SCUDDER PORTFOLIO TRUST/, 485BPOS, 1998-06-29

SCUDDER PORTFOLIO TRUST/
485BPOS, 1998-06-29

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Filed electronically with the Securities and Exchange Commission
on June 25, 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. 74
----------
and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 35
---------

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)
--------
X on July 1, 1998 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 pursuant to paragraph (a)(ii) of Rule 485.
------------

<PAGE>

SCUDDER PORTFOLIO TRUST
SCUDDER INCOME FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A
---------------------------
PART A
- ------
<TABLE>
<S> <C> <C> <C>

Item No. Item Caption Prospectus Caption
-------- ------------ ------------------

1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION

4. General Description of INVESTMENT OBJECTIVE AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund FINANCIAL HIGHLIGHTS
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 Discussion of NOT APPLICABLE
Fund Performance

6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION-- Dividends and capital
Securities gains distributions
FUND ORGANIZATION
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder Automated Information Line,
Dividend reinvestment plan, T.D.D. service for the hearing
impaired
HOW TO CONTACT SCUDDER

7. Purchase of Securities PURCHASES
Being Offered FUND ORGANIZATION--Underwriter
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 Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification
number, Minimum balances

9. Pending Legal Proceedings NOT APPLICABLE

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 Information and History FUND ORGANIZATION

13. Investment Objectives and THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Policies PORTFOLIO TRANSACTIONS--Brokerage Commissions,
Portfolio Turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities

16. Investment Advisory and Other INVESTMENT ADVISER
Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other Information

17. Brokerage Allocation and Other PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio Turnover
Practices

18. Capital Stock and Other FUND ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED BY THE FUND--
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 Data PERFORMANCE INFORMATION

23. Financial Statements FINANCIAL STATEMENTS

Cross Reference - Page 2
<PAGE>

SCUDDER PORTFOLIO TRUST
SCUDDER BALANCED 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 FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION

4. General Description of INVESTMENT OBJECTIVES AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
FUND ORGANIZATION

5A. Management's Discussion NOT APPLICABLE
of Fund Performance

6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--
Securities Dividends and capital gains distributions
FUND ORGANIZATION
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder Automated
Information Line, Dividend reinvestment plan, T.D.D. service
for the hearing impaired
HOW TO CONTACT SCUDDER

7. Purchase of Securities PURCHASES
Being Offered FUND ORGANIZATION--Underwriter
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 Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax
identification number, Minimum balances

9. Pending Legal Proceedings NOT APPLICABLE

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 Information and History FUND ORGANIZATION

13. Investment Objectives and THE FUND'S INVESTMENT OBJECTIVES AND POLICIES
Policies PORTFOLIO TRANSACTIONS--Brokerage Commissions,
Portfolio Turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities

16. Investment Advisory and Other INVESTMENT ADVISER
Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other Information

17. Brokerage Allocation and Other PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio Turnover
Practices

18. Capital Stock and Other FUND ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of Performance Data PERFORMANCE INFORMATION

23. Financial Statements FINANCIAL 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 FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION

4. General Description of INVESTMENT OBJECTIVE AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
FUND ORGANIZATION

5A. Management's Discussion of NOT APPLICABLE
Fund Performance

8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification
number, Minimum balances

9. Pending Legal Proceedings NOT APPLICABLE

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 Information and History FUND ORGANIZATION

13. Investment Objectives and THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Policies PORTFOLIO TRANSACTIONS--Brokerage Commissions,
Portfolio Turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities

16. Investment Advisory and Other INVESTMENT ADVISER
Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other Information

17. Brokerage Allocation and Other PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio Turnover
Practices

18. Capital Stock and Other FUND ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of Performance Data PERFORMANCE INFORMATION

23. Financial Statements FINANCIAL 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 FINANCIAL HIGHLIGHTS
Information

4. General Description of INVESTMENT OBJECTIVE AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund A MESSAGE FROM SCUDDER'S PRESIDENT
FUND ORGANIZATION--Investment adviser and Transfer agent
TRUSTEES AND OFFICERS
SHAREHOLDER BENEFITS--A team approach to investing

5A. Management Discussion of NOT APPLICABLE
Fund Performance

6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION-- Dividends and capital
Securities gains distributions
FUND ORGANIZATION
TRANSACTION INFORMATION--Tax Information
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder Automated Information Line,
Dividend reinvestment plan, T.D.D. service for the
hearing impaired
HOW TO CONTACT SCUDDER

7. Purchase of Securities PURCHASES
Being Offered FUND ORGANIZATION--Underwriter
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 Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification
number, Minimum balances

9. Pending Legal Proceedings NOT APPLICABLE

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 Information and History FUND ORGANIZATION

13. Investment Objectives and THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Policies PORTFOLIO TRANSACTIONS--Portfolio turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities

16. Investment Advisory and Other INVESTMENT ADVISER
Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts and Other Information

17. Brokerage Allocation and Other PORTFOLIO TRANSACTIONS--Brokerage, Portfolio Turnover
Practices

18. Capital Stock and Other FUND ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and Capital
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 Data PERFORMANCE INFORMATION

23. Financial Statements FINANCIAL STATEMENTS

</TABLE>

Cross Reference - Page 8
<PAGE>

This prospectus sets forth concisely the information about Scudder High Yield
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 July 1, 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).

The Fund invests without limitation in lower quality bonds, commonly referred to
as junk bonds. Bonds of this type are considered to be speculative with regard
to the payment of interest and return of principal. They carry greater risks,
including the risk of default, than other debt securities. Purchasers should
carefully assess the risks associated with an investment in the Fund. Refer to
"Additional information about policies and investments" and "Special risk
considerations" for further information.

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 4.

NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE

SCUDDER [LOGO]

Scudder High Yield Bond Fund

Prospectus
July 1, 1998

A pure no-load(TM) (no sales charges) mutual fund seeking a high level of
current income and, secondarily, capital appreciation through investment
primarily in below investment-grade domestic 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 High Yield 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
Deferred sales charge NONE
Redemption fees payable to the Fund 1.00%*
Exchange fees payable to the Fund 1.00%*

2) Annual Fund operating expenses: 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 fiscal year ended February 28,
1998.

Investment management fee (after waiver) 0.00%**
12b-1 fees NONE
Other expenses (after reimbursement) 0.50%**
-----
Total Fund operating expenses (after waiver and reimbursement) 0.50%**
=====

Example

Based on the 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.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$5 $16 $28 $63

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.

* There may be a 1% fee retained by the Fund which is imposed only on
redemptions or exchanges of shares held less than one year. 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--Exchanging and redeeming shares."

** Until December 31, 1998, the Adviser and certain of its subsidiaries have
agreed to waive and reimburse, respectively, fees payable by the Fund to
the extent necessary so that the total annualized expenses of the Fund do
not exceed 0.50% of average daily net assets. If the Adviser and its
subsidiaries had not agreed to waive and reimburse, respectively, their
fees, annualized Fund expenses would have been: investment management fee
0.70%, other expenses 0.53% and total operating expenses 1.23% for the
fiscal year ended February 28, 1998.

2
<PAGE>

Financial highlights

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

If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated February 28, 1998, which may be obtained without
charge by writing or calling Scudder Investor Services, Inc.

<TABLE>
<CAPTION>
For the Period
June 28, 1996
(commencement of
Year ended February operations) to
28, 1998 February 28, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------------------------------------
Net asset value, beginning of period .......................................... 12.77 12.00
-----------------------------------------
Income from investment operations:
Net investment income ......................................................... 1.19 .76
Net realized and unrealized gain on investment transactions ................... .57 .77
-----------------------------------------
Total from investment operations .............................................. 1.76 1.53
-----------------------------------------
Less distributions from:
Net investment income ...................................................... (1.17) (.76)
Net realized gains from investment transactions ............................ (.14) (.01)
-----------------------------------------
Total distributions ........................................................... (1.31) (.77)
-----------------------------------------
Redemption fees ............................................................... .01 .01
-----------------------------------------
Net asset value, end of period ................................................ 13.23 12.77
-----------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) .......................................................... 14.60 13.23(b)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................................ 176 74
Ratio of operating expenses, net to average daily net assets (%) .............. .03 0.00
Ratio of operating expenses before expense reductions, to average daily net
assets (%) ................................................................. 1.23 1.75*
Ratio of net investment income to average daily net assets (%) ................ 9.28 9.44*
Portfolio turnover rate (%) ................................................... 112.7 39.8*
</TABLE>

(a) Total return would have been lower had certain expenses not been reduced.
(b) Total return does not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized

3
<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 High Yield Bond Fund

Investment objectives

o a high level of current income and, secondarily, capital appreciation
through investment primarily in below investment-grade domestic debt
securities

Investment characteristics

o a diversified, actively managed portfolio consisting primarily of high
yield/high risk bonds

o a focus on intermediate- and long-term securities

o designed as a long-term investment, which involves above-average bond fund
risk

o a pure no-load(TM) fund with no sales charges, commissions or 12b-1 fees

o a 1% redemption and exchange fee on shares held less than one year,
retained by the Fund for the benefit of remaining shareholders

Contents

Investment objectives and policies 5
Why invest in the Fund? 7
Additional information about policies
and investments 7
Special risk considerations 10
Distribution and performance information 14
Fund organization 15
Transaction information 16
Shareholder benefits 20
Purchases 23
Exchanges and redemptions 24
Trustees and Officers 26
Appendix 27
Investment products and services 29
How to contact Scudder 30

4
<PAGE>

Investment objectives and policies

Scudder High Yield Bond Fund (the "Fund"), a diversified series of Scudder
Portfolio Trust (the "Trust"), seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.

While the Fund's primary investment objective is high current income, it also
pursues capital appreciation. Capital appreciation can occur, for example, from
an improvement in the financial condition or credit rating of issuers whose
securities are held by the Fund, or from a general drop in the level of interest
rates, or a combination of both factors.

The Fund can invest without limit in lower-quality domestic debt securities,
sometimes referred to as "high yield" or "junk" bonds. These are non-investment
grade debt securities, which are considered speculative investments by the major
credit rating agencies. High yield bonds involve a greater risk of default and
price volatility than U.S. Government bonds and other high quality fixed-income
securities. Please refer to "Special risk considerations" for further
information.

The Fund is designed as a long-term investment for investors able to bear
credit, interest rate and other risks in exchange for the potential for high
current income and capital appreciation. To encourage a long-term investment
horizon, the Fund maintains a 1% redemption and exchange fee for shares held
less than one year. This fee, described more fully under "Transaction
information--Exchanging and redeeming shares," is payable to the Fund for the
benefit of remaining shareholders.

Except as otherwise indicated, the Fund's investment objectives and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objectives, 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 objectives will be
met.

Investments

The Fund's Adviser intends to focus investments on those securities qualifying
for a Ba or B rating from Moody's or a BB or B rating from S&P, but has the
flexibility to acquire securities qualifying for any rating category, as well as
defaulted securities and non-rated securities. Below investment-grade securities
are considered predominantly speculative with respect to their capacity to pay
interest and repay principal in accordance with their terms and generally
involve a greater risk of default and more volatility in price than securities
in higher rating categories. Please refer to the attached "Appendix" for further
information.

5
<PAGE>

In addition to domestic debt securities, the Fund may invest in a variety of
other securities consistent with its investment objectives. These other
investments may include convertible and preferred securities, U.S. Treasury and
Agency bonds, Brady bonds, mortgage-backed and asset-backed securities, common
stocks and warrants, debt securities issued by real estate investment trusts
("REITs"), trust preferred securities, bank loans, loan participations, dollar
rolls, indexed securities, illiquid securities and reverse repurchase
agreements.

The Fund may invest up to 25% of its total assets in foreign securities. While
it is anticipated that the majority of the Fund's foreign investments will be
denominated in U.S. dollars, the Fund may invest, within the aforementioned
limit, in foreign bonds denominated in local currencies, including those issued
in emerging markets. The Fund considers "emerging markets" to include any
country that is defined as an emerging or developing economy by any one of the
International Bank for Reconstruction and Development (i.e., the World Bank),
the International Finance Corporation or the United Nations or its authorities.

The Fund invests primarily in medium- and long-term fixed-income securities.
However, there is no limitation as to the weighted average maturity of the
Fund's portfolio and no restriction on the maturity of any individual security
held in the portfolio. The Adviser will adjust the average portfolio maturity in
light of actual or projected changes in economic and market conditions. Prices
of longer-term bonds generally are more volatile than prices of bonds with
shorter maturities.

Although the Fund is designed to provide monthly income to shareholders, it can
invest in non-income producing debt securities. Such securities include zero
coupon or other original issue discount bonds, which may pay interest only at
maturity, or pay-in-kind bonds, which pay interest in the form of additional
securities.

The Fund may invest in when-issued or forward-delivery securities, and may
engage in strategic transactions and utilize derivatives. More information about
these investment techniques is provided under "Additional information about
policies and investments."

To provide for redemptions, or in anticipation of investment in longer-term debt
securities, the Fund may hold a portion of its portfolio investments in cash or
cash equivalents including repurchase agreements and other types of money market
instruments. In addition, to provide for redemptions or distributions, the Fund
may borrow from banks. The Fund does not expect to borrow for investment
purposes.

For temporary defensive purposes, the Fund may invest up to 100% of its assets
in cash or money market instruments or invest all or a substantial portion of
its assets in high quality domestic debt securities. It is impossible to
accurately predict how long such alternate strategies may be utilized.

Investment process

The Fund involves above-average bond fund risk. Investing in high yielding,
lower-quality bonds involves various types of risks including the 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. Risk of default can
increase with changes in the financial condition of a company or with changes in
the overall economy, such as a recession. In comparison to investing in higher
quality issues, high yield bond investors may be rewarded for the additional
risk of high yield bonds through higher interest payments and the opportunity
for capital appreciation.

6
<PAGE>

Moody's and S&P. The Adviser monitors, on a regular basis, the creditworthiness
and business prospects of companies represented in the portfolio.

Further, the Adviser attempts to manage risk through portfolio diversification.
The Fund will typically invest in a variety of issuers and industries. Using a
research-intensive security selection process, the Adviser will focus primarily
on the following types of high yield opportunities:

o Young, growing companies with attractive business opportunities and
positive credit trends

o Companies with stable to growing cash flows that have the ability to
improve the strength of their balance sheets

o Established companies that may have experienced financial setbacks, but are
displaying evidence of improving business trends

o Securities judged to be undervalued

The Adviser will rely on fundamental corporate credit analysis, incorporating
proprietary credit screening tools.

Why invest in the Fund?

Scudder High Yield Bond Fund offers investors a convenient way to participate in
a diversified, professionally managed portfolio of potentially higher yielding
domestic debt securities.

Over the course of this decade, the market for higher yielding domestic debt
securities has changed dramatically. U.S. high yield bonds now total over $520
billion, about a quarter of the entire U.S. corporate bond market. The average
quality of the overall high yield bond category has improved. Growing companies
that may not have access to more traditional sources of financing are using high
yield bonds to raise capital. As a result of their need to borrow in order to
fuel growth, they must pay out higher levels of income in order to compensate
investors for additional credit risk. The conditions of these companies can
improve over time, thus offering the prospect for price appreciation as well.

By owning shares in the Fund, investors may enjoy the opportunity to receive
high monthly income and growth of investment capital over time. In return for
these potential benefits, shareholders must be willing to accept a significantly
higher amount of risk when compared with most funds owning U.S. Government bonds
and other investment-grade debt securities. 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. Changes in interest rates may have a less direct or dominant impact
on high yield bonds than on higher quality issues of similar maturities.
However, the price of high yield bonds can change significantly or suddenly due
to a host of factors including changes in interest rates, fundamental credit
quality, market psychology, governmental regulations, U.S. economic growth and,
at times, stock market activity. As a result, investors should be comfortable
with the possibility of wide fluctuations in the Fund's share price and should
not rely on the Fund as a sole source of investment income. Instead, the Fund
should be only one part of a balanced investment program.

The Fund provides diversification and the other advantages of professional fund
management. The Adviser has been managing bond portfolios since the 1920's and,
as of December 31, 1997, the Adviser was responsible for managing more than $200
billion in assets globally.

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

7
<PAGE>

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.

Brady Bonds

The Fund may invest in Brady Bonds, which are securities created through the
exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, the Philippines, Poland
and Uruguay.

Brady Bonds have been issued since 1989, and for that reason do not have a long
payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (but primarily the dollar) and are actively traded
in over-the-counter secondary markets. Dollar-denominated, collateralized Brady
Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the bonds.

Brady Bonds are often viewed as having three or four valuation components: the
collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady Bonds and the history of defaults of countries issuing Brady Bonds with
respect to commercial bank loans by public and private entities, investments in
Brady Bonds may be viewed as speculative.

Illiquid securities

The Fund may invest a portion of its assets in securities for which there is not
an active trading market, or which have resale restrictions. Such securities may
have been acquired through private placements [transactions in which the
securities acquired have not been registered with the Securities and Exchange
Commission (the "SEC")]. These illiquid 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 purchased by the Fund, however, may be considered liquid
despite resale restrictions. The Trust's Board of Trustees has delegated to the
Adviser the authority to determine the liquidity of restricted securities that
can be resold to institutional investors ("Rule 144A Securities") and privately
placed commercial paper pursuant to guidelines approved by the Trust's Board of
Trustees.

Convertible securities

The Fund may invest in convertible securities, which may offer higher income
than the common stocks into which they are convertible.

8
<PAGE>

The convertible securities in which the Fund may invest consist of bonds, notes,
debentures and preferred stocks, which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock.

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.

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.

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.

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.

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 agreements 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.

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.

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 their anticipated performance is believed by the Adviser to
offer more potential than domestic alternatives in keeping with the investment
objectives of the Fund. The Fund may invest in certificates of deposit issued by
foreign and domestic branches of U.S. banks.

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.

9
<PAGE>

Portfolio turnover

Recent economic and market conditions have necessitated more active trading,
resulting in a higher portfolio turnover rate for the Fund. A higher rate
involves greater transaction costs to the Fund and may result in the realization
of net capital gains, which would be taxable to shareholders when distributed.

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.

Special risk considerations

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 investments and techniques that the
Fund may use from time to time. In light of the following, when you sell your
shares of the Fund, they may

10
<PAGE>

be worth more or less than what you paid for them.

High yield/high risk securities. The Fund may invest in debt securities which
are rated below investment-grade, commonly referred to as "junk bonds,"
(hereinafter referred to as "low rated securities") or which are unrated, but
deemed equivalent to those rated below investment-grade by the Adviser. The
lower the ratings of such debt securities, the greater their risks render them
like equity securities. These debt instruments generally offer a higher current
yield than that available from higher grade issues, but typically involve
greater risk. The yields on high yield/high risk bonds will fluctuate over time.
In general, prices of all bonds rise when interest rates fall and fall when
interest rates rise. Low rated and unrated securities are especially subject to
adverse changes in general economic conditions and to changes in the financial
condition of their issuers. During periods of economic downturns or rising
interest rates, issuers of these instruments may experience financial stress
that could adversely affect their ability to make payments of principal and
interest and increase the possibility of default.

Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of these securities
especially in a market characterized by only a small amount of trading. In cases
where market quotations are not available, low rated securities are valued using
guidelines established by the Trust's Board of Trustees. Perceived credit
quality in this market can change suddenly and unexpectedly, and may not fully
reflect the actual risk posed by a particular lower rated or unrated security.
Please refer to the attached "Appendix" for further information concerning debt
securities ratings. For a more complete description of the risks of high
yield/high risk securities, please refer to the Fund's Statement of Additional
Information.

Illiquid securities. The absence of a trading market can make it difficult to
ascertain a market value for illiquid securities. Disposing of illiquid
securities 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.

Convertible securities. While convertible securities generally offer lower
yields than non-convertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities generally entail less credit risk than the issuer's common stock.

The Fund may be required to permit the issuer of a convertible security to
redeem the security and convert it into the underlying common stock or the cash
value of the underlying common stock. Thus, the Fund may not be able to control
whether the issuer of a convertible security chooses to convert that security.
If the issuer chooses to do so, this action could have an adverse effect on the
Fund's ability to achieve its investment objectives.

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 and the risk that the underlying loans
will not be repaid. Because principal may be prepaid at any

11
<PAGE>

time, mortgage-backed securities may involve significantly greater price and
yield volatility than traditional debt securities.

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.

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.

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, experience conversion difficulties and
uncertainties, 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.

Investing in emerging markets. Securities of many issuers in emerging markets
may be less liquid and more volatile than securities of comparable domestic
issuers. Emerging markets also 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 a portion of the assets of the Fund is uninvested and no
return is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. Costs
associated with transactions in foreign securities are generally

12
<PAGE>

higher than costs associated with transactions in U.S. securities. Such
transactions also involve additional costs for the purchase or sale of foreign
currency.

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

Throughout the last decade many emerging markets have experienced, and continue
to experience, high rates of inflation. In certain countries inflation has at
times accelerated rapidly to hyperinflationary levels, creating a negative
interest rate environment and sharply eroding the value of outstanding financial
assets in those countries. Increases in inflation could have an adverse effect
on the Fund's non-dollar denominated securities and on the issuers of debt
obligations generally.

Individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position. The securities markets, values of securities, yields and risks
associated with securities markets in different countries may change
independently of each other.

Investment in sovereign debt can involve a high degree of risk. Holders of
sovereign debt (including the Fund) may be requested to participate in the
rescheduling of such debt and to extend further loans to governmental entities.
There is no bankruptcy proceeding by which sovereign debt on which governmental
entities have defaulted may be collected in whole or in part. Securities traded
in certain emerging European securities markets may be subject to risks due to
the inexperience of financial intermediaries, the lack of modern technology and
the lack of a sufficient capital base to expand business operations.
Additionally, former Communist regimes of a number of Eastern European countries
had expropriated a large amount of property, the claims on which have not been
entirely settled. There can be no assurance that the Fund's investments in
Eastern Europe would not also be expropriated, nationalized or otherwise
confiscated. Finally, any change in the leadership or policies of Eastern
European countries, or the countries that exercise a significant influence over
those countries, may halt the expansion of or reverse the liberalization of
foreign investment policies now occurring and adversely affect existing
investment opportunities. For a more complete description of the risks of
investing in emerging markets, please refer to the Fund's Statement of
Additional Information.

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,

13
<PAGE>

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.
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 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.
Distributions are not subject to the 1% redemption fee, whether paid in cash or
reinvested. If an investment is in the form of a retirement plan, all dividends
and

14
<PAGE>

capital gains distributions must be reinvested into the shareholder's account.

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

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 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 and the life of the Fund. "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.

Performance will vary based upon, among other things, changes in market
conditions and the level of the Fund's expenses.

Fund organization

Scudder High Yield 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.
("Scudder"), to manage its 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.

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

15
<PAGE>

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 0.70% 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 0.50% of the average daily net assets of the Fund until December 31,
1998. For the fiscal year ended February 28, 1998, the Adviser did not receive a
management fee.

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.

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

16
<PAGE>

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.

Exchanging and redeeming shares

Upon the redemption or exchange of shares held less than one year, a fee of 1%
of the current net asset value of the shares will be assessed and retained by
the Fund for the benefit of the remaining shareholders. The fee is waived for
all shares purchased through certain retirement plans, including 401(k) plans,
403(b) plans, 457 plans, Keogh accounts, and Profit Sharing and Money Purchase
Pension Plans. In addition, the fee is waived for certain categories of clients
of the Adviser or its affiliates. However, if such shares are purchased through
a broker, financial institution or recordkeeper maintaining an omnibus account
for the shares, such waiver may not apply. (Before purchasing shares, please
check with your account representative concerning the availability of the fee
waiver.) In addition, this waiver does not apply to any IRA or SEP-IRA accounts.
This fee is intended to encourage long-term investment in the Fund, to avoid

17
<PAGE>

transaction and other expenses caused by early redemptions, and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to the Adviser or its subsidiaries, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time.

The fee applies to redemptions from the Fund and exchanges to other Scudder
funds, but not to dividend or capital gains distributions which have been
automatically reinvested in the Fund.

The fee is applied to the shares being redeemed or exchanged in the order in
which they were purchased. See "Exchanges and Redemptions" in the Fund's
Statement of Additional Information for a more detailed description of the
redemption fee.

Exchanges. 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.

Redemptions 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

18
<PAGE>

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 SEC. Signature guarantees by 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 trading that day. Purchase and redemption requests received after the
close of regular trading on the Exchange will be executed the following business
day. Purchase orders received by the Fund's transfer agent before the close of
regular trading on the Exchange on any business day generally begin earning
income on the next business day. Redeemed shares earn income on the day the
redemption request is executed.

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
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

19
<PAGE>

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.

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. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, as a result
of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.

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.

20
<PAGE>

A team approach to investing

Scudder High Yield Bond Fund is managed by a team of investment professionals,
who each play 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 the
Adviser's 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.

Kelly D. Babson, Lead Portfolio Manager, is a portfolio manager in the Adviser's
Global Bond Group, with 17 years of experience in fixed-income investing,
including over 10 years of high yield portfolio management prior to joining the
Adviser. Stephen A. Wohler, Portfolio Manager, is currently Director of the
Adviser's Global Bond Group, overseeing all fixed-income investing for the firm.
Mr. Wohler has over 17 years of experience managing fixed-income investments and
has been with the Adviser since 1979.

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.

21
<PAGE>

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 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.

22
<PAGE>

Purchases

<TABLE>
<S> <C>
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 Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
shares 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 Fund name, to
Scudder Funds." 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 regular basis through
Investment Plan automatic deductions from your bank checking account.
($50 minimum) Please call 1-800-225-5163 for more information and an
enrollment form.

</TABLE>

23
<PAGE>

Exchanges and redemptions

<TABLE>
<S> <C>
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).

There may be a o By Mail Print or type your instructions and include:
1% fee payable or Fax - the name of the Fund and the account number you are exchanging from;
to the Fund for - your name(s) and address as they appear on your account;
exchanges of - the dollar amount or number of shares you wish to exchange;
shares held less - the name of the Fund you are exchanging into;
than one year. - 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 8 a.m. to
shares 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.

There may be a o By Mail Send your instructions for redemption to the appropriate address or fax number
1% fee payable or Fax above and include:
to the Fund for - the name of the Fund and account number you are redeeming from;
redemption of - your name(s) and address as they appear on your account;
shares held less - the dollar amount or number of shares you wish to redeem;
than one year. - 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. Call
Withdrawal Plan 1-800-225-5163 for more information and an enrollment form.

</TABLE>

24
<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.

25
<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; President, Driscoll Associates

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, College of Business Administration

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

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

Kelly D. Babson*
Vice President

Jerard K. Hartman*
Vice President

William M. Hutchinson*
Vice President

Thomas W. Joseph*
Vice President

Valerie F. Malter*
Vice President

Stephen A. Wohler*
Vice President

Thomas F. McDonough*
Vice President, Secretary and
Treasurer

John R. Hebble*
Assistant Treasurer

Caroline Pearson*
Assistant Secretary

* Scudder Kemper Investments, Inc.

26
<PAGE>

Appendix

The following is a description of the ratings given by S&P and Moody's to
corporate and municipal 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
outweighted 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:

27
<PAGE>

fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.

Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during other 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.

28
<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 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.

29
<PAGE>

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.

30
<PAGE>
SCUDDER HIGH YIELD BOND FUND

A Pure No-Load(TM) (No Sales Charges) Mutual Fund
which seeks to provide a high level of current income and,
secondarily, capital appreciation through investment
primarily in below investment-grade
domestic debt securities

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

STATEMENT OF ADDITIONAL INFORMATION

July 1, 1998

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

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder High Yield Bond Fund dated
July 1, 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

General Investment Objectives and Policies...................................................................1
Investments..................................................................................................1
Investment process...........................................................................................2
Development of the High Yield Bond Market....................................................................3
High Yield Bonds-Portfolio Diversification...................................................................3
Master/feeder structure......................................................................................5
Risk Factors.................................................................................................5
Investment Restrictions.................................................................................... 25

PURCHASES............................................................................................................26
Additional Information About Opening An Account.............................................................26
Additional Information About Making Subsequent Investments by QuickBuy......................................26
Checks......................................................................................................27
Wire Transfer of Federal Funds..............................................................................27
Share Price.................................................................................................27
Share Certificates..........................................................................................27
Other Information.......................................................................................... 28

EXCHANGES AND REDEMPTIONS............................................................................................28
Special Redemption and Exchange Information.................................................................28
Exchanges.................................................................................................. 29
Redemption by Telephone.....................................................................................29
Redemption By QuickSell.....................................................................................30
Redemption by Mail or Fax.................................................................................. 31
Redemption-In-Kind..........................................................................................31
Other Information...........................................................................................31

FEATURES AND SERVICES OFFERED BY THE FUND........................................................................... 32
The Pure No-Load(TM) Concept............................................................................... 32
Internet access............................................................................................33
Dividends and Capital Gain Distribution Options.............................................................33
Diversification.............................................................................................34
Scudder Investor Centers....................................................................................34
Reports to Shareholders.....................................................................................34
Transaction Summaries.......................................................................................34

THE SCUDDER FAMILY OF FUNDS..........................................................................................34

SPECIAL PLAN ACCOUNTS................................................................................................39
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and

Self-Employed Individuals.................................................................................. 39
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals........ 40
Scudder IRA: Individual Retirement Account................................................................ 40
Scudder Roth IRA: Individual Retirement Account........................................................... 41
Scudder 403(b) Plan.........................................................................................41
Automatic Withdrawal Plan...................................................................................41
Group or Salary Deduction Plan............................................................................. 42
Automatic Investment Plan.................................................................................. 42
Uniform Transfers/Gifts to Minors Act.......................................................................42

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS........................................................................... 43

i
<PAGE>

TABLE OF CONTENTS (continued)
Page
PERFORMANCE INFORMATION..............................................................................................43
Average Annual Total Return.................................................................................43
Cumulative Total Return.................................................................................... 44
Total Return................................................................................................44
SEC Yield.................................................................................................. 45
Comparison of Fund Performance............................................................................. 45

FUND ORGANIZATION....................................................................................................48

INVESTMENT ADVISER...................................................................................................49
Personal Investments by Employees of the Adviser........................................................... 52

TRUSTEES AND OFFICERS................................................................................................52

REMUNERATION........................................................................................................ 55
Responsibilities of the Board--Board and Committee Meetings................................................ 55
Compensation of Officers and Trustees...................................................................... 55

DISTRIBUTOR......................................................................................................... 56

TAXES............................................................................................................... 57

PORTFOLIO TRANSACTIONS.............................................................................................. 60
Brokerage Commissions...................................................................................... 60
Portfolio Turnover......................................................................................... 61

NET ASSET VALUE..................................................................................................... 61

ADDITIONAL INFORMATION.............................................................................................. 63
Experts.................................................................................................... 63
Other Information.......................................................................................... 63

FINANCIAL STATEMENTS................................................................................................ 64

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 High Yield 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.

General Investment Objectives and Policies

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.

While the Fund's primary investment objective is high current income,
it also pursues capital appreciation. Capital appreciation can occur, for
example, from an improvement in the financial condition or credit rating of
issuers whose securities are held by the Fund, or from a general drop in the
level of interest rates, or a combination of both factors.

The Fund can invest without limit in lower-quality domestic debt
securities, sometimes referred to as "high yield" or "junk" bonds. These are
non-investment grade debt securities, which are considered speculative
investments by the major credit rating agencies. High yield bonds involve a
greater risk of default and price volatility than U.S. Government bonds and
other high quality fixed-income securities.

The Fund is designed as a long-term investment for investors able to
bear credit, interest rate and other risks in exchange for the potential for
high current income and capital appreciation. To encourage a long-term
investment horizon, the Fund maintains a 1% redemption and exchange fee for
shares held less than one year. This fee, described more fully under "Exchanges
and Redemptions--Special Redemption and Exchange Information," is payable to the
Fund for the benefit of remaining shareholders.

Except as otherwise indicated, the Fund's investment objectives and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in investment objectives, 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
objectives will be met.

Investments

In pursuit of its investment objectives, the Fund, under normal market
conditions, invests at least 65% of its total assets in high yield, below
investment-grade domestic debt securities. The Fund defines "domestic debt
securities" as securities of companies domiciled in the U.S. or organized under
the laws of the U.S. or for which the U.S. trading market is a primary market.
Below investment-grade securities are rated "Baa" or below by Moody's Investors
Service, Inc. ("Moody's") or "BBB" or below by Standard and 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"). During the
fiscal year ended February 28, 1998, based upon the dollar-weighted average
ratings of the Fund's portfolio holdings at the end of each month during that
period, the Fund had the following percentages of its net assets invested in
debt securities rated below investment-grade (or if unrated, considered by the
Adviser to be equivalent to rated securities) in the categories indicated:
20.63% BB, 74.53% B and 1.32% CCC. The Fund's Adviser intends to focus
investments on those securities qualifying for a Ba or B rating from Moody's or
a BB or B rating from S&P, but has the flexibility to acquire securities
qualifying for any rating category, as well as defaulted securities and
non-rated securities. Below investment-grade securities are considered
predominantly speculative with respect to their capacity to pay interest and
repay principal in accordance with their terms and generally involve a greater
risk of default and more volatility in price than securities in higher rating
categories. Please refer to the attached "Appendix" for further information.

In addition to domestic debt securities, the Fund may invest in a
variety of other securities consistent with its investment objectives. In
addition, other investments may include convertible and preferred securities,
U.S. Treasury

<PAGE>

and Agency bonds, Brady bonds, mortgage-backed and asset-backed securities,
common stocks and warrants, debt securities issued by real estate investment
trusts ("REITs"), trust preferred securities, bank loans, loan participations,
dollar rolls, indexed securities and illiquid securities and reverse repurchase
agreements.

The Fund may invest up to 25% of its total assets in foreign
securities. While it is anticipated that the majority of the Fund's foreign
investments will be denominated in U.S. dollars, the Fund may invest, within the
aforementioned limit, in foreign bonds denominated in local currencies,
including those issued in emerging markets. The Fund considers "emerging
markets" to include any country that is defined as an emerging or developing
economy by any one of the International Bank for Reconstruction and Development
(i.e., the World Bank), the International Finance Corporation or the United
Nations or its authorities.

The Fund invests primarily in medium- and long-term fixed-income
securities. However, there is no limitation as to the weighted average maturity
of the Fund's portfolio and no restriction on the maturity of any individual
security held in the portfolio. The Adviser will adjust the average portfolio
maturity in light of actual or projected changes in economic and market
conditions.

Although the Fund is designed to provide monthly income to
shareholders, it can invest in non-income producing debt securities. Such
securities include zero coupon or other original issue discount bonds, which may
pay interest only at maturity, or pay-in-kind bonds, which pay interest in the
form of additional securities.

The Fund may invest in when-issued or forward-delivery securities, and
may engage in strategic transactions and utilize derivatives.

To provide for redemptions, or in anticipation of investment in
longer-term debt securities, the Fund may hold a portion of its portfolio
investments in cash or cash equivalents including repurchase agreements and
other types of money market instruments. In addition, to provide for redemptions
or distributions, the Fund may borrow from banks in an amount not exceeding the
value of one-third of the Fund's total assets. The Fund does not expect to
borrow for investment purposes.

For temporary defensive purposes, the Fund may invest up to 100% of its
assets in cash or money market instruments or invest all or a substantial
portion of its assets in high quality domestic debt securities. It is impossible
to accurately predict for how long such alternate strategies may be utilized.

Investment process

The Fund involves above-average bond fund risk. Investing in high
yielding, lower-quality bonds involves various types of risks including the 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. Risk of default can
increase with changes in the financial condition of a company or with changes in
the overall economy, such as a recession. In comparison to investing in higher
quality issues, high yield bond investors may be rewarded for the additional
risk of high yield bonds through higher interest payments and the opportunity
for capital appreciation.

The Adviser attempts to manage the risks of high yield investing, as
well as to enhance investment return, through careful monitoring of business and
economic conditions in the U.S. and abroad, and through conducting its own
credit research along with utilizing the ratings and analysis provided by major
rating agencies such as Moody's and S&P. The Adviser monitors, on a regular
basis, the creditworthiness and business prospects of companies represented in
the portfolio.

Further, the Adviser attempts to manage risk through portfolio
diversification. The Fund will typically invest in a variety of issuers and
industries. Using a research-intensive security selection process, the Adviser
will focus primarily on the following types of high yield opportunities:

o Young, growing companies with attractive business opportunities and
positive credit trends

o Companies with stable to growing cash flows that have the ability to
improve the strength of their balance sheets

2
<PAGE>

o Established companies that may have experienced financial setbacks, but are
displaying evidence of improving business trends

o Securities judged to be undervalued

The Adviser will rely on fundamental corporate credit analysis,
incorporating proprietary credit screening tools.

Development of the High Yield Bond Market

Over the course of this decade, the market for higher yielding domestic
debt securities has changed dramatically. U.S. high yield bonds now total over
$350 billion, about a quarter of the entire U.S. corporate bond market. To Be
Updated

THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE

TITLE OF BAR CHART: (none)

BAR CHART DATA:

Billions
--------
1987 $ 123.30
1988 $ 157.90
1989 $ 188.30
1990 $ 226.20
1991 $ 227.00
1992 $ 220.20
1993 $ 231.50
1994 $ 277.60
1995 $ 299.80
1996 $ 326.50
1997 $ 386.70

Source: CS First Boston. High Yield Index Performance Review -- Chart depicts
market size at the beginning of the year.

In the early 1970s high yield bonds emerged as a way for new companies,
companies with troubled credit histories, or any company without access to more
traditional financing to raise capital. The category grew and changed from a
small, illiquid market for special circumstances, to a larger, more liquid
market offering an alternative way to raise capital to companies of every size
and structure.

As the economy strengthened throughout the 1980s, some companies began
to replace more and more of the equity in their capital structure with high
yield debt. In the late 1980s, many companies had little equity supporting the
outstanding debt. Those who had anticipated continuing growth and increasing
cash flows to contribute to debt service found that as the economy slowed, they
were unable to pay their creditors. This led to defaults and the high yield bond
market nearly collapsed under the weight of several factors including a
recession, the bankruptcy of a major high yield bond underwriter, and the forced
withdrawal of thrifts from this market.

Expanding companies are now turning to the high yield bond market for
financing real growth. The average quality of the overall high yield bond
category has improved. There are many opportunities to buy the debt of growing
companies or companies that may not yet have the track record necessary to
utilize more traditional sources of financing. The conditions of these borrowing
companies can improve over time, and as the quality of the debt improves, the
prospect for price appreciation adds to the return from income.

High Yield Bonds-Portfolio Diversification

The benefits of investing in high yield debt securities include the
potential for superior yields and also portfolio diversification which may
result in enhanced total returns with the potential for reduced overall
portfolio risk. The yield spread offered by high yield bonds during the period
from 1987-1997 is depicted in the following chart. To Be Updated

3
<PAGE>

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: (NONE)

Lehman High Lehman
Yield Index Corporate Index
LINE CHART DATA:

1/31/87 12.21% 8.98%
1/31/88 13.48% 9.47%
1/31/89 13.84% 9.96%
1/31/90 16.53% 9.85%
1/31/91 20.50% 9.43%
1/31/92 12.47% 7.88%
1/31/93 9.79% 6.97%
1/31/94 8.61% 6.17%
1/31/95 11.19% 8.38%
1/31/96 9.52% 6.27%
1/31/97 9.41%% 7.05%

Source: Lehman Brothers. High quality corporate bond yields represented by
Lehman Brothers Corporate Bond Index; high yield bond yields by Lehman Brothers
High Yield Bond Index. This chart does not represent the performance of any
Scudder fund.

High yield bonds show a relatively low correlation with both stocks and
investment grade bonds. Due to this low correlation, high yield bonds offer
diversification benefits to both equity and income portfolios.

The following graph represents the historical risks and returns of
selected unmanaged indices which track the performance of various combinations
of United States securities (stocks, bonds, and high-yield bonds) for the ten
year period ended December 31, 1996 (rebalanced annually); results for other
periods will vary. The graph uses ten year annualized returns of the Lehman High
Yield Bond Index, the Lehman Corporate Bond Index and the S&P 500 Index. Risk is
measured by the standard deviation in the overall portfolio performance within
each index. To be updated.

THE PRINTED DOCUMENT CONTAINS A SCATTER CHART HERE

SCATTER CHART TITLE: Returns and Volatility

High Yield/Bonds/S&P 500
SCATTER CHART DATA:

Annualized Annualized Total
Volatility Returns
---------- -------

100% HY 7.49% 12.34%
Bonds 4.96% 9.85%
S&P 500 15.04% 15.60%
20%HY/80%Bonds 4.71% 10.35%
20%HY/80%S&P 12.95% 14.95%
40%Bonds/60%S&P 10.21% 13.30%
Cash 0.20% 5.86%
10 Year Treasury 7.62% 9.73%

Source: Lehman Brothers, 1986-1996. Rebalancing occurs annually.

4
<PAGE>

As shown above, a portfolio invested 20% in high yield bonds and 80% in
investment grade bonds earned slightly greater returns with less volatility than
a portfolio invested exclusively in investment grade bonds. A portfolio invested
20% in high yield bonds and 80% in the S&P 500 has substantially less
volatility, with only slightly less return, than a portfolio invested
exclusively in the S&P 500. Performance of an index is historical, does not
represent performance of the Fund, and is not a guarantee of future results.

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 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. The Fund may also 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. 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."

The Adviser expects that a portion of the Fund's investments will be
purchased at a discount to par value. To the extent developments in emerging
markets result in improving credit fundamentals and rating upgrades for
countries in emerging markets, the Adviser believes that there is the potential
for capital appreciation as the improving fundamentals become reflected in the
price of the debt instruments. The Adviser also believes that a country's
sovereign credit rating (with respect to foreign currency denominated issues)
acts as a "ceiling" on the rating of all debt issuers from that country. Thus,
the ratings of private sector companies cannot be higher than that of their home
countries. The Adviser believes, however, that many companies in emerging market
countries, if rated on a stand alone basis without regard to the rating of the
home country, possess fundamentals that could justify a higher credit rating,
particularly if they are major exporters and receive the bulk of their revenues
in U.S. dollars or other hard currencies. The Adviser seeks to identify such
opportunities and benefit from this type of market inefficiency.

High Yield, High Risk Securities. Below investment-grade securities, commonly
referred to as "junk bonds," which are 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 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

5
<PAGE>

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.)

Brady Bonds. The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt
restructurings have been implemented to date in Argentina, Brazil, Bulgaria,
Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, the
Philippines, Poland and Uruguay.

Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the dollar)
and are actively traded in over-the-counter secondary markets.

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Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
bonds or floating-rate bonds, are generally collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on these Brady Bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at that time and is adjusted at regular
intervals thereafter. Brady Bonds are often viewed as having three or four
valuation components: the collateralized repayment of principal at final
maturity; the collateralized interest payments; the uncollateralized interest
payments; and any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and the history of defaults of countries issuing
Brady Bonds, with respect to commercial bank loans by public and private
entities, investments in Brady Bonds may be viewed as speculative. Approximately
$152 billion in Brady Bonds have been issued in Africa, Asia, Eastern Europe,
Latin America and the Middle East, with over 90% of these Brady Bonds being
denominated in U.S. dollars.

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
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.

Pay-In-Kind Securities. The Fund may invest in securities which pay interest
either in cash or additional securities at the issuer's option. These securities
are generally high yield securities and in addition to the other risks
associated with investing in high yield securities are subject to the risks that
the interest payments which consist of additional securities are also subject to
the risks of high yield securities.

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

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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 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.

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

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<PAGE>

issued with maturities of 15 years or less and are issued with options and/or
redemption features exercisable by the holder of the obligation entitling the
holder to redeem the obligation and receive a defined cash payment.

Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the 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.

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<PAGE>

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.

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

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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.

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. 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 the Fund's
investment in REITs. For instance, during periods of declining interest rates,
certain mortgage REITs may hold mortgages that the mortgagors elect to prepay,
which prepayment may diminish the yield on securities issued by those REITs.

Certain REITs have relatively small market 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,

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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
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

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<PAGE>

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.

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.

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<PAGE>

Several types of asset-backed securities have already been offered to
investors, including Certificates for Automobile ReceivablesSM ("CARS(SM)").
CARS(SM) 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 CARS(SM) 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 CARS(SM) 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 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

14
<PAGE>

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 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.

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

Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions. Delays in
settlement could result in temporary periods when a portion of the assets of the
Fund is uninvested and no cash is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.

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<PAGE>

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

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

In the course of investment in emerging market debt obligations, the
Fund will be exposed to the direct or indirect consequences of political, social
and economic changes in one or more emerging markets. Political changes in
emerging market countries may affect the willingness of an emerging market
country governmental issuer to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among other things, in
its inflation rate, the amount of its external debt and its gross domestic
product, also affects its ability to honor its obligations. While the Fund
manages its assets in a manner that will seek to minimize the exposure to such
risks, and will further reduce risk by owning the bonds of many issuers, there
can be no assurance that adverse political, social or economic changes will not
cause the Fund to suffer a loss of value in respect of the securities in the
Fund's portfolio.

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

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

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<PAGE>

Sovereign Risk Ratings for Selected Emerging Market Countries as of __/__/98
(Source: J.P. Morgan Securities, Inc., Emerging Markets Research)

Country Moody's Standard & Poor's
------- ------- -----------------

TO BE UPDATED
Chile Baa1 A-
Turkey Ba3 B+
Mexico Ba2 BB
Czech Republic Baa1 A
Hungary Baa3 BBB-
Colombia Baa3 BBB-
Venezuela Ba2 B
Morocco NR NR
Argentina B1 BB-
Brazil B1 B+
Poland Baa3 BBB-
Ivory Coast NR NR

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

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

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

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

Governments of many emerging market countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in the
Fund's portfolio. Expropriation, confiscatory taxation,

17
<PAGE>

nationalization, political, economic or social instability or other similar
developments have occurred frequently over the history of certain emerging
markets and could adversely affect the Fund's assets should these conditions
recur.

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

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

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

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 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

18
<PAGE>

"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 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

19
<PAGE>

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 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.

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<PAGE>

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 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

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<PAGE>

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 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

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<PAGE>

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 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.

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<PAGE>

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.

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.

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<PAGE>

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:

(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;

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<PAGE>

(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 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.

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<PAGE>

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 a 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.

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.

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<PAGE>

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.)

Special Redemption and Exchange Information

In general, shares of the Fund may be exchanged or redeemed at net
asset value. However, shares of the Fund held for less than one year are
redeemable at a price equal to 99% of the then current net asset value per
share. This 1% discount, referred to in the prospectus and this statement of
additional information as a redemption fee, directly affects the amount a
shareholder who is subject to the discount receives upon exchange or redemption.
It is intended to encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to the Adviser or its subsidiaries, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time.

The redemption discount will not be applied to (a) a redemption of
shares of the Fund outstanding for one year or more, (b) shares purchased
through certain retirement plans, including 401(k) plans, 403(b) plans, 457
plans, Keogh accounts, and Profit Sharing and Money Purchase Pension Plans, (c)
a redemption of reinvestment shares (i.e., shares purchased through the
reinvestment of dividends or capital gains distributions paid by the Fund), (d)
a redemption of shares due to the death of the registered shareholder of a Fund
account, or, due to the death of all registered shareholders of a Fund account
with more than one registered shareholder, (i.e., joint tenant account), upon
receipt by Scudder Service Corporation of appropriate written instructions and
documentation satisfactory to Scudder Service Corporation, or (e) a redemption
of shares by the Fund upon exercise of its right to liquidate accounts (i)
falling below the minimum account size by reason of shareholder redemptions or
(ii) when the shareholder has failed to provide tax identification information.
However, if shares are purchased for a retirement plan account through a broker,
financial institution or recordkeeper maintaining an omnibus account for the
shares, such waiver may not apply. (Before purchasing shares, please check with
your account representative concerning the availability of the fee waiver.) In
addition, this waiver does not apply to IRA and SEP-IRA accounts. For this
purpose and without regard to the shares actually redeemed, shares will be
treated as redeemed as follows: first, reinvestment shares; second, purchased
shares held one year or more; and third, purchased shares held for less than one
year. Finally, if a redeeming shareholder acquires Fund shares through a
transfer from another shareholder, applicability of the discount, if any, will
be

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<PAGE>

determined by reference to the date the shares were originally purchased, and
not from the date of transfer between shareholders.

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.

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.
However, shares that are exchanged may be subject to the Fund's 1% redemption
fee. (See "Special Redemption and Exchange Information." 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,

29
<PAGE>

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.

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 a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.

30
<PAGE>

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.

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. The
Trust has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Trust is obligated to redeem shares, with respect to any one
shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.

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

31
<PAGE>

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.

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 Rules of Fair Practice, 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>
====================================================================================================================
YEARS ScudderPure No-Load(TM) 8.50% Load Fund Load Fund with 0.75% No-Load Fund with
Fund 12b-1 Fee 0.25% 12b-1 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>

32
<PAGE>

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.

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 MeTM 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 MeTM 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.

33
<PAGE>

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.

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.

34
<PAGE>

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.

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.

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

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

35
<PAGE>

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.

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 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.

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

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

36
<PAGE>

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.

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.

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

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

37
<PAGE>

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.

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.

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

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

38
<PAGE>

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 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.

39
<PAGE>

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 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.)

40
<PAGE>

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.

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

41
<PAGE>

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 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.

42
<PAGE>

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 Internal Revenue 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.
Distributions are not subject to the 1% redemption fee, whether paid in cash or
reinvested. 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.

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):

43
<PAGE>

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

Where:

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

Average Annual Total Return for the periods ended February 28, 1998

One Year Life of Fund (1)*
14.60% 16.87%

* For the period beginning June 28, 1996 (commencement of operations).

(1) The Adviser maintained Fund expenses for the period June 28, 1996
(commencement of operations) through February 28, 1997 and for the fiscal
year ended February 28, 1998. The Average Annual Total Return for the
fiscal year ended February 28, 1998 and the life of the Fund would have
been lower if the Adviser had not maintained expenses. This does not
reflect the effect of the 1% redemption fee on shares held less than one
year.

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.

Cumulative Total Return for the periods ended February 28, 1998

One Year Life of Fund (1)*
14.60% 29.75%

* For the period beginning June 28, 1996 (commencement of operations).

(1) The Adviser maintained Fund expenses for the period June 28, 1996
(commencement of operations) through February 28, 1997 and for the fiscal
year ended February 28, 1998. The Cumulative Total Return for the fiscal
year ended February 28, 1998 and the life of the Fund would have been lower
if the Adviser had not maintained expenses. This does not reflect the
effect of the 1% redemption fee on shares held less than one year.

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.

44
<PAGE>

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:

YIELD = 2[((a-b)/cd + 1)6 - 1]
Where:

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

The Fund's 30-day SEC yield was 9.01% as of February 28, 1998. If the
Adviser had not maintained Fund expenses and had imposed a full management fee,
the SEC yield would have been _____%. This does not reflect the effect of the 1%
redemption fee on shares held less than one year.

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

45
<PAGE>

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.

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.

46
<PAGE>

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.

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.

47
<PAGE>

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.

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.

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.

48
<PAGE>

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 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.

49
<PAGE>

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, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder Global High Income Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder Institutional Fund, Inc., Scudder International Fund,
Inc., Scudder Investment Trust, Scudder Municipal Trust, Scudder Mutual Funds,
Inc., Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder
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 Kemper Investments, 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 Scudder was
last approved by the Trustees on August 12, 1997. Because the transaction
between Scudder and Zurich resulted in the assignment of the Fund's investment
management agreement with Scudder, that Agreement was deemed to be automatically
terminated at the consummation of the transaction. In anticipation of the
transaction, however, a new Investment Management Agreement (the "Agreement")
between the Fund and the Adviser was approved by the Fund's Trustees . At a
special meeting of the Fund's shareholders held on October 24, 1997, the
shareholders also approved the new investment management agreement. The new
Agreement became effective on December 31, 1997, and will be in effect for an

50
<PAGE>

initial term ending on September 30, 1998. The Agreement is in all material
respects on the same terms as the previous investment management agreement it
supersedes. The Agreement incorporates conforming changes which promote
consistency among all of the Funds advised by the Adviser and which permit ease
of administration. 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.

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 Fund's Articles, 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 Fund 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
0.70% 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 0.25% of the average daily net assets of the Fund. For
the fiscal year ended February 28, 1998 the Adviser did not impose a management
fee, which would have otherwise amounted to $868,780.

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

51
<PAGE>

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.

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

Daniel Pierce+*= (64) President and Trustee Managing Director of Director, Vice
Scudder Kemper Investments, President and Assistant
Inc. Treasurer

Henry P. Becton, Jr. (54)125 Trustee President and General --
Western Avenue Manager, WGBH Educational
Allston, MA 02134 Foundation

52
<PAGE>

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

Dawn-Marie Driscoll (51) Trustee Executive Fellow, Center --
4909 SW 9th Place for Business Ethics,
Cape Coral, FL 33914 Bentley College; President,
Driscoll Associates

Peter B. Freeman (65) Trustee Corporate Director and --
100 Alumni Avenue Trustee
Providence, RI 02906

George M. Lovejoy, Jr.= (68) Trustee President and Director, --
50 Congress Street, Suite 543 Fifty Associates(real
Boston, MA 02109 estate corporation)

Wesley W. Marple, Jr. (66) 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*# (45) Trustee, Vice Managing Director of Director, Assistant
President and Scudder Kemper Investments, Treasurer and Senior
Assistant Secretary Inc. Vice President

Jean C. Tempel (55) Trustee Managing Partner,Technology --
Technology Equity Partners Equity Partners
Ten Post Office Square
Suite 1325
Boston, MA
02109-4603

Kelly D. Babson+* (39) Vice President Senior Vice President of
Scudder Kemper Investments,
Inc.

Jerard K. Hartman# (65) Vice President Managing Director of --
Scudder Kemper Investments,
Inc.

Thomas W. Joseph+ (59) Vice President Senior Vice President of Vice President,
Scudder Kemper Investments, Director, Treasurer and
Inc. Assistant Clerk

Valerie F. Malter# (39) Vice President Senior Vice President of --
Scudder Kemper Investments,
Inc.

Stephen Wohler+ (49) Vice President Managing Director of --
Scudder Kemper Investments,
Inc.

53
<PAGE>

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

Thomas F. McDonough+ (51) Vice President, Senior Vice President of Assistant Clerk
Secretary and Scudder Kemper Investments,
Treasurer Inc.

John R. Hebble+ (39) Assistant Treasurer Senior Vice President, --
Scudder Kemper Investments,
Inc.

Caroline Pearson+ (36) Assistant Secretary Vice President, Scudder --
Kemper Investments, Inc.;
Associate, Dechert Price &
Rhoads (law firm) 1989 -
1997.

* 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

</TABLE>

As of May 31, 1998, all Trustees and officers of the Fund as a group
owned beneficially (as defined in Section 13(d) of the Securities Exchange Act
of 1934), 320,495 shares or 2.19% of the shares of the Fund.

Certain accounts for which the Adviser acts as investment adviser owned
2,291,382 shares in the aggregate, or 15.65% of the outstanding shares on May
31, 1997. The Adviser may be deemed to be the beneficial owner of such shares
but disclaims any beneficial ownership in such shares.

As of May 31, 1998, 1,555,263 shares in the aggregate, 10.62% of the
outstanding shares of the Fund, were held in the name of Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104-4122, who may be deemed to
be the beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein.

As of May 31, 1998, 1,075,186 shares in the aggregate, 7.34% of the
outstanding shares of the Fund, were held in the name of State Street Bank &
Trust Co., Custodian for the Scudder Pathway Series, Balanced Portfolio, One
Heritage Drive #P5S, Quincy, MA 02171- 2105, who may be deemed to be the
beneficial owner of these shares, but disclaims any beneficial ownership
therein.

To the knowledge of the Trust, as of May 31, 1998, no person owned
beneficially more than 5% of the Fund's outstanding shares except as stated
above.

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

54
<PAGE>

REMUNERATION

Responsibilities of the Board--Board and Committee Meetings

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

The Board of Trustees meets at least quarterly to review the investment
performance of each 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, each
Funds' 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 by each Fund's independent public accountants and
by independent legal counsel selected by the Independent Trustees.

All of 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 each 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 Trustees

The Independent Trustees receive the following compensation from the
Funds of Scudder Portfolio Trust: an annual trustee's retainer fee of $2,400 for
a Fund in which assets do not exceed $100 million, $4,800 for assets which
exceed $100 million, but not exceeding $1 billion, and $7,200 if 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 Scudder or any affiliate of Scudder; $75 for
any other committee meeting (although in some cases the Independent Trustees
have waived committee meeting fees); and reimbursement of expenses incurred for
travel to and from Board Meetings. The Independent Trustees, from time to time,
designate one of their members to serve as their "lead" Trustee to act as their
primary liaison with Scudder and with counsel for the Independent Trustees. Such
lead Trustee receives an additional annual retainer fee of $500 per fund. No
additional compensation is paid to any Independent Trustee for travel time to
meetings, attendance at directors' educational seminars or conferences, service
on industry or association committees, participation as speakers at directors'
conferences or service on special trustee task forces or subcommittees .
Independent Trustees do not receive any employee benefits such as pension,
retirement or health insurance.

The Independent Trustees also serve in the same capacity for other
funds managed by Scudder. These funds differ broadly in type an 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 Scudder funds as a group.

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<PAGE>

<TABLE>
<S> <C> <C> <C>
<CAPTION>
Scudder
Name Portfolio Trust* All Scudder Funds
---- ---------------- -----------------

Henry P. Becton, Jr.,Trustee $16,900 $113,974 (23 funds)

Dawn-Marie Driscoll**Trustee $2,100 $107,142 (23 funds)

Peter B. Freeman**Trustee $2,274 $137,011 (42 Funds)

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

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

Jean C. Tempel,Trustee $17,300 $121,924 (22 funds)
</TABLE>

* Scudder Portfolio Trust consists 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 Scudder or its
affiliates receive no direct compensation from the Trust, although they are
compensated as employees of Scudder, 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 with
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, 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

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<PAGE>

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 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
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-dividend.

57
<PAGE>

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.

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

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<PAGE>

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.

Similarly, if the Fund enters into a short sale of property that
becomes substantially worthless, the Fund will be required to recognize gain at
that time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.

Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options, futures
and forward contracts, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.

If the Fund 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 the Fund acquires a debt instrument at a 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.

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

59
<PAGE>

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.

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 respecting investments by foreign investors.

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 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

60
<PAGE>

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.

For the period June 28, 1996 (commencement of operations) to February
28, 1997, and for the fiscal year ended February 28, 1998, Scudder High Yield
Bond Fund paid no brokerage commissions.

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. The Fund's
annualized portfolio turnover rates for the period June 28, 1996 (commencement
of operations) to February 28, 1997 and the fiscal year ended February 28, 1998
were 39.8% and 112.7%, respectively.

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.

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<PAGE>

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 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

62
<PAGE>

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, are 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 811192-30-1.

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

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

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

Costs of $19,658.51 incurred by the Fund in conjunction with its
organization are amortized over the five year period beginning June 28, 1996.

Scudder Fund Accounting Corporation ("SFAC"), 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. For the
period June 28, 1996 (commencement of operations) to February 28, 1997, SFAC did
not impose any of its fee, which amounted to $25,168. For the fiscal year ended
February 28, 1998, SFAC did not impose any of its fee, which amounted to
$46,705.

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. For the period June 28, 1996 (commencement of operations) to
February 28, 1997, SSC did not impose any of its fee, which amounted to $65,932.
For the fiscal year ended February 28, 1998, SSC did not impose any of its fee,
which amounted to $178,661.

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.

63
<PAGE>

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. For the period June 28, 1996 (commencement
of operations) to February 28, 1997, STC did not impose any of its fee, which
amounted to $1,488. For the fiscal year ended February 28, 1998, STC did not
impose any of its fee, which amounted to $7,775.

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 financial statements, including the investment portfolio, of High
Yield Bond Fund, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements are incorporated by reference and
attached hereto in the Annual Report to the Shareholders of the Fund dated
February 28, 1998, and are deemed to be a part of this Statement of Additional
Information.

64
<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
High Yield
Bond Fund

Annual Report
February 28, 1998

Pure No-Load(TM) Funds

SCUDDER (logo)

<PAGE>

Scudder High Yield Bond Fund

- --------------------------------------------------------------------------------
Date of Inception: 6/28/96 Total Net Assets as of Ticker Symbol: SHBDX
2/28/98: $176.2 million
- --------------------------------------------------------------------------------

o For its most recent fiscal year ended February 28, 1998, Scudder High Yield
Bond Fund provided a total return of 14.60%. This compares favorably with the
12.54% return of the Merrill Lynch High Yield Master Index. On February 28, the
Fund posted a 9.01% 30-day SEC yield.

o High yield bonds continued their strong performance as demand from individual,
mutual fund, and institutional investors exceeded a record supply of bonds.

o During the most recent semiannual period, the Fund's position was increased in
telecommunications bonds, which are benefiting from strong demand for their
issuers' services, and reduced in the financial and energy sectors.

Table of Contents

3 Letter from the Fund's President 20 Notes to Financial Statements
4 Performance Update 23 Report of Independent Accountants
5 Portfolio Summary 24 Tax Information
6 Portfolio Management Discussion 25 Shareholder Meeting Results
10 Glossary of Investment Terms 28 Officers and Trustees
11 Investment Portfolio 29 Investment Products and Services
16 Financial Statements 30 Scudder Solutions
19 Financial Highlights

2 - Scudder High Yield Bond Fund

<PAGE>

Letter from the Fund's President

Dear Shareholders,

We are pleased to report to you on Scudder High Yield Bond Fund's
performance over its most recent fiscal year ended February 28, 1998. The Fund
posted a strong 14.60% total return for the period, outpacing the 12.54% return
of the Merrill Lynch High Yield Master Index. As of February 28, 1998, the Fund
provided a 9.01% 30-day SEC yield. As explained in the portfolio management
discussion beginning on page 6, the strength of the economy and the stock
market, low inflation and interest rates, and substantial demand for high yield
bonds from individuals, mutual funds, and institutions have all contributed to a
healthy high yield marketplace.

For those of you who are interested in new Scudder products, we recently
introduced three new industry sector funds as a part of our Choice Series:
Scudder Financial Services Fund, which seeks long-term growth by investing in
financial services companies in the U.S. and abroad; Scudder Health Care Fund,
which seeks long-term growth from health care companies located around the
world; and Scudder Technology Fund, which pursues long-term growth by investing
in companies that develop, produce, or distribute technology-related products or
services. In addition, April 6, 1998, marked the debut of our newest entrant in
the growth and income category: Scudder Real Estate Investment Fund, investing
in equity securities of companies in the real estate industry. Please see pages
29 through 31 for more information on Scudder products and services.

Lastly, at the start of 1998 the Fund's investment adviser changed its name
to Scudder Kemper Investments, Inc., from Scudder, Stevens & Clark, Inc.,
pursuant to the acquisition of a majority interest in Scudder, Stevens & Clark
by Zurich Insurance Company, and the combining of Scudder's business with that
of Zurich Kemper Investments, Inc.

If you have any questions regarding Scudder High Yield Bond Fund or any
other Scudder fund, please call Investor Relations at 1-800-225-2470. Or visit
Scudder's Website at http://funds.scudder.com.

Sincerely,

/s/Daniel Pierce

Daniel Pierce
President,
Scudder High Yield Bond Fund

3 - Scudder High Yield Bond Fund

<PAGE>

PERFORMANCE UPDATE as of February 28, 1998
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------

Total Return
Period Growth --------------
Ended of Average
2/28/97 $10,000 Cumulative Annual
- ------------------------------------------
SCUDDER HIGH YIELD BOND FUND
- ------------------------------------------
1 Year $11,460 14.60% 14.60%
Life of Fund* $12,975 29.75% 16.87%
- ------------------------------------------
MERRILL LYNCH HIGH YIELD MASTER INDEX
- ------------------------------------------
1 Year $11,254 12.54% 12.54%
Life of Fund* $12,418 24.18% 13.89%
- ------------------------------------------
*The Fund commenced operation on June 28, 1996.
Index comparisons begin June 30, 1996.

- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

SCUDDER HIGH YIELD BOND FUND
Year Amount
- ----------------------
6/96* $10,004
8/96 $10,251
11/96 $10,795
2/97 $11,323
5/97 $11,515
8/97 $12,013
11/97 $12,391
2/98 $12,975

MERRILL LUNCH HIGH YIELD MASTER INDEX
Year Amount
- ----------------------
6/96* $10,000
8/96 $10,172
11/96 $10,717
2/97 $11,035
5/97 $11,260
8/97 $11,685
11/97 $12,071
2/98 $12,418

The Merrill Lynch High Yield Master Index is an unmanaged index broadly
reflective of below-investment grade corporate bonds. Index returns assume
reinvested dividends and, unlike Fund returns, do not reflect any fees or
expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------

A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.

YEARLY PERIOD ENDED FEBRUARY 28

1997* 1998
----------------------
NET ASSET VALUE... $ 12.77 $ 13.23
INCOME DIVIDENDS.. $ .76 $ 1.17
CAPITAL GAINS
DISTRIBUTIONS..... $ .01 $ .14
FUND TOTAL
RETURN (%)........ 13.23 14.60
INDEX TOTAL
RETURN (%)........ 10.49 12.54

Performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Total return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total return for the life of Fund
period would have been lower.

4 - Scudder High Yield Bond Fund
<PAGE>

PORTFOLIO SUMMARY as of February 28, 1998

- -----------------------------
ASSET ALLOCATION
- -----------------------------
Corporate Bonds 88%
Preferred Stocks 7%
Cash Equivalents 4%
Foreign Bonds --
U.S.$ Denominated 1%
- -----------------------------
100%
=============================

In general, the Fund
maintains a modest cash
position so that we are
positioned to purchase
attractive new and existing
bond issues as they
become available.

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

- -----------------------------
DIVERSIFICATION (Excluding
Cash Equivalents)
- -----------------------------
Communications 22%
Manufacturing 17%
Media 12%
Consumer Discretionary 9%
Consumer Staples 7%
Energy 6%
Service Industries 5%
Metals & Minerals 4%
Financial 3%
Other 15%
- -----------------------------
100%
=============================

During the most recent
fiscal year, the Fund
increased its holdings in
telecommunications
issues -- demand for
telecommunications
services is growing
tremendously and this
subsector's bonds have
performed well.

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

- -----------------------------
QUALITY
- -----------------------------
Cash Equivalents 4%
BBB 1%
BB 15%
B 72%
CCC 1%
Not Rated 7%
- -----------------------------
100%
=============================

Weighted Average Quality: B

The Fund continues to
focus on select B-rated
credits, which typically
carry a yield advantage
over BB-rated bonds.

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

- -----------------------------
EFFECTIVE MATURITY
- -----------------------------
Less than 1 year 11%
1 - 5 years 11%
5 - 8 years 57%
8 years or greater 21%
- -----------------------------
100%
- -----------------------------

Weighted average effective
maturity: 6.5 years

A range of maturities is
represented in the
Fund's portfolio.

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

For more complete details about the Fund's Investment Portfolio, see page 11.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
- -------------------------------------------------------------------------------
5 - Scudder High Yield Bond Fund

<PAGE>

Portfolio Management Discussion

For a discussion of Scudder High Yield Bond Fund's performance and strategy over
its first full fiscal year, we are pleased to once again present an interview
with Scudder High Yield Bond Fund's Lead Portfolio Manager, Kelly D. Babson.
Kelly has managed the Fund since its inception on June 28, 1996.

Q: How has Scudder High Yield Bond Fund performed over its most recent fiscal
year?

For the 12-month period ended February 28, 1998, Scudder High Yield Bond Fund
posted a total return of 14.60%. For the same period, the high yield bond market
returned 12.54% as measured by the unmanaged Merrill Lynch High Yield Master
Index. The Fund's total return was 29.75% since its June 28, 1996, inception,
outperforming the Index's return of 24.18% over the same period. On February 28,
1998 the Fund offered a 9.01% 30-day SEC yield.

Q: What accounts for the Fund's performance?

First, we've been experiencing a vibrant high yield market -- the economic
environment has been strong, and the tremendous performance of the equity market
has allowed many high yield issuers to raise additional capital in the equity
markets. This, in turn, permitted higher coupon debt to be called at premium
prices. We have also benefited from the general move downward in interest rates
and the current low inflation environment.

In addition to these macroeconomic factors, the steady growth of mutual funds,
the formation of many new collateralized bond obligations (which use high yield
bonds as a collateral pool for pass-through structures), and growing interest
from "crossover" investors have created significant additional demand for high
yield bonds in the last year and a half. The supply of high yield bonds in 1997
was considerable -- over $120 billion, compared to $75 billion in 1996. And
we're running well ahead of 1997's pace this year.

Default rates for high yield bonds have also been low, reducing the risk premium
associated with high yield bonds. The result of all these factors has been the
narrowing of yield spreads (the difference between the average interest rates of
high yield bonds and Treasury securities at a given maturity), and strong
performance for the high yield market.

Q: How has the high yield bond market been affected by the Asian crisis?

There is a segment of the high yield market that is exposed to Asia. Our
strategy was to underweight metals and paper companies, because of concerns over
the possible "dumping" of commodity supply by Asian companies into these
markets. Away from those two areas, many of the credits are relatively
insulated. Actually, one of the things that helped spur the high yield rally in
January was that investors saw the U.S. market as an attractive alternative to
emerging markets.

Q: You've talked in the past about focusing on finding credits that are
candidates for a ratings upgrade. How successful has this effort been?

That has worked out well, and has made an important contribution to our
performance. Our ratio of upgrades to downgrades in bonds held in the Fund's
portfolio is 7 to 1 over the life of the Fund. By contrast, the ratio for the
overall market is between 1 to 1 and 2 to 1. We continue to look for companies
that are reducing the amount of debt on

6 - Scudder High Yield Bond Fund

<PAGE>

their balance sheets and moving up the ratings spectrum, and trying to find them
early.

Q: What changes in industry focus have you made over the past fiscal year?

The major change has been an increasing portfolio overweighting of
telecommunications, particularly in competitive local exchange carriers (CLECs).
In a low inflation environment where many companies have little pricing power,
one of the questions we've asked is, "How do companies improve their bottom
line? How do they improve their cash flow?" The answer is that it needs to come
largely through internally generated growth. And telecommunications is one of
the areas where we see tremendous growth potential. You see it in the
performance of the stocks and you can certainly see it in the performance of the
bonds. The worldwide demand for telecommunications services is growing
tremendously.

Q: Can you give an example of a competitive local exchange carrier the Fund has
invested in?

Teleport is one -- the company was purchased by AT&T at the beginning of this
year. Following the merger with AT&T, Teleport's debt was upgraded to investment
grade, resulting in substantial price appreciation. Competitive local exchange
carriers tend to be fairly small companies, and relatively early in their
development stage. They compete against the incumbent Baby Bells, the local
carrier of your region for business customers and high-volume users. The
acquisition of CLECs such as Teleport provides an attractive means for
long-distance carriers to get into the local markets.

THE PRINTED DOCUMENT HAS A LINE CHART HERE

LINE CHART TITLE:
Yield "Spreads" Narrow to Near Historic Levels
Yield Differential of B-rated Corporates vs.
U.S. Treasury Bonds of Comparable Maturity

LINE CHART DATA:
Yield Differential
(Basis Points)
------------------

2/88 514
481
487
478
474
556
645
12/89 815
769
767
811
1086
761
729
591
12/91 579
455
461
478
498
447
405
452
12/93 439
367
413
424
400
433
482
454
12/95 515
435
384
380
417
325
336
311
347
2/98 336

Source: Lehman Brothers High Yield Research

In terms of other sectors, we continued to be significantly overweighted in
basic industrial and business services, a core focus of the portfolio. That
position has been very consistent, and should continue to be.

We've also increased slightly our weightings in media and cable, but not
substantially. We added some exposure to radio broadcasters, many of which have
the ability to raise equity capital and deleverage.

Q: Where did the Fund reduce exposure?

We reduced our weighting in finance over the course of the last fiscal year.
With the market's concerns over subprime lenders, especially those on the auto
and home equity side, that sector has underperformed.

7 - Scudder High Yield Bond Fund

<PAGE>

We also reduced exposure to the energy sector at the beginning of this year, and
are now at a market weighting. Energy prices have declined, and the ability of
these companies to generate incremental cash flow and improve their balance
sheets is fairly well tapped out.

Q: What is your outlook for the high yield market and the Fund over the coming
months?

The outlook continues to be positive. However, I would hesitate to predict a
year as strong as the last one. We start out with a market that seems fairly
valued following a significant rally in the bond market. The Fund should earn
the coupon rate on its underlying securities, and we hope to earn additional
return through credit improvements and upgrades.

I think there are some issues that the high yield market will have to come to
grips with over the course of the next year. One of them is the slight decline
in overall credit quality in new high yield issues, with more CCC and nonrated
credit issues coming to market. Leverage ratios are also marginally higher than
they were a year ago. This all adds up to a high yield market that seems willing
to take more risk; that may change if we start to encounter some problems on the
credit front. If liquidity starts to dry up and banks show less willingness to
lend, there's additional risk. In early 1998 the equity market temporarily
stalled out, and we saw bond prices decline for companies that we had expected
to raise equity capital, but couldn't.

- --------------------------------------------------------------------------------
Scudder High Yield Bond Fund:
A Team Approach to Investing

Scudder High Yield Bond Fund is managed by a team of Scudder Kemper
Investments, Inc. ("the Adviser") professionals, who each play 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 a large staff of economists, research analysts, traders and other
investment specialists who work in our offices across the United States and
abroad. The Adviser believes its team approach benefits Fund investors by
bringing together many disciplines and leveraging its extensive resources.

Kelly D. Babson, Lead Portfolio Manager, is a portfolio manager in the
Adviser's Global Bond Group, with over 16 years of experience in fixed-income
investing including ten years of high yield portfolio management prior to
joining the Adviser. Stephen A. Wohler, Portfolio Manager, is currently
Director of the Adviser's Global Bond Group, overseeing all fixed-income
investing for the firm. He is the Active Value Product Leader, as well as a
member of the portfolio management teams for Scudder Income Fund and Scudder
Zero Coupon 2000 Fund.

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

8 - Scudder High Yield Bond Fund

<PAGE>

Although we don't see storm clouds over the horizon, we recognize that the high
yield markets have benefited greatly over the last several years from sustained
domestic economic growth, rising equity market valuations, and low default
rates. We will continue to actively monitor each of the credits we hold to
detect any early signs of disappointing business developments and be selective
in our purchases for the Fund as we pursue the Fund's objectives of high current
yield and capital appreciation for our investors.

9 - Scudder High Yield Bond Fund
<PAGE>
Glossary of Investment Terms

COUPON The interest rate on a bond that the issuer
(in the case of high yield bonds, a
corporation) promises to pay to the holder of
the bond until maturity, expressed as an
annual percentage of face value. As an
example, a bond with a 10% coupon will pay
$100 on $1,000 of the face amount each year.

CYCLICAL A cyclical security is one whose price tends
to rise when the U.S. economy is expanding
and to fall when the economy is contracting.
Examples of cyclical industries are
automobiles, housing, and paper. NONCYCLICAL
securities -- including food, insurance, and
health care companies -- are typically not as
affected by changes in U.S. economic
performance.

DEFAULT Occurs when the issuer of a bond fails to
make timely payment of principal and/or
interest. In the event of default,
bondholders may make claims against the
assets of the issuing corporation. DEFAULT
RATE refers to the annual percentage of bonds
in a fund that stop making principal and/or
interest payments.

HIGH YIELD BOND A bond that has a rating of BB or less and
pays a high yield to compensate for its
greater credit risk.

SECTOR A similar group of bonds or stocks, usually
found in one industry. Some examples of
sectors that could be found in a high yield
bond fund or a stock fund at any given time
include airlines, financial services
companies, and telecommunications providers.

30-DAY SEC YIELD The standard yield reference for bond funds,
based on a formula prescribed by the SEC.
This annualized yield calculation reflects
the 30-day average of the income earnings of
every holding in a given fund's portfolio,
net of expenses, assuming each is held to
maturity.

TOTAL RETURN The most common yardstick to measure the
performance of a fund. Total return --
annualized or compound -- is based on a
combination of share price changes plus
income and capital gain distributions, if
any, expressed as a percentage gain or loss
in value.

YIELD SPREAD The difference in yield between various types
of bonds. A high yield bond's yield is
generally compared to the yield of a Treasury
bond of similar maturity as a valuation
yardstick. If yield spreads are "narrow," for
example, it generally means that high yield
bond yields have been declining, and prices
rising.

(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)

10 - Scudder High Yield Bond Fund

<PAGE>

Investment Portfolio as of February 28, 1998

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 4.0%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 2/27/98 at 5.63%, to be
repurchased at $6,950,259 on 3/2/98, collateralized by a $4,744,000 U.S. Treasury ------------
Bond, 12%, 8/15/13 (Cost $6,947,000) .................................................. 6,947,000 6,947,000
------------
Foreign Bonds - U.S. $ Denominated 1.1%
- ------------------------------------------------------------------------------------------------------------------------------
Fage Dairy Industry SA, 9%, 2/1/07 ...................................................... 1,250,000 1,212,500
Petroleos Mexicanos SA, 8.85%, 9/15/07 .................................................. 700,000 717,500
- ------------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds - U.S.$ Denominated (Cost $1,924,321) 1,930,000
- ------------------------------------------------------------------------------------------------------------------------------

Corporate Bonds and Notes 88.2%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 8.8%
COMPUSA Inc., 9.5%, 6/15/00 ............................................................. 500,000 517,500
Cinemark USA, Inc., Series B, 9.625%, 8/1/08 ............................................ 1,000,000 1,060,000
Cinemark USA, Inc., Series D, 9.625%, 8/1/08 ............................................ 1,000,000 1,052,500
Cole National Group Inc., 9.875%, 12/31/06 .............................................. 2,000,000 2,160,000
Friendly Ice Cream Corp., 10.5%, 12/1/07 ................................................ 1,000,000 1,052,500
Mrs. Fields Inc., 10.125%, 12/1/04 ...................................................... 1,500,000 1,500,000
North Atlantic Trading Co., 11%, 6/15/04 ................................................ 1,000,000 1,045,000
Pillowtex Corp., 10%, 11/15/06 .......................................................... 1,500,000 1,627,500
Pillowtex Corp., 9%, 12/15/07 ........................................................... 500,000 520,000
Premier Parks Inc., 9.75%, 1/15/07 ...................................................... 1,500,000 1,620,000
Signature Resorts, Inc., 9.75%, 10/1/07 ................................................. 2,000,000 2,060,000
Zale Corp., 8.5%, 10/1/07 ............................................................... 1,250,000 1,278,125
------------
15,493,125
------------
Consumer Staples 6.4%
Aurora Foods, Inc., Series B, 9.875%, 2/15/07 ........................................... 1,125,000 1,200,938
Aurora Foods, Inc., Series D, 9.875%, 2/15/07 ........................................... 1,000,000 1,067,500
Chiquita Brands International Inc., Senior Note, 10.25%, 11/1/06 ........................ 1,250,000 1,368,750
Dyersburg Corp., 9.75%, 9/1/07 .......................................................... 2,500,000 2,637,500
Polymer Group, Inc., 9%, 7/1/07 ......................................................... 1,000,000 1,022,500
Revlon Consumer Products, 8.625%, 2/1/08 ................................................ 2,500,000 2,481,250
Sun World International, 11.25%, 4/15/04 ................................................ 1,250,000 1,356,250
------------
11,134,688
------------
Health 1.3%
NBTY Inc., 8.625%, 9/15/07 .............................................................. 2,250,000 2,317,500
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

11 - Scudder High Yield Bond Fund
<PAGE>

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Communications 21.7%
21st Century Telecommunications, Step-up Coupon, 0% to 2/15/03, 12.25% to 2/15/08 ....... 4,000,000 2,200,000
Comcast Cellular, 9.5%, 5/1/07 .......................................................... 2,500,000 2,625,000
Crown Castle International Corp., Step-up Coupon, 0% to 11/1/02, 10.625% to 11/15/07 .... 2,100,000 1,396,500
Facilicom International Inc., 10.5%, 1/15/08 ............................................ 1,500,000 1,533,750
Focal Communications Corp., Step-up Coupon, 0% to 2/15/03, 12.125% to 2/15/08 ........... 1,750,000 949,375
GST USA Inc., Step-up Coupon, 0% to 12/1/00, 13.875% to 12/15/05 ........................ 2,500,000 2,012,500
Globalstar LP, 11.375%, 2/15/04 ......................................................... 1,000,000 1,030,000
Intermedia Communications, Inc., Step-up Coupon, 0% to 7/1/02, 11.25% to 7/15/07 ........ 2,750,000 2,021,250
Intermedia Communications, Inc., 8.875%, 11/1/07 ........................................ 1,500,000 1,575,000
Iridium LLC Capital Corp., 11.25%, 7/15/05 .............................................. 2,250,000 2,306,249
McLeodUSA Inc., 9.25%, 7/15/07 .......................................................... 2,000,000 2,140,000
Nextel Communications, Inc., Step-up Coupon, 0% to 9/1/02, 10.65% to 9/15/07 ............ 4,000,000 2,580,000
Orbital Imaging Corp., 11.625%, 3/1/05 .................................................. 700,000 722,750
Paging Network Inc., Senior Subordinate Note, 10.125%, 8/1/07 ........................... 1,500,000 1,560,000
RCN Corp., 10%, 10/15/07 ................................................................ 1,000,000 1,053,750
RCN Corp., Step-up Coupon, 0% to 2/15/03, 9.8% to 2/15/08 ............................... 2,250,000 1,366,875
SBA Communications Corp., Step-up Coupon, 0% to 3/1/03, 12% to 3/1/08 ................... 4,250,000 2,380,000
Sprint Spectrum L.P., Senior Note, 11%, 8/15/06 ......................................... 1,000,000 1,142,500
Sprint Spectrum L.P., Step-up Coupon, 0% to 8/1/01, 12.5% to 8/15/06 .................... 2,000,000 1,620,000
Star Choice Comm, 13%, 12/15/05 ......................................................... 1,000,000 1,042,500
Teleport Communications Group, Inc., Step-up Coupon, 0% to 7/1/01, 11.125% to 7/1/07 .... 2,750,000 2,365,000
Teligent Inc., 11.5%, 12/1/07 ........................................................... 2,000,000 2,055,000
WorldCom, Inc., 8.875%, 1/15/06 ......................................................... 368,000 401,289
------------
38,079,288
------------
Financial 1.7%
Bank United Capital Trust, 10.25%, 12/31/26 ............................................. 1,000,000 1,055,000
Commerce Bancorporation, 11.75%, 6/6/27 ................................................. 957,000 1,014,420
Delta Financial Corp., 9.5%, 8/1/04 ..................................................... 1,000,000 978,750
------------
3,048,170
------------
Media 6.5%
Adelphia Communications Corp., 10.5%, 7/15/04 ........................................... 1,500,000 1,661,250
American Lawyer Media, Inc., 9.75%, 12/15/07 ............................................ 1,250,000 1,312,500
Cablevision Systems Corp., 9.25%, 11/1/05 ............................................... 1,000,000 1,065,000
Diva Systems Corp., Step-up Coupon, 0% to 3/1/03, 12.625% to 3/1/08 ..................... 1,750,000 958,125
Outdoor Systems, Inc., 8.875%, 6/15/07 .................................................. 3,000,000 3,165,000
</TABLE>

The accompanying notes are an integral part of the financial statements.

12 - Scudder High Yield Bond Fund
<PAGE>

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Panavision Inc., Step-up Coupon, 0% to 2/1/02, 9.625% to 2/1/06 ......................... 2,500,000 1,750,000
Sun Media Corp., 9.5%, 2/15/07 .......................................................... 325,000 352,625
Sun Media Corp., 9.5%, 5/15/07 .......................................................... 1,000,000 1,090,000
------------
11,354,500
------------
Service Industries 5.2%
Allied Waste Industries, Inc., Step-up Coupon, 0% to 6/1/02, 11.3% to 6/1/07 ............ 1,265,000 923,450
Allied Waste North America, 10.25%, 12/1/06 ............................................. 1,500,000 1,672,500
ATC Group Services, Inc., 12%, 1/15/08 .................................................. 750,000 768,750
Borg-Warner Security Corp., 9.625%, 3/15/07 ............................................. 1,275,000 1,351,500
Hydrochem Industrial, 10.375%, 8/1/07 ................................................... 1,000,000 1,055,000
Loomis Fargo & Co., 10%, 1/15/04 ........................................................ 1,000,000 1,020,000
National Equipment Services, 10%, 11/30/04 .............................................. 1,500,000 1,597,500
Pierce Leahy Corp., 11.125%, 7/15/06 .................................................... 650,000 743,438
------------
9,132,138
------------
Manufacturing 17.8%
AEI Holding Co., Inc., 10%, 11/15/07 .................................................... 2,000,000 2,105,000
AEP Industries, Inc., 9.875%, 11/15/07 .................................................. 2,250,000 2,385,000
Amphenol Corp., 9.875%, 5/15/07 ......................................................... 2,500,000 2,718,750
BE Aerospace, Inc., 8%, 3/1/08 .......................................................... 1,000,000 995,000
Clark Materials Handling Corp., 10.75%, 11/15/06 ........................................ 2,000,000 2,140,000
Eagle-Picher Holdings Co., Step-up Coupon, 0% to 3/1/03, 11.75% to 3/1/08 ............... 910,000 520,975
Eagle-Picher Industries, 9.375%, 3/1/08 ................................................. 500,000 502,500
GSI Group, Inc., 10.25%, 11/1/07 ........................................................ 1,500,000 1,597,500
Graham Packaging Co., 8.75%, 1/15/08 .................................................... 2,000,000 2,020,000
ISP Holdings Inc., 9.75%, 2/15/02 ....................................................... 250,000 266,875
ISP Holdings Inc., 9%, 10/15/03 ......................................................... 500,000 525,000
K & F Industries, Inc., 9.25%, 10/15/07 ................................................. 1,500,000 1,567,500
LDM Technologies Inc., 10.75%, 1/15/07 .................................................. 1,750,000 1,903,125
Oshkosh Truck Corp., 8.75%, 3/1/08 ...................................................... 1,500,000 1,511,250
Prestolite Electric Inc., 9.625%, 2/1/08 ................................................ 500,000 511,250
Radnor Holdings Corp., 10%, 12/1/03 ..................................................... 2,500,000 2,625,000
Sovereign Specialty Chemicals, 9.5%, 8/1/07 ............................................. 1,000,000 1,050,000
Specialty Equipment Co., Senior Subordinate Note, 11.375%, 12/1/03 ...................... 1,950,000 2,106,000
Tracor, Inc., 8.5%, 3/1/07 .............................................................. 1,500,000 1,548,750
United Defense Industries, Inc., 8.75%, 11/15/07 ........................................ 1,500,000 1,530,000
</TABLE>

The accompanying notes are an integral part of the financial statements.

13 - Scudder High Yield Bond Fund
<PAGE>

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Werner Holdings Co., Inc., 10%, 11/15/07 ................................................ 1,000,000 1,055,000
------------
31,184,475
------------
Technology 3.2%
Celestica International Inc., 10.5%, 12/31/06 ........................................... 1,000,000 1,070,000
Fairchild Semiconductor Corp., 10.125%, 3/15/07 ......................................... 1,500,000 1,578,750
Unisys Corp., 11.75%, 10/15/04 .......................................................... 2,500,000 2,900,000
------------
5,548,750
------------
Energy 6.0%
Abraxas Petroleum Corp., 11.5%, 11/1/04 ................................................. 1,000,000 1,060,000
Belden & Blake Corp., 9.875%, 6/15/07 ................................................... 1,250,000 1,253,125
Bellwether Exploration Co., 10.875%, 4/1/07 ............................................. 1,500,000 1,612,500
Chesapeake Energy Corp., 10.5%, 6/1/02 .................................................. 1,000,000 1,065,000
Chesapeake Energy Corp., 7.875%, 3/15/04 ................................................ 1,500,000 1,455,000
Cliffs Drilling Co., Series B, 10.25%, 5/15/03 .......................................... 1,250,000 1,350,000
Cliffs Drilling Co., Series D, 10.25%, 5/15/03 .......................................... 1,000,000 1,085,000
Dailey International, Inc., 9.5%, 2/15/08 ............................................... 500,000 507,500
Ocean Energy, 9.75%, 10/1/06 ............................................................ 1,000,000 1,097,500
------------
10,485,625
------------
Metals & Minerals 4.0%
AK Steel Corp., 9.125%, 12/15/06 ........................................................ 2,000,000 2,115,000
Metals USA Inc., 8.625%, 2/15/08 ........................................................ 1,000,000 1,000,000
Renco Metals Inc., Senior Note, 11.5%, 7/1/03 ........................................... 1,000,000 1,070,000
Renco Steel Holdings Co., 10.875%, 2/1/05 ............................................... 1,000,000 1,012,500
Wells Aluminum Corp., 10.125%, 6/1/05 ................................................... 1,750,000 1,876,875
------------
7,074,375
------------
Construction 1.7%
Nortek, Inc., 9.875%, 3/1/04 ............................................................ 1,000,000 1,042,500
Nortek, Inc., 9.25%, 3/15/07 ............................................................ 1,000,000 1,037,500
Triangle Pacific, 10.5%, 8/1/03 ......................................................... 850,000 896,750
------------
2,976,750
------------
Transportation 3.3%
Allied Holdings Inc., 8.625%, 10/1/07 ................................................... 2,000,000 2,050,000
Atlantic Express, Inc., 10.75%, 2/1/04 .................................................. 1,500,000 1,612,500
Hvide Marine, Inc., 8.375%, 2/15/08 ..................................................... 1,000,000 998,750
US Air, Inc., 10.375%, 3/1/13 ........................................................... 1,000,000 1,123,830
------------
5,785,080
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

14 - Scudder High Yield Bond Fund
<PAGE>

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Utilities 0.6%
Cal Energy Co., Inc., 9.5%, 9/15/06 ..................................................... 1,000,000 1,077,360
- ------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $149,470,086) 154,691,824
- ------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks 6.7%
- ------------------------------------------------------------------------------------------------------------------------------
Communications 0.1%
Globalstar LP, Warrants (expire 2/15/04)* ............................................... 1,000 130,000
------------
Financial 1.2%
Cal Fed Bancorp Inc., Series A .......................................................... 40,000 1,102,500
Walden Residential Properties, Inc. ..................................................... 40,000 1,050,000
Walden Residential Properties, Inc., Warrants (expire 1/1/02)* .......................... 40,000 40,000
------------
2,192,500
------------
Media 5.4%
Chancellor Media Corp. .................................................................. 15,000 1,785,000
SFX Broadcasting, Inc., Series E ........................................................ 15,947 1,881,731
Time Warner, Inc., Series M ............................................................. 2,000 2,277,500
Adelphia Communications Corp., Series B, 13%, 7/15/09 ................................... 10,000 1,160,000
Cablevision Systems Corp. ............................................................... 20,564 2,364,859
------------
9,469,090
- ------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost $11,172,337) 11,791,590
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $169,513,744) (a) 175,360,414
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Non-income producing security

(a) The cost for federal income tax purposes was $169,513,744. At
February 28, 1998, net unrealized appreciation for all investment
securities based on tax cost was $5,846,670. This consisted of
aggregate gross unrealized appreciation for all investments in which
there was an excess of market value over tax cost of $6,090,474 and
aggregate gross unrealized depreciation for all investment
securities in which there was an excess of tax cost over market
value of $243,804.

The accompanying notes are an integral part of the financial statements.

15 - Scudder High Yield Bond Fund
<PAGE>

Financial Statements

Statement of Assets and Liabilities
as of February 28, 1998

<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $169,513,744) .................. $175,360,414
Cash ................................................................... 979
Receivable for investments sold ........................................ 1,786,622
Dividends and interest receivable ...................................... 3,074,290
Receivable on Fund shares sold ......................................... 218,959
Due from Adviser ....................................................... 386,163
Deferred organization expenses ......................................... 12,854
Other assets ........................................................... 632
----------------
Total assets ........................................................... 180,840,913
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 3,714,992
Payable for Fund shares redeemed ....................................... 450,055
Dividends payable ...................................................... 348,275
Other payables and accrued expenses .................................... 106,354
----------------
Total liabilities ...................................................... 4,619,676
---------------------------------------------------------------------------------------------
Net assets, at market value $176,221,237
---------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................... 320,732
Net unrealized appreciation (depreciation) on investment securities .... 5,846,670
Accumulated net realized gain .......................................... 1,262,306
Paid-in capital ........................................................ 168,791,529
---------------------------------------------------------------------------------------------
Net assets, at market value $176,221,237
---------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($176,221,237 /13,323,225 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ....... $13.23
----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

16 - Scudder High Yield Bond Fund
<PAGE>

Statement of Operations
year ended February 28, 1998

<TABLE>
<CAPTION>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest ............................................................... $ 10,933,494
Dividends .............................................................. 590,781
----------------
11,524,275
Expenses:
Management fees ........................................................ 868,780
Services to shareholders ............................................... 407,861
Custodian and accounting fees .......................................... 74,982
Trustees' fees and expenses ............................................ 39,875
Registration fees ...................................................... 33,796
Auditing ............................................................... 38,241
Reports to shareholders ................................................ 32,347
Legal .................................................................. 15,808
Amortization of organization expense ................................... 4,150
Other .................................................................. 5,430
----------------
Total expenses before reductions ....................................... 1,521,270
Expense reductions ..................................................... (1,488,084)
----------------
Expenses, net .......................................................... 33,186
---------------------------------------------------------------------------------------------
Net investment income 11,491,089
---------------------------------------------------------------------------------------------

Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities .................... 2,680,787
Net unrealized appreciation (depreciation) during the period on
investments ............................................................ 3,474,590
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 6,155,377
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 17,646,466
---------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

17 - Scudder High Yield Bond Fund
<PAGE>

Statement of Changes in Net Assets

<TABLE>
<CAPTION>
For the Period
June 28, 1996
(commencement of
Year Ended operations) to
February 28, February 28,
Increase (Decrease) in Net Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................... $ 11,491,089 $ 2,225,750
Net realized gain (loss) from investment transactions .... 2,680,787 163,385
Net unrealized appreciation (depreciation) on investment
transactions during the period ......................... 3,474,590 2,372,080
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ............................................. 17,646,466 4,761,215
Distributions to shareholders from:
Net investment income .................................. (11,198,598) (2,225,750)
---------------- ----------------
Net realized gains ..................................... (1,527,954) (53,912)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ................................ 125,593,145 73,427,768
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 9,336,191 1,710,360
Cost of shares redeemed .................................. (37,271,126) (4,114,570)
Redemption fees .......................................... 120,019 16,783
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ........................................... 97,778,229 71,040,341
---------------- ----------------
Increase (decrease) in net assets ........................ 102,698,143 73,521,894
Net assets at beginning of period ........................ 73,523,094 1,200
Net assets at end of period (including undistributed net ---------------- ----------------
investment income of $320,732 at February 28, 1998) .... $176,221,237 $73,523,094
---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................ 5,759,335 100
---------------- ----------------
Shares sold .............................................. 9,745,318 5,951,910
Shares issued to shareholders in reinvestment of
distributions .......................................... 721,489 136,821
Shares redeemed .......................................... (2,902,917) (329,496)
---------------- ----------------
Net increase (decrease) in Fund shares ................... 7,563,890 5,759,235
---------------- ----------------
Shares outstanding at end of period ...................... 13,323,225 5,759,335
---------------- ----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

18 - Scudder High Yield Bond Fund
<PAGE>

Financial Highlights

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

<TABLE>
<CAPTION>
For the Period
June 28, 1996
(commencement of
Year ended February operations) to
28, 1998 February 28, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------------------------------------
Net asset value, beginning of period .......................................... $12.77 $12.00
-----------------------------------------
Income from investment operations:
Net investment income ......................................................... 1.19 .76
Net realized and unrealized gain on investment transactions ................... .57 .77
-----------------------------------------
Total from investment operations .............................................. 1.76 1.53
-----------------------------------------
Less distributions from:
Net investment income ...................................................... (1.17) (.76)
Net realized gains from investment transactions ............................ (.14) (.01)
-----------------------------------------
Total distributions ........................................................... (1.31) (.77)
-----------------------------------------
Redemption fees ............................................................... .01 .01
-----------------------------------------
Net asset value, end of period ................................................ $13.23 $12.77
-----------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) .......................................................... 14.60 13.23(b)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................................ 176 74
Ratio of operating expenses, net to average daily net assets (%) .............. .03 0.00
Ratio of operating expenses before expense reductions, to average daily net
assets (%) ................................................................. 1.23 1.75*
Ratio of net investment income to average daily net assets (%) ................ 9.28 9.44*
Portfolio turnover rate (%) ................................................... 112.7 39.8*
</TABLE>

19 - Scudder High Yield Bond Fund
<PAGE>

Notes to Financial Statements

A. Significant Accounting Policies

Scudder High Yield Bond Fund (the "Fund") is a diversified series of Scudder
Portfolio Trust (the "Trust"). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.

The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed by the Fund in the preparation of its
financial statements.

Security Valuation. Portfolio debt securities other than money market securities
are valued by pricing agents approved by the officers of the Fund, which
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.

Portfolio securities which are traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is then
valued at the calculated mean between the most recent bid and asked quotations.
If there are no such bid and asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq System, for which there have been sales,
are valued at the most recent sale price reported on such system. If there are
no such sales, the value is the most recent bid quotation. Securities which are
not quoted on the Nasdaq System but are traded in another over-the-counter
market are valued at the most recent sale price on such market. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation shall be used. All other securities are valued at
their fair value as determined in good faith by the Valuation Committee of the
Board of Trustees.

Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.

Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly the Fund paid no federal income taxes and no federal
income tax provision was required.

Redemption Fees. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 1% of the current net asset value of the shares
will be assessed and retained by the Fund for the benefit of the remaining
shareholders. The redemption fee is accounted for as an addition to paid-in
capital.

Distribution of Income and Gains. Substantially all of the net investment income
is declared daily and distributed monthly. During any particular year net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed and, therefore,
will be distributed to shareholders. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income

20 - Scudder High Yield Bond Fund
<PAGE>

(loss) and net realized gain (loss) on investment transactions for a reporting
period may differ significantly from distributions during such period.
Accordingly, the Fund may periodically make reclassifications among certain of
its capital accounts without impacting the net asset value of the Fund.

The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.

Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.

Other. Investment security transactions are accounted for on a trade-date basis.
Distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. All discounts are accreted for both tax
and financial reporting purposes.

B. Purchases and Sales of Securities

For the year ended February 28, 1998, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $211,508,918 and $120,508,139, respectively. Purchases and sales of
U.S. Government obligations aggregated $13,776,796 and $13,776,270,
respectively.

C. Related Parties

Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Trustees and by the Fund's Shareholders. The
Management Agreement, which is effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.

Under the Management Agreement with Scudder Kemper, the Fund pays the Adviser a
fee equal to an annual rate of 0.70% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of the
Fund, the Adviser directs the investments of the Fund in accordance with its
investment objectives, policies, and restrictions. The Adviser determines the
securities, instruments, and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Agreement. The Adviser agreed not to impose all of its management fee
until December 31, 1997 in order to maintain the annualized expenses of the Fund
at not more than 0.0% of average daily net assets. Effective January 1, 1998,
the Adviser agreed not to impose all or a portion of its management fee until
June 30, 1998 in order to maintain the annualized expenses of the Fund at not
more than 0.25% of average daily net assets. For the year ended February 28,
1998, the Adviser did not impose any of its management fee, which amounted to
$868,780. Further, due to the limitations of such Agreement, the Adviser's
reimbursement payable to the Fund for the year ended February 28, 1998, amounted
to $386,163.

21 - Scudder High Yield Bond Fund
<PAGE>

Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended February 28, 1998, SSC did not impose any of its fee, which amounted
to $178,661.

The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At February 28, 1998, the
Special Servicing Agreement expense charged to the Fund amounted to $157,801.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended February 28,
1998, STC did not impose any of its fee, which amounted to $7,775.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
February 28, 1998, SFAC did not impose any of its fee, which amounted to
$46,705.

The Fund pays each of its Trustees not affiliated with the Adviser an annual
retainer divided equally among the series of the Trust, plus specified amounts
for attended board and committee meetings. For the year ended February 28, 1998,
the Trustee's fees and expenses aggregated $39,875.

22 - Scudder High Yield Bond Fund
<PAGE>

Report of Independent Accountants

To the Trustees of Scudder Portfolio Trust and the Shareholders of Scudder High
Yield Bond Fund:

We have audited the accompanying statement of assets and liabilities of Scudder
High Yield Bond Fund, including the investment portfolio, as of February 28,
1998, and the related statement of operations for the year then ended, the
statement of changes in net assets and the financial highlights for the year
ended February 28, 1998 and for the period June 28, 1996 (commencement of
operations) to February 28, 1997. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder High Yield Bond Fund as of February 28, 1998, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the year ended February 28, 1998 and for the period
June 28, 1996 (commencement of operations) to February 28, 1997, in conformity
with generally accepted accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
April 15, 1998

23 - Scudder High Yield Bond Fund
<PAGE>

Tax Information

By now shareholders for whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund.

The Fund paid distributions of $0.02 per share from net long-term capital gains
during its year ended February 28, 1998, of which 11% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$558,642 as capital gain dividends for its year ended February 28, 1998, of
which 23.15% represents 20% rate gains.

Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Scudder Fund account, please call a Scudder Investor Relations
Representative at 1-800-225-5163.

24 - Scudder High Yield Bond Fund

<PAGE>
Shareholder Meeting Results

A Special Meeting of Shareholders (the "Meeting") of Scudder High Yield Bond
Fund (the "Fund") was held on October 24, 1997, at the office of Scudder Kemper
Investments, Inc. (formerly Scudder, Stevens & Clark, Inc.), Two International
Place, Boston, Massachusetts 02110. At the Meeting, as adjourned and reconvened,
the following matters were voted upon by the shareholders (the resulting votes
for each matter are presented below). With regard to certain proposals, it was
recommended that the Meeting be reconvened in order to provide shareholders with
an additional opportunity to return their proxies. The date of the reconvened
meeting at which the matters were decided is noted after the proposed matter.

1. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.

Number of Votes:
----------------

For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------

6,162,540 198,573 167,260 17,947

2. To elect Trustees.

Number of Votes:
----------------

Trustee For Withheld
------- --- --------

Henry P. Becton, Jr. 6,357,755 170,618

Dawn-Marie Driscoll 6,357,022 171,351

Peter B. Freeman 6,356,586 171,787

George M. Lovejoy, Jr. 6,356,915 171,458

Dr. Wesley W. Marple, Jr. 6,356,591 171,782

Daniel Pierce 6,356,729 171,644

Kathryn L. Quirk 6,344,912 183,461

Jean C. Tempel 6,356,722 171,651

3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise.

Number of Votes:
----------------

For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
6,004,222 282,412 223,792 17,947

25 - Scudder High Yield Bond Fund

<PAGE>

4. To approve certain amendments to the Declaration of Trust. Sufficient
proxies had not been received by December 2, 1997 to approve the
amendments to the Declaration of Trust. Management has determined not to
continue to seek shareholder approval for this item.

Number of Votes:
----------------

For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
6,179,294 253,585 210,921 17,947

5. To approve the revision of certain fundamental investment policies.

<TABLE>
<CAPTION>
Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------

<S> <C> <C> <C> <C>
5.1 Diversification 6,059,045 233,083 218,298 17,947
5.2 Borrowing 6,046,250 242,237 221,939 17,947
5.3 Senior securities 6,055,820 233,897 220,709 17,947
5.4 Concentration 6,054,656 234,430 221,340 17,947
5.5 Underwriting of securities 6,053,000 200,948 256,478 17,947
5.6 Investment in real estate 6,054,877 201,786 253,763 17,947
5.7 Purchase of physical 6,043,812 209,524 257,090 17,947
commodities
5.8 Lending 6,052,793 201,569 256,064 17,947
</TABLE>

6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.

Number of Votes:
----------------

For Against Abstain
--- ------- -------

6,211,399 105,255 211,719

* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.

26 - Scudder High Yield Bond Fund

<PAGE>
This Page
intentionally
left blank.

27 - Scudder High Yield Bond Fund

<PAGE>

Officers and Trustees

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; President, Driscoll
Associates

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, College
of Business Administration

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 M. Hutchinson*
Vice President

Thomas W. Joseph*
Vice President

Valerie F. Malter*
Vice President

Stephen A. Wohler*
Vice President

Thomas F. McDonough*
Vice President, Secretary and
Treasurer

John R. Hebble*
Assistant Treasurer

Caroline Pearson*
Assistant Secretary

*Scudder Kemper Investments, Inc.

28 - Scudder High Yield Bond Fund

<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*

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

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 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. +++ +++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 other stock exchanges.

29 - Scudder High Yield Bond Fund

<PAGE>

Scudder Solutions
<TABLE>
<CAPTION>

Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy

A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.

Automatic Dividend Transfer Payroll Deduction and Direct Deposit

The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).

Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.

Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.

Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell

You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.

Distributions Direct

Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.

30 - Scudder High Yield Bond Fund
<PAGE>

Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder

Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.

Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.

Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.

For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center

For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York

</TABLE>

31 - Scudder High Yield Bond Fund
<PAGE>
About the Fund's Adviser

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

Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.

Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.

This information must be preceded or accompanied by a
current prospectus.

Portfolio changes should not be considered recommendations
for action by individual investors.

SCUDDER

[LOGO]
<PAGE>
SCUDDER PORTFOLIO TRUST

PART C. OTHER INFORMATION

<TABLE>
<S> <C>
<CAPTION>
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 and for the fiscal year ended February 28, 1998.

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
Notes to Financial Statements

Part C - Page 1
<PAGE>

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, 1998
Statement of Assets and Liabilities as of February 28, 1998
Statement of Operations for the period June 28, 1996 (commencement of
operations) to February 28, 1997 and for the fiscal year ended February 28,
1998
Statement of Changes in Net Assets for the period June 28, 1996 (commencement
of operations) to February 28, 1997 and for the fiscal year ended February 28,
1998
Financial Highlights for the period June 28, 1996 (commencement of operations)
to February 28, 1997 and for the fiscal year ended February 28, 1998
Notes to Financial Statements
Report of Independent Accountants

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 incorporated by reference to Post-Effective
Amendment No. 71.

(d)(1) Investment Management Agreement between the Registrant, on behalf of
Scudder Balanced Fund, and Scudder Kemper Investments, Inc. dated
December 31, 1997 is incorporated by reference to Post-Effective
Amendment No. 71.

(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 incorporated by reference to
Post-Effective Amendment No. 71.

(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.

Part C - Page 3
<PAGE>

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.

(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.

Part C - Page 4
<PAGE>

(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.

(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. Report of Independent Accountants is filed herein.

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.

(d) Scudder Funds 403(b) Plan is incorporated by reference to
Post-Effective Amendment No. 69.

Part C - Page 5
<PAGE>

(e) Scudder Cash or Deferred Profit Sharing Plan under Section 401(k) is
incorporated by reference to Post-Effective Amendment No. 69.

15. Inapplicable.

16. Schedule of Computation of Performance Information is incorporated
by reference to Post-Effective Amendment No. 69.

17. Article 6 Financial Data Schedule is filed herein.

18. Inapplicable.

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

None

Item 26. Number of Holders of Securities (as of June 5, 1998).
- -------- -----------------------------------------------------

(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------

Shares of beneficial interest
($0.01 par value):

Scudder Income Fund 107,613

Scudder Balanced Fund 22,137

Scudder High Yield Bond Fund 7,173
</TABLE>

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 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

Part C - Page 6
<PAGE>

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 to be such Trustee or
officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such

Part C - Page 7
<PAGE>

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.

<TABLE>
<S> <C>
<CAPTION>
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 America o
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 Corporation oo
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 Corporation oo
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
# Societe 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
</TABLE>

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.

<TABLE>
<S> <C> <C> <C>
<CAPTION>
(1) (2) (3)

Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with 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 Assistant None
Two International Place Treasurer
Boston, MA 02110

Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110

Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154

Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue 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, Inc. Offices with 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 Clerk
Boston, MA 02110

Thomas F. McDonough Clerk Vice President, Treasurer
Two International Place and Secretary
Boston, MA 02110

Daniel Pierce Director, Vice President President and Trustee
Two International Place and Assistant Treasurer
Boston, MA 02110

Kathryn L. Quirk Director, Senior Vice President Trustee, Vice President
345 Park Avenue and Assistant Clerk and Assistant Secretary
New York, NY 10154

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)

(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------

Scudder Investor None None None None
Services, Inc.
</TABLE>

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 Kemper
Investments, 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.

Part C - Page 11
<PAGE>

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 certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and 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 19th 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>
<S> <C> <C>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----

/s/Daniel Pierce
- --------------------------------------
Daniel Pierce* President (Principal Executive June 19, 1998
Officer) and Trustee

/s/Henry P. Becton, Jr.
- --------------------------------------
Henry P. Becton, Jr.* Trustee June 19, 1998

/s/Dawn-Marie Driscoll
- --------------------------------------
Dawn-Marie Driscoll* Trustee June 19, 1998

/s/Peter B. Freeman
- --------------------------------------
Peter B. Freeman* Trustee June 19, 1998

/s/George M. Lovejoy, Jr.
- --------------------------------------
George M. Lovejoy, Jr.* Trustee June 19, 1998

/s/Wesley W. Marple, Jr.
- --------------------------------------
Wesley W. Marple, Jr.* Trustee June 19, 1998

/s/Kathryn L. Quirk
- --------------------------------------
Kathryn L. Quirk* Trustee, Vice President and Assistant June 19, 1998
Secretary

/s/Jean C. Tempel
- --------------------------------------
Jean C. Tempel* Trustee June 19, 1998
</TABLE>

<PAGE>

*By: /s/Thomas F. McDonough
------------------------------------------
Thomas F. McDonough**

** 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

FORM N-1A

POST-EFFECTIVE AMENDMENT NO. 74
TO REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

AND

AMENDMENT NO. 35
TO REGISTRATION STATEMENT

UNDER

THE INVESTMENT COMPANY ACT OF 1940

SCUDDER PORTFOLIO TRUST

<PAGE>

SCUDDER PORTFOLIO TRUST

EXHIBIT INDEX

Exhibit 11
Exhibit 17

Coopers Coopers & Lybrand L.L.P.
& Lybrand
a professional services firm

CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------

To the Trustees of Scudder Portfolio Trust:

We consent to the incorporation by reference in Post-Effective Amendment No. 74
to the Registration Statement of Scudder Portfolio Trust on Form N-1A of our
report dated April 15, 1998 on our audit of the financial statements and
financial highlights of Scudder High Yield Bond Fund, which report is included
in the Annual Report to Shareholders for the year ended February 28, 1998 which
is incorporated by reference in the Post-Effective Amendment to the Registration
Statement.

We also consent to the reference to our Firm under the caption "Experts".

/s/Coopers & Lybrand L.L.P.
---------------------------

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
June 26, 1998

<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the High
Yield Bond Fund Annual Report for the fiscal year ended 2/28/98 and is qualified
in its entirety by reference to such financial statements.

</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> SCUDDER HIGH YIELD BOND FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> FEB-28-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 169,513,744
<INVESTMENTS-AT-VALUE> 175,360,414
<RECEIVABLES> 5,466,034
<ASSETS-OTHER> 14,465
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 180,840,913
<PAYABLE-FOR-SECURITIES> 3,714,992
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 904,684
<TOTAL-LIABILITIES> 4,619,676
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 168,791,529
<SHARES-COMMON-STOCK> 13,323,225
<SHARES-COMMON-PRIOR> 5,759,335
<ACCUMULATED-NII-CURRENT> 320,732
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,262,306
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,846,670
<NET-ASSETS> 176,221,237
<DIVIDEND-INCOME> 590,781
<INTEREST-INCOME> 10,933,494
<OTHER-INCOME> 0
<EXPENSES-NET> 33,186
<NET-INVESTMENT-INCOME> 11,491,089
<REALIZED-GAINS-CURRENT> 2,680,787
<APPREC-INCREASE-CURRENT> 3,474,590
<NET-CHANGE-FROM-OPS> 17,646,466
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,198,598)
<DISTRIBUTIONS-OF-GAINS> (1,527,954)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,745,318
<NUMBER-OF-SHARES-REDEEMED> (2,902,917)
<SHARES-REINVESTED> 721,489
<NET-CHANGE-IN-ASSETS> 102,698,143
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 109,473
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 868,780
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,521,270
<AVERAGE-NET-ASSETS> 123,771,745
<PER-SHARE-NAV-BEGIN> 12.77
<PER-SHARE-NII> 1.19
<PER-SHARE-GAIN-APPREC> 0.58
<PER-SHARE-DIVIDEND> 1.17
<PER-SHARE-DISTRIBUTIONS> (1.14)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.23
<EXPENSE-RATIO> 0.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>