No.   Item Caption     Prospectus Caption
                            
   1.      Cover Page       COVER PAGE
                            
   2.      Synopsis         EXPENSE INFORMATION
                            
   3.      Condensed        FINANCIAL HIGHLIGHTS
           Financial        DISTRIBUTION AND PERFORMANCE
           Information        INFORMATION
                            
   4.      General          INVESTMENT OBJECTIVE AND POLICIES
           Description of   WHY INVEST IN THE FUND?
           Registrant       ADDITIONAL INFORMATION ABOUT POLICIES
                            AND INVESTMENTS
                            FUND ORGANIZATION
                            
   5.      Management of    FINANCIAL HIGHLIGHTS
           the Fund         A MESSAGE FROM SCUDDER'S CHAIRMAN
                            FUND ORGANIZATION-Investment adviser,
                              Transfer agent
                            SHAREHOLDER BENEFITS-A team approach
                              to investing
                            TRUSTEES AND OFFICERS
                            
  5A.      Management's     NOT APPLICABLE
           Discussion of
           Fund
           Performance
                            
   6.      Capital Stock    DISTRIBUTION AND PERFORMANCE
           and Other          INFORMATION- Dividends and capital
           Securities         gains distributions
                            FUND ORGANIZATION
                            TRANSACTION INFORMATION-Tax
                              information
                            SHAREHOLDER BENEFITS-SAILT-Scudder
                              Automated Information Line,
                              Dividend reinvestment plan, T.D.D.
                              service for the hearing impaired
                            HOW TO CONTACT SCUDDER
                            
   7.      Purchase of      PURCHASES
           Securities       FUND ORGANIZATION-Underwriter
           Being Offered    TRANSACTION INFORMATION-Purchasing
                              shares, Share price, Processing
                              time, Minimum balances, Third party
                              transactions
                            SHAREHOLDER BENEFITS-Dividend
                              reinvestment plan
                            SCUDDER TAX-ADVANTAGED RETIREMENT
                              PLANS
                            INVESTMENT PRODUCTS AND SERVICES
                            
   8.      Redemption or    EXCHANGES AND REDEMPTIONS
           Repurchase       TRANSACTION INFORMATION-Redeeming
                              shares, Tax identification number,
                              Minimum balances
                            
   9.      Pending Legal    NOT APPLICABLE
           Proceedings


                             Cross Reference-Page 5
<PAGE>

                   SCUDDER HIGH YIELD BOND FUND
                       CROSS-REFERENCE SHEET
                            (continued)

PART B

                              Caption in Statement of
Item No.  Item Caption        Additional Information
                              
  10.     Cover Page          COVER PAGE
                              
  11.     Table of Contents   TABLE OF CONTENTS
                              
  12.     General             FUND ORGANIZATION
          Information and
          History
                              
  13.     Investment          THE FUND'S INVESTMENT OBJECTIVE AND
          Objectives and         POLICIES
          Policies            PORTFOLIO TRANSACTIONS-Brokerage
                                 Commissions, Portfolio Turnover
                              
  14.     Management of the   INVESTMENT ADVISER
          Fund                TRUSTEES AND OFFICERS
                              REMUNERATION
                              
  15.     Control Persons     TRUSTEES AND OFFICERS
          and Principal
          Holders of
          Securities
                              
  16.     Investment          INVESTMENT ADVISER
          Advisory and        DISTRIBUTOR
          Other Services      ADDITIONAL INFORMATION-Experts,
                                 Other Information
                              
  17.     Brokerage           PORTFOLIO TRANSACTIONS-Brokerage
          Allocation and         Commissions, Portfolio Turnover
          Other Practices
                              
  18.     Capital Stock and   FUND ORGANIZATION
          Other Securities    DIVIDENDS AND CAPITAL GAINS
                                 DISTRIBUTIONS
                              
  19.     Purchase,           PURCHASES
          Redemption and      EXCHANGES AND REDEMPTIONS
          Pricing of          FEATURES AND SERVICES OFFERED BY
          Securities Being    THE FUND-
          Offered              Dividend and Capital Gain
                              Distribution Options
                              SPECIAL PLAN ACCOUNTS
                              NET ASSET VALUE
                              
  20.     Tax Status          DIVIDENDS AND CAPITAL GAINS
                                 DISTRIBUTIONS
                              TAXES
                              
  21.     Underwriters        DISTRIBUTOR
                              
  22.     Calculation of      PERFORMANCE INFORMATION
          Performance Data
                              
  23.     Financial           FINANCIAL STATEMENTS
          Statements

                             Cross Reference-Page 6
<PAGE>
                                 
                      SCUDDER PORTFOLIO TRUST
                    SCUDDER CORPORATE BOND FUND
                       CROSS-REFERENCE SHEET
                                 
                    Items Required By Form N-1A
PART A

Item No.   Item Caption     Prospectus Caption
                            
   1.      Cover Page       COVER PAGE
                            
   2.      Synopsis         EXPENSE INFORMATION
                            
   3.      Condensed        FINANCIAL HIGHLIGHTS
           Financial        
           Information
                            
   4.      General          INVESTMENT OBJECTIVE AND POLICIES
           Description of   WHY INVEST IN THE FUND?
           Registrant       ADDITIONAL INFORMATION ABOUT POLICIES
                                 AND INVESTMENTS
                            FUND ORGANIZATION
                            
   5.      Management of    A MESSAGE FROM SCUDDER'S PRESIDENT
           the Fund         FUND  ORGANIZATION-Investment adviser
                                 and Transfer      agent
                            TRUSTEES AND OFFICERS
                            SHAREHOLDER BENEFITS-A team approach
                              to investing
                            
  5A.      Management       NOT APPLICABLE
           Discussion of
           Fund
           Performance
                            
   6.      Capital Stock    DISTRIBUTION AND PERFORMANCE
           and Other        INFORMATION-   Dividends and capital
           Securities       gains distributions
                            FUND ORGANIZATION
                            TRANSACTION INFORMATION-Tax
                            Information
                            SHAREHOLDER BENEFITS-SAILT-Scudder
                                 Automated Information Line,
                                 Dividend reinvestment plan,
                                 T.D.D. service for the hearing
                                 impaired
                            HOW TO CONTACT SCUDDER
                            
   7.      Purchase of      PURCHASES
           Securities       FUND ORGANIZATION-Underwriter
           Being Offered    TRANSACTION INFORMATION-Purchasing
                                 shares, Share price, Processing
                                 time, Minimum balances, Third
                                 party transactions
                            SHAREHOLDER BENEFITS-Dividend
                            reinvestment plan
                            SCUDDER TAX-ADVANTAGED RETIREMENT
                              PLANS
                            
   8.      Redemption or    EXCHANGES AND REDEMPTIONS
           Repurchase       TRANSACTION INFORMATION-Redeeming
                                 shares, Tax identification
                                 number, Minimum balances
                            
   9.      Pending Legal    NOT APPLICABLE
           Proceedings


                             Cross Reference-Page 7
<PAGE>

                    SCUDDER CORPORATE BOND FUND
                       CROSS-REFERENCE SHEET
                            (continued)
PART B

                              Caption in Statement of
Item No.  Item Caption        Additional Information
                              
  10.     Cover Page          COVER PAGE
                              
  11.     Table of Contents   TABLE OF CONTENTS
                              
  12.     General             FUND ORGANIZATION
          Information and
          History
                              
  13.     Investment          THE FUND'S INVESTMENT OBJECTIVE AND
          Objectives and      POLICIES
          Policies            PORTFOLIO TRANSACTIONS-Portfolio
                              turnover
                              
  14.     Management of the   INVESTMENT ADVISER
          Fund                TRUSTEES AND OFFICERS
                              REMUNERATION
                              
  15.     Control Persons     TRUSTEES AND OFFICERS
          and Principal
          Holders of
          Securities
                              
  16.     Investment          INVESTMENT ADVISER
          Advisory and        DISTRIBUTOR
          Other Services      ADDITIONAL INFORMATION-Experts and
                                   Other Information
                              
  17.     Brokerage           PORTFOLIO TRANSACTIONS-Brokerage,
          Allocation and           Portfolio Turnover
          Other Practices
                              
  18.     Capital Stock and   FUND ORGANIZATION
          Other Securities    DIVIDENDS AND CAPITAL GAIN
                              DISTRIBUTIONS
                              
  19.     Purchase,           PURCHASES
          Redemption and      EXCHANGES AND REDEMPTIONS
          Pricing of          FEATURES AND SERVICES OFFERED BY
          Securities Being         THE FUND-Dividend and Capital
          Offered                  Gain Distribution Options
                              SPECIAL PLAN ACCOUNTS
                              NET ASSET VALUE
                              
  20.     Tax Status          DIVIDENDS AND CAPITAL GAIN
                              DISTRIBUTIONS
                              TAXES
                              
  21.     Underwriters        DISTRIBUTOR
                              
  22.     Calculation of      PERFORMANCE INFORMATION
          Performance Data
                              
  23.     Financial           FINANCIAL STATEMENTS
          Statements

                             Cross Reference-Page 8
<PAGE>

This prospectus sets forth concisely the information about Scudder Corporate
Bond Fund, a diversified series of Scudder Portfolio Trust, an open-end
management investment company, that a prospective investor should know before
investing. Please retain it for future reference.

If you require more detailed information, a Statement of Additional Information
dated August 31, 1998, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the SEC's Internet Web Site (http://www.sec.gov).

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

Contents--see page 3.

NOT FDIC-           MAY LOSE VALUE
INSURED             NO BANK GUARANTEE

SCUDDER                             [logo]

Scudder
Corporate Bond Fund

Prospectus
August 31, 1998

A pure no-load(TM) (no sales charges) mutual fund seeking a high level of
current income through investment primarily in investment- grade corporate debt
securities.

<PAGE>

Expense information

How to compare a Scudder Family of Funds pure no-load(TM) fund

This  information  is designed  to help you  understand  the  various  costs and
expenses of investing in Scudder Corporate Bond Fund (the "Fund").  By reviewing
this table and those in other mutual  funds'  prospectuses,  you can compare the
Fund's  fees and  expenses  with  those  of other  funds.  With  Scudder's  pure
no-load(TM)  funds,  you pay no commissions to purchase or redeem shares,  or to
exchange from one fund to another.  As a result,  all of your investment goes to
work for you.

1)   Shareholder  transaction  expenses:   Expenses  charged  directly  to  your
     individual account in the Fund for various transactions.

     Sales commissions to purchase shares (sales load)                 NONE
     Commissions to reinvest dividends                                 NONE
     Redemption fees                                                   NONE*
     Fees to exchange shares                                           NONE

 2)  Annual Fund operating expenses: Estimated expenses paid by the Fund before
     it distributes its net investment income, expressed as a percentage of the
     Fund's average daily net assets for the initial fiscal year ending
     -----------------.

     Investment management fee (after waiver)                              %**
                                                                       ----
     12b-1 fees                                                        NONE
     Other expenses (after reimbursements)                                 %
                                                                       ----
     Total Fund operating expenses (after waiver and reimbursements)       %**
                                                                       ----

Example

     Based on the estimated level of total Fund operating expenses listed above,
     the total expenses relating to a $1,000 investment, assuming a 5% annual
     return and redemption at the end of each period, are listed below.
     Investors do not pay these expenses directly; they are paid by the Fund
     before it distributes its net investment income to shareholders. (As noted
     above, the Fund has no redemption fees of any kind.)

                         1 Year                      3 Years
                          $                           $
                           ----                        ----

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

*    You may redeem by writing or calling the Fund. If you wish to receive
     redemption proceeds via wire, there is a $5 wire service fee. For
     additional information, please refer to "Transaction information--Redeeming
     shares." 

**   Until _________, 1999, the Adviser and certain of its subsidiaries have
     agreed to waive or reimburse, respectively, all or portions of their fees
     payable by the Fund to the extent necessary so that the total annualized
     expenses of the Fund do not exceed ___% of average daily net assets. If the
     Adviser and its subsidiaries had not agreed to waive and reimburse,
     respectively, all or portions of their fees, it is estimated that
     annualized Fund expenses would be: investment management fee ___%, other
     expenses ___% and total operating expenses ____% for the initial fiscal
     period. Estimates are based on a full fiscal year.

                                       2
<PAGE>

A message from the President

Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.

We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 50 no-load mutual fund portfolios or classes of
shares. We also manage the mutual funds in a special program for the American
Association of Retired Persons, as well as the fund options available through
Scudder Horizon Plan, a tax-advantaged variable annuity. We also advise The
Japan Fund, and numerous other open- and closed-end funds that invest in this
country and other countries around the world.

The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.

Services available to shareholders include toll-free access to professional
representatives, easy exchange among the Scudder Family of Funds, shareholder
reports, informative newsletters and the walk-in convenience of Scudder Investor
Centers.

Funds or fund classes in the Scudder Family of Funds are offered without
commissions to purchase or redeem shares or to exchange from one fund to
another. There are no 12b-1 fees either, which many other funds now charge to
support their marketing efforts. All of your investment goes to work for you. We
look forward to welcoming you as a shareholder.

/s/Edmond D. Villani

Scudder Corporate Bond Fund

Investment objective

o    a high level of current income through investment primarily in
     investment-grade corporate debt securities

Investment characteristics

o    a diversified, actively managed portfolio consisting primarily of
     investment-grade bonds

o    dollar-weighted average maturity for the Fund's portfolio between five and
     ten years

o    designed for investors seeking high monthly income from a portfolio focused
     on investment-grade quality and intermediate- term bonds.

Contents

Investment objective and policies                      4
Why invest in the Fund?                                5
Additional information about policies
   and investments                                     6
Distribution and performance information              11
Fund organization                                     12
Transaction information                               14
Shareholder benefits                                  17
Purchases                                             20
Exchanges and redemptions                             21
Trustees and Officers                                 23
Investment products and services                      24
How to contact Scudder                                25



                                       3
<PAGE>

Investment objective and policies

Scudder Corporate Bond Fund (the "Fund"), a diversified series of Scudder
Portfolio Trust (the "Trust"), seeks a high level of current income through
investment primarily in investment- grade corporate debt securities.

The Fund invests in a broad range of investment-grade, income producing
securities and, to a lesser extent, below investment-grade bonds. The Fund is
designed as a long-term investment for shareholders who can bear some credit,
interest rate, and other bond market risks in exchange for the potential for
high current income.

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 the 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.

Investments

The Fund invests, under normal market conditions, at least 65% of its total
assets in investment-grade debt securities. Investment- grade securities are
those that are rated Aaa, Aa, A, or Baa by Moody's Investors Service, Inc.
("Moody's") or AAA, AA, A, or BBB by Standard & Poor's Corporation ("S&P"), or
if unrated, are of equivalent quality as determined by the Fund's investment
adviser, Scudder Kemper Investments, Inc. (the "Adviser"). In addition, the Fund
may invest up to 35% of its assets in securities in high yield, below
investment-grade securities. Below investment-grade securities are rated "Ba1"
or below by Moody's or "BB+" or below by S&P. Below investment-grade securities
are considered predominantly speculative with respect to their capacity to pay
interest and repay principal. They generally involve a greater risk of default
and, at times, can have more price volatility than higher rated securities. See
"Additional information about policies and investments."

The Fund invests primarily in intermediate-term corporate bonds, but can also
hold short-term and long-term issues. The dollar-weighted average maturity of
the Fund's portfolio is expected to range from five to ten years. Longer-term
bonds generally are more volatile than bonds with shorter maturities. While the
Fund emphasizes corporate bonds and notes, it can also invest in U.S. Treasury
and Agency securities, convertible and preferred securities, debt securities
issued by real estate investment trusts ("REITs"), dollar rolls, trust preferred
securities, mortgage-backed and other asset-backed securities, zero coupon
securities, dollar-denominated debt of international agencies or
investment-grade foreign institutions, and money market instruments such as
commercial paper, bankers acceptances, and certificates of deposit issued by
domestic and foreign branches of U.S. banks. The Fund may invest up to 20% of
total assets in foreign debt securities denominated in currencies other than the
U.S. dollar. The Fund may also invest in when-issued securities, indexed
securities, repurchase agreements, reverse repurchase agreements, illiquid
securities, and may engage in strategic transactions.

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.

For temporary defensive purposes, the Fund may invest all or a substantial
portion of its assets in money market and short-term instruments when the
Adviser deems such a position advisable in light of economic or market
conditions. It is impossible to predict accurately how long such a defensive
strategy may be utilized.



                                       4
<PAGE>

Investment process

The Fund is designed to provide investors with a high level of monthly income.
In pursuit of this objective, the Adviser seeks to construct a diversified
portfolio of primarily investment- grade corporate bonds, and to a lesser
extent, below investment-grade corporate bonds. The Adviser carefully monitors
business and economic conditions in the U.S. and abroad and conducts its own
research to identify attractive industry sectors and companies. In addition, the
Adviser utilizes the ratings and analysis provided by the major rating agencies
such as Moody's and S&P.

The Fund will focus its investments in securities issued by investment-grade
companies that are established in their industries, have stable cash flows and
strong balance sheets. The Adviser will also invest, to a lesser extent, in
corporate securities that are rated below investment-grade. Investing in high
yielding, lower quality bonds involves various types of risks including risk of
default; that is, the chance that issuers of bonds held in the portfolio will
not make timely payment of either interest or principal. In comparison to
investing in higher quality issues, high yield bond investors may be rewarded
for the additional risks of high yield bonds through higher interest payments.
The Adviser seeks to manage the risks of investing in below investment-grade
companies by using a research intensive process to identify companies that,
among other qualities, have improving business prospects, positive credit
trends, and growing cash flows.

The Adviser will invest in securities of a variety of maturities including
short-term (bonds with maturities of less than five years), intermediate- term
(bonds with maturities between five and ten years), and long-term (bonds with
maturities greater than ten years). The Fund will invest primarily in
intermediate bonds and the Fund's portfolio is expected to have a
dollar-weighted average maturity of five to ten years, what is considered an
intermediate maturity. The Fund's investment approach creates an overall
investment-grade portfolio, with an intermediate maturity that is designed to
provide investors with a high level of monthly income.

Why invest in the Fund?

Scudder Corporate Bond Fund offers investors a convenient way to participate in
a diversified, professionally managed portfolio of primarily investment-grade
corporate bonds. The Fund is suitable for investors who want high current
income, but are willing to accept some interest rate, credit and other risks
associated with bond investing. Since the Fund's share price will fluctuate, the
Fund is not appropriate for investors who desire absolute preservation of
capital.

The Fund offers investors the opportunity to diversify their portfolio on two
levels. First, the Fund may balance holdings that investors may have in stocks
or stock mutual funds. Historically, portfolios that include bonds and stocks
have experienced lower volatility over the long-term than portfolios that
consist entirely of stocks. Second, the Fund offers investors diversification
among bonds across many industry sectors and of varying credit ratings.
Investment-grade bonds and high yielding bonds may react differently to factors
such as changes in interest rates, industry trends, U.S. economic growth, and,
at times, stock market activity.

The Fund may be appropriate for investors in retirement seeking a high level of
monthly income or it may serve as the core bond holding of an individual's asset
allocation investment plan. Investors participating in group retirement plans or
contributing to Individual Retirement Accounts, including Roth IRAs, may benefit
from those plans' tax-advantaged treatment of the Fund's income.


                                       5
<PAGE>


Additional information about policies and investments

Investment restrictions

The Fund has certain investment restrictions which are designed to reduce the
Fund's investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Trust's Board of Trustees.

As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes and by engaging in reverse repurchase
agreements and dollar rolls.

As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness or through repurchase agreements. The Fund has adopted
a non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.

A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.

Convertible securities

The Fund may invest in convertible securities which may offer higher income than
the common stocks into which they are convertible. The convertible securities in
which the Fund may invest include coupon paying or dividend paying or zero
coupon debt and preferred securities, which may ultimately be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. Prior to their conversion, convertible securities may have
characteristics similar to both nonconvertible debt securities and equity
securities.

Real estate-related instruments

The Fund may purchase instruments such as real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings.

Dollar roll transactions

The Fund may enter into dollar roll transactions with selected banks and
broker/dealers. Dollar roll transactions are treated as reverse repurchase
agreements for purposes of the Fund's borrowing restrictions and consist of the
sale by the Fund of mortgage-backed securities, together with a commitment to
purchase similar, but not identical, securities at a future date at the same
price. In addition, the Fund is paid a fee as consideration for entering into
the commitment to purchase. Dollar rolls may be renewed after cash settlement
and initially may involve only a firm commitment agreement by the Fund to buy
the securities.

Trust preferred securities

The Fund may invest in special purpose trust securities ("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. These securities tend to be affected by
interest rates in a manner similar to debt securities.

Mortgage and other asset-backed securities

The Fund may invest in mortgage-backed securities, which are securities
representing interests in pools of mortgage loans. These securities provide
shareholders with payments consisting of both interest and principal as the
mortgages in the underlying mortgage pools are paid off.



                                       6
<PAGE>

The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. These
guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or to the value of Fund shares. Also, GNMA and other
mortgage-backed securities may be purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs. In addition, the Fund may invest in mortgage-backed
securities issued by other issuers, such as the Federal National Mortgage
Association (FNMA), which are not guaranteed by the U.S. Government. Moreover,
the Fund may invest in debt securities which are secured with collateral
consisting of mortgage-backed securities and in other types of mortgage-related
securities.

The Fund may also invest in securities representing interests in pools of
certain other consumer loans, such as automobile loans or credit card
receivables. In some cases, principal and interest payments are partially
guaranteed by a letter of credit from a financial institution.

Illiquid securities

The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price. Some restricted securities, however, may be considered liquid despite
resale restrictions, since they can be sold to other qualified institutional
buyers under a rule of the Securities and Exchange Commission (Rule 144A). The
Trust's Board of Trustees has delegated to the Adviser the authority to
determine those Rule 144A securities that will be considered liquid.

Indexed securities

The Fund may invest in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"). The interest rate or (unlike most fixed-income
securities) the principal amount payable at maturity of an indexed security may
be increased or decreased, depending on changes in the value of the reference
instrument.

Zero coupon securities

The Fund may invest in zero coupon securities which pay no cash income and are
sold at substantial discounts from their maturity value. When held to maturity,
their entire income, which consists of accretion of discount, comes from the
difference between the issue price and their maturity value.

When-issued securities

The Fund may purchase securities on a when-issued or forward delivery basis, for
payment and delivery at a later date. The price and yield are generally fixed on
the date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price.

Repurchase agreements

As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/ dealers. Under
a repurchase agreement the Fund acquires securities, subject to the seller's
agreement to repurchase at a specified time and price. The Fund may enter into
repurchase commitments with any party deemed creditworthy by the Adviser,
including foreign banks and broker/dealers, if the transaction is entered into
for investment purposes and the counterparty's creditworthiness is at least
equal to that of issuers of securities which the Fund may purchase.



                                       7
<PAGE>

Foreign securities

While the Fund generally emphasizes investments in companies domiciled in the
U.S., it may invest in listed and unlisted foreign securities that meet the same
criteria as the Fund's domestic holdings. The Fund may invest in foreign
securities when the anticipated performance of foreign securities is believed by
the Adviser to offer more potential than domestic alternatives in keeping with
the investment objective of the Fund. The Fund may invest in certificates of
deposit issued by foreign and of domestic branches of U.S. banks.

Strategic Transactions and derivatives

The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance 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.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.

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 financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").

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 temporary 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 Adviser'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 involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in the Fund. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.

Risk factors

The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the 


                                       8
<PAGE>

investments and techniques that the Fund may use from time to time.

Debt securities. Securities rated BBB by S&P or Baa by Moody's are neither
highly protected nor poorly secured. These securities normally pay higher yields
but involve potentially greater price variability than higher-quality
securities. These securities are regarded as having adequate capacity to repay
principal and pay interest, although adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to do so. Moody's
considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics.

Debt securities rated below investment-grade. Securities rated below
investment-grade (those rated lower than Baa or BBB) are commonly referred to as
"junk bonds". These securities can entail greater price volatility and involve a
higher degree of speculation with respect to the payment of principal and
interest than higher quality fixed-income securities. The market prices of such
lower rated debt securities may decline significantly in periods of general
economic difficulty. In addition, the trading market for these securities is
generally less liquid than for higher rated securities, and the Fund may have
difficulty disposing of these securities at the time it wishes to do so. The
lack of a liquid secondary market for certain securities may also make it more
difficult for the Fund to obtain accurate market quotations for purposes of
valuing its portfolio and calculating its net asset value. Should the rating of
any security held by the Fund be downgraded after the time of purchase, the
Adviser will determine whether it is in the best interest of the Fund to retain
or dispose of the security.

Convertible securities. While generally less volatile than common stocks, the
price of convertible securities can change significantly, reflecting changes in
the underlying stocks, changes in the credit quality of the underlying issuers,
changes in interest rates or other factors. While convertible debt securities
represent a legal obligation to pay interest and principal on the part of the
issuer, these securities can be subject to bankruptcy or insolvency proceedings,
which can result in investors receiving less than stated interest or principal
amount.

Real estate-related instruments. Real estate- related instruments are sensitive
to factors such as changes in real estate values and property taxes, interest
rates, cash flow of underlying real estate assets, supply and demand, and the
management skill and creditworthiness of the issuer. Real estate-related
instruments may also be affected by tax and regulatory requirements, such as
those relating to the environment.

Dollar roll transactions. If the broker/dealer to whom the Fund sells the
securities underlying a dollar roll transaction becomes insolvent, the Fund's
right to purchase or repurchase the securities may be restricted; the value of
the securities may change adversely over the term of the dollar roll; the
securities that the Fund is required to repurchase may be worth less than the
securities that the Fund originally held, and the return earned by the Fund with
the proceeds of a dollar roll may not exceed transaction costs.

Mortgage and other asset-backed securities. Unscheduled or early payments on the
underlying mortgages may shorten the securities' effective maturities and lessen
their growth potential. The Fund may agree to purchase or sell these securities
with payment and delivery taking place at a future date. A decline in interest
rates may lead to a faster rate of repayment of the underlying mortgages, and
expose the Fund to a lower rate of return upon reinvestment. To the extent that
such mortgage-backed securities are held by the Fund, the prepayment right of
mortgagors may limit the increase in net asset value of the Fund because the
value of the mortgage-backed securities held by the Fund may not appreciate as
rapidly as the price of non-callable debt securities. Asset-backed securities
are subject to the risk of prepayment 


                                       9
<PAGE>

and the risk that the underlying loans will not be repaid. Because principal may
be prepaid at any time, mortgage-backed securities may involve significantly
greater price and yield volatility than traditional debt securities.

Illiquid securities. The absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.

Indexed securities. Indexed securities may be positively or negatively indexed,
so that appreciation of the reference instrument may produce an increase or a
decrease in the interest rate or value at maturity of the security.

In addition, the change in the interest rate or value at maturity of the
security may be some multiple of the change in the value of the reference
instrument. Thus, in addition to the credit risk of the security's issuer, the
Fund will bear the market risk of the reference instrument.

Zero coupon securities. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities that make current cash distributions of interest.

Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities. Repurchase commitment transactions may not provide the Fund with
collateral marked-to-market during the term of the commitment.

Foreign securities. Investments in foreign securities involve special
considerations due to limited information, higher brokerage costs, different
accounting standards, thinner trading markets as compared to domestic markets
and the likely impact of foreign taxes on the yield from debt securities. They
may also entail other risks, such as the possibility of one or more of the
following: imposition of dividend or interest withholding or confiscatory taxes;
currency blockages or transfer restrictions; expropriation, nationalization or
other adverse political or economic developments; less governmental supervision
and regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. Purchases of foreign
securities are usually made in foreign currencies and, as a result, the Fund may
incur currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar.

Further, 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., increasing the risk of delayed settlements of
portfolio transactions or loss of certificates for portfolio securities. The
Fund's ability and decisions to purchase and sell portfolio securities may be
affected by laws or regulations relating to the convertibility and repatriation
of assets.

Trust preferred securities. 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 



                                       10
<PAGE>

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. 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.

Strategic Transactions and derivatives. 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
Adviser'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 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 contracts 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. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.

Distribution and performance information

Dividends and capital gains distributions

The Fund's dividends from net investment income are declared daily and
distributed monthly. The Fund intends to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in November or December
to prevent application of a federal excise tax. An additional distribution may
be made, if necessary. Any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid the
following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. According
to preference, shareholders may receive distributions in cash or have them
reinvested in additional shares of the Fund. If an investment is in the form of
a retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholder's account.

Generally, dividends from net investment income are taxable to shareholders as
ordinary income. 



                                       11
<PAGE>

Long-term capital gains distributions, if any, are taxable to individual
shareholders at a maximum 20% or 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the gain), regardless of the length
of time shareholders have owned shares. Short-term capital gains and any other
taxable income distributions are taxable as ordinary income.

The Fund sends detailed tax information about the amount and type of its
distributions to its shareholders by January 31 of the following year.

Under normal investment conditions, it is anticipated that the Fund's portfolio
turnover rate will not exceed ____% for the initial fiscal year. However,
economic and market conditions may necessitate more active trading, resulting in
a higher portfolio turnover rate. A higher rate involves greater brokerage
expenses to the Fund and may result in the realization of net capital gains,
which would be taxable to shareholders when distributed.

Performance information

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. The "SEC yield" of the Fund is an
annualized expression of the net income generated by the Fund over a specified
30-day (one month) period, as a percentage of the Fund's share price on the last
day of that period. This yield is calculated according to methods required by
the Securities and Exchange Commission (the "SEC"), and therefore may not equate
to the level of income paid to shareholders. "Total return" is the change in
value of an investment in the Fund for a specified period. The "average annual
total return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for one year, five
years and ten years as of a stated ending date. "Cumulative total return"
represents the cumulative change in value of an investment in the Fund for
various periods. All types of total return calculations assume that all
dividends and capital gains distributions during the period were reinvested in
shares of the Fund. Performance will vary based upon, among other things,
changes in market conditions and the level of the Fund's expenses.

Fund organization

Scudder Corporate Bond Fund is a diversified series of Scudder Portfolio Trust,
an open-end management investment company registered under the Investment
Company Act of 1940 (the "1940 Act"). The Trust was organized as a Massachusetts
business trust in September 1984 and on December 31, 1984 assumed the business
of its predecessor, which was organized as a Massachusetts corporation in 1928.

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

Investment adviser

The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.,
to manage the Fund's daily investment and business affairs subject to the
policies established by the Board of Trustees. The Trustees have overall
responsibility for the management of the Fund under Massachusetts law.



                                       12
<PAGE>

Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc., and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.

The Fund pays the Adviser an annual fee of ___% of the Fund's average daily net
assets. The fee is payable monthly, provided that the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid. The Adviser
has agreed to maintain the annualized expenses of the Fund at no more than ___%
of the average daily net assets of the Fund until ______________, 199__.

Under the Investment Management Agreement with the Adviser, the Fund is
responsible for all of its expenses, including fees and expenses incurred in
connection with membership in investment company organizations; fees and
expenses of the Fund's accounting agent; brokers' commissions; legal, auditing
and accounting expenses; taxes and governmental fees; the fees and expenses of
the transfer agent; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of Trustees, officers and employees
of the Trust who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians.

All of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.

Scudder Kemper Investments, Inc. is located at Two International Place, Boston,
Massachusetts.

Like other mutual funds and financial and business organizations worldwide, the
Fund could be adversely affected if computer systems on which the Fund relies,
which primarily include those used by the Adviser, its affiliates or other
service providers, are unable to correctly process date-related information on
and after January 1, 2000. This risk is commonly called the Year 2000 Issue.
Failure to successfully address the Year 2000 Issue could result in
interruptions to and other material adverse effects on the Fund's business and
operations. The Adviser has commenced a review of the Year 2000 Issue as it may
affect the Fund and is taking steps it believes are reasonably designed to
address the Year 2000 Issue, although there can be no assurances that these
steps will be sufficient. In addition, there can be no assurances that the Year
2000 Issue will not have an adverse effect on the companies whose securities are
held by the Fund or on global markets or economies generally.

Transfer agent

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.

Underwriter

Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.

Fund accounting agent

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

Custodian

State Street Bank and Trust Company is the Fund's custodian.


                                       13
<PAGE>

Transaction information

Purchasing shares

Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")

By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.

By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:

        The Scudder Funds
        State Street Bank and Trust Company
        Boston, MA 02101
        ABA Number 011000028
        DDA Account 9903-5552

Your wire instructions must also include:

- --   the name of the fund in which the money is to be invested,

- --   the account number of the fund, and

- --   the name(s) of the account holder(s).

The account will be established once the application and money order are
received in good order.

You may also make additional investments of $100 or more to your existing
account by wire.

By telephone order. To a limited extent, certain financial institutions may
place orders to purchase shares unaccompanied by payment prior to the close of
regular trading on the New York Stock Exchange (the "Exchange"), normally 4:00
p.m. eastern time, and receive that day's price. Please call 1-800-854-8525 for
more information, including the dividend treatment and method and manner of
payment for Fund shares.

By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.

To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from 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,
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, the 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.



                                       14
<PAGE>

By exchange. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless otherwise determined by the Board of Trustees. Your new
account will have the same registration and address as your existing account.

The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.

You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.

Redeeming shares

The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.

By telephone. This is the quickest and easiest way to sell Fund shares. If you
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information on your application, call 1-800-225-5163 for
more information.

Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.

You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.

If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.

In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.

By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.

To redeem shares, call 1-800-225-5163. 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, 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 and be redeemed at the net
asset value calculated the following business day.

"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.

Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by 


                                       15
<PAGE>

notaries public are not acceptable. Redemption requirements for corporations,
other organizations, trusts, fiduciaries, agents, institutional investors and
retirement plans may be different from those for regular accounts. For more
information, please call 1-800-225-5163.

Telephone transactions

Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.

Share price

Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading. Net asset value per share is
calculated by dividing the value of total Fund assets, less all liabilities, by
the total number of shares outstanding.

Processing time

All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of regular trading that day.

Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.

If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.

The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).

Purchase restrictions

Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.

Tax information

A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.

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 Fund with a tax identification number during the
30-day notice period.



                                       16
<PAGE>

Minimum balances

Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum share balance requirements. A
shareholder may open an account with at least $1,000, if an automatic investment
plan of $100/month is established.

Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange 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. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
"Exchanges and Redemptions-- Other Information" in the Fund's Statement of
Additional Information for more information.

Third party transactions

If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.

Redemption-in-kind

The Fund 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 to cash.

Shareholder benefits

Experienced professional management

Scudder Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.

A team approach to investing

Scudder Corporate Bond Fund is managed by a team of investment professionals,
each of whom plays an important role in the Fund's management process. Team
members work together to develop investment strategies and select securities for
the Fund's portfolio. They are supported by the Adviser's large staff of
economists, research analysts, traders and other investment specialists who work
in offices across the United States and abroad. We believe our team approach
benefits Fund investors by bringing together many disciplines and leveraging our
extensive resources.

Stephen A. Wohler, Lead Portfolio Manager, is responsible for implementing the
Fund's strategy and overseeing its daily operations. Mr. Wohler has over 17
years of experience managing fixed-income investments and has been with the
Adviser since 1979. Kelly D. Babson, Portfolio Manager, joined the Adviser in
1994 as a portfolio manager and has 16 years of experience in the fixed income
field, including 13 years of high-yield management. Robert Cessine, Portfolio
Manager, is responsible for the Fund's investment strategy including duration



                                       17
<PAGE>

management, asset allocation, security selection and trading. Mr. Cessine joined
the Adviser in January 1993, and has over 16 years of industry experience.

SAIL(TM)--Scudder Automated Information Line

For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.

Investment flexibility

Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.) Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.

Personal Counsel(SM) -- A Managed Fund Portfolio Program

If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of no-load mutual funds with ongoing portfolio monitoring
and individualized service, for an annual fee of generally 1.25% or less of
assets. In addition, it draws upon the Adviser's more than 75-year heritage of
providing investment counsel to large corporate and private clients. If you have
$100,000 or more to invest initially and would like more information about
Personal Counsel, please call 1-800-700-0183.

Dividend reinvestment plan

You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.

Shareholder statements

You will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. All of your
statements should be retained to help you keep track of account activity and the
cost of shares for tax purposes.

Shareholder reports

In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.

To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.

Newsletters

Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.

Scudder Investor Centers

As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Investor 



                                       18
<PAGE>

Centers in Boca Raton, Boston, Chicago, New York and San Francisco.

T.D.D. service for the hearing impaired

Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.



                                       19
<PAGE>

Purchases           

<TABLE>
<S>                 <C>   
<CAPTION>
Opening             Minimum initial investment: $2,500; IRAs $1,000
an account          
                    Group retirement plans (401(k), 403(b), etc.) have similar
                    or lower minimums. See appropriate plan literature.

Make checks         o  By Mail          Send your completed and signed application and check
payable to "The
Scudder Funds."
                                             by regular mail to:             or      by express, registered,
                                                                                     or certified mail to:

                                             The Scudder Funds                       The Scudder Funds
                                             P.O. Box 2291                           66 Brooks Drive
                                             Boston, MA                              Braintree, MA  02184
                                             02107-2291

                     o  By Wire              Please see Transaction information--Purchasing shares-- 
                                             By  wire for details, including the ABA wire transfer number. 
                                             Then call  1-800-225-5163 for instructions.

                     o  In Person            Visit one of our Investor Centers to complete your application with the
                                             help of a Scudder representative. Investor Center locations are listed
                                             under Shareholder benefits.
- -----------------------------------------------------------------------------------------------------------------------

Purchasing          Minimum additional investment: $100; IRAs $50
additional    
shares              Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
                    See appropriate plan literature.

Make checks         o  By Mail               Send a check with a Scudder investment slip, or with a letter of 
payable to "The                              instruction including your account number and the complete 
Scudder Funds."                              Fund name, to the appropriate address listed above.

                    o  By Wire               Please see Transaction information--Purchasing shares-- 
                                             By wire for details, including the ABA wire transfer number.

                    o  In Person             Visit one of our Investor Centers to make an additional
                                             investment in your Scudder fund account. Investor Center locations
                                             are listed under Shareholder benefits.

                    o  By Telephone          Please see Transaction information--Purchasing shares-- 
                                             By QuickBuy or By telephone order for more details.

                    o  By Automatic          You may arrange to make investments on a
                       Investment Plan       regular basis through automatic deductions from your bank checking account. 
                       ($50 minimum)         Please call 1-800-225-5163 for more information and an enrollment form.




                                       20
<PAGE>

Exchanges and redemptions

Exchanging          Minimum investments:   $2,500 to establish a new account;
shares                                     $100 to exchange among existing accounts

                    o  By Telephone     To speak with a service representative, call 1-800-225-5163 from
                                        8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
                                        Information Line, call 1-800-343-2890 (24 hours a day).

                    o  By Mail          Print or type your instructions and include:
                       or Fax                - the name of the Fund and the account number you are exchanging from;
                                             - your name(s) and address as they appear on your account;
                                             - the dollar amount or number of shares you wish to exchange;
                                             - the name of the Fund you are exchanging into;
                                             - your signature(s) as it appears on your account; and
                                             - a daytime telephone number.

                                        Send your instructions
                                        by regular mail to:      or   by express, registered,   or   by fax to:
                                                                      or certified mail to:

                                        The Scudder Funds             The Scudder Funds              1-800-821-6234
                                        P.O. Box 2291                 66 Brooks Drive
                                        Boston, MA 02107-2291         Braintree, MA  02184
- -----------------------------------------------------------------------------------------------------------------------

Redeeming           o  By Telephone     To speak with a service representative, call 1-800-225-5163 from
shares                                  8 a.m. to 8 p.m. eastern time or to access SAIL(TM),
                                        Scudder's Automated Information Line, call 1-800-343-2890 (24 hours a day). 
                                        You may have redemption proceeds sent to your predesignated bank account, or 
                                        redemption proceeds of up to $100,000 sent to your address of record.

                    o  By Mail          Send your instructions for redemption to the appropriate address or fax number
                       or Fax           above and include:
                                             - the name of the Fund and account number you are redeeming from; 
                                             - your name(s) and address as they appear on number of shares you wish to redeem; 
                                             - your signature(s) as it appears on your account; and 
                                             - a daytime telephone number.

                                        A signature guarantee is required for redemptions over $100,000. 
                                        See Transaction information--Redeeming shares.

                    o  By Automatic     You may arrange to receive automatic cash payments periodically. 
                       Withdrawal Plan  Call 1-800-225-5163 for more information and an enrollment form.

</TABLE>

                                       21
<PAGE>

Scudder tax-advantaged retirement plans

Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.

o    Scudder No-Fee IRAs. These retirement plans allow a maximum annual
     contribution of up to $2,000 per person for anyone with earned income (up
     to $2,000 per individual for married couples filing jointly, even if only
     one spouse has earned income). Many people can deduct all or part of their
     contributions from their taxable income, and all investment earnings accrue
     on a tax-deferred basis. The Scudder No-Fee IRA charges you no annual
     custodial fee.

o    Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
     these retirement plans provide a unique opportunity for qualifying
     individuals to accumulate investment earnings tax free. Unlike a
     traditional IRA, with a Roth IRA, if you meet the distribution
     requirements, you can withdraw your money without paying any taxes on the
     earnings. No tax deduction is allowed for contributions to a Roth IRA. The
     Scudder Roth IRA charges you no annual custodial fee.

o    401(k) Plans. 401(k) plans allow employers and employees to make
     tax-deductible retirement contributions. Scudder offers a full service
     program that includes recordkeeping, prototype plan, employee
     communications and trustee services, as well as investment options.

o    Profit Sharing and Money Purchase Pension Plans. These plans allow
     corporations, partnerships and people who are self-employed to make annual,
     tax-deductible contributions of up to $30,000 for each person covered by
     the plans. Plans may be adopted individually or paired to maximize
     contributions. These are sometimes known as Keogh plans.

o    403(b) Plans. Retirement plans for tax-exempt organizations and school
     systems to which employers and employees may both contribute.

o    SEP-IRAs. Easily administered retirement plans for small businesses and
     self-employed individuals. The maximum annual contribution to SEP-IRA
     accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
     you no annual custodial fee.

o    Scudder Horizon Plan. A no-load variable annuity that lets you build assets
     by deferring taxes on your investment earnings. You can start with $2,500
     or more.

Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA and most Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.

The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.

Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.




                                       22
<PAGE>

Trustees and Officers

Daniel Pierce*
    President and Trustee

Henry P. Becton, Jr.
    Trustee; President and General Manager,
    WGBH Educational Foundation

Dawn-Marie Driscoll
    Trustee; Executive Fellow, Center for Business Ethics, Bentley College

Peter B. Freeman
    Trustee; Corporate Director and Trustee

George M. Lovejoy, Jr.
    Trustee; President and Director,
    Fifty Associates

Wesley W. Marple, Jr.
    Trustee; Professor of Business Administration, Northeastern University

Kathryn L. Quirk*
    Trustee, Vice President and
    Assistant Secretary

Jean C. Tempel
    Trustee; Managing Partner, Technology Equity Partners

Kelly D. Babson*
    Vice President

Jerard K. Hartman*
    Vice President

William H. Hutchinson*
    Vice President

Thomas W. Joseph*
    Vice President

Valerie F. Malter*
    Vice President

Stephen Wohler*
    Vice President

Thomas F. McDonough*
    Treasurer, Vice President
    and Secretary

John R. Hebble*
    Assistant Treasurer

Caroline Pearson*
    Assistant Secretary

*    Scudder Kemper Investments, Inc.


                                       23
<PAGE>
Investment products and services

The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
  Scudder U.S. Treasury Money Fund
  Scudder Cash Investment Trust
  Scudder Money Market Series-- 
     Premium Shares*
     Managed Shares*
  Scudder Government Money Market Series-- 
     Managed Shares*

Tax Free Money Market+
- ----------------------
  Scudder Tax Free Money Fund
  Scudder Tax Free Money Market Series--
     Managed Shares*
  Scudder California Tax Free Money Fund**
  Scudder New York Tax Free Money Fund**

Tax Free+
- ---------
  Scudder Limited Term Tax Free Fund
  Scudder Medium Term Tax Free Fund
  Scudder Managed Municipal Bonds
  Scudder High Yield Tax Free Fund
  Scudder California Tax Free Fund**
  Scudder Massachusetts Limited Term Tax Free Fund**
  Scudder Massachusetts Tax Free Fund**
  Scudder New York Tax Free Fund**
  Scudder Ohio Tax Free Fund**
  Scudder Pennsylvania Tax Free Fund**

U.S. Income
- -----------
  Scudder Short Term Bond Fund
  Scudder Zero Coupon 2000 Fund
  Scudder GNMA Fund
  Scudder Income Fund
  Scudder Corporate Bond Fund
  Scudder High Yield Bond Fund

Global Income
- -------------
  Scudder Global Bond Fund
  Scudder International Bond Fund
  Scudder Emerging Markets Income Fund

Asset Allocation
- ----------------
  Scudder Pathway Conservative Portfolio
  Scudder Pathway Balanced Portfolio
  Scudder Pathway Growth Portfolio
  Scudder Pathway International Portfolio

U.S. Growth and Income
- ----------------------
  Scudder Balanced Fund
  Scudder Dividend & Growth Fund
  Scudder Growth and Income Fund
  Scudder S&P 500 Index Fund
  Scudder Real Estate Investment Fund

U.S. Growth
- -----------
  Value
    Scudder Large Company Value Fund
    Scudder Value Fund***
    Scudder Small Company Value Fund
    Scudder Micro Cap Fund

  Growth
    Scudder Classic Growth Fund***
    Scudder Large Company Growth Fund
    Scudder Development Fund
    Scudder 21st Century Growth Fund

Global Growth
- -------------
  Worldwide
    Scudder Global Fund
    Scudder International Growth and Income Fund
    Scudder International Fund
    Scudder Global Discovery Fund***
    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 Financial Services Fund
    Scudder Health Care Fund
    Scudder Technology Fund


Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
  Traditional IRA
  Roth IRA
  SEP-IRA
  Keogh Plan
  401(k), 403(b) Plans
  Scudder Horizon Plan **+++ +++
    (a variable annuity)

Education Accounts
- ------------------
  Education IRA
  UGMA/UTMA 
 

Closed-End Funds#
- --------------------------------------------------------------------------------
  The Argentina Fund, Inc.
  The Brazil Fund, Inc.
  The Korea Fund, Inc.
  Montgomery Street Income Securities, Inc.
  Scudder Global High Income Fund, Inc.
  Scudder New Asia Fund, Inc.
  Scudder New Europe Fund, Inc.
  Scudder Spain and Portugal Fund, Inc.
  
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. ***Only the Scudder Shares of
the Fund are part of the Scudder Family of Funds. +++ +++A no-load variable
annuity contract provided by Charter National Life Insurance Company and its
affiliate, offered by Scudder's insurance agencies, 1-800-225-2470. #These
funds, advised by Scudder Kemper Investments, Inc., are traded on the New York
Stock Exchange and, in some cases, on various foreign stock exchanges.


                                       24
<PAGE>
 
<TABLE>
<CAPTION>

How to contact Scudder

Account Service and Information:
<S>      <C>
        
         For existing account service and transactions
                  Scudder Investor Relations -- 1-800-225-5163

          For 24 hour account information, fund information, exchanges, and an
          overview of all the services available to you

                  Scudder Electronic Account Services -- http://funds.scudder.com

         For personalized information about your Scudder accounts, exchanges and redemptions

                  Scudder Automated Information Line (SAIL) -- 1-800-343-2890

Investment Information:

         For information about the Scudder funds, including additional
         applications and prospectuses, or for answers to investment questions

                  Scudder Investor Relations -- 1-800-225-2470
                                                   [email protected]

                  Scudder's World Wide Web Site -- http://funds.scudder.com

         For establishing 401(k) and 403(b) plans

                  Scudder Defined Contribution Services -- 1-800-323-6105

Scudder Brokerage Services:

         To receive information about this discount brokerage service and to obtain an application

                  Scudder Brokerage Services* -- 1-800-700-0820

Personal Counsel(SM) -- A Managed Fund Portfolio Program:

         To receive information about this mutual fund portfolio guidance and management program

                  Personal Counsel from Scudder -- 1-800-700-0183 

Please address all correspondence to:

                  The Scudder Funds
                  P.O. Box 2291
                  Boston, Massachusetts
                  02107-2291

Or Stop by a Scudder Investor Center:

         Many shareholders enjoy the personal, one-on-one service of the Scudder
         Investor Centers. Check for an Investor Center near you--they can be
         found in the following cities:

                   Boca Raton       Chicago           San Francisco
                   Boston           New York

Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.
</TABLE>
*        Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
         02061--Member NASD/SIPC.
                                       25
<PAGE>
                           SCUDDER CORPORATE BOND FUND


          A Pure No-Load(TM) (No Sales Charges) Diversified Mutual Fund
            Seeking a High Level of Current Income Through Investment
             Primarily in Investment-Grade Corporate Debt Securities

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



                       STATEMENT OF ADDITIONAL INFORMATION

                                 August 31, 1998



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


         This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder  Corporate Bond Fund dated
August 31,  1998,  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.


<PAGE>


                                TABLE OF CONTENTS
 <TABLE>
<S>                                                                                                                  <C>
<CAPTION>
                                                                                                                  Page

THE FUND'S INVESTMENT OBJECTIVES AND POLICIES.........................................................................1
         Investment Objective and Policies............................................................................1
         Investments..................................................................................................1
         Investment process...........................................................................................2
         Master/feeder structure......................................................................................2
         Risk Factors.................................................................................................2
         Investment Restrictions.....................................................................................19

PURCHASES............................................................................................................20
         Additional Information About Opening An Account.............................................................20
         Additional Information About Making Subsequent Investments by QuickBuy......................................20
         Checks......................................................................................................21
         Wire Transfer of Federal Funds..............................................................................21
         Share Price.................................................................................................22
         Share Certificates..........................................................................................22
         Other Information...........................................................................................22

EXCHANGES AND REDEMPTIONS............................................................................................22
         Exchanges...................................................................................................22
         Redemption by Telephone.....................................................................................23
         Redemption By QuickSell.....................................................................................24
         Redemption by Mail or Fax...................................................................................24
         Redemption-In-Kind..........................................................................................25
         Other Information...........................................................................................25

FEATURES AND SERVICES OFFERED BY THE FUND............................................................................25
         The Pure No-Load(TM) Concept................................................................................25
         Internet access.............................................................................................26
         Dividends and Capital Gain Distribution Options.............................................................27
         Diversification.............................................................................................27
         Scudder Investor Centers....................................................................................28
         Reports to Shareholders.....................................................................................28
         Transaction Summaries.......................................................................................28

THE SCUDDER FAMILY OF FUNDS..........................................................................................28

SPECIAL PLAN ACCOUNTS................................................................................................33
         Scudder Retirement Plans:  Profit-Sharing and Money Purchase Pension Plans for Corporations and
              Self-Employed Individuals..............................................................................33
         Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........33
         Scudder IRA:  Individual Retirement Account.................................................................33
         Scudder Roth IRA:  Individual Retirement Account............................................................34
         Scudder 403(b) Plan.........................................................................................35
         Automatic Withdrawal Plan...................................................................................35
         Group or Salary Deduction Plan..............................................................................35
         Automatic Investment Plan...................................................................................36
         Uniform Transfers/Gifts to Minors Act.......................................................................36

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................36

                                       i

<PAGE>

                          TABLE OF CONTENTS (continued)
                                                                                                                   Page

PERFORMANCE INFORMATION..............................................................................................37
         Average Annual Total Return.................................................................................37
         Cumulative Total Return.....................................................................................37
         Total Return................................................................................................37
         SEC Yield...................................................................................................37
         Comparison of Fund Performance..............................................................................38

FUND ORGANIZATION....................................................................................................41

INVESTMENT ADVISER...................................................................................................42
         Personal Investments by Employees of the Adviser............................................................45

TRUSTEES AND OFFICERS................................................................................................45

REMUNERATION.........................................................................................................47
         Responsibilities of the Board--Board and Committee Meetings.................................................47
         Compensation of Officers and Directors......................................................................47

DISTRIBUTOR..........................................................................................................48

TAXES................................................................................................................49

PORTFOLIO TRANSACTIONS...............................................................................................52
         Brokerage Commissions.......................................................................................52
         Portfolio Turnover..........................................................................................53

NET ASSET VALUE......................................................................................................54

ADDITIONAL INFORMATION...............................................................................................55
         Experts.....................................................................................................55
         Other Information...........................................................................................55

FINANCIAL STATEMENTS.................................................................................................56

APPENDIX
</TABLE>

                                       ii

<PAGE>

                  THE FUND'S INVESTMENT OBJECTIVES AND POLICIES

                  (See "Investment objective and policies" and
                   "Additional information about policies and
                     investments" in the Fund's prospectus.)

         Scudder  Corporate  Bond  Fund  (the  "Fund"),  is a pure  no-load,(TM)
diversified  series of  Scudder  Portfolio  Trust  (the  "Trust"),  an  open-end
management  investment company which continuously  offers and redeems its shares
at net asset value. It is a company of the type commonly known as a mutual fund.

Investment Objective and Policies

         Scudder  Corporate  Bond  Fund  seeks a high  level of  current  income
through investment primarily in investment-grade corporate debt securities.

         The Fund invests in a broad range of investment-grade, income producing
securities and, to a lesser extent,  below  investment  grade bonds. The Fund is
designed as a long-term  investment for  shareholders  who can bear some credit,
interest  rate,  and other bond market risks in exchange for the  potential  for
high current income.

         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 the 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.

Investments

         The Fund invests,  under normal market conditions,  at least 65% of its
total assets in investment  grade debt securities.  Investment-grade  securities
are those that are rated Aaa, Aa, A, or Baa by Moody's Investors  Service,  Inc.
("Moody's") or AAA, AA, A, or BBB by Standard & Poor's Corporation  ("S&P"),  or
if unrated,  are of equivalent  quality as  determined by the Fund's  investment
adviser, Scudder Kemper Investments, Inc. (the "Adviser"). In addition, the Fund
may  invest  up to 35%  of  its  assets  in  securities  in  high  yield,  below
investment-grade  securities.  Below investment-grade securities are rated "Ba1"
or below by Moody's or "BB+" or below by S&P. Below investment-grade  securities
are considered  predominantly  speculative with respect to their capacity to pay
interest and repay principal.  They generally  involve a greater risk of default
and, at times, can have more price volatility than higher rated securities.  See
"Additional information about policies and investments."

         The Fund invests  primarily in intermediate  corporate  bonds,  but can
also hold short-term and long-term issues. The dollar-weighted  average maturity
of the Fund's portfolio is expected to range from five to ten years. Longer-term
bonds generally are more volatile than bonds with shorter maturities.  While the
Fund emphasizes  corporate bonds and notes, it can also invest in U.S.  Treasury
and Agency  securities,  convertible and preferred  securities,  debt securities
issued by real estate investment trusts ("REITs"), dollar rolls, trust preferred
securities,  mortgage-backed  and other  asset-backed  securities,  zero  coupon
securities,  dollar-denominated  debt of  international  agencies or  investment
grade  foreign  institutions,  and money market  instruments  such as commercial
paper, bankers  acceptances,  and certificates of deposit issued by domestic and
foreign branches of U.S. banks. The Fund may invest up to 20% of total assets in
foreign debt securities  denominated in currencies  other than the U.S.  dollar.
The  Fund  may  also  invest  in  when-issued  securities,  indexed  securities,
repurchase agreements,  reverse repurchase agreements,  illiquid securities, and
may engage in strategic transactions.

         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.

         For  temporary  defensive  purposes,  the  Fund  may  invest  all  or a
substantial  portion of its assets in money  market and  short-term  instruments
when the Adviser deems such a position  advisable in light of economic or market
conditions.  It is  impossible to predict  accurately  how long such a defensive
strategy may be utilized.


<PAGE>

Investment process

         The Fund is designed to provide  investors with a high level of monthly
income.  In  pursuit  of this  objective,  the  Adviser  seeks  to  construct  a
diversified  portfolio of primarily  investment-grade  corporate bonds, and to a
lesser extent,  below  investment-grade  corporate bonds. The Adviser  carefully
monitors  business and economic  conditions  in the U.S. and abroad and conducts
its own  research to identify  attractive  industry  sectors and  companies.  In
addition,  the Adviser  utilizes the ratings and analysis  provided by the major
rating agencies such as Moody's and S&P.

         The  Fund  will  focus  its   investments   in  securities   issued  by
investment-grade companies that are established in their industries, have stable
cash flows and strong balance sheets.  The Adviser will also invest, to a lesser
extent, in corporate securities that are rated below investment-grade. Investing
in high yielding,  lower quality bonds involves various types of risks including
risk of default; that is, the chance that issuers of bonds held in the portfolio
will not make timely payment of either  interest or principal.  In comparison to
investing in higher  quality  issues,  high yield bond investors may be rewarded
for the additional  risks of high yield bonds through higher interest  payments.
The Adviser  seeks to manage the risks of  investing  in below  investment-grade
companies  by using a research  intensive  process to identify  companies  that,
among other  qualities,  have  improving  business  prospects,  positive  credit
trends, and growing cash flows.

         The  Adviser  will  invest in  securities  of a variety  of  maturities
including   short-term   (bonds  with  maturities  of  less  than  five  years),
intermediate-term  (bonds  with  maturities  between  five and ten  years),  and
long-term (bonds with maturities  greater than ten years).  The Fund will invest
primarily in intermediate  bonds and the Fund's  portfolio is expected to have a
dollar  weighted  average  maturity  of five to ten  years,  what is  considered
intermediate  maturity.  The  Fund's  investment  approach  creates  an  overall
investment-grade  portfolio,  with an intermediate  maturity that is designed to
provide investors with a high level of monthly income.

Master/feeder structure

         The  Board  of  Trustees  has the  discretion  to  retain  the  current
distribution  arrangement  for the Fund 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.

Risk Factors

Debt Securities.  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 Adviser.  The Fund may
invest in  securities  rated  lower than  Baa/BBB and in unrated  securities  of
equivalent  quality  in the  Adviser's  judgment.  The Fund may  invest  in debt
securities  which are rated as low as C by Moody's or D by S&P. Such  securities
may be in default with respect to payment of principal or interest.  Bonds rated
Baa  or  BBB  may  have  speculative   elements  as  well  as   investment-grade
characteristics.  For more information  about debt security ratings please refer
to the attached "Appendix."

High Yield, High Risk Securities.  Below investment-grade  securities,  commonly
referred to as "junk  bonds"  (rated Ba and lower by Moody's and BB and lower by
S&P) or unrated securities of equivalent  quality,  in which the Fund may invest
carry a high degree of 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 


                                       2
<PAGE>

their risks. 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.

         Economic  downturns  may disrupt  the high yield  market and impair the
ability of  issuers to repay  principal  and  interest.  Also,  an  increase  in
interest  rates  would  likely  have an  adverse  impact  on the  value  of such
obligations.  During an economic  downturn or period of rising  interest  rates,
highly  leveraged  issues may experience  financial stress which could 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 the Fund's  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 Adviser  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 Adviser's credit analysis than is the case for higher quality bonds.  Should
the rating of a portfolio  security be  downgraded,  the Adviser 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,  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
Securities Act of 1933 or the  availability  of an exemption  from  registration
(such  as Rules  144 or 144A) or  because  they are  subject  to other  legal or
contractual delays in or restrictions on resale.

         Generally speaking, restricted securities may be sold only to qualified
institutional  buyers,  or in a privately  negotiated  transaction  to a limited
number of purchasers,  or in limited  quantities after they have been held for a
specified  period of time and other  conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect  under  the  Securities  Act of 1933.  The Fund may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 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, or the
prospectus forming a part of it, is materially inaccurate or misleading.

         The Adviser will monitor the  liquidity of such  restricted  securities
subject to the  supervision  of the Board of  Trustees.  In  reaching  liquidity
decisions, the Adviser will consider the following factors: (1) the frequency of
trades and  quotes  for the  security  (2).  the  number of  dealers  wishing to
purchase or sell the security and the number of their potential purchasers,  (3)
dealer undertakings to make a market in the security;  and (4) the nature of the
security  and the nature of the  marketplace  trades  (i.e.  the time  needed to
dispose of the security,  the method of  soliciting  offers and the mechanics of
the transfer.)

Convertible Securities. The 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


                                       3
<PAGE>

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 the 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.

         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.

Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks 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 reviewed and determined satisfactory by the Adviser.

         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
Fund acquires a security  ("Obligation")  and the seller agrees,  at the time of
sale, to repurchase the  Obligation at a specified  time and price.  Obligations
subject to a repurchase agreement are held in a segregated account and the value
of such  obligations is 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 Fund's custodian or in the Federal Reserve Book Entry System.

         For  purposes of the  Investment  Company Act of 1940,  as amended (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 cause 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
the 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
Adviser  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 its sale of the
securities  underlying the  repurchase  agreement to a third party are less than
the repurchase  price.  To protect  against such  potential  loss, 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 


                                       4
<PAGE>

seller of the  Obligation  to deliver  additional  securities  so that the value
(including  interest) 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 impose on the seller a  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
securities, agrees to repurchase them at an agreed time and price. The Fund will
maintain a segregated  account,  as described under "Use of Segregated and Other
Special Accounts" in connection with outstanding reverse repurchase  agreements.
Reverse repurchase  agreements are deemed to be borrowings subject to the Fund's
investment  restrictions applicable to that activity. The Fund will enter into a
repurchase  agreement only when the Adviser 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.

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,  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.

Zero Coupon Securities.  The 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 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


                                       5
<PAGE>

Management of the SEC no longer considers such privately stripped obligations to
be U.S. Government securities, as defined in 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").

Indexed  Securities.  The Fund may  invest in indexed  securities,  the value of
which is linked to currencies,  interest  rates,  commodities,  indices or other
financial  indicators  ("reference  instruments").  Most indexed securities have
maturities of three years or less.

         Indexed  securities differ from other types of debt securities in which
the Fund may invest in several  respects.  First,  the interest  rate or, unlike
other debt  securities,  the principal  amount payable at maturity of an indexed
security  may  vary  based  on  changes  in  one  or  more  specified  reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency  exchange  rates between two  currencies  (neither of which need be the
currency in which the instrument is denominated).  The reference instrument need
not be related to the terms of the indexed security.  For example, the principal
amount of a U.S.  dollar  denominated  indexed  security  may vary  based on the
exchange rate of two foreign  currencies.  An indexed security may be positively
or negatively indexed;  that is, its value may increase or decrease if the value
of the  reference  instrument  increases.  Further,  the change in the principal
amount payable or the interest rate of an indexed  security may be a multiple of
the  percentage  change  (positive or  negative) in the value of the  underlying
reference instrument(s).

         Investment in indexed securities involves certain risks. In addition to
the credit risk of the  security's  issuer and the normal risks of price changes
in  response  to changes in  interest  rates,  the  principal  amount of indexed
securities  may  decrease  as a result  of  changes  in the  value of  reference
instruments.  Further,  in the case of certain  indexed  securities in which the
interest  rate is linked to a reference  instrument,  the  interest  rate may be
reduced to zero, and any further  declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.

When-Issued Securities.  The Fund may from time to time purchase 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.

Municipal  Obligations.  Municipal  obligations  are  issued  by or on behalf of
states,   territories,   and  possessions  of  the  U.S.,  and  their  political
subdivisions,  agencies, and instrumentalities,  and the District of Columbia to
obtain funds for 


                                       6
<PAGE>

various public purposes.  The interest on these  obligations is generally exempt
from  federal  income  tax in the  hands of most  investors.  The two  principal
classifications of municipal  obligations are "notes" and "bonds." The return on
municipal obligations is ordinarily lower than that of taxable obligations.  The
Fund may acquire  municipal  obligations  when,  due to  disparities in the debt
securities  markets,  the anticipated total return on such obligations is higher
than  that  on  taxable  obligations.  The  Fund  has no  current  intention  of
purchasing tax-exempt municipal obligations that would amount to greater than 5%
of the Fund's total assets.

Lending of  Portfolio  Securities.  The Fund may seek to increase  its income by
lending portfolio securities. Under present regulatory policies, including those
of the Board of Governors of the Federal  Reserve System and the SEC, such loans
may be made to member firms of the New York Stock Exchange (the "Exchange"), and
would be required to be secured  continuously  by  collateral  in cash or liquid
assets  maintained  on a current basis at an amount at least equal to the market
value and accrued  interest of the  securities  loaned.  The Fund would have 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 would continue to receive the
equivalent of the interest paid by the issuer on the securities loaned and would
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  would be made only to firms  deemed by the Adviser to be of
good standing, and when, in the judgment of the Adviser, the consideration which
can be  earned  currently  from  securities  loans of this  type  justifies  the
attendant risk.

Dollar Roll  Transactions.  The Fund may enter into "dollar roll"  transactions,
which  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 the  counterparty is the holder.  The Fund receives  compensation
from the  counterparty  as  consideration  for entering  into the  commitment to
repurchase.  The compensation is paid in the form of a fee or  alternatively,  a
lower price for the security  upon its  repurchase.  Dollar rolls may be renewed
over a period of several months with a different repurchase and repurchase price
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.

         The Fund will not use such  transactions  for leveraging  purposes and,
accordingly,  will  segregate  cash or liquid assets in an amount  sufficient to
meet its  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 are treated for purposes of the 1940 Act as  borrowings of
the Fund because  they involve the sale of a security  coupled with an agreement
to repurchase.  Like all  borrowings,  a dollar roll involves costs to the Fund.
For example,  while the Fund  receives  either a fee or  alternatively,  a lower
price for the security  upon its  repurchase  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 which 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 which 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.

         The  Trustees of the Trust have adopted  guidelines  to ensure that the
securities  received are  substantially  identical to those sold.  To reduce the
risk of default,  the Fund will engage in such  transactions only with banks and
broker/dealers selected pursuant to such guidelines.



                                       7
<PAGE>

Borrowing.  The Fund is authorized to borrow money for purposes of liquidity and
to provide for redemptions and distributions. The Fund will borrow only when the
Adviser  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.

Real Estate Investment Trusts ("REITs"). The 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 a
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  capitalization,  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,  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.

Mortgage-Backed  Securities and Mortgage Pass-Through  Securities.  The Fund may
also  invest in  mortgage-backed  securities,  which are  interests  in pools of
mortgage loans,  including mortgage loans made by savings and loan institutions,
mortgage  bankers,  commercial  banks,  and others.  Pools of mortgage loans are
assembled  as  securities  for  sale  to  investors  by  various   governmental,
government-related,  and private  organizations as further  described below. The
Fund may also  invest in debt  securities  which  are  secured  with  collateral
consisting  of   mortgage-backed   securities  (see   "Collateralized   Mortgage
Obligations"), and in other types of mortgage-related securities.

         A decline in interest  rates may lead to a faster rate of  repayment of
the  underlying  mortgages,  and expose the Fund to a lower rate of return  upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not  appreciate  as  rapidly as the price of  non-callable  debt
securities.

         When interest rates rise,  mortgage  prepayment  rates tend to decline,
thus  lengthening the life of  mortgage-related  securities and increasing their
volatility, affecting the price volatility of the Fund's shares.

         Interests  in pools of  mortgage-backed  securities  differ  from other
forms of debt  securities,  which  normally  provide  for  periodic  payment  of
interest in fixed amounts with principal  payments at maturity or specified call
dates.  Instead,  these  securities  provide a monthly payment which consists of
both  interest  and  principal  payments.   In  effect,  these  payments  are  a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage  loans,  net of any  fees  paid  to the  issuer  or  guarantor  of such
securities.  Additional payments are caused by repayments of principal resulting
from the sale of the underlying property,  refinancing,  or foreclosure,  net of
fees or costs which may be  incurred.  Because  principal  may be prepaid at any
time,  mortgage-backed  securities may involve  significantly  greater price and
yield  volatility  than  traditional  debt  securities.   Some  mortgage-related
securities  such  as  securities  issued  by the  Government  National  Mortgage
Association ("GNMA") are described as "modified  pass-through." These 


                                       8
<PAGE>

securities  entitle the holder to receive all  interest and  principal  payments
owed on the mortgage pool,  net of certain fees, at the scheduled  payment dates
regardless of whether or not the mortgagor actually makes the payment.

         The principal governmental guarantor of mortgage-related  securities is
GNMA. GNMA is a wholly-owned U.S.  Government  corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S.  Government,  the timely  payment of principal  and
interest on securities issued by institutions  approved by GNMA (such as savings
and loan  institutions,  commercial  banks, and mortgage  bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages.  These guarantees,  however, do
not apply to the market value or yield of  mortgage-backed  securities or to the
value of each Fund's  shares.  Also,  GNMA  securities  often are purchased at a
premium over the maturity value of the underlying mortgages. This premium is not
guaranteed and will be lost if prepayment occurs.

         Government-related  guarantors  (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan  Mortgage  Corporation  ("FHLMC").  FNMA is a
government-sponsored  corporation owned entirely by private stockholders.  It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases  conventional  (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved  seller/servicers  which include state
and  federally-chartered  savings and loan  associations,  mutual savings banks,
commercial banks, credit unions, and mortgage bankers.  Pass-through  securities
issued by FNMA are  guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.

         FHLMC is a corporate  instrumentality  of the U.S.  Government  and was
created by Congress in 1970 for the purpose of increasing  the  availability  of
mortgage  credit  for  residential  housing.  Its  stock is owned by the  twelve
Federal Home Loan Banks. FHLMC issues  Participation  Certificates ("PCs") which
represent  interests in conventional  mortgages from FHLMC's national portfolio.
FHLMC  guarantees  the timely  payment of interest  and ultimate  collection  of
principal,  but PCs are not  backed  by the full  faith  and  credit of the U.S.
Government.

         Commercial  banks,  savings  and loan  institutions,  private  mortgage
insurance  companies,  mortgage bankers, and other secondary market issuers also
create  pass-through pools of conventional  mortgage loans. Such issuers may, in
addition,  be the originators and/or servicers of the underlying  mortgage loans
as well as the guarantors of the mortgage-related  securities.  Pools created by
such  non-governmental  issuers  generally  offer a higher rate of interest than
government and government-related  pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and  principal of these pools may be supported by various  forms of insurance or
guarantees,  including  individual loan, title,  pool and hazard insurance,  and
letters of credit.  The  insurance  and  guarantees  are issued by  governmental
entities,  private  insurers,  and the  mortgage  poolers.  Such  insurance  and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining  whether a  mortgage-related  security  meets the Fund's  investment
quality  standards.  There can be no  assurance  that the  private  insurers  or
guarantors can meet their obligations under the insurance  policies or guarantee
arrangements.  The Fund may buy mortgage-related securities without insurance or
guarantees,  if through an examination  of the loan  experience and practices of
the   originators/servicers   and  poolers,  the  Adviser  determines  that  the
securities  meet the  Fund's  quality  standards.  Although  the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.

Collateralized  Mortgage  Obligations  ("CMOs").  A CMO is a  hybrid  between  a
mortgage-backed bond and a mortgage  pass-through  security.  Similar to a bond,
interest and prepaid principal are paid, in most cases,  semiannually.  CMOs may
be collateralized by whole mortgage loans but are more typically  collateralized
by portfolios of mortgage pass-through  securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.

         CMOs are  structured  into multiple  classes,  each bearing a different
stated  maturity.  Actual  maturity  and  average  life  will  depend  upon  the
prepayment  experience  of the  collateral.  CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according  to how  quickly the loans are repaid.  Monthly  payment of  principal
received from the pool of underlying mortgages,  including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity  classes  receive  principal only after the first class has been
retired.  An investor is partially  guarded against a sooner than desired return
of principal  because of the  sequential  payments.  The prices of certain CMOs,
depending on their structure and the rate of prepayments,  can be volatile. Some
CMOs may not be as liquid as other securities.



                                       9
<PAGE>

         In a typical CMO  transaction,  a corporation  issues multiple  series,
(e.g.,  A, B, C, Z) of CMO bonds  ("Bonds").  Proceeds of the Bond  offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The  Collateral  is pledged to a third party  trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest.  Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond  currently  being
paid  off.  When the  Series A, B, and C Bonds  are paid in full,  interest  and
principal on the Series Z Bond begins to be paid currently.  With some CMOs, the
issuer  serves as a conduit to allow loan  originators  (primarily  builders  or
savings and loan associations) to borrow against their loan portfolios.

FHLMC Collateralized  Mortgage  Obligations.  FHLMC CMOs are debt obligations of
FHLMC  issued in multiple  classes  having  different  maturity  dates which are
secured by the pledge of a pool of  conventional  mortgage  loans  purchased  by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semiannually,  as opposed to monthly.  The amount of  principal  payable on each
semiannual  payment date is  determined  in  accordance  with FHLMC's  mandatory
sinking fund schedule,  which,  in turn, is equal to  approximately  100% of FHA
prepayment  experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the  individual  classes
of bonds in the order of their  stated  maturities.  Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal  payments received on the collateral pool in excess of FHLMC's minimum
sinking fund  requirement,  the rate at which  principal of the CMOs is actually
repaid is likely to be such that each  class of bonds will be retired in advance
of its scheduled maturity date.

         If  collection  of principal  (including  prepayments)  on the mortgage
loans during any  semiannual  payment  period is not  sufficient to meet FHLMC's
minimum  sinking fund  obligation on the next sinking fund payment  date,  FHLMC
agrees to make up the deficiency from its general funds.

         Criteria  for the  mortgage  loans  in the  pool  backing  the CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.

Other  Mortgage-Backed   Securities.  The  Adviser  expects  that  governmental,
government-related, or private entities may create mortgage loan pools and other
mortgage-related     securities     offering    mortgage     pass-through    and
mortgage-collateralized  investments in addition to those described  above.  The
mortgages   underlying  these  securities  may  include   alternative   mortgage
instruments,  that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from  customary  long-term  fixed
rate  mortgages.  The Fund will not purchase  mortgage-backed  securities or any
other assets which, in the opinion of the Adviser, are illiquid if, as a result,
more than 15% of the value of the Fund's total  assets will be illiquid.  As new
types of mortgage-related securities are developed and offered to investors, the
Adviser will, consistent with the Fund's investment  objectives,  policies,  and
quality   standards,   consider   making   investments  in  such  new  types  of
mortgage-related securities.

Other Asset-Backed  Securities.  The  securitization  techniques used to develop
mortgaged-backed  securities  are now being  applied to a broad range of assets.
Through the use of trusts and special  purpose  corporations,  various  types of
assets, including automobile loans, computer leases and credit card receivables,
are  being  securitized  in  pass-through  structures  similar  to the  mortgage
pass-through  structures  described  above or in a structure  similar to the CMO
structure.  Consistent with the Fund's investment  objectives and policies,  the
Fund may invest in these and other types of asset-backed  securities that may be
developed in the future. In general, the collateral  supporting these securities
is of shorter  maturity  than  mortgage  loans and is less likely to  experience
substantial prepayments with interest rate fluctuations.

         Several types of  asset-backed  securities have already been offered to
investors,  including  Certificates  for  Automobile  ReceivablesSM  ("CARSSM").
CARSSM  represent  undivided  fractional  interests in a trust  ("Trust")  whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through  monthly to certificate  holders,  and
are  guaranteed up to certain  amounts and for a certain time period by a letter
of credit  issued by a financial  institution  unaffiliated  with the trustee or
originator of the Trust. An investor's return on CARSSM may be affected by early
prepayment of principal on the underlying vehicle sales contracts. If the letter
of credit is  exhausted,  the trust may be  


                                       10
<PAGE>

prevented  from  realizing  the full amount due on a sales  contract  because of
state  law  requirements  and  restrictions  relating  to  foreclosure  sales of
vehicles  and the  obtaining of  deficiency  judgments  following  such sales or
because of  depreciation,  damage to or loss of a vehicle,  the  application  of
federal and state bankruptcy and insolvency laws, or other factors. As a result,
certificate holders may experience delays in payments or losses if the letter of
credit is exhausted.

         Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security  interest in the related  assets.  Credit card  receivables  are
generally  unsecured and the debtors are entitled to the  protection of a number
of state and federal  consumer  credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards,  thereby reducing the
balance due. There is the possibility that recoveries on repossessed  collateral
may not, in some cases, be available to support payments on these securities.

         Asset-backed   securities   are  often  backed  by  a  pool  of  assets
representing  the  obligations of a number of different  parties.  To lessen the
effect of  failures  by  obligors on  underlying  assets to make  payments,  the
securities  may  contain   elements  of  credit  support  which  fall  into  two
categories:  (i)  liquidity  protection,  and  (ii)  protection  against  losses
resulting  from  ultimate  default  by an  obligor  on  the  underlying  assets.
Liquidity  protection  refers to the  provision  of  advances,  generally by the
entity  administering the pool of assets, to ensure that the receipt of payments
on the underlying  pool occurs in a timely  fashion.  Protection  against losses
results from payment of the insurance  obligations  on at least a portion of the
assets in the pool. This protection may be provided through guarantees, policies
or letters of credit  obtained  by the  issuer or  sponsor  from third  parties,
through various means of structuring the transaction or through a combination of
such  approaches.  The Fund will not pay any  additional  or  separate  fees for
credit  support.  The  degree  of  credit  support  provided  for each  issue is
generally  based on historical  information  respecting the level of credit risk
associated  with the  underlying  assets.  Delinquency or loss in excess of that
anticipated or failure of the credit support could  adversely  affect the return
on an investment in such a security.

         The  Fund  may  also  invest  in  residual  interests  in  asset-backed
securities.  In the case of  asset-backed  securities  issued in a  pass-through
structure,  the cash flow generated by the underlying  assets is applied to make
required payments on the securities and to pay related administrative  expenses.
The residual in an asset-backed security  pass-through  structure represents the
interest in any excess cash flow remaining after making the foregoing  payments.
The  amount  of  residual  cash  flow  resulting  from  a  particular  issue  of
asset-backed  securities will depend on, among other things, the characteristics
of the  underlying  assets,  the  coupon  rates  on the  securities,  prevailing
interest rates, the amount of administrative  expenses and the actual prepayment
experience  on  the  underlying  assets.  Asset-backed  security  residuals  not
registered  under  the  Securities  Act  of  1933  may  be  subject  to  certain
restrictions on transferability  and, as described above, will be subject to the
Adviser's determination regarding liquidity. In addition, there may be no liquid
market for such securities.

         The  availability  of  asset-backed   securities  may  be  affected  by
legislative or regulatory  developments.  It is possible that such  developments
may  require  the  Fund  to  dispose  of any  then  existing  holdings  of  such
securities.

Foreign  Securities.  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  and  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.  Volume and
liquidity in most foreign bond markets are less than the volume and liquidity 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. Further, the Fund
may  encounter  difficulties  or be unable to pursue  legal  remedies and obtain
judgments in foreign courts. There is generally less government  supervision and
regulation of business and industry practices, brokers and listed companies than
in the U.S. It may be more  


                                       11
<PAGE>

difficult  for the Fund's  agents to keep  currently  informed  about  corporate
actions 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. In addition, with
respect  to   certain   foreign   countries,   there  is  the   possibility   of
nationalization,  expropriation,  the imposition of withholding or  confiscatory
taxes,  political,  social, or economic 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.

         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 active professional management.

         Investments in foreign  securities  usually will involve  currencies of
foreign  countries.  Moreover,  the  Fund  may  temporarily  hold  funds in bank
deposits in foreign currencies during the completion of investment  programs and
the  value of these  assets  for 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,  if any, into U.S.  dollars on a daily basis.  It may 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,  if any,  either  on a spot  (i.e.,  cash)  basis at the spot rate
prevailing in the foreign  currency  exchange  market or through forward foreign
currency exchange contracts. (See "Currency Transactions" for more information.)

         To the extent that the Fund invests in foreign  securities,  the Fund's
share price could reflect the  movements of the different  bond markets in which
it is invested and the currencies in which the investments are denominated;  the
strength or weakness of the U.S. dollar against foreign currencies could account
for part of that Fund's investment performance.

Depositary  Receipts.  The Fund may invest  indirectly in securities of emerging
country issuers through sponsored or unsponsored  American  Depositary  Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary Receipts
("IDRs") and other types of Depositary Receipts (which, together with ADRs, GDRs
and IDRs are  hereinafter  referred  to as  "Depositary  Receipts").  Depositary
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  Depositary  Receipts are not obligated to disclose
material information in the U.S. and, therefore,  there may not be a correlation
between such information and the market value of the Depositary  Receipts.  ADRs
are Depositary  Receipts  typically issued by a U.S. bank or trust company which
evidence  ownership of underlying  securities  issued by a foreign  corporation.
GDRs,  IDRs and other  types of  Depositary  Receipts  are  typically  issued by
foreign  banks or trust  companies,  although  they also may 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.  Certain  Depositary
Receipts  may  not be  listed  on an  exchange  and  therefore  may be  illiquid
securities.

Strategic  Transactions and  Derivatives.  The Fund may, but is not required to,
utilize various other investment  strategies as described below to hedge various
market risks (such as interest  rates,  currency  exchange  rates,  and broad or
specific  equity or  fixed-income  market  movements),  to manage the  effective
maturity or duration of fixed-income  


                                       12
<PAGE>

securities  in  the  Fund's  portfolio,  or to  enhance  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.
Techniques  and  instruments  may  change  over  time  as  new  instruments  and
strategies are developed or regulatory changes occur.

         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 financial  instruments,
purchase and sell financial  futures  contracts and options thereon,  enter into
various interest rate transactions such as swaps,  caps, floors or collars,  and
enter into various currency  transactions  such as currency  forward  contracts,
currency futures contracts,  currency swaps or options on currencies or currency
futures  (collectively,  all the above  are  called  "Strategic  Transactions").
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  temporary  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  Adviser'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  involving
financial  futures and options  thereon will be purchased,  sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in 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  Adviser'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
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  


                                       13
<PAGE>

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.

         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 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 Adviser must assess the creditworthiness of
each  such   Counterparty  or  any  guarantor  or  credit   enhancement  of  the
Counterparty's  credit to  determine  the  likelihood  that the terms of the OTC
option will be satisfied.  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  


                                       14
<PAGE>

rating organization ("NRSRO") or, in the case of OTC currency transactions,  are
determined to be of equivalent  credit quality by the Adviser.  The staff of the
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 (taken at market value) 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 financial 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,  for
duration  management  and for risk  management  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 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  financial  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 only for bona fide hedging,  risk management (including duration
management) or other portfolio  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  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  


                                       15
<PAGE>

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 in order to hedge 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 are  determined  to be of
equivalent credit quality by the Adviser.

         The Fund's  dealings in forward  currency  contracts and other currency
transactions  such as  futures,  options,  options on futures  and swaps 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 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.

         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 Adviser considers that
the Austrian schilling is correlated to the German  deutschemark (the "D-mark"),
the Fund holds  securities  denominated in schillings  and the Adviser  believes
that the value of schillings will decline against the U.S.  dollar,  the Adviser
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 


                                       16
<PAGE>

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  Adviser,  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 Adviser'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 and index 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 intends to
use these transactions as hedges and not as speculative investments and 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 these  swaps,  caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute  senior 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 Adviser.
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  


                                       17
<PAGE>

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 to segregate 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.

         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  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,
liquid debt or equity securities or other acceptable assets.



                                       18
<PAGE>

         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  securities
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.

Investment Restrictions

         Unless specified to the contrary,  the following  fundamental  policies
may not be changed without the approval of a majority of the outstanding  voting
securities of the Fund which, under the 1940 Act and the rules thereunder and as
used in this Statement of Additional Information, 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.

         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.

         As a matter of fundamental policy the Fund may not:

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

         (3)      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;

         (4)      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;

         (5)      purchase  physical   commodities  or  contracts   relating  to
                  physical commodities;

         (6)      make loans to other  persons,  except  (i) loans of  portfolio
                  securities,  and (ii) to the extent that entry into repurchase
                  agreements  and the purchase of debt  instruments or interests
                  in indebtedness  in accordance  with the Fund's  objective and
                  policies may be deemed to be loans; or

         (7)      concentrate its investments in a particular industry,  as that
                  term is used in the 1940 Act, as amended,  and as  interpreted
                  or modified by regulatory authority having jurisdiction,  from
                  time to time.

         As a matter of nonfundamental policy the Fund may not:

                                       19
<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)      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;

         (3)      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;

         (4)      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;

         (5)      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

         (6)      lend portfolio  securities in an amount greater than 5% of its
                  total assets.

                                    PURCHASES

    (See "Purchases" and "Transaction information" in the Fund's prospectus)

Additional Information About Opening An Account

         Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate  families,  officers and employees
of the Adviser or of any affiliated  organization and 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 of Fund
shares through Scudder Investor  Services,  Inc. (the  "Distributor") by letter,
fax or telephone.

         Shareholders  of other  Scudder  funds who have  submitted  an  account
application and have a certified taxpayer  identification number, clients having
a regular  investment  counsel  account with the Adviser or its  affiliates  and
members of their immediate families, officers and employees of the Adviser or of
any affiliated  organization and their immediate  families,  members of the NASD
and banks may open an account by wire. These investors must call  1-800-225-5163
to get an  account  number.  During  the  call,  the  investor  will be asked to
indicate the Fund name,  amount to be wired  ($2,500  minimum),  name of bank or
trust company from which the wire will be sent,  the exact  registration  of the
new account, the taxpayer  identification or Social Security number, address and
telephone  number.  The  investor  must  then  call the bank to  arrange  a wire
transfer to The Scudder Funds,  State Street Bank and Trust Company,  Boston, MA
02110, ABA Number 011000028,  Account Number:  9903-5552. The investor must give
the  Scudder  fund name,  account  name and new  account  number.  Finally,  the
investor must send the completed and signed application to the Fund promptly.

         The minimum  initial  purchase amount is less than $2,500 under certain
special plan accounts.

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 the Fund by 


                                       20
<PAGE>

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

         The 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 Fund does not follow such  procedures,  it may be liable for losses due
to  unauthorized  or  fraudulent  telephone  instructions.  The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.

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 the Fund are  purchased  by a check  which  proves to be
uncollectible,  the Fund  reserves the right to cancel the purchase  immediately
and the purchaser will be  responsible  for any loss incurred by the Fund or the
principal  underwriter  by reason of such  cancellation.  If the  purchaser is a
shareholder,  the Fund will have the authority, as agent of the shareholder,  to
redeem  shares in the account in order to  reimburse  the 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 a selected day, your bank must forward federal funds by wire transfer
and provide the required  account  information so as to be available to the Fund
prior to the close of regular 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  Distributor  pays a fee for  receipt  by the
Custodian of "wired  funds," but the right to charge  investors for this service
is reserved.

         Boston banks are closed on certain  holidays  although the Exchange may
be open.  These  holidays  include  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 the Fund.



                                       21
<PAGE>

Share Price

         Purchases  will be filled  without  sales charge at the net asset value
next computed after receipt of the  application  in good order.  Net asset value
normally will be computed as of the close of regular  trading on the Exchange on
each day during which the Exchange is open for trading.  Orders  received  after
the close of regular  trading on the  Exchange  will  receive the next 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 the
Fund, to forward the purchase  order to the Fund's  transfer  agent in Boston by
the close of regular trading on the Exchange.

Share Certificates

         Due  to  the  desire  of  the  Fund's  management  to  afford  ease  of
redemption, certificates will not be issued to indicate ownership in the Fund.

Other Information

         The Fund has  authorized  certain  members  of the NASD  other than the
Distributor  to accept  purchase and  redemption  orders for the Fund's  shares.
Those brokers 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
Board of Trustees 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 Trustees and the  Distributor  may suspend or terminate the
offering of shares of the Fund at any time for any reason.

         The Board of Trustees and the Distributor  each have the right to limit
the amount of  purchases  by and to refuse to sell to any  person,  and each may
suspend or terminate the offering of shares of the Fund at any time.

         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,  certification  of exempt  status)  will be
returned to the investor.

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

                            EXCHANGES AND REDEMPTIONS

        (See "Exchanges and redemptions" and "Transaction information" in
                            the Fund's prospectus.)

Exchanges

         Exchanges  are  comprised of a  redemption  from one Scudder fund and a
purchase  into another  Scudder  fund.  The purchase side of the exchange may be
either an additional  investment into an existing account or may involve opening
a new account in another 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  into a new fund  account  must be for a minimum  of  $2,500.  When an
exchange  represents  an additional  investment  into an existing  account,  the
account  receiving the exchange proceeds must have identical  registration,  tax
identification number,  address, and account  options/features as the account of
origin.  Exchanges  into an existing  account  must be for $100 or more.  If the
account  receiving  the  exchange  proceeds is  different  in any  respect,  the
exchange  request  must be in writing  and must  contain an  original  signature
guarantee    as    described    under    "Transaction     information--Redeeming
shares--Signature guarantees" in the Fund's prospectus.

                                       22
<PAGE>

         Exchange  orders  received  before the close of regular  trading on the
Exchange on any business day  ordinarily  will be executed at the respective net
asset value 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 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 Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.

         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 Trust  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 Trust  does not follow  such
procedures,  it may be liable  for  losses  due to  unauthorized  or  fraudulent
telephone   instructions.   The  Trust  will  not  be  liable  for  acting  upon
instructions  communicated  by  telephone  that  it  reasonably  believes  to be
genuine.  The Trust,  the Fund 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 the Distributor 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  thereof.  For more  information,
please call 1-800-225-5163.

         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 made by Federal  Reserve bank wire to the
bank account  designated on the  application,  unless a request is made that the
redemption be mailed to the designated  bank account.  There will be a $5 charge
for all wire redemptions.



                                       23
<PAGE>

         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 Trust 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 Trust does not follow such procedures,  it may be liable for losses due
to  unauthorized  or fraudulent  telephone  instructions.  The Trust will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.

         Redemption requests by telephone (technically a repurchase by agreement
between a 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 who have elected to participate
in the QuickSell  program may sell shares of the 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 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  and be redeemed at the net asset value  calculated
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 from which the purchase  payment will be debited.
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 an QuickSell  Enrollment  Form.  After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.

         The 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 Fund does not follow such  procedures,  it may be liable for losses due
to  unauthorized  or  fraudulent  telephone  instructions.  The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.

Redemption by Mail or Fax

         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 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  five  business  days after  receipt by the  Transfer  Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven days of payment for shares  tendered for redemption  may result,  but
only until the purchase check has cleared.


                                       24
<PAGE>

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

Redemption-In-Kind

         The Trust  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 Trust 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.

Other Information

         If a  shareholder  redeems all shares in the  account  after the record
date of a dividend,  the  shareholder  will receive in addition to the net asset
value  thereof (less any  applicable  redemption  fee),  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 wire  charge  may be  applicable  for  redemption
proceeds wired to an investor's bank account. Redemption of shares, including an
exchange into 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.")

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

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

         If transactions  at any time reduce a shareholder's  account balance in
the Fund to below  $2,500 in value,  the Fund may notify the  shareholder  that,
unless the  account  balance is  brought  up to at least  $2,500,  the Fund will
redeem all shares and close the  account by making  payment to the  shareholder.
The  shareholder has sixty days to bring the account balance up to $2,500 before
any action will be taken by the Fund.  (This  policy  applies to accounts of new
shareholders, but does not apply to certain Special Plan Accounts.) The Trustees
have the authority to change the minimum account size.

                    FEATURES AND SERVICES OFFERED BY THE FUND

             (See "Shareholder benefits" in the Fund's prospectus.)

The Pure No-Load(TM) Concept

         Investors  are  encouraged  to be aware of the  full  ramifications  of
mutual fund fee structures,  and of how Scudder distinguishes its Scudder Family
of Funds from the vast  majority of mutual funds  available  today.  The primary
distinction is between load and no-load funds.

         Load funds  generally are defined as mutual funds that charge a fee for
the sale and  distribution  of fund  shares.  There  are  three  types of loads:
front-end  loads,  back-end loads,  and asset-based  12b-1 fees.  12b-1 fees are
distribution-related  fees charged  against  fund assets and are  distinct  from
service fees,  which are charged for personal  services  and/or  maintenance  of
shareholder  accounts.  Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.

                                       25
<PAGE>

         A front-end  load is a sales  charge,  which can be as high as 8.50% of
the amount  invested.  A back-end  load is a contingent  deferred  sales charge,
which can be as high as 8.50% of either the amount  invested  or  redeemed.  The
maximum  front-end or back-end  load  varies,  and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers  investors  various
sales-related services such as dividend  reinvestment.  The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.

         A no-load  fund does not charge a front-end or back-end  load,  but can
charge a small  12b-1 fee and/or  service  fee against  fund  assets.  Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.

         Because funds in the Scudder Family of Funds do not pay any asset-based
sales charges or service fees, Scudder developed and trademarked the phrase pure
no-load(TM)  to  distinguish  Scudder  funds from other  no-load  mutual  funds.
Scudder pioneered the no-load concept when it created the nation's first no-load
fund in 1928,  and later  developed the nation's  first family of no-load mutual
funds.

         The  following  chart  shows  the  potential   long-term  advantage  of
investing  $10,000 in a Scudder Family of Funds pure no-load fund over investing
the same amount in a load fund that  collects an 8.50%  front-end  load,  a load
fund that  collects  only a 0.75% 12b-1  and/or  service fee, and a no-load fund
charging only a 0.25% 12b-1 and/or service fee. The hypothetical  figures in the
chart show the value of an account  assuming a constant  10% rate of return over
the time periods indicated and reinvestment of dividends and distributions.

<TABLE>
<S>       <C>                   <C>                    <C>                     <C>                   <C>     
<CAPTION>
====================================================================================================================
                                Scudder                                                            No-Load Fund 
         YEARS            Pure No-Load(TM)       8.50% Load Fund           Load Fund with         with 0.25% 12b-1 
                                 Fund                                      0.75% 12b-1 Fee              Fee
- --------------------------------------------------------------------------------------------------------------------

          10                    $ 25,937               $ 23,733                $ 24,222              $ 25,354
- --------------------------------------------------------------------------------------------------------------------

          15                      41,772                 38,222                  37,698                40,371
- --------------------------------------------------------------------------------------------------------------------

          20                      67,275                 61,557                  58,672                64,282
====================================================================================================================
</TABLE>

         Investors  are  encouraged  to review  the fee  tables on page 2 of the
Fund's  prospectus  for  more  specific  information  about  the  rates at which
management fees and other expenses are assessed.

Internet access

World   Wide  Web  Site  --  The   address   of  the   Scudder   Funds  site  is
http://funds.scudder.com.  The site  offers  guidance  on global  investing  and
developing  strategies to help meet financial  goals and provides  access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view  fund  prospectuses  and  profiles  with  links  between  summary
information  in Profiles and details in the  Prospectus.  Users can fill out new
account forms on-line, order free software, and request literature on funds.

         The site is designed for interactivity, simplicity and maneuverability.
A  section  entitled  "Planning   Resources"   provides   information  on  asset
allocation,  tuition,  and retirement planning to users who fill out interactive
"worksheets."  Investors can easily  establish a "Personal  Page," that presents
price information,  updated daily, on funds they're interested in following. The
"Personal  Page" also offers easy  navigation  to other parts of the site.  Fund
performance  data from both  Scudder and Lipper  Analytical  Services,  Inc. are
available  on the  site.  Also  offered  on the  site is a news  feature,  which
provides timely and topical material on the Scudder Funds.



                                       26
<PAGE>

         Scudder has communicated with shareholders and other interested parties
on  Prodigy  since  1988 and has  participated  since  1994 in  GALT's  Networth
"financial  marketplace"  site on the  Internet.  The firm  made  Scudder  Funds
information available on America Online in early 1996.

Account  Access --  Scudder 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.

         Scudder'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.

         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.

         A Call Me(TM) feature enables  users to speak  with a Scudder  Investor
Relations telephone  representative while viewing their account on the Web site.
In order to use the Call Me(TM) feature, an individual must have two phone lines
and enter on the  screen the phone  number  that is not being used to connect to
the  Internet.  They  are  connected  to the  next  available  Scudder  Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.

Dividends and Capital Gain 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 the Fund. A change of instructions for the method
of payment must be received by the Transfer  Agent at least five days prior to a
dividend  record date.  Shareholders  may change their dividend option either by
calling 1-800-225-5163 or by sending written instructions to the Transfer Agent.
Please  include  your  account  number with your  written  request.  See "How to
contact Scudder" in the Prospectus for the address.

         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 shares of the Fund.

         Investors  may also  have  dividends  and  distributions  automatically
deposited   in   their    predesignated    bank   account   through    Scudder's
DistributionsDirect  Program.  Shareholder  who  elect  to  participate  in  the
DistributionsDirect  Program, and whose predesignated checking account of record
is with a member bank of the  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  the Fund  pays its
distribution.  A  DistributionsDirect  request  form can be  obtained by calling
1-800-225-5163.  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.

Diversification

         Your  investment  represents  an  interest  in  a  large,   diversified
portfolio of  securities.  Diversification  may protect you against the possible
risks of concentrating in fewer securities or in a specific market sector.

                                       27
<PAGE>

Scudder Investor Centers

         Investors  may  visit any of the  Investor  Centers  maintained  by the
Distributor.  The Centers  are  designed to provide  individuals  with  services
during any business day.  Investors may pick up literature or obtain  assistance
with opening an account,  adding monies or special options to existing accounts,
making  exchanges  within the  Scudder  Family of Funds,  redeeming  shares,  or
opening retirement plans. Checks should not be mailed to the Centers but to "The
Scudder  Funds" at the  address  listed  under "How to Contact  Scudder"  in the
Prospectus.

Reports to Shareholders

         The  Fund  issues  to  its   shareholders   audited  annual   financial
statements,  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.

Transaction Summaries

         Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.

                           THE SCUDDER FAMILY OF FUNDS

      (See "Investment products and services" in the Funds' prospectuses.)

         The Scudder  Family of Funds is America's  first family of mutual funds
and the nation's oldest family of no-load mutual funds.  To assist  investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.

MONEY MARKET

         Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
         stability  of capital and,  consistent  therewith,  to provide  current
         income.  The Fund seeks to maintain a constant net asset value of $1.00
         per share,  although in certain circumstances this may not be possible,
         and declares dividends daily.

         Scudder Cash Investment  Trust ("SCIT") seeks to maintain the stability
         of capital and,  consistent  therewith,  to maintain  the  liquidity of
         capital  and to  provide  current  income.  SCIT  seeks to  maintain  a
         constant  net  asset  value of $1.00 per  share,  although  in  certain
         circumstances this may not be possible, and declares dividends daily.

         Scudder Money Market Series seeks to provide  investors  with as high a
         level of current income as is consistent  with its  investment  polices
         and with  preservation  of  capital  and  liquidity.  The Fund seeks to
         maintain a constant net asset value of $1.00 per share, but there is no
         assurance  that it will be able to do so.  The  institutional  class of
         shares of this Fund is not within the Scudder Family of Funds.

         Scudder  Government Money Market Series seeks to provide investors with
         as high a level of current income as is consistent  with its investment
         polices and with preservation of capital and liquidity.  The Fund seeks
         to maintain a constant net asset value of $1.00 per share, but there is
         no assurance that it will be able to do so. The institutional  class of
         shares of this Fund is not within the Scudder Family of Funds.

TAX FREE MONEY MARKET

         Scudder Tax Free Money Fund  ("STFMF")  seeks to provide  income exempt
         from regular  federal  income tax and  stability  of principal  through
         investments primarily in municipal securities.  STFMF seeks to maintain
         a  constant  net asset  value of $1.00 per share,  although  in extreme
         circumstances this may not be possible.

                                       28
<PAGE>


         Scudder Tax Free Money Market Series seeks to provide investors with as
         high a level of current  income  that  cannot be  subjected  to federal
         income  tax  by  reason  of  federal  law  as is  consistent  with  its
         investment policies and with preservation of capital and liquidity. The
         Fund seeks to  maintain a constant  net asset value of $1.00 per share,
         but  there  is no  assurance  that  it  will  be  able  to do  so.  The
         institutional  class of shares of this Fund is not within  the  Scudder
         Family of Funds.

         Scudder  California Tax Free Money Fund* seeks stability of capital and
         the  maintenance of a constant net asset value of $1.00 per share while
         providing California taxpayers income exempt from both California State
         personal and regular federal income taxes. The Fund is a professionally
         managed  portfolio of high  quality,  short-term  California  municipal
         securities.  There can be no assurance  that the stable net asset value
         will be maintained.

         Scudder New York Tax Free Money Fund*  seeks  stability  of capital and
         the maintenance of a constant net asset value of $1.00 per share, while
         providing New York taxpayers  income exempt from New York State and New
         York City personal  income taxes and regular  federal income tax. There
         can be no assurance that the stable net asset value will be maintained.

TAX FREE

         Scudder  Limited Term Tax Free Fund seeks to provide as high a level of
         income exempt from regular  federal income tax as is consistent  with a
         high degree of principal stability.

         Scudder  Medium  Term Tax Free Fund  seeks to  provide a high  level of
         income free from regular  federal  income taxes and to limit  principal
         fluctuation.   The  Fund   will   invest   primarily   in   high-grade,
         intermediate-term bonds.

         Scudder  Managed  Municipal  Bonds seeks to provide  income exempt from
         regular federal income tax primarily through investments in high-grade,
         long-term municipal securities.

         Scudder  High  Yield Tax Free  Fund  seeks to  provide a high  level of
         interest  income,  exempt from  regular  federal  income  tax,  from an
         actively managed  portfolio  consisting  primarily of  investment-grade
         municipal securities.

         Scudder California Tax Free Fund* seeks to provide California taxpayers
         with  income  exempt from both  California  State  personal  income and
         regular  federal  income  tax.  The  Fund is a  professionally  managed
         portfolio consisting primarily of California municipal securities.

         Scudder  Massachusetts  Limited  Term Tax Free  Fund*  seeks to provide
         Massachusetts  taxpayers  with as high a level of  income  exempt  from
         Massachusetts personal income tax and regular federal income tax, as is
         consistent   with  a  high  degree  of  price   stability,   through  a
         professionally    managed    portfolio    consisting    primarily    of
         investment-grade municipal securities.

         Scudder  Massachusetts  Tax Free Fund*  seeks to provide  Massachusetts
         taxpayers with income exempt from both  Massachusetts  personal  income
         tax and  regular  federal  income  tax.  The  Fund is a  professionally
         managed portfolio  consisting  primarily of investment-grade  municipal
         securities.

         Scudder  New York Tax Free Fund*  seeks to provide  New York  taxpayers
         with  income  exempt  from New York  State and New York  City  personal
         income   taxes  and  regular   federal   income  tax.  The  Fund  is  a
         professionally  managed  portfolio  consisting  primarily  of New  York
         municipal securities.

         Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
         exempt from both Ohio personal  income tax and regular  federal  income
         tax.  The  Fund  is  a  professionally   managed  portfolio  consisting
         primarily of investment-grade municipal securities.

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

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


                                       29
<PAGE>

         Scudder  Pennsylvania  Tax Free  Fund*  seeks to  provide  Pennsylvania
         taxpayers with income exempt from both Pennsylvania personal income tax
         and regular  federal income tax. The Fund is a  professionally  managed
         portfolio   consisting   primarily   of   investment-grade    municipal
         securities.

U.S. INCOME

         Scudder  Short  Term Bond Fund  seeks to provide a high level of income
         consistent  with a high  degree of  principal  stability  by  investing
         primarily in high quality short-term bonds.

         Scudder  Zero Coupon  2000 Fund seeks to provide as high an  investment
         return over a selected  period as is consistent with investment in U.S.
         Government securities and the minimization of reinvestment risk.

         Scudder GNMA Fund seeks to provide high current  income  primarily from
         U.S. Government guaranteed mortgage-backed (Ginnie Mae) securities.

         Scudder Income Fund seeks a high level of income,  consistent  with the
         prudent  investment of capital,  through a flexible  investment program
         emphasizing high-grade bonds.

         Scudder  Corporate  Bond  Fund  seeks a high  level of  current  income
         through  investment   primarily  in  investment-grade   corporate  debt
         securities.

         Scudder High Yield Bond Fund seeks a high level of current  income and,
         secondarily, capital appreciation through investment primarily in below
         investment-grade domestic debt securities.

GLOBAL INCOME

         Scudder Global Bond Fund seeks to provide total return with an emphasis
         on  current   income  by  investing   primarily  in  high-grade   bonds
         denominated in foreign  currencies and the U.S. dollar.  As a secondary
         objective, the Fund will seek capital appreciation.

         Scudder  International  Bond Fund seeks to provide income  primarily by
         investing in a managed portfolio of high-grade  international bonds. As
         a  secondary   objective,   the  Fund  seeks  protection  and  possible
         enhancement  of principal  value by actively  managing  currency,  bond
         market and maturity exposure and by security selection.

         Scudder  Emerging  Markets  Income Fund seeks to provide  high  current
         income  and,   secondarily,   long-term  capital  appreciation  through
         investments  primarily  in  high-yielding  debt  securities  issued  by
         governments and corporations in emerging markets.

ASSET ALLOCATION

         Scudder Pathway Series:  Conservative Portfolio seeks primarily current
         income and secondarily  long-term growth of capital.  In pursuing these
         objectives, the Portfolio, under normal market conditions,  will invest
         substantially  in a select mix of Scudder bond mutual  funds,  but will
         have some exposure to Scudder equity mutual funds.

         Scudder Pathway Series:  Balanced  Portfolio seeks to provide investors
         with a balance  of growth and  income by  investing  in a select mix of
         Scudder money market, bond and equity mutual funds.

         Scudder Pathway  Series:  Growth  Portfolio seeks to provide  investors
         with  long-term  growth of capital.  In pursuing  this  objective,  the
         Portfolio will, under normal market conditions, invest predominantly in
         a select  mix of  Scudder  equity  mutual  funds  designed  to  provide
         long-term growth.

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

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


                                       30
<PAGE>

         Scudder  Pathway  Series:  International  Portfolio seeks maximum total
         return for investors. Total return consists of any capital appreciation
         plus  dividend  income and  interest.  To achieve this  objective,  the
         Portfolio  invests in a select  mix of  established  international  and
         global Scudder funds.

U.S. GROWTH AND INCOME

         Scudder  Balanced  Fund seeks a balance  of growth  and  income  from a
         diversified portfolio of equity and fixed-income  securities.  The Fund
         also seeks long-term preservation of capital through a quality-oriented
         approach that is designed to reduce risk.

         Scudder  Dividend & Growth Fund seeks high current income and long-term
         growth  of  capital   through   investment   in  income  paying  equity
         securities.

         Scudder  Growth and  Income  Fund seeks  long-term  growth of  capital,
         current income, and growth of income.

         Scudder S&P 500 Index Fund seeks to provide  investment  results  that,
         before  expenses,  correspond  to the total  return  of  common  stocks
         publicly traded in the United States,  as represented by the Standard &
         Poor's 500 Composite Stock Price Index.

         Scudder Real Estate  Investment Fund seeks long-term capital growth and
         current income by investing primarily in equity securities of companies
         in the real estate industry.

U.S. GROWTH

     Value

         Scudder Large Company  Value Fund seeks to maximize  long-term  capital
         appreciation through a value-driven investment program.

         Scudder  Value  Fund**  seeks  long-term   growth  of  capital  through
         investment in undervalued equity securities.

         Scudder  Small  Company  Value Fund  invests  for  long-term  growth of
         capital by seeking out undervalued stocks of small U.S. companies.

         Scudder Micro Cap Fund seeks  long-term  growth of capital by investing
         primarily  in a  diversified  portfolio  of  U.S.  micro-capitalization
         ("micro-cap") common stocks.

     Growth

         Scudder  Classic  Growth  Fund** seeks to provide  long-term  growth of
         capital with reduced  share price  volatility  compared to other growth
         mutual funds.

         Scudder Large Company Growth Fund seeks to provide  long-term growth of
         capital  through  investment  primarily  in the  equity  securities  of
         seasoned, financially strong U.S. growth companies.

         Scudder Development Fund seeks long-term growth of capital by investing
         primarily in securities of small and medium-size growth companies.

         Scudder 21st Century Growth Fund seeks  long-term  growth of capital by
         investing  primarily in the  securities  of emerging  growth  companies
         poised to be leaders in the 21st century.


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

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


                                       31
<PAGE>

SCUDDER CHOICE SERIES

         Scudder  Financial  Services  Fund  seeks  long-term  growth of capital
         primarily through investment in equity securities of financial services
         companies.

         Scudder Health Care Fund seeks  long-term  growth of capital  primarily
         through  investment in securities of companies  that are engaged in the
         development, production or distribution of products or services related
         to the treatment or prevention of diseases and other medical problems.

         Scudder  Technology  Fund seeks long-term  growth of capital  primarily
         through   investment  in   securities  of  companies   engaged  in  the
         development,  production or distribution of technology-related products
         or services.

GLOBAL GROWTH

     Worldwide

         Scudder  Global  Fund  seeks  long-term  growth  of  capital  through a
         diversified  portfolio  of  marketable  securities,   primarily  equity
         securities,   including  common  stocks,   preferred  stocks  and  debt
         securities convertible into common stocks.

         Scudder  International Growth and Income Fund seeks long-term growth of
         capital and current income primarily from foreign equity securities.

         Scudder  International Fund seeks long-term growth of capital primarily
         through  a   diversified   portfolio  of  marketable   foreign   equity
         securities.

         Scudder   Global   Discovery   Fund**   seeks   above-average   capital
         appreciation  over the long term by  investing  primarily in the equity
         securities of small companies located throughout the world.

         Scudder  Emerging Markets Growth Fund seeks long-term growth of capital
         primarily  through  equity  investment in emerging  markets  around the
         globe.

         Scudder Gold Fund seeks maximum  return  (principal  change and income)
         consistent  with  investing  in  a  portfolio  of  gold-related  equity
         securities and gold.

     Regional

         Scudder  Greater Europe Growth Fund seeks  long-term  growth of capital
         through  investments  primarily  in the equity  securities  of European
         companies.

         Scudder Pacific  Opportunities  Fund seeks long-term  growth of capital
         through investment  primarily in the equity securities of Pacific Basin
         companies, excluding Japan.

         Scudder  Latin  America  Fund  seeks  to  provide   long-term   capital
         appreciation  through  investment  primarily in the securities of Latin
         American issuers.

         The Japan Fund, Inc. seeks long-term capital  appreciation by investing
         primarily in equity securities (including American Depository Receipts)
         of Japanese companies.

         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.  Investors will notice the net
asset value and offering  price are the same,  reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds.  The
latest seven-day yields for the money-market funds can be found every 

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

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


                                       32
<PAGE>

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.

         The Scudder  Family of Funds  offers many  conveniences  and  services,
including:  active  professional  investment  management;  broad and diversified
investment  portfolios;  pure no-load funds with no  commissions  to purchase or
redeem  shares or Rule 12b-1  distribution  fees;  individual  attention  from a
service  representative  of  Scudder  Investor  Relations;  and  easy  telephone
exchanges into other Scudder funds. 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

         (See "Scudder tax-advantaged retirement plans," "Purchases--By
          Automatic Investment Plan" and "Exchanges and redemptions--By
              Automatic Withdrawal Plan" in the Fund's prospectus.)

         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.  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 adviser with respect to the suitability requirements and
tax aspects thereof.

         Shares  of the Fund may also be a  permitted  investment  under  profit
sharing  and  pension  plans and IRAs  other  than  those  offered by the 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 the 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 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 the 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 the 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 


                                       33
<PAGE>

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 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 table below shows how much individuals  would accumulate in a fully
tax-deductible  IRA by age 65  (before  any  distributions)  if they  contribute
$2,000 at the beginning of each year,  assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)

                             Value of IRA at Age 65
                 Assuming $2,000 Deductible Annual Contribution

<TABLE>
<S>         <C>                     <C>                        <C>                     <C>       
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
         Starting                                        Annual Rate of Return
          Age of             ------------------------------------------------------------------------------
       Contributions                    5%                        10%                       15%
- -----------------------------------------------------------------------------------------------------------
            25                      $253,680                   $973,704                $4,091,908
            35                       139,522                    361,887                   999,914
            45                        69,439                    126,005                   235,620
            55                        26,414                     35,062                    46,699
</TABLE>

         This next table shows how much individuals  would accumulate in non-IRA
accounts  by age 65 if they start  with  $2,000 in pretax  earned  income at the
beginning of each year (which is $1,380 after taxes are paid),  assuming average
annual returns of 5, 10 and 15%. (At withdrawal,  a portion of the  accumulation
in this table will be taxable.)

                          Value of a Non-IRA Account at
                   Age 65 Assuming $1,380 Annual Contributions
                 (post tax, $2,000 pretax) and a 31% Tax Bracket

<TABLE>
<S>         <C>                     <C>                        <C>                     <C>       
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
         Starting                                        Annual Rate of Return
          Age of             ------------------------------------------------------------------------------
       Contributions                    5%                        10%                       15%
- -----------------------------------------------------------------------------------------------------------
            25                      $119,318                   $287,021                  $741,431
            35                        73,094                    136,868                   267,697
            45                        40,166                     59,821                    90,764
            55                        16,709                     20,286                    24,681
</TABLE>

Scudder Roth IRA:  Individual Retirement Account

         Shares of the 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.



                                       34
<PAGE>

         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,  excess medical expenses, the
purchase  of  health  insurance  for  an  unemployed  individual  and  education
expenses.

         An individual  with an income of less than $100,000 (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.

Scudder 403(b) Plan

         Shares of the 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. 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) as described under "Transaction
information--Redeeming  shares--Signature  guarantees" in the Fund's prospectus.
Any such requests must be received by the 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 Trust or its agent on written
notice,  and will be terminated  when all shares of the Fund under the Plan have
been  liquidated  or upon  receipt  by the  Trust  of  notice  of  death  of the
shareholder.

         An  Automatic  Withdrawal  Plan request form can be obtained by calling
1-800-225-5163.

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 Trust and its agents  reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.

         The Trust  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  


                                       35
<PAGE>

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 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.

         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 Trust  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.

                    DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

   (See "Distribution and performance information--Dividends and capital gains
                    distributions" in the Fund's prospectus.)

         The Fund intends to follow the practice of  distributing  substantially
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.
However,  the Fund may retain all or part of such gain for  reinvestment,  after
paying the  related  federal  taxes for which  shareholders  may then be able to
claim a credit  against  their  federal  tax  liability.  If the  Fund  does not
distribute  the amount of capital gains 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. In certain circumstances,  the Fund may determine that it is in
the interest of shareholders to distribute less than the required  amount.  (See
"TAXES.")

         The Fund's dividends from its net investment  income are declared daily
and  distributed  monthly.  The Fund intends to distribute net realized  capital
gains after  utilization of capital loss  carryforwards,  if any, in November or
December to prevent  application of a federal excise tax, although an additional
distribution  may  be  made,  if  necessary.  Any  dividends  or  capital  gains
distributions  declared in October,  November or December  with a record date in
such a  month  and  paid  during  the  following  January  will  be  treated  by
shareholders  for federal  income tax  purposes as if received on December 31 of
the calendar year declared.  According to preference,  shareholders  may receive
distributions in cash or have them reinvested in additional  shares of the Fund.
If an investment is in the form of a retirement  plan, all dividends and capital
gains   distributions  must  be  reinvested  into  the  shareholder's   account.
Distributions  of investment  company  taxable  income and net realized  capital
gains are taxable  (see  "TAXES"),  whether  made in shares or cash.  Additional
distributions may be made if necessary.

         Both  types of  distributions  will be made in  shares  of the Fund and
confirmation will be mailed to each shareholder unless a shareholder has elected
to receive cash, in which case a check will be sent.

                                       36
<PAGE>

                             PERFORMANCE INFORMATION

           (See "Distribution and performance information--Performance
                     information in the Fund's prospectus.)

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

Average Annual Total Return

         Average  Annual Total  Return is the average  annual  compound  rate of
return for  periods of one year and the life of the Fund,  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 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.

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 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.

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.

SEC Yield

         The  Fund's  yield is the net  annualized  yield  based on a  specified
30-day (or one month) period assuming semiannual  compounding of income.  Yield,
sometimes  referred to as the Fund's "SEC yield," is  calculated by dividing the
net investment income per share earned during the period by the maximum offering
price  per  share on the  last day of the  period,  according  to the  following
formula:

                                       37
<PAGE>

                         YIELD = 2[((a-b)/cd + 1)^6 - 1]
                  Where:
<TABLE>
<S>                         <C>     <C>      <C>
                            a       =        dividends and interest  earned during the period,  including  amortization
                                             of market premium or accretion of market discount
                            b       =        expenses accrued for the period (net of reimbursements)
                            c       =        the  average  daily  number of shares  outstanding  during the period that
                                             were entitled to receive dividends
                            d       =        the maximum offering price per share on the last day of the period
</TABLE>

         Calculation  of a Fund's SEC yield does not take into account  "Section
988 Transactions." (See "TAXES.")

         Quotations  of the  Fund's  performance  are  historical  and  are  not
intended to indicate future performance.  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.  Examples  include,  but are  not  limited  to the Dow  Jones
Industrial Average, the Consumer Price Index,  Standard & Poor's Corporation 500
Composite  Stock  Price Index (S&P 500),  the Nasdaq OTC  Composite  Index,  the
Nasdaq  Industrials  Index, the Russell 2000 Index, and statistics  published by
the Small Business Administration.

         From time to time, in advertising and marketing literature, this Fund's
performance  may be compared to the  performance of broad groups of mutual funds
with similar investment goals, as tracked by independent  organizations such as,
Investment  Company  Data,  Inc.  ("ICD"),   Lipper  Analytical  Services,  Inc.
("Lipper"), CDA Investment Technologies,  Inc. ("CDA"), Morningstar, Inc., Value
Line  Mutual  Fund  Survey  and  other  independent  organizations.  When  these
organizations'  tracking  results  are used,  the Fund will be  compared  to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the  appropriate  volatility  grouping,  where  volatility  is a measure of a
fund's risk.  For instance,  a Scudder  growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund  category;  and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.

         From time to time, in marketing and other Fund literature, Trustees 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 Adviser 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 Scudder's college
planning program. The description may contain  illustrations of projected future
college costs based on assumed  rates of inflation and examples of  hypothetical
fund performance, calculated as described above.

         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.

                                       38
<PAGE>

         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.

         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.

         Risk/return  spectrums  also  may  depict  funds  that  invest  in both
domestic and foreign securities or a combination of bond and equity securities.

         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. Sources for Fund performance  information and articles
about the Fund include the following:

American Association of Individual  Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Asian Wall Street  Journal,  a weekly Asian  newspaper  that often  reviews U.S.
mutual funds investing internationally.

Banxquote,  an on-line source of national  averages for leading money market and
bank CD interest  rates,  published  on a weekly  basis by  Masterfund,  Inc. of
Wilmington, Delaware.

Barron's,  a Dow Jones and  Company,  Inc.  business and  financial  weekly that
periodically reviews mutual fund performance data.

Business  Week,  a  national  business  weekly  that  periodically  reports  the
performance rankings and ratings of a variety of mutual funds investing abroad.

CDA Investment  Technologies,  Inc., an organization which provides  performance
and ranking  information  through  examining the dollar results of  hypothetical
mutual fund investments and comparing these results against  appropriate  market
indices.

Consumer  Digest, a monthly  business/financial  magazine that includes a "Money
Watch" section featuring financial news.

                                       39
<PAGE>

Financial Times,  Europe's business newspaper,  which features from time to time
articles on international or country-specific funds.

Financial World, a general  business/financial  magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes,  a national  business  publication  that from time to time  reports  the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

The  Frank  Russell  Company,  a  West-Coast  investment  management  firm  that
periodically  evaluates  international stock markets and compares foreign equity
market performance to U.S. stock market performance.

Global  Investor,   a  European   publication  that  periodically   reviews  the
performance of U.S. mutual funds investing internationally.

IBC Money  Fund  Report,  a weekly  publication  of IBC  Financial  Data,  Inc.,
reporting on the  performance  of the nation's  money market funds,  summarizing
money  market fund  activity  and  including  certain  averages  as  performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."

Ibbotson  Associates,  Inc., a company  specializing in investment  research and
data.

Investment  Company  Data,  Inc., an  independent  organization  which  provides
performance ranking information for broad classes of mutual funds.

Investor's Business Daily, a daily newspaper that features financial,  economic,
and business news.

Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.

Lipper Analytical  Services,  Inc.'s Mutual Fund Performance  Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money,  a monthly  magazine that from time to time features both specific  funds
and the mutual fund industry as a whole.

Morgan  Stanley  International,  an  integrated  investment  banking  firm  that
compiles statistical information.

Mutual Fund Values,  a biweekly  Morningstar,  Inc.  publication  that  provides
ratings  of  mutual  funds  based  on  fund  performance,   risk  and  portfolio
characteristics.

The New York Times, a nationally  distributed  newspaper which regularly  covers
financial news.

The No-Load Fund Investor,  a monthly  newsletter,  published by Sheldon Jacobs,
that includes mutual fund  performance data and  recommendations  for the mutual
fund investor.

No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund  performance,  rates funds and discusses  investment
strategies for the mutual fund investor.

Personal  Investing  News,  a monthly  news  publication  that often  reports on
investment opportunities and market conditions.

Personal  Investor,  a monthly investment  advisory  publication that includes a
"Mutual Funds Outlook" section  reporting on mutual fund  performance  measures,
yields, indices and portfolio holdings.

                                       40
<PAGE>

Smart Money, a national personal finance magazine published monthly by Dow Jones
and  Company,  Inc.  and The  Hearst  Corporation.  Focus is placed on ideas for
investing, spending and saving.

Success,  a monthly magazine  targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

United Mutual Fund Selector, a semi-monthly investment newsletter,  published by
Babson United  Investment  Advisors,  that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.

USA Today, a leading national daily newspaper.

U.S. News and World Report,  a national  news weekly that  periodically  reports
mutual fund performance data.

Value Line  Mutual  Fund  Survey,  an  independent  organization  that  provides
biweekly performance and other information on mutual funds.

The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

Wiesenberger  Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds,  management policies, salient features,  management results,
income and dividend records and price ranges.

Working  Woman,  a monthly  publication  that  features a  "Financial  Workshop"
section reporting on the mutual fund/financial industry.

Worth,  a national  publication  issued 10 times per year by Capital  Publishing
Company,  a  subsidiary  of  Fidelity  Investments.  Focus is placed on personal
financial journalism.

                                FUND ORGANIZATION

              (See "Fund organization" in the Fund's prospectus.)

         The Fund is a separate  diversified  series of Scudder Portfolio Trust,
formerly Scudder Income Fund, a Massachusetts business trust established under a
Declaration  of  Trust  dated  September  20,  1984,  as  amended.  The  Trust's
predecessor  was  organized  as a  Massachusetts  corporation  in  1928  by  the
investment  counsel firm of Scudder,  Stevens & Clark,  Inc., the predecessor to
Scudder Kemper  Investments,  Inc. The Trust's shares are currently divided into
four separate series:  Scudder Balanced Fund,  Scudder Income Fund, Scudder High
Yield Bond Fund and Scudder Corporate Bond Fund.

         On November 4, 1987, the par value of the shares of beneficial interest
of the Trust was  changed  from no par value to $0.01 par value per  share.  The
Trust's  authorized  capital  consists  of an  unlimited  number  of  shares  of
beneficial  interest of $0.01 par value,  all of which are of one class and have
equal rights as to voting,  dividends,  and  liquidation.  The Trustees have the
authority  to issue two or more series of shares and to  designate  the relative
rights and preferences as between the different  series. If more than one series
of shares  were issued and a series  were  unable to meet its  obligations,  the
remaining  series  might  have to assume  the  unsatisfied  obligations  of that
series.  All shares issued and outstanding will be fully paid and non-assessable
by the Trust,  and  redeemable  as  described in this  Statement  of  Additional
Information and in the Fund's prospectus.

         The assets of the Trust 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 a  proportionate  share of the
general  liabilities  of  the  Trust.  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 


                                       41
<PAGE>

can otherwise be fairly made. The officers of the Trust,  subject to the general
supervision of the Trustees,  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 Trust 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  Trust  entitle  their  holders  to one vote per  share;
however,  separate  votes  are  taken by each  series on  matters  affecting  an
individual series. 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 Trustees, in their discretion, may authorize the 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 Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees  individually but only upon the property of the Trust,
that the  Trustees  and  officers  will not be liable for errors of  judgment or
mistakes of fact or law,  and that the Trust will  indemnify  its  Trustees  and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust, except if
it is determined,  in the manner provided in the Declaration of Trust, that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Trust.  However,  nothing in the  Declaration of Trust
protects or  indemnifies a Trustee or officer  against any liability to which he
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.

                               INVESTMENT ADVISER

     (See "Fund organization--Investment adviser" in the Fund's prospectus.)

         Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser 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 Adviser 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,
Stevens  &  Clark,  Inc.  ("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 has been changed to Scudder Kemper 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  Adviser'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,   colleges,  industrial  corporations,   and  financial  and  banking
organizations.  In addition,  it manages  Montgomery  Street Income  Securities,
Inc.,  Scudder  California Tax Free Trust,  Scudder Cash Investment Trust, Value
Equity Trust,  Scudder  Fund,  Inc.,  Scudder Funds Trust,  Global/International
Fund, Inc.,  Scudder Global High Income Fund, Inc.,  Scudder GNMA Fund,  Scudder
Portfolio Trust, Scudder  Institutional Fund, Inc., Scudder  International Fund,
Inc.,  Investment Trust,  Scudder Municipal Trust,  Scudder Mutual Funds,  Inc.,
Scudder New Asia Fund,  Inc.,  Scudder New Europe Fund,  Inc.,  Scudder  


                                       42
<PAGE>

Pathway Series,  Scudder Securities Trust, Scudder State Tax Free Trust, Scudder
Tax Free Money Fund,  Scudder Tax Free Trust,  Scudder U.S. Treasury Money Fund,
Scudder  Variable Life  Investment  Fund, The Argentina  Fund,  Inc., The Brazil
Fund,  Inc., The Korea Fund,  Inc.,  The Japan Fund,  Inc. and Scudder Spain and
Portugal Fund,  Inc. Some of the foregoing  companies or trusts have two or more
series.

         The Adviser also provides  investment  advisory  services to the mutual
funds  which  comprise  the  AARP  Investment  Program  from  Scudder.  The AARP
Investment  Program  from  Scudder has assets over $13 billion and  includes the
AARP Growth Trust,  AARP Income Trust,  AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.

         Pursuant to an Agreement between Scudder, Stevens & Clark, Inc. and AMA
Solutions,  Inc., a subsidiary of the American Medical  Association (the "AMA"),
dated  May 9,  1997,  the  Adviser  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 Adviser with respect to assets  invested by
AMA  members  in  Scudder  funds in  connection  with  the AMA  InvestmentLinkSM
Program.  The Adviser 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  adviser or broker/dealer  under federal  securities laws. Any person
who participates in the AMA  InvestmentLinkSM  Program will be a customer of the
Adviser (or of a subsidiary thereof) and not the AMA or AMA Solutions,  Inc. AMA
InvestmentLinkSM is a service mark of AMA Solutions, Inc.

         The  Adviser  maintains a large  research  department,  which  conducts
continuous   studies  of  the  factors  that  affect  the  position  of  various
industries,  companies and individual securities. The Adviser 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
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities.  Scudder'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 Adviser 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  Adviser.  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 Adviser 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  Adviser in the  interest of  achieving  the most
favorable net results to the Fund.

         The investment management agreement between the Fund and the Adviser is
dated    August   31,   1998   and   was    approved   by   the    Trustees   on
____________________1998   and  by  the  initial  shareholder  of  the  Fund  on
_______________________.  The investment  management agreement (the "Agreement")
will  continue in effect for an initial term ending on September  30, 1999.  The
Agreement  will  continue  in effect  from year to year  thereafter  only if its
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to the  Agreement  or  interested  persons of the Adviser or the
Trust,  cast in person at a meeting  called  for the  purpose  of voting on such
approval,  and either by a vote of the Trust's Trustees on behalf of the Fund 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.  The Agreement will continue in effect from year to year  thereafter
only if its continuance is approved  annually by the vote of a majority of those
Trustees  who are not  parties to the  Agreement  or  interested  persons of the
Adviser or the  Trust,  cast in person at a meeting  called  for the  purpose of
voting on such approval,  and either by a vote of the Trust's Trustees on behalf
of the Fund 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.



                                       43
<PAGE>

         Under the  Agreement,  the  Adviser  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 what
securities  shall be  purchased,  held or sold and what  portion  of the  Fund's
assets shall be held  uninvested,  subject to the Trust's  Declaration of Trust,
By-Laws, the 1940 Act, the Code of 1986 and to the Fund's investment  objective,
policies  and  restrictions,   and  subject,   further,  to  such  policies  and
instructions  as the  Board of  Trustees  of the  Trust  may  from  time to time
establish.  The Adviser  also  advises  and assists the  officers of the Fund in
taking such steps as are necessary or  appropriate to carry out the decisions of
its Trustees  and the  appropriate  committees  of the  Trustees  regarding  the
conduct of the business of a Fund.

         Under the Agreement,  the Adviser  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  Trustees 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 Trustees.

         The  Adviser  pays  the  compensation  and  expenses  (except  expenses
incurred  attending Board and committee  meetings  outside New York, New York or
Boston,  Massachusetts) of all Trustees, officers and executive employees of the
Trust  affiliated with the Adviser and makes  available,  without expense to the
Fund,  the services of such  Trustees,  officers and employees of the Adviser as
may duly be elected officers of the Trust,  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  Adviser  an annual fee equal to
___% of the Fund's average daily net assets, payable monthly,  provided the Fund
will make such interim payments as may be requested by the Adviser not to exceed
75% of the amount of the fee then  accrued on the books of the Fund and  unpaid.
Until  _____________,  the Adviser has agreed to maintain  the total  annualized
expenses of the Fund at ___% of the average daily net assets of the Fund.

         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;  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 Trustees,  officers
and employees of the Fund who are not affiliated  with the Adviser;  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 Trustees of the Fund with
respect thereto.  The Agreement expressly provides that the Adviser shall not be
required to pay a pricing agent of any Fund for portfolio pricing  services,  if
any.

         The Agreement  identifies the Adviser 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 Trust,  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 Trust's investment products and services.



                                       44
<PAGE>

         In reviewing  the terms of the Agreement  and in  discussions  with the
Adviser  concerning  such  Agreement,  the  Trustees  of the  Trust  who are not
"interested  persons" of the Adviser are  represented by independent  counsel at
the Fund's expense.

         The  Agreement  provides  that the Adviser  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
Adviser in the  performance  of its  duties or from  reckless  disregard  by the
Adviser of its obligations and duties under the Agreement.

         Officers  and  employees  of the  Adviser  from  time to time  may have
transactions with various banks,  including the Fund's custodian bank. It is the
Adviser'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  Adviser  may  serve as  adviser  to other  funds  with  investment
objectives  and policies  similar to those of the Funds that may have  different
distribution arrangements or expenses, which may affect performance.

         None of the  officers or Trustees of the Trust 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.

Personal Investments by Employees of the Adviser

         Employees  of the Adviser are  permitted  to make  personal  securities
transactions,  subject  to  requirements  and  restrictions  set  forth  in  the
Adviser's  Code  of  Ethics.   The  Code  of  Ethics  contains   provisions  and
requirements  designed to identify  and address  certain  conflicts  of interest
between personal investment  activities and the interests of investment advisory
clients  such as the  Funds.  Among  other  things,  the Code of  Ethics,  which
generally  complies  with  standards   recommended  by  the  Investment  Company
Institute's  Advisory Group on Personal  Investing,  prohibits  certain types of
transactions  absent prior approval,  imposes time periods during which personal
transactions may not be made in certain securities,  and requires the submission
of  duplicate  broker   confirmations   and  monthly   reporting  of  securities
transactions.  Additional  restrictions  apply to  portfolio  managers  traders,
research  analysts  and others  involved  in the  investment  advisory  process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by the appropriate personnel.

                              TRUSTEES AND OFFICERS


<TABLE>
<S>                                 <C>                    <C>                           <C>
<CAPTION>
                                                                                         Position with
Name, Date of Birth                 Position with                                        Underwriter, Scudder
and Address                         Fund                   Principal Occupation**        Investor Services, Inc.
- -----------                         ----                   ----------------------        -----------------------

Daniel Pierce+*= (3/18/34)          President and Trustee  Managing Director of          Director, Vice
                                                           Scudder Kemper Investments,   President and Assistant
                                                           Inc.                          Treasurer

Henry P. Becton, Jr. (10/16/43)     Trustee                President and General            --
125 Western Avenue                                         Manager, WGBH Educational
Allston, MA 02134                                          Foundation

Dawn-Marie Driscoll (11/5/46)       Trustee                Executive Fellow, Center         --
4909 SW 9th Place                                          for Business Ethics,
Cape Coral, FL  33914                                      Bentley College; President,
                                                           Driscoll Associates

Peter B. Freeman (8/4/32)           Trustee                Corporate Director and           --
100 Alumni Avenue                                          Trustee
Providence, RI  02906

                                       45
<PAGE>


                                                                                         Position with
Name, Date of Birth                 Position with                                        Underwriter, Scudder
and Address                         Fund                   Principal Occupation**        Investor Services, Inc.
- -----------                         ----                   ----------------------        -----------------------

George M. Lovejoy, Jr.= (4/15/30)   Trustee                President and Director,          --
50 Congress Street, Suite 543                              Fifty Associates
Boston, MA  02109                                          (real estate corporation)

Wesley W. Marple, Jr. (2/22/32)     Trustee                Professor of Business          --
Northeastern University                                    Administration,
413 Hayden Hall                                            Northeastern University,
360 Huntington Ave.                                        College of Business
Boston, MA  02115                                          Administration

Kathryn L. Quirk*# (12/3/52)        Trustee, Vice          Managing Director of          Director, Assistant
                                    President and          Scudder Kemper Investments,   Clerk and Chief Legal
                                    Assistant Secretary    Inc.                          Officer

Jean C. Tempel (3/24/43)            Trustee                Managing Partner,               --
Technology Equity Partners                                 Technology Equity Partners
Ten Post Office Square
Suite 1325
Boston, MA  02109-4603

Kelly D. Babson+* (12/11/58)        Vice President         Senior Vice President of
                                                           Scudder Kemper Investments,
                                                           Inc.

Jerard K. Hartman# (3/1/33)         Vice President         Managing Director of            --
                                                           Scudder Kemper Investments,
                                                           Inc.

Thomas W. Joseph+ (4/22/39)         Vice President         Senior Vice President of      Vice President,
                                                           Scudder Kemper Investments,   Director, Treasurer and
                                                           Inc.                          Assistant Clerk

Valerie F. Malter# (7/25/58)        Vice President         Senior Vice President of        --
                                                           Scudder Kemper Investments,
                                                           Inc.

Stephen A. Wohler+ (12/3/48)        Vice President         Managing Director of            --
                                                           Scudder Kemper Investments,
                                                           Inc.

Thomas F. McDonough+ (1/20/47)      Vice President,        Senior Vice President of      Clerk
                                    Secretary and          Scudder Kemper Investments,
                                    Treasurer              Inc.

John R. Hebble+ (6/27/58)           Assistant Treasurer    Senior Vice President,          --
                                                           Scudder Kemper Investments,
                                                           Inc.

                                       46
<PAGE>
                                                                                         Position with
Name, Date of Birth                 Position with                                        Underwriter, Scudder
and Address                         Fund                   Principal Occupation**        Investor Services, Inc.
- -----------                         ----                   ----------------------        -----------------------

Caroline Pearson+ (4/1/62)          Assistant Secretary    Vice President, Scudder        --
                                                           Kemper Investments, Inc.;
                                                           Associate, Dechert Price &
                                                           Rhoads (law firm) 1989 -
                                                           1997.

</TABLE>
*        Mr. Pierce and Ms. Quirk are considered by the Trust and its counsel to
         be persons who are "interested  persons" of the Adviser or of the Trust
         (within the meaning of the 1940 Act).

**       Unless  otherwise  stated,  all the  Trustees  and  officers  have been
         associated  with their  respective  companies for more than five years,
         but not necessarily in the same capacity.

=        Messrs.  Lovejoy,  Marple  and  Pierce  are  members  of the  Executive
         Committee,  which  has the power to  declare  dividends  from  ordinary
         income and  distributions  of realized capital gains to the same extent
         as the Board is so empowered.

+        Address: Two International Place, Boston, Massachusetts

#        Address: 345 Park Avenue, New York, New York

         The Trustees and officers of the Trust also serve in similar capacities
with respect to other Scudder funds.

                                  REMUNERATION

Responsibilities of the Board--Board and Committee Meetings

         The Board of Trustees is responsible  for the general  oversight of the
Fund's  business.  A majority of the Board's  members  are not  affiliated  with
Scudder  Kemper  Investments,  Inc.  These  "Independent  Trustees" have primary
responsibility  for assuring  that the Fund is managed in the best  interests of
its shareholders.

         The Board of Trustees meets at least quarterly to review the investment
performance of the Fund and other operational  matters,  including  policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually,  the Independent Trustees review the fees paid to the Adviser
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  Adviser  and  its  affiliates  and
comparative  information  regarding fees and expenses of competitive funds. They
are assisted in this process of the Fund's independent public accountants and by
independent legal counsel selected by the Independent Trustees.

         All the  Independent  Trustees  serve on the  Committee on  Independent
Trustees,  which  nominates  Independent  Trustees 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  Trustees  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

         The Independent  Trustees receive the following  compensation  from the
Funds of Scudder  Portfolio  Trust: an annual trustee's fee of $2,400 for a Fund
in which  assets do not exceed $100  million,  $4,800 for a Fund in which assets
exceed $100  million but do not exceed $1 billion and $7,200 for a Fund in which
assets exceed $1 billion;  a fee of $150 for  attendance at each board  meeting,
audit  committee  meeting or other meeting held for the purposes of  considering
arrangements  between the Trust for the Fund and the Adviser or any affiliate of
the Adviser;  $75 for any other committee meeting; and reimbursement of expenses
incurred  for travel to and from Board  Meetings.  The  Independent  Trustee who
serves as lead or liaison trustee receives an additional annual fee of $500 from
each Fund. No additional  compensation  is paid to any  Independent  Trustee for
travel  time to  meetings,  attendance  at  directors'  educational  


                                       47
<PAGE>

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  Trustees do not receive any
employee   benefits   such  as   pension,   retirement   or  health   insurance.
Notwithstanding the schedule of fees, the Independent  Trustees have in the past
and may in the future waive a portion of their compensation.

         The  Independent  Trustees  also serve in the same  capacity  for other
funds managed by the Adviser.  These funds differ broadly in type and complexity
and in some  cases have  substantially  different  Trustee  fee  schedules.  The
following table shows the aggregate  compensation  received by each  Independent
Trustee during 1997 from the Trust and from all of the Scudder funds as a group.
(TO BE UPDATED)

<TABLE>
<S>                                      <C>                  <C>             <C>          <C>          <C>   
<CAPTION>

                                            Aggregate Compensation                    Aggregate Compensation
                                          as a Trustee of the Trust,               as a Trustee of the Fund and
                                                   Paid by*                            other Scudder Funds**
                                                   --------                            ---------------------
            Name of Person,
                Position                  Funds               Scudder                  Fund                Scudder
                --------                  -----               -------                  ----                -------

       Henry P. Becton, Jr.,             $16,900                              $113,974     (23 funds)   $9,500
       Trustee
                            
       Dawn-Marie Driscoll***             $2,100                              $107,142     (23 funds)   $8,800
                Trustee                                        TO BE
                                                              UPDATED
       Peter B. Freeman***                $2,274                              $137,011     (42 funds)   $14,625
       Trustee

       George M. Lovejoy, Jr.,           $17,450                              $138,533     (21 funds)   $10,700
       Trustee

       Wesley W. Marple, Jr.,            $17,450                              $120,549     (22 funds)   $10,100
       Trustee

       Jean C. Tempel,                   $17,300                              $121,924     (22 funds)   $10,100
       Trustee

</TABLE>
*        Scudder  Corporate  Bond Fund is  scheduled to commence  operations  on
         August 31, 1998.

**       In 1997 Scudder  Portfolio  Trust  consisted  of three  Funds:  Scudder
         Balanced Fund, Scudder Income Fund and Scudder High Yield Bond Fund.

***      Elected as Trustee on October 24, 1997.

         Members of the Board of Trustees  who are  employees  of the Adviser or
its affiliates receive no direct compensation from the Trust,  although they are
compensated as employees of the Adviser, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.

                                   DISTRIBUTOR

         The Trust, on behalf of the Fund, has an underwriting agreement Scudder
Investor Services,  Inc., a Massachusetts  corporation,  which is a wholly-owned
subsidiary of the Adviser. The Trust's underwriting  agreement dated October 13,
1992 will  remain  in  effect  until  September  30,  1998 and from year to year
thereafter  only if its  continuance  is approved  annually by a majority of the
Trustees 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 Trustees or a majority of
the outstanding voting securities of a Fund. The underwriting agreement was last
approved by the Trustees on August 12, 1997.

         Under the  underwriting  agreement,  the Trust 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,  


                                       48
<PAGE>

including  registering  the  Trust as a  broker/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 Funds;  the cost of printing and
mailing  confirmations of purchases of shares and the prospectuses  accompanying
such  confirmations;  any issuance  taxes and/or any initial  transfer  taxes; a
portion of  shareholder  toll-free  telephone  charges and  expenses of customer
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 each 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
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 will bear some or all of such expenses.  As agent,  the  Distributor
currently  offers the Funds'  shares on a  continuous  basis to investors in all
states. The underwriting  agreement provides that the Distributor accepts orders
for shares at net asset  value and no sales  commission  or load is charged  the
investor.  The Distributor has made no firm commitment to acquire shares of each
Fund.

         Note:  Although the Trust does not currently  have a 12b-1 Plan and the
         Trustees  have no current  intention of adopting  one, a Fund will also
         pay those  fees and  expenses  permitted  to be paid or  assumed by the
         Trust  pursuant  to a  12b-1  Plan,  if  any,  adopted  by  the  Trust,
         notwithstanding any other provision to the contrary in the underwriting
         agreement.

                                      TAXES

                (See "Distribution and performance information --
                 Dividends and capital gains distributions" and
                   "Transaction information--Tax information,
              Tax identification number" in the Fund's prospectus.)

         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.  It intends to continue to qualify for such treatment.
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.

         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.

         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 taxable to individual  shareholders  at a maximum 20% or 28% capital gains
rate  (depending on the Fund's  holding period for the assets giving rise to the
gain), 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  


                                       49
<PAGE>

liability,  and will be  entitled  to  increase  the  adjusted  tax basis of the
shareholder's  Fund shares by the difference  between the shareholder's pro rata
share of such gains and the  shareholder's tax credit. If the Fund makes such an
election,  it may not be  treated  as having  met the  excise  tax  distribution
requirement.

         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
shareholder,  as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividends.

         Properly  designated  distributions  of the  excess  of  net  long-term
capital  gain  over net  short-term  capital  loss  are  taxable  to  individual
shareholders  (depending on the Fund's holding period for the assets giving rise
to the gain),  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.

         An individual  may make a deductible IRA  contribution  of up to $2,000
or, if less, the amount of the  individual's  earned income 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  ($40,050 for married  individuals  filing a joint return,
with a phase-out of the deduction for adjusted gross income between  $40,050 and
$50,000;  $25,050 for a single  individual,  with a phase-out for adjusted gross
income  between  $25,050 and $35,000).  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 ($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.



                                       50
<PAGE>

         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  property  in  the  Fund's  portfolio  similar  to  the  property
underlying the put option.  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 written
by the Fund is  exercised,  the  character  of the gain or loss  depends  on the
holding period of the underlying stock.

         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  capital  gain or loss,  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  capital  gain  or  loss.  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.

         Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position  governed by Section 1256 which  substantially  diminishes the
Fund's  risk of loss with  respect to such other  position  will be treated as a
"mixed straddle."  Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code,  the operation of which may cause  deferral of losses,
adjustments  in the holding  periods of securities  and conversion of short-term
capital losses into long-term  capital  losses,  certain tax elections exist for
them which reduce or  eliminate  the  operation  of these  rules.  The Fund will
monitor  its  transactions  in  options,  foreign  currency  futures and forward
contracts  and  may  make  certain  tax  elections  in  connection   with  these
investments.

         Notwithstanding  any of the  foregoing,  recent  tax  law  changes  may
require the Fund to 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.

         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 holds zero coupon  securities or other securities which are
issued at a discount a portion of the difference between the issue price and the
face value of such  securities  ("original  issue  discount") will be treated as
income  to the Fund each  year,  even  though  the Fund  will not  receive  cash
interest payments from these  securities.  This original issue discount (imputed
income) will comprise a part of the  investment  company  taxable  income of the
Fund  which  must be  distributed  to  shareholders  in  order to  maintain  the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the Fund level. Shareholders will be subject to income tax on such
original   issue   discount,   whether  or  not  they  elect  to  receive  their
distributions  in  cash.  If a fund  acquires  a  debt  instrument  at a  


                                       51
<PAGE>

market  discount,  a portion of the gain  recognized  (if any) on disposition of
such instrument may be treated as ordinary income.

         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.

         Dividend and interest  income received by the Fund from sources outside
the U.S. may be subject to  withholding  and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes,  however,  and foreign countries  generally do
not  impose  taxes on  capital  gains  in  respect  of  investments  by  foreign
investors.

         The Fund will be required to report to the Internal Revenue Service 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 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 advisers 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 Adviser.

         The primary objective of the Adviser 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 Adviser  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 Adviser reviews on a routine basis commission rates,  execution and
settlement services performed, making internal and external comparisons.

         The Fund's  purchases and sales of portfolio  securities  are generally
placed by the Adviser 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 


                                       52
<PAGE>

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  Adviser's  practice to place such orders with
broker/dealers  who supply research,  market and statistical  information to the
Fund. The term "research, market and statistical information" 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 Adviser is authorized when placing  portfolio  transactions  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,  market or  statistical  information.  The Adviser 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 Adviser 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.

         Although  certain  research,  market and statistical  information  from
broker/dealers  may be useful to the Fund and to the Adviser,  it is the opinion
of the Adviser that such information only supplements the Adviser's own research
effort since the information  must still be analyzed,  weighed,  and reviewed by
the Adviser's staff.  Such information may be useful to the Adviser in providing
services to clients other than the Fund, and not all such information is used by
the Adviser in connection with the Fund.  Conversely,  such information provided
to the  Adviser by  broker/dealers  through  whom other  clients of the  Adviser
effect  securities  transactions  may be  useful  to the  Adviser  in  providing
services to the Fund.

         The  Trustees  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.

         Subject also to obtaining the most  favorable net results,  the Adviser
may place brokerage  transactions through the Custodian and a credit against the
custodian  fee due to State Street Bank and Trust  Company  equal to one-half of
the commission on any such  transaction  will be given on any such  transaction.
Except for implementing the policy stated above,  there is no intention to place
portfolio transactions with particular broker/dealers or groups thereof.

         Although  certain  research,  market and statistical  information  from
broker/dealers  may be useful to the Fund and to the Adviser,  it is the opinion
of the Adviser that such  information  only  supplements its own research effort
since the  information  must still be  analyzed,  weighed  and  reviewed  by the
Adviser's  staff.  Such  information  may be useful to the Adviser in  providing
services to clients other than the Fund and not all such  information is used by
the Adviser in connection with the Fund.  Conversely,  such information provided
to the  Adviser by  broker/dealers  through  whom other  clients of the  Adviser
effect  securities  transactions  may be  useful  to the  Adviser  in  providing
services to the Fund.

         The  Trustees  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.

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. A higher rate
involves greater  brokerage  transaction  expenses to the Fund and may result in
the  realization  of net capital gains,  which would be taxable to  shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary,  in management's opinion, to meet the Fund's objective.  Under normal
investment conditions, it is anticipated that the portfolio turnover rate in the
Fund's initial fiscal year will not exceed ___%.



                                       53
<PAGE>

                                 NET ASSET VALUE

         The net asset  value of shares of the Fund will be  computed  as of the
close of regular  trading on the New York Stock Exchange (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.  Net  asset  value per share is
determined  by  dividing  the  value of the  total  assets  of a Fund,  less all
liabilities, by the total number of shares outstanding.

         An equity security traded on one or more U.S. or foreign exchanges (and
not subject to  restrictions  against sale by a Fund on such  exchanges) will be
valued at its most  recent  sale price on such  exchange  as of the Value  Time.
Lacking any sales,  the security will be valued at the  calculated  mean between
the  most  recent  bid  quotation  and the  most  recent  asked  quotation  (the
"Calculated  Mean") on such  exchange as of the Value Time. If there are no such
bid and asked  quotations,  the  security  will be valued at the most recent bid
quotation on such  exchange as of the Value Time.  An unlisted  equity  security
which is traded on the National  Association  of  Securities  Dealers  Automated
Quotation  ("Nasdaq")  system  will be valued at the most  recent  sale price if
there are any sales of such  security  reported  on such  system as of the Value
Time.  If there are no such sales on the Nasdaq  system,  such  security will be
valued at the most recent bid quotation as of the Value Time.  The value of such
security not quoted on the Nasdaq System, but traded in another over-the-counter
market,  will be the most  recent  sale  price if  there  are any  sales of such
security on such market as of the Value Time.  If there are no such sales,  such
security will be valued at the calculated mean quotation for such security as of
the Value Time. If there is no Calculated Mean quotation,  such security will be
valued at the most recent bid quotation as of the Value Time.

         Debt securities, other than short term securities, are valued at prices
supplied by the Fund's  pricing  agent  which  reflects  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  will be the most  recent  bid  quotation
supplied by a bona fide marketmaker as of the Value Time. As a last resort,  the
Adviser may  generate the price of that debt  security  taking into account such
factors as it deems appropriate;  a valuation method which will not be used with
respect to a particular  security for longer than ten (10)  consecutive  trading
days, or on a date as of which the net asset value per share is to be determined
for securities the aggregate value of which exceeds 5% of the Fund's net assets,
without  the  approval of the  committee  or person the Board so  designates  to
determine  the  portfolio  asset  value  and  calculate  the  value  of any debt
instrument, share of stock or other portfolio security (the "Valuing Agent").

         Options  contracts  on  securities,   currencies,   futures  and  other
financial instruments traded on an exchange are valued at their most recent sale
price on such  exchange as of the Value Time.  If no sales are  reported on such
exchange, the value will be the Calculated Mean quotation,  or if the Calculated
Mean quotation is not available, at the most recent bid quotation in the case of
purchased  options,  or the most recent  asked  quotation in the case of written
options. Option contracts on securities, currencies, futures and other financial
instruments  traded  over-the-counter  will be  valued  at the most  recent  bid
quotation  in the  case  of  purchased  options  and at the  most  recent  asked
quotation in the case of written  options.  Futures  contracts will be valued at
the most recent settlement price as of the Value Time.  Foreign currency forward
contracts  will  be  valued  at the  value  of the  underlying  currency  at the
prevailing currency exchange rate as of the Value Time.

         If a security  is traded on one or more than one  exchanges,  or in the
over-the-counter market,  quotations shall be taken from the market in which the
security is traded most extensively.

         If, in the  opinion of the Valuing  Agent of the Fund,  the value of an
asset as determined in accordance  with these  procedures does not represent the
fair market  value of the asset,  the value of the asset shall be taken to be an
amount which,  in the opinion of the Valuing Agent of the Fund,  represents fair
market value on the basis of all  available  information.  If a portfolio  asset
cannot be valued in accordance  with the  foregoing  rules because a recent sale
price,  Calculated  Mean  quotation,  bid  quotation  or other  quotation is not
available  on the date which the net asset  value per share is to be  determined
(the "Value  Date"),  the Valuing  Agent will  notify the  Adviser  and,  unless
otherwise  instructed  by  the  Adviser,  may  value  the  asset  as  previously
determined by the foregoing rules (or, in the case of a 


                                       54
<PAGE>

newly  acquired  asset,  at cost) for up to ten (10)  consecutive  trading days,
after which a Valuing Agent fair market value determination is required.

         The  value of other  portfolio  holdings  owned by each  Fund  shall be
determined  in a manner  which,  in the  discretion  of the Valuing Agent of the
Fund, most fairly reflects fair market value of the property on the value date.

         Following the valuations of security or other portfolio assets in terms
of the  currency  in  which  the  market  quotation  used is  expressed  ("Local
Currency"),  the Valuing  Agent shall  calculate  these  assets in terms of U.S.
dollars on the basis of conversion of the Local  Currencies into U.S. dollars at
the prevailing currency exchange rates on the Value Date.

         The officers of the Fund may enter into one or more agreements with one
or more  persons  appointed  as pricing  agents to assist the  Valuing  Agent in
determining the value of the assets of the Fund, as approved by such officers.

                             ADDITIONAL INFORMATION

Experts

         The Financial Highlights of the Fund included in the Fund's prospectus,
and the  Financial  Statements  incorporated  by reference  to the  Statement of
Additional  Information  will be so included or  incorporated  by  reference  in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants, and
given on the  authority  of that firm as experts  in  accounting  and  auditing.
Coopers & Lybrand,  L.L.P.  is responsible  for performing  annual 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 Adviser 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 Fund is ______________.

         The Fund's fiscal year end is the last day of _________.

         Dechert Price & Rhoads acts as general counsel for the Fund.

         The Fund employs State Street Bank and Trust Company as Custodian.

         Costs  of  $_________  incurred  by the  Fund in  conjunction  with its
organization are amortized over the five year period beginning August 31, 1998.

         Scudder Fund Accounting  Corporation,  Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
per share and maintains the  portfolio  and general  accounting  records for the
Fund. The Fund pays Scudder Fund  Accounting  Corporation an annual fee equal to
0.025% of the first $150  million of average  daily net assets,  0.0075% of such
assets in excess of $150  million  and  0.0045%  of such  assets in excess of $1
billion, plus holding and transaction charges for this service.

         Scudder Service  Corporation  ("Service  Corporation"),  P.O. Box 2291,
Boston, Massachusetts,  02107-2291, a subsidiary of the Adviser, 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. The
Fund pays Service  Corporation  an annual fee for each account  maintained for a
participant.



                                       55
<PAGE>

         The Fund, or the Adviser  (including any affiliate of the Adviser),  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 Trust Company ("STC"), Two International Place, Boston, MA
02110-4103,   an  affiliate  of  the  Adviser,  provides  services  for  certain
retirement  plan  accounts.  The Fund pays STC an annual  fee of $29.00 for each
account maintained for a participant.

         The Fund's 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  Statement of Assets and  Liabilities  of the Fund as of August __,
1998 and the Report of Independent Accounts is included herein.



                                       56
<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 

<PAGE>

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  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>
                    SCUDDER PORTFOLIO TRUST
                                
                   PART C.  OTHER INFORMATION
                                
Item 24.       Financial Statements and Exhibits

          a.   Financial Statements

               Included in Part A:

                    For Scudder Income Fund:
                    
                    Financial Highlights for the ten fiscal years
                    ended December 31, 1996.
                    (Incorporated by reference to Post-Effective
                    Amendment No. 67 to the Registration
                    Statement.)
                    
                    For Scudder Balanced Fund:
                    
                    Financial Highlights for the period January
                    4, 1993 (commencement of operations) to
                    December 31, 1993 and for the three fiscal
                    years ended December 31, 1996.
                    (Incorporated by reference to Post-Effective
                    Amendment No. 67 to the Registration
                    Statement.)
                    
                    For Scudder High Yield Bond Fund:
                    
                    Financial Highlights for the period June 28,
                    1996 (commencement of operations) to February
                    28, 1997.
                    (Incorporated by reference to Post-Effective
                    Amendment No. 68 to the Registration
                    Statement.)
                    
               Included in Part B:

                    For Scudder Income Fund:
                    
                    Investment Portfolio as of December 31, 1996
                    Statement of Assets and Liabilities as of
                    December 31, 1996
                    Statement of Operations for the fiscal year
                    ended December 31, 1996
                    Statements of Changes in Net Assets for the
                    two fiscal years ended December 31, 1996
                    Financial Highlights for the ten fiscal years
                    ended December 31, 1996
                    Notes to Financial Statements
                    Report of Independent Accountants
                    (Incorporated by reference to Post-Effective
                    Amendment No. 67 to the Registration
                    Statement.)
                    
                    For Scudder Balanced Fund:
                    
                    Investment Portfolio as of December 31, 1996
                    Statement of Assets and Liabilities as of
                    December 31, 1996
                    Statement of Operations for the fiscal year
                    ended December 31, 1996
                    Statement of Changes in Net Assets for the
                    two fiscal years
                    ended December 31, 1996
                    Financial Highlights for the period January
                    4, 1993 (commencement of operations) to
                    December 31, 1993 and for the three fiscal
                    years ended December 31, 1996

                                Part C - Page 1
<PAGE>

                    Notes to Financial Statements
                    Report of Independent Accountants
                    (Incorporated by reference to Post-Effective
                    Amendment No. 67 to the Registration
                    Statement.)
                    
                    For Scudder High Yield Bond Fund:
                    
                    Investment Portfolio as of February 28, 1997
                    Statement of Assets and Liabilities as of
                    February 28, 1997
                    Statement of Operations for the period June
                    28, 1996 (commencement of operations) to
                    February 28, 1997
                    Statement of Changes in Net Assets for the
                    period June 28, 1996 (commencement of
                    operations) to February 28, 1997
                    Financial Highlights for the period June 28,
                    1996 (commencement of operations) to February
                    28, 1997
                    Notes to Financial Statements
                    Report of Independent Accountants
                    (Incorporated by reference to Post-Effective
                    Amendment No. 68 to the Registration
                    Statement.)
                    
                    For Scudder Corporate Bond Fund:
                    
                    Statement of Assets and Liabilities to be
                    filed by amendment.

          Statements, schedules and historical information other
          than those listed above have been omitted since they
          are either not applicable or are not required.

          b.   Exhibits:
                            
               All references are to the Registrant's
               Registration Statement on Form N-1A filed with
               the Securities and Exchange Commission.  File
               Nos. 2-13627 and 811-42 (the "Registration
               Statement").
                            
               1.   (a)(1)  Amended and Restated Declaration of
                            Trust dated November 3, 1987 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (a)(2)  Certificate of Amendment of
                            Declaration of Trust dated November
                            13, 1990 is incorporated by reference
                            to Post-Effective Amendment No. 69.
                            
                    (a)(3)  Certificate of Amendment of
                            Declaration of Trust dated October 13,
                            1992 is incorporated by reference to
                            Post-Effective Amendment No. 69.
                            
                    (a)(4)  Establishment and Designation of
                            Series dated October 13, 1992 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (a)(5)  Establishment and Designation of
                            Series dated April 9, 1996 is
                            incorporated by reference to Post-
                            Effective Amendment No. 61.
                            
               2.   (a)(1)  By-Laws of the Registrant dated
                            September 20, 1984 are incorporated by
                            reference to Post-Effective Amendment
                            No. 69.
                            
                    (a)(2)  Amendment to By-Laws of the Registrant
                            dated August 13, 1991 is incorporated
                            by reference to Post-Effective
                            Amendment No. 69.

                                Part C - Page 2
<PAGE>
                            
               3.           Inapplicable.
                            
               4.           Specimen certificate representing
                            shares of beneficial interest for
                            Scudder Income Fund with $0.01 par
                            value is incorporated by reference to
                            Post-Effective Amendment No. 50 to the
                            Registration Statement ("Post-
                            Effective Amendment No. 50").
                            
               5.   (a)     Investment Management Agreement
                            between the Registrant, on behalf of
                            Scudder Income Fund, and Scudder,
                            Stevens & Clark, Inc. ("Scudder")
                            dated November 14, 1990 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (b)     Investment Management Agreement
                            between the Registrant, on behalf of
                            Scudder Balanced Fund, and Scudder
                            dated December 28, 1992 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (c)     Investment Management Agreement
                            between the Registrant, on behalf of
                            Scudder High Yield Bond Fund, and
                            Scudder dated June 28, 1996 is
                            incorporated by reference to Post-
                            Effective Amendment No. 63.
                            
                    (d)     Investment Management Agreement
                            between the Registrant, on behalf of
                            Scudder Income Fund, and Scudder
                            Kemper Investments, Inc. dated
                            December 31, 1997 is filed herein.
                            
                    (d)(1)  Investment Management Agreement
                            between the Registrant, on behalf of
                            Scudder Balanced Fund, and Scudder
                            Kemper Investments, Inc. dated
                            December 31, 1997 is filed herein.
                            
                    (d)(2)  Investment Management Agreement
                            between the Registrant, on behalf of
                            Scudder High Yield Bond Fund, and
                            Scudder Kemper Investments, Inc. dated
                            December 31, 1997 is filed herein.
                            
                    (d)(3)  Investment Management Agreement
                            between the Registrant, on behalf of
                            Scudder Corporate Bond Fund and
                            Scudder Kemper Investments, Inc. dated
                            August 31, 1998 to be filed by
                            amendment.
                            
               6.   (a)     Underwriting Agreement between the
                            Registrant and Scudder Fund
                            Distributors, Inc., dated September
                            10, 1985 is incorporated by reference
                            to Post-Effective Amendment No. 69.
                            
                    (b)     Underwriting Agreement between the
                            Registrant and Scudder Investor
                            Services, Inc., dated October 13, 1992
                            is incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
               7.           Inapplicable.
                            
               8.   (a)(1)  Custodian Contract and fee schedule
                            between the Registrant and State
                            Street Bank and Trust Company ("State
                            Street") dated December 31, 1984 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (a)(2)  Fee schedule for Exhibit 8(a)(1) dated
                            October 7, 1986 is incorporated by
                            reference to Post-Effective Amendment
                            No. 69.

                                Part C - Page 3
<PAGE>
                            
                    (a)(3)  Amendment to Custodian Contract
                            between the Registrant and State
                            Street dated April 1, 1985 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (a)(4)  Amendment to Custodian Contract
                            between the Registrant and State
                            Street dated March 10, 1987 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (a)(5)  Amendment to Custodian Contract
                            between the Registrant and State
                            Street dated March 10, 1987 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (a)(6)  Amendment to Custodian Contract
                            between the Registrant and State
                            Street dated August 11, 1987 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (a)(7)  Amendment to Custodian Contract
                            between the Registrant and State
                            Street dated August 9, 1988 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (a)(8)  Fee schedule for Exhibit 8(a)(1) is
                            incorporated by reference to Post-
                            Effective Amendment No. 60.
                            
                    (a)(9)  Amendment to Custodian Contract
                            between the Registrant and State
                            Street dated April 9, 1996 is
                            incorporated by reference to Post-
                            Effective Amendment No. 63.
                            
                    (a)(10) Fee schedule for Exhibit 8(a)(9) is
                            incorporated by reference to Post-
                            Effective Amendment No. 63.
                            
                    (b)(1)  Subcustodian Agreement with fee
                            schedule between State Street and The
                            Bank of New York, London office, dated
                            December 31, 1978 is incorporated by
                            reference to Post-Effective Amendment
                            No. 69.
                            
               9.   (a)(1)  Transfer Agency and Service Agreement
                            with fee schedule between the
                            Registrant and Scudder Service
                            Corporation dated October 2, 1989 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (a)(2)  Revised Fee Schedule dated October 1,
                            1995 for Exhibit 9(a)(1) is
                            incorporated by reference to Post-
                            Effective Amendment No. 67.
                            
                    (a)(3)  Revised Fee Schedule dated October 1,
                            1996 for Exhibit 9(a)(1) is
                            incorporated by reference to Post-
                            Effective Amendment No. 67.
                            
                    (b)(1)  COMPASS Service Agreement with fee
                            schedule with Scudder Trust Company
                            dated January 1, 1990 is incorporated
                            by reference to Post-Effective
                            Amendment No. 69.
                            
                    (b)(2)  COMPASS Service Agreement between
                            Scudder Trust Company and the
                            Registrant dated October 1, 1995 is
                            incorporated by reference to Post-
                            Effective Amendment No. 61.
                            
                    (b)(3)  Revised Fee Schedule dated October 1,
                            1996 for Exhibit 9(b)(2) is
                            incorporated by reference to Post-
                            Effective Amendment No. 67.

                                Part C - Page 4
<PAGE>
                            
                    (c)(1)  Service Agreement between Copeland
                            Associates, Inc. and Scudder Service
                            Corporation (on behalf of Scudder
                            Balance Fund) dated June 8, 1995 is
                            incorporated by reference to Post-
                            Effective Amendment No. 62, Exhibit
                            9(f).
                            
                    (d)     Shareholder Services Agreement between
                            the Registrant and Charles Schwab &
                            Co., Inc. dated June 1, 1990 is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (e)(1)  Fund Accounting Services Agreement
                            between the Registrant, on behalf of
                            Scudder Balanced Fund, and Scudder
                            Fund Accounting Corporation dated
                            January 18, 1995 is incorporated by
                            reference to Post-Effective Amendment
                            No. 69.
                           
                    (e)(2)  Fund Accounting Services Agreement
                            between the Registrant, on behalf of
                            Scudder Income Fund, and Scudder Fund
                            Accounting Corporation dated January
                            12, 1995 is incorporated by reference
                            to Post-Effective Amendment No. 60.
                            
                    (e)(3)  Fund Accounting Services Agreement
                            between the Registrant, on behalf of
                            Scudder High Yield Bond Fund, and
                            Scudder Fund Accounting Corporation
                            dated June 28, 1996 is incorporated by
                            reference to Post-Effective Amendment
                            No. 63.
                            
                    (f)     Service Agreement between Copeland
                            Associates, Inc. and Scudder Service
                            Corporation (on behalf of Scudder
                            Balanced Fund) dated June 8, 1995 is
                            incorporated by reference to Post-
                            Effective Amendment No. 62.
                            
               10.          Inapplicable.
                            
               11.          Inapplicable.
                            
               12.          Inapplicable.
                            
               13.          Inapplicable.
                            
               14.  (a)     Scudder Flexi-Plan for Corporations
                            and Self-Employed Individuals  is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (b)     Scudder Individual Retirement Plan is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (c)     SEP-IRA is incorporated by reference
                            to Post-Effective Amendment No. 69.
                            
                    (d)     Scudder Funds 403(b) Plan is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
                    (e)     Scudder Cash or Deferred Profit
                            Sharing Plan under Section 401(k) is
                            incorporated by reference to Post-
                            Effective Amendment No. 69.
                            
               15.          Inapplicable.

                                Part C - Page 5
<PAGE>
                            
               16.          Schedule of Computation of Performance
                            Information is incorporated by
                            reference to Post-Effective Amendment
                            No. 69.
                            
               17.          Inapplicable.
                            
               18.          Inapplicable.

Power of Attorney for Daniel Pierce, Henry P. Becton, Jr., George
M. Lovejoy, Jr. and Wesley W. Marple, Jr. is incorporated by
reference to the Signature Page of Post-Effective Amendment No.
69.

Power of Attorney for Jean C. Tempel is incorporated by reference
to the Signature Page of Post-Effective Amendment No. 60.

Power of Attorney for Dawn-Marie Driscoll, Kathryn L. Quirk and
Peter B. Freeman is incorporated by reference to the signature
page of Post-Effective Amendment No. 70.

Item 25.       Persons Controlled by or under Common Control with Registrant.

               None

Item 26.       Number of Holders of Securities (as of May 29, 1998).

                    (1)                                        (2)           
              Title of Class                             Number of Record   
                                                           Shareholders     
                                                                            
          Shares of beneficial                                              
          interest                                                          
          ($0.01 par value):                                                
                                                                            
                Scudder Income Fund                          107,594        
                Scudder Balanced Fund                         22,111
                Scudder  High Yield Bond Fund                  7,129

Item 27.       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 Trustees 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 IV Sections 4.1 - 4.3 of Registrant's
          Declaration of Trust provide as follows:
          
          Section 4.1. No Personal Liability of Shareholders,
          Trustees, etc. No Shareholder shall be subject to any
          personal liability whatsoever to any Person in
          connection with Trust Property or the acts, obligations
          or affairs of the Trust.  No Trustee, officer, employee
          or agent of the Trust shall be subject to any personal
          liability whatsoever to any Person, other than to the
          Trust or its Shareholders, in connection with Trust
          Property or the affairs of the Trust, save only that
          arising from bad faith, willful misfeasance, gross
          negligence or reckless disregard of his duties with
          respect to such Person; and all such Persons shall look
          solely to the Trust Property for satisfaction of claims
          of any nature arising in connection with the affairs of
          the Trust.  If any Shareholder, Trustee, officer,
          employee, or agent, as such, of the Trust, is made a
          party to any suit or proceeding to enforce any such
          liability of the Trust, he shall not, on account
          thereof, be held to any personal liability.  The Trust
          shall indemnify and hold each Shareholder harmless from
          and against all claims and liabilities, to which such


                                Part C - Page 6
<PAGE>

          Shareholder may become subject by reason of his being
          or having been a Shareholder, and shall reimburse such
          Shareholder for all legal and other expenses reasonably
          incurred by him in connection with any such claim or
          liability.  The indemnification and reimbursement by
          the preceding sentence shall be made only out of the
          assets of the one or more series of which the
          Shareholder who is entitled to indemnification or
          reimbursement was a Shareholder at the time the act or
          event occurred which gave rise to the claim against or
          liability of said Shareholders.  The rights accruing to
          a Shareholder under this Section 4.1 shall not impair
          any other right to which such Shareholder may be
          lawfully entitled, nor shall anything herein contained
          restrict the right of the Trust to indemnify or
          reimburse a Shareholder in any appropriate situation
          even though not specifically provided herein.
          
          Section 4.2. Non-Liability of Trustees, etc. No
          Trustee, officer, employee or agent of the Trust shall
          be liable to the Trust, its Shareholders, or to any
          Shareholder, Trustee, officer, employee, or agent
          thereof for any action or failure to act (including
          without limitation the failure to compel in any way any
          former or acting Trustee to redress any breach of
          trust) except for his own bad faith, willful
          misfeasance, gross negligence or reckless disregard of
          the duties involved in the conduct of his office.
          
          Section 4.3 Mandatory Indemnification. (a) Subject to
          the exceptions and limitations contained in paragraph
          (b) below:

               (i) every person who is, or has been, a Trustee or
          officer of the Trust shall be indemnified by the Trust
          to the fullest extent permitted by law against all
          liability and against all expenses reasonably incurred
          or paid by him in connection with any claim, action,
          suit or proceeding in which he becomes involved as a
          party or otherwise by virtue of his being or having
          been a Trustee or officer and against amounts paid or
          incurred by him in the settlement thereof;
               
               (ii) the words "claim," "action," "suit," or
          "proceeding" shall apply to all claims, actions, suits
          or proceedings (civil, criminal, or other, including
          appeals), actual or threatened; and the words
          "liability" and "expenses" shall include, without
          limitation, attorneys' fees, costs, judgments, amounts
          paid in settlement, fines, penalties and other
          liabilities.

          (b)  No indemnification shall be provided hereunder to
          a Trustee or officer:
               
               (i) against any liability to the Trust or the
          Shareholders by reason of a final adjudication by the
          court or other body before which the proceeding was
          brought that he engaged in willful misfeasance, bad
          faith, gross negligence or reckless disregard of the
          duties involved in the conduct of his office;
               
               (ii) with respect to any matter as to which he
          shall have been finally adjudicated not to have acted
          in good faith in the reasonable belief that his action
          was in the best interest of the Trust;
               
               (iii) in the event of a settlement or other
          disposition not involving a final adjudication as
          provided in paragraph (b)(i) resulting in a payment by
          a Trustee or officer, unless there has been a
          determination that such Trustee or officer did not
          engage in willful misfeasance, bad faith, gross
          negligence or reckless disregard of the duties involved
          in the conduct of his office;
               
               (A) by the court or other body approving the
               settlement or other disposition; or
               
               (B) based upon a review of readily available facts
               (as opposed to a full trial-type inquiry) by (x)
               vote of a majority of the Disinterested Trustees
               acting on the matter (provided that a majority of
               the Disinterested Trustees then in office act on
               the matter) or (y) written opinion of independent
               legal counsel.

          (c)  The rights of indemnification herein provided may
          be insured against by policies maintained by the Trust,
          shall be severable, shall not affect any other rights
          to which any Trustee or officer may now or hereafter be
          entitled, shall continue as to a person who has ceased


                                Part C - Page 7
<PAGE>

          to be such Trustee or officer and shall inure to the
          benefit of the heirs, executors, administrators and
          assigns of such a person.  Nothing contained herein
          shall affect any rights to indemnification to which
          personnel of the Trust other than Trustees and officers
          may be entitled by contract or otherwise under law.
          
          (d)  Expenses of preparation and presentation of a
          defense to any claim, action, suit, or proceeding of
          the character described in paragraph (a) of this
          Section 4.3 shall be advanced by the Trust prior to
          final disposition thereof upon receipt of an
          undertaking by or on behalf of the recipient, to repay
          such amount if it is ultimately determined that he is
          not entitled to indemnification under this Section 4.3,
          provided that either:

               (i) such undertaking is secured by a surety bond
          or some other appropriate security provided by the
          recipient, or the Trust shall be insured against losses
          arising out of any such advances; or
               
               (ii) a majority of the Disinterested Trustees
          acting on the matter (provided that a majority of the
          Disinterested Trustees act on the matter) or an
          independent legal counsel in a written opinion shall
          determine, based upon a review of readily available
          facts (as opposed to a full trial-type inquiry), that
          there is reason to believe that the recipient
          ultimately will be found entitled to indemnification.

               As used in this Section 4.3, a "Disinterested
          Trustee" is one who is not (i) an "Interested Person"
          of the Trust (including anyone who has been exempted
          from being an "Interested Person" by any rule,
          regulation or order of the Commission), or (ii)
          involved in the claim, action, suit or proceeding.
               
Item 28.       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 28.

                    Business and Other Connections of Board
       Name         of Directors of Registrant's Adviser
       ----         -----------------------------------------
                    
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper
                       Investments, Inc.**
                    Vice President and Treasurer, Scudder Fund Accounting
                       Corporation*
                    Director, 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**
                    
Lynn S. Birdsong    Director and Vice President, Scudder Kemper Investments,
                       Inc.**
                    Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
                    
Laurence W. Cheng   Director, Scudder Kemper Investments, Inc.**
                    Member, Corporate Executive Board, Zurich Insurance
                       Company of Switzerland##
                    Director, ZKI Holding Corporation xx
                    
Steven Gluckstern   Director, Scudder Kemper Investments, Inc.**
                    Member, Corporate Executive Board, Zurich Insurance
                       Company of Switzerland##
                    Director, Zurich Holding Company of Americao

                                Part C - Page 8
<PAGE>
                     Business and Other Connections of Board
       Name         of Directors of Registrant's Adviser
       ----         -----------------------------------------
                   
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
                       Americao
                    Director, ZKI Holding Corporation xx
                    
Kathryn L. Quirk    Director, Chief Legal Officer, Chief Compliance Officer
                       and Secretary, Scudder Kemper Investments, Inc.**
                    Director, Senior Vice President & 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, 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. x
                    Director and Secretary, Scudder, Stevens & Clark
                       Corporation**
                    Director and Secretary, Scudder, Stevens & Clark Overseas
                       Corporationoo
                    Director and Secretary, SFA, Inc.*
                    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 and Secretary, Scudder Brokerage
                       Services, Inc.*
                    Director, Korea Bond Fund Management Co., Ltd.+
                    
Markus Rohrbasser   Director, Scudder Kemper Investments, Inc.**
                    Member Corporate Executive Board, Zurich Insurance Company
                       of Switzerland##
                    President, Director, Chairman of the Board, ZKI Holding
                       Corporation xx
                    
Cornelia M. Small   Vice President, Scudder Kemper Investments, Inc.**
                    
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
                       Corporationoo
                    President and Director, Scudder, Stevens & Clark
                       Corporation**
                    Director, Scudder Realty Advisors, Inc.x
                    Director, IBJ Global Investment Management S.A.
                       Luxembourg, Grand-Duchy of Luxembourg

     *    Two International Place, Boston, MA
     x    333 South Hope Street, Los Angeles, CA
     **   345 Park Avenue, New York, NY
     #    Socit Anonyme, 47, Boulevard Royal, L-2449
          Luxembourg, R.C. Luxembourg B 34.564
     ***  Toronto, Ontario, Canada
     xxx  Grand Cayman, Cayman Islands, British West Indies
     oo   20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
     ###  1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan


                                Part C - Page 9
<PAGE>

     xx   222 S. Riverside, Chicago, IL
     o    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

Item 29.       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 29.

     (1)                (2)                    (3)

     Name and Principal       Position and Offices with     Positions and
     Business Address         Scudder Investor Services,    Offices with
                              Inc.                          Registrant
                                                            
     William S. Baughman      Vice President                None
     Two International Place
     Boston, MA 02110
                                                            
     Lynn S. Birdsong         Senior Vice President         None
     345 Park Avenue
     New York, NY 10154
                                                            
     Mary Elizabeth Beams     Vice President                None
     Two International Place
     Boston, MA 02110
                                                            
     Mark S. Casady           Director, President and       None
     Two International Place  Assistant Treasurer
     Boston, MA  02110
                                                            
     Linda Coughlin           Director and Senior Vice      None
     Two International Place  President
     Boston, MA  02110
                                                            
     Richard W. Desmond       Vice President                None
     345 Park Avenue
     New York, NY  10154
                                                            
     Paul J. Elmlinger        Senior Vice President and     None
     345 Park Avenue          Assistant Clerk
     New York, NY  10154
                                                            
     Philip S. Fortuna        Vice President                None
     101 California Street
     San Francisco, CA 94111
                                                            


                                Part C - Page 10
<PAGE>
     Name and Principal       Position and Offices with     Positions and
     Business Address         Scudder Investor Services,    Offices with
                              Inc.                          Registrant

     William F. Glavin        Vice President                None
     Two International Place
     Boston, MA 02110
                                                            
     Margaret D. Hadzima      Assistant Treasurer           None
     Two International Place
     Boston, MA  02110
                                                            
     Thomas W. Joseph         Director, Vice President,     Vice President
     Two International Place  Treasurer and Assistant
     Boston, MA 02110         Clerk
                                                            
     Thomas F. McDonough      Clerk                         Vice President,
     Two International Place                                Treasurer and
     Boston, MA 02110                                       Secretary
                                                            
     Daniel Pierce            Director, Vice President      President and
     Two International Place  and Assistant Treasurer       Trustee
     Boston, MA 02110
                                                            
     Kathryn L. Quirk         Director, Senior Vice         None
     345 Park Avenue          President
     New York, NY  10154      and Assistant Clerk
                                                            
     Robert A. Rudell         Vice President                None
     Two International Place
     Boston, MA 02110
                                                            
     William M. Thomas        Vice President                None
     Two International Place
     Boston, MA 02110
                                                            
     Benjamin Thorndike       Vice President                None
     Two International Place
     Boston, MA 02110
                                                            
     Sydney S. Tucker         Vice President                None
     Two International Place
     Boston, MA 02110
                                                            
     Linda J. Wondrack        Vice President                None
     Two International Place
     Boston, MA  02110

     (c)
<TABLE>
                     (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>   
               Scudder Investor              None                None                None               None
                Services, Inc.
</TABLE>

                                Part C - Page 11
<PAGE>


Item 30.       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,
          Stevens & Clark, Two International Place, Boston, MA
          02110.  Records relating to the duties of the
          Registrant's custodian are maintained by State Street
          Bank and Trust Company, Heritage Drive, North Quincy,
          Massachusetts.  Records relating to the duties of the
          Registrant's transfer agent are maintained by Scudder
          Service Corporation, Two International Place, Boston,
          Massachusetts.

Item 31.       Management Services.

          Inapplicable.

Item 32.       Undertakings.

          Inapplicable.
          

                                Part C - Page 12
<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 11th day of June, 1998.


                                     SCUDDER PORTFOLIO TRUST

                                     By/s/Thomas F. McDonough
                                          ------------------------------------
                                          Thomas F. McDonough, Vice President,
                                          Secretary and Treasurer
                                          (Principal Financial and Accounting 
                                          Officer)


         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>
<S>                                         <C>                                         <C>
SIGNATURE                                   TITLE                                        DATE

/s/Daniel Pierce
- --------------------------------------
Daniel Pierce*                              President (Principal Executive               June 11, 1998
                                            Officer) and Trustee

/s/Henry P. Becton, Jr.
- --------------------------------------
Henry P. Becton, Jr.*                       Trustee                                      June 11, 1998


/s/Dawn-Marie Driscoll
- --------------------------------------
Dawn-Marie Driscoll*                        Trustee                                      June 11, 1998


/s/Peter B. Freeman
- --------------------------------------
Peter B. Freeman*                           Trustee                                      June 11, 1998


/s/George M. Lovejoy, Jr.
- --------------------------------------
George M. Lovejoy, Jr.*                     Trustee                                      June 11, 1998


/s/Wesley W. Marple, Jr.
- --------------------------------------
Wesley W. Marple, Jr.*                      Trustee                                      June 11, 1998


/s/Kathryn L. Quirk
- --------------------------------------
Kathryn L. Quirk*                           Trustee, Vice President and Assistant        June 11, 1998
                                            Secretary

/s/Jean C. Tempel
- --------------------------------------
Jean C. Tempel*                             Trustee                                      June 11, 1998





*By: /s/ Thomas F. McDonough
     ---------------------------
         Thomas F. McDonough**
<PAGE>

**       Attorney-in-fact pursuant to a power of
         attorney contained in the signature page of the
         Post-Effective Amendment Nos. 52, 60 and 70 to
         the Registration Statement filed February 22,
         1991, April 17, 1995 and March 2, 1998,
         respectively.

<PAGE>
                                                  File No.2-13627
                                                  File No. 811-42

                                 
                SECURITIES AND EXCHANGE COMMISSION
                                 
                      WASHINGTON, D.C. 20549
                                 
                                 
                             EXHIBITS
                                 
                                TO
                                 
                             FORM N-1A
                                 
                                 
                  POST-EFFECTIVE AMENDMENT NO. 73
                     TO REGISTRATION STATEMENT
                                 
                               UNDER
                                 
                    THE SECURITIES ACT OF 1933
                                 
                                AND
                                 
                         AMENDMENT NO. 34
                     TO REGISTRATION STATEMENT
                                 
                               UNDER
                                 
                THE INVESTMENT COMPANY ACT OF 1940
                                 
                                 
                                 
                      SCUDDER PORTFOLIO TRUST

<PAGE>
                                 
                                 
                      SCUDDER PORTFOLIO TRUST
                                 
                           EXHIBIT INDEX
                                 

</TABLE>


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