SCUDDER PRIME FUND, 497, 1996-11-25

SCUDDER PRIME FUND
497, 1996-11-25

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This prospectus sets forth concisely the information about Scudder Pathway
Series: Conservative Portfolio (the "Portfolio"), a diversified open-end
management investment company, that a prospective investor should know before
investing. Scudder Pathway Series is composed of four separate Portfolios with
distinctly different investment objectives. Each Portfolio, one of which is
offered herein, seeks to accomplish its objective by investing primarily in a
number of other Scudder funds (the "Underlying Scudder Funds"). Please retain
this prospectus for future reference.

If you require more detailed information, a Statement of Additional Information
dated November 15, 1996, 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.

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.

Scudder
Pathway Series: Conservative
Portfolio

Prospectus
November 15, 1996

A pure no-load(TM) (no sales charges) mutual fund which seeks primarily current
income and secondarily long-term growth of capital by investing in a select mix
of Scudder Funds.
<PAGE>

Expense information

This information is designed to help you understand the various costs and
expenses that an investor in Scudder Pathway Series: Conservative Portfolio will
bear directly or indirectly. With Scudder's pure no-load(TM) portfolios and
funds, you pay no commissions to purchase or redeem shares, or to exchange from
one portfolio or 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 Portfolio for various transactions.

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

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

Investment management fee NONE
12b-1 fees NONE
Other expenses NONE
----
Total Portfolio operating expenses** NONE

The Portfolio is expected to operate at a zero expense level. However, the
Portfolio's shareholders will indirectly bear the Portfolio's pro rata share of
fees and expenses incurred by the Underlying Scudder Funds in which the
Portfolio is invested. The investment returns of the Portfolio, therefore, will
be net of the Portfolio's share of the expenses of the Underlying Scudder Funds
in which the Portfolio is invested. The chart on page 3 shows the expense ratios
of each Underlying Scudder Fund after fee waiver or reimbursement where
applicable, as of its most recent fiscal year end.

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

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

** The payment of the Portfolio's pro rata share of expenses is subject to the
Special Servicing Agreement. Please refer to "Portfolio
organization--Special Servicing Agreement."

2
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Expense Ratios of the Underlying Scudder Funds

Underlying Scudder Funds Expense Ratio
------------------------ -------------
Money Market Fund
Scudder Cash Investment Trust 0.83%
Bond Mutual Funds
Scudder Emerging Markets Income Fund 1.50%
Scudder Global Bond Fund+ 1.00%
Scudder GNMA Fund 0.94%
Scudder High Yield Bond Fund+ 0.00%
Scudder Income Fund 0.99%
Scudder International Bond Fund 1.26%
Scudder Short Term Bond Fund 0.75%

Underlying Scudder Funds Expense Ratio
------------------------ -------------
Equity Mutual Funds
Scudder Capital Growth Fund 0.92%
Scudder Classic Growth Fund+ 1.25%
Scudder Development Fund 1.24%
Scudder Emerging Markets Growth Fund+ 2.00%
Scudder Global Discovery Fund 1.69%
Scudder Global Fund 1.34%
Scudder Gold Fund 1.50%
Scudder Growth and Income Fund 0.80%
Scudder International Fund 1.14%
Scudder Latin America Fund 2.08%
Scudder Micro Cap Fund+ 1.75%
Scudder Pacific Opportunities Fund 1.74%
Scudder Quality Growth Fund 1.17%
Scudder Small Company Value Fund 1.50%
Scudder 21st Century Growth Fund+ 1.75%
Scudder Value Fund+ 1.25%

Based on the foregoing, the range for the average weighted expense ratio borne
by the Portfolio is expected to be 0.16% to 1.79%. A range is provided since the
average assets of the Portfolio invested in each of the Underlying Scudder Funds
will fluctuate.

Example

Using the midpoint of the ratios set forth above, the total pro rata 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 each Underlying Scudder Fund before it distributes
its net investment income to the Portfolio. (As noted above, the Portfolio has
no redemption fees of any kind.)

1 Year 3 Years
$10 $31

See "Portfolio organization--Special Servicing Agreement" for an explanation of
the Special Servicing Agreement. This example assumes that the Portfolio
reinvests all dividends and distributions paid by the Underlying Scudder Funds.
This example should not be considered a representation of past or future
expenses or returns. Actual expenses and returns of each Underlying Scudder Fund
vary from year to year and may be higher or lower than those shown .

+The following funds maintained their expenses at the following rates for their
respective fiscal periods: Scudder Classic Growth Fund: 1.25%, Scudder Emerging
Markets Growth Fund: 2.00%, Scudder Global Bond Fund: 1.00%, Scudder High Yield
Bond Fund: 0.00%, Scudder Micro Cap Fund: 1.75%, Scudder 21st Century Growth
Fund: 1.75% and Scudder Value Fund: 1.25%. If the Adviser had not maintained the
Funds' expenses, the total return for the period would have been lower. Please
see the appropriate Underlying Scudder Fund prospectus for details.

3
<PAGE>

A message from Scudder's chairman

Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $100 billion for many private accounts and
over 50 mutual fund portfolios. We 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 nine closed-end funds that invest in 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 and offers IRAs,
401(k)s, Keoghs and other retirement plans.

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

All Scudder mutual funds are pure no-load(TM). This means you pay no commissions
to purchase or redeem your 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/Daniel Pierce

Scudder Pathway Series: Conservative Portfolio

Investment Objective

o primarily current income and secondarily long-term growth of capital

Investment Characteristics

o a professionally managed portfolio which allocates its investments among
select Scudder Funds

o provides exposure to a wide range of asset classes, securities and markets
around the globe

o no added fees or expenses associated with the operation of Scudder Pathway
Series: Conservative Portfolio

o appropriate for IRA, 401(k) and other retirement plans

Contents

Investment objective and policies 5
Why invest in the Portfolio? 6
Description of the Underlying
Scudder Funds 7
Information about policies,
investments and risks 17
Investment restrictions of the Portfolio 19
Risks of investing in the Portfolio 19
Distribution and performance information 20
Portfolio organization 21
Transaction information 23
Shareholder benefits 27
Trustees and Officers 29
Investment products and services 30
How to contact Scudder 31
Purchases 32
Exchanges and redemptions 33
Appendix

4
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Investment objective and policies

Scudder Pathway Series: Conservative Portfolio (the "Portfolio") is one of four
professionally managed, diversified portfolios of Scudder Pathway Series (the
"Trust"). The Portfolio invests primarily in a select mix of Scudder Funds. The
Portfolio's investment objective is to seek current income and secondarily
long-term growth of capital. In pursuit of these objectives, the Portfolio,
under normal market conditions, will invest substantially in bond mutual funds,
but will have some exposure to equity mutual funds.

The Scudder Funds in which the Portfolio may invest are referred to as the
"Underlying Scudder Funds," (see below). Some of these Underlying Scudder Funds
are bond mutual funds which primarily seek current income. Other Underlying
Scudder Funds held by the Portfolio are equity mutual funds which invest largely
in stocks to achieve growth. The portfolio management team for the Portfolio
allocates investments based on the outlook of the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser") for the financial markets, world
economies and the relative performance potential of the Underlying Scudder
Funds. Under normal market conditions, the Conservative Portfolio will invest
40-80% of total assets in bond mutual funds; 20-50% of total assets in equity
mutual funds; and 0-15% of total assets in a money market fund, cash or cash
equivalents. If, as a result of appreciation or depreciation, the percentage of
the Portfolio's assets invested in the above categories exceeds or is less than
the applicable ranges, the Adviser will consider, in its discretion, whether to
reallocate the assets of the Portfolio to comply with the stated ranges.

The Portfolio will purchase or sell shares of Underlying Scudder Funds to: (a)
accommodate purchases and sales of the Portfolio's shares, (b) change the
percentages of the Portfolio's assets invested in each of the Underlying Scudder
Funds in response to changing market conditions, and (c) maintain or modify the
allocation of the Portfolio's assets in accordance with the investment mix
described above. To provide for redemptions or for temporary defensive purposes,
the Portfolio may invest without limit in cash or cash equivalents, including
repurchase agreements, commercial paper and other types of money market
instruments.

Except as otherwise indicated, the Portfolio's investment objective and policies
are not fundamental and may be changed without a vote of shareholders.

------------------------------------------------------
Underlying Scudder Funds in which Pathway
Conservative Portfolio may invest
------------------------------------------------------

Bond Mutual Funds
Scudder Emerging Markets Growth Fun
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund

Equity Mutual Funds
Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Fund
Scudder Global Discovery Fund
Scudder Gold Fund
Scudder Growth and Income Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund

Money Market Fund
Scudder Cash Investment Trust

5
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Investment objective and policies (cont'd)

If there is a change in investment objective, shareholders should consider
whether the Portfolio remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the
Portfolio's objective will be met.

For information about the investment objectives of each of the Underlying
Scudder Funds, please refer to "Description of the Underlying Funds." For
information about purchasing, exchanging or redeeming shares, refer to
"Transaction information," "Purchases" and "Exchanges and redemptions."

Why invest in the Portfolio?

The Pathway Series Portfolios are designed for individuals and institutions who
prefer to have their asset allocation decisions made by professional money
managers, are looking for an appropriate core investment for their retirement
portfolio and appreciate the advantages of broad diversification. Scudder
Pathway Series: Conservative Portfolio seeks primarily current income and
secondarily long-term growth of capital by investing in a mix of Scudder Funds.
Reflecting these objectives, the Portfolio will allocate its assets carefully
among Scudder bond mutual funds and, to a lesser extent, Scudder equity mutual
funds.

Pathway Conservative Portfolio is designed to meet the needs of investors with a
time horizon of at least 3-5 years seeking to develop a diversified portfolio
offering income with the potential for long-term growth of capital. The
Portfolio may be most appropriate for investors nearing or in retirement,
particularly investors in tax-advantaged retirement accounts including IRAs,
401(k) corporate employee savings plans and 403(b) non-profit organization
savings plans.

The proliferation of mutual funds over the last several years and the increased
responsibilities shouldered by employees for managing their retirement plan
assets have left many investors in search of a simple means to manage their
long-term investments. With new investment categories emerging each year and
with each mutual fund reacting differently to political, economic and business
events, many investors are forced to make complex investment decisions with
limited experience, time and personal resources.

The Portfolio can serve as a complete investment program or as a core part of a
larger portfolio. Pathway Conservative Portfolio invests in a select group of
established pure no-load(TM) Underlying Scudder Funds. The allocation of assets
within the Portfolio is determined by the Adviser according to fundamental and
quantitative analysis. Shifts will be made among Underlying Scudder Funds and
asset classes based on the Adviser's then current outlook for the financial
markets and the world's economies. Because the Portfolio's assets will be
adjusted only periodically and only within the investment ranges described
above, there should not be any sudden large-scale changes in the Portfolio's
asset allocation. The Portfolio is not designed as a market timing vehicle, but
rather as a cost-effective, conservative and simple approach to helping
investors meet retirement and other long-term goals.

The Portfolio can invest in a variety of international and global Underlying
Scudder Funds and expects to invest some portion of assets in foreign markets.
The Adviser believes this commitment to global investment management
differentiates the Portfolio from traditional funds of funds and asset
allocation products. Adding an international component to a retirement portfolio
can increase diversification and lower volatility, while enhancing and providing
the most consistent returns over time.

6
<PAGE>

In addition, Pathway Conservative Portfolio offers all the benefits of the
Scudder Family of Funds. Scudder, Stevens & Clark, Inc. manages a diverse family
of pure no-load(TM) funds and provides a wide range of services to help
investors meet their investment needs. Please refer to "Investment products and
services" for additional information.

Description of the Underlying Scudder Funds

The following is a concise description of the investment objectives and
practices for each of the Underlying Scudder Funds. There can be no assurance
that the Underlying Scudder Funds' objectives will be met. Additional
information regarding the investment practices of the Underlying Scudder Funds
is located in the section entitled "Additional information about policies and
investments," in the Appendix to this prospectus, in the sections entitled "The
Fund's Investment Objectives and Policies" and "Glossary" in the Statement of
Additional Information and in the prospectuses of each of the Underlying Scudder
Funds. Prospectuses for the Underlying Scudder Funds may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. No offer is made in this
prospectus of shares of any of the Underlying Scudder Funds.

The following Underlying Scudder Fund is the money market fund in which the
Portfolio may invest and will likely serve as the primary cash reserve portion
of the Portfolio.

Scudder Cash Investment Trust is a diversified investment company which seeks to
maintain stability of capital and, consistent therewith, to maintain liquidity
of capital and to provide current income. The Fund seeks to maintain a constant
net asset value of $1.00 per share. Shares of the Fund are not insured or
guaranteed by the U.S. Government and there can be no assurance that a stable
net asset value will be maintained.

The Fund purchases U.S. dollar-denominated money market securities. All of the
Fund's portfolio securities must meet certain quality criteria at the time of
purchase. Generally, the Fund may purchase only securities which are rated, or
issued by a company with comparable securities rated, within the two highest
quality rating categories of one or more of the following rating agencies:
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's ("S&P") and Fitch
Investors Service, Inc. ("Fitch") or, if unrated, the credit quality of the
security is deemed equivalent, in the opinion of the Adviser, to the rated
securities mentioned above. Amendments have been proposed to the federal rules
regulating quality, maturity and diversification requirements of money market
funds, like the Fund. If the amendments are adopted, the Fund intends to comply
with such new requirements.

The maturity of each investment in the Fund's portfolio is 397 calendar days or
less, except in the case of U.S. Government securities which may have maturities
of up to 762 calendar days. The dollar-weighted average maturity of the Fund's
portfolio varies with money market conditions, but is always 90 days or less. As
a money market fund with a short-term maturity, the Fund's income fluctuates
with changes in interest rates but its price is expected to remain fixed at
$1.00 per share.

The following Underlying Scudder Funds are bond mutual funds which primarily
seek to provide current income or total return.

The Fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any one of th following: International Bank

7
<PAGE>

Description of the Underlying Scudder Funds (cont'd)

for Reconstruction and Development (i.e., the World Bank), the International
Finance Corporation or the United Nations or its authorities.

To reduce currency risk, the Fund invests at least 65% of its assets in U.S.
dollar-denominated debt securities. Therefore, no more than 35% of the Fund's
assets may be invested in debt securities denominated in foreign currencies. By
focusing on fixed-income instruments issued in emerging markets, the Fund
invests predominantly in debt securities that are rated below investment-grade.
The Fund may invest up to 5% of its net assets in non-performing securities
whose quality is comparable to securities rated as low as D by S&P or C by
Moody's. Please refer to the attached Appendix for further information.

The Fund involves above-average bond fund risk and can invest entirely in high
yield/high risk bonds. Investments in emerging markets can be volatile. The
Fund's share price and yield can fluctuate daily in response to political
events, changes in the perceived creditworthiness of emerging nations,
fluctuations in interest rates and, to a certain extent, movements in foreign
currencies.

The Fund will invest principally in a managed portfolio of high-grade
intermediate- and long-term bonds denominated in the U.S. dollar and foreign
currencies, including bonds denominated in the European Currency Unit (ECU).
(Intermediate-term bonds generally have maturities between three and eight
years, and long-term bonds generally have maturities of greater than eight
years.) Portfolio investments will be selected on the basis of, among other
things, yields, credit quality, and the fundamental outlooks for currency and
interest rate trends in different parts of the globe, taking into account the
ability to hedge a degree of currency or local bond price risk. At least 65% of
the Fund's investments will consist of high-grade debt securities, which are
those rated in one of the three highest rating categories of one of the major
U.S. rating services or, if unrated, considered to be of equivalent quality in
local currency terms as determined by the Adviser. The Fund may also invest up
to 15% of its net assets in debt securities rated BBB by S&P or Baa by Moody's
and lower, or unrated securities considered to be of equivalent quality by the
Adviser. Securities rated below Baa by Moody's or BBB by S&P are commonly
referred to as "junk bonds." The Fund will not invest in any securities rated B
or lower.

The Fund may invest in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities; obligations issued or guaranteed
by foreign national governments, their agencies, instrumentalities or political
subdivisions; and debt securities issued or guaranteed by supranational
organizations such as the European Investment Bank, Inter-American Development
Bank and The World Bank. The Fund may also invest in non-government securities
including corporate debt securities, bank or bank holding company obligations
(e.g., certificates of deposit and bankers acceptances), and mortgage and other
asset-backed issues.

Scudder GNMA Fund is a diversified investment company which seeks to provide
high current income and safety of principal from a portfolio of high quality,
U.S. Government guaranteed mortgage-backed securities and U.S. Treasury
securities. Under normal conditions, the Fund invests at least 65% of its total
assets in mortgage-backed securities issued or guaranteed by the Government
National Mortgage Association ("GNMA" or "Ginnie Mae"). Such guarantees are

8
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supported by the full faith and credit of the U.S. Government. These guarantees
apply only to the timely payment of both principal and interest of the GNMA
securities held in the Fund's portfolio. Up to 35% of the Fund's total assets
may be held in cash, cash equivalents or invested in securities issued or
directly guaranteed by the U.S. Government, including U.S. Treasury bills, notes
and bonds.

The market values of the Fund's investments and correspondingly the Fund's share
price will vary inversely with changes in prevailing interest rates and in
response to other bond market factors, such as changes in the supply and demand
for mortgage-backed securities.

Scudder High Yield Bond Fund is a diversified investment company which seeks a
high level of current income and, secondarily, capital appreciation through
investment primarily in below investment-grade domestic debt securities. 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, sometimes referred to as "junk" bonds. Such 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 the
attached Appendix for further information. 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.
The Fund may invest up to 25% of its total assets in foreign securities,
including those of 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 weighted average maturity of
the Fund's portfolio and no restriction on the maturity of any individual
security held in the portfolio.

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

The Fund invests primarily in a broad range of high-grade, income-producing
securities such as corporate bonds and government securities. All bonds
purchased by the Fund will be investment-grade bonds. The majority of the Fund's
assets are usually invested in intermediate and longer term fixed-income
securities. The Fund may invest up to 25% of its assets in bonds rated Baa by
Moody's or BBB by S&P, or, if unrated, in bonds of equivalent quality as
determined by the Adviser.

To achieve its objectives, the Fund primarily invests in a managed portfolio of
high-grade debt securities denominated in foreign currencies, including bonds
denominated in the European Currency Unit (ECU). Portfolio investments will be
selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund will normally invest at least 65% of its total
assets in bonds denominated in foreign currencies. The Fund will invest no more
than 35% of the value of its total assets in U.S. debt securities. The Fund will
invest no more than 15% of its total assets in debt securities rated below
investment-grade, but no lower than B.

9
<PAGE>

Description of the Underlying Scudder Funds (cont'd)

Please refer to the attached Appendix for further information.

Scudder Short Term Bond Fund is a diversified investment company which 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. The
dollar-weighted average effective maturity of the Fund's portfolio may not
exceed three years. The net asset value of the Fund is expected to fluctuate
with changes in interest rates and bond market conditions, although this
fluctuation should be more moderate than that of a fund with a longer average
maturity. The Adviser, however, will attempt to minimize principal fluctuation
through, among other things, diversification, credit analysis and security
selection, and adjustment of the Fund's average portfolio maturity.

The Fund emphasizes high quality investments. Under normal market conditions, at
least 65% of the Fund's net assets will be invested in (1) obligations of the
U.S. Government, its agencies or instrumentalities, and (2) debt securities
rated, at the time of purchase, in one of the two highest categories of S&P or
Moody's.

In addition, the Fund will not invest in any debt security rated at the time of
purchase below investment-grade.

The following Underlying Scudder Fund is an equity mutual fund which seeks a
combination of income and growth of capital.

Scudder Growth and Income Fund is a diversified investment company which seeks
long-term growth of capital, current income and growth of income. The Fund
attempts to achieve its investment objective by investing primarily in
dividend-paying common stocks, preferred stocks and securities convertible into
common stocks of companies with long-standing records of earnings growth. The
Fund may also purchase securities which do not pay current dividends but which
offer prospects for growth of capital and future income. Convertible securities
(which may be current coupon or zero coupon securities) are bonds, notes,
debentures, preferred stocks and other securities which may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. The Fund may also invest in nonconvertible preferred stocks
consistent with its objective.

The following Underlying Scudder Funds are equity mutual funds which seek
long-term growth of capital.

Scudder Capital Growth Fund is a diversified investment company which seeks to
maximize long-term capital growth through a broad and flexible investment
program. The Fund invests in marketable securities, principally common stocks
and, consistent with its objective of long-term capital growth, preferred
stocks. The Fund is free to invest in a wide range of marketable securities
which the Adviser believes offer the potential for long-term, above-average
growth. The Fund looks for companies whose securities appear to present a
favorable relationship between market price and opportunity. These may include
securities of companies whose fundamentals or products may be of only average
promise. The Fund may invest up to 20% of its net assets in debt securities when
management anticipates that the capital appreciation on debt securities is
likely to equal or exceed the capital appreciation on common stocks over a
selected time, such as during periods of unusually high interest rates. Such
debt securities may be rated below investment-grade, or of equivalent quality as
determined by the Adviser. However, the Fund will invest no more than 10% of its
net assets in securities rated B or lower.

Scudder Classic Growth Fund is a diversified investment company which seeks to
provide long-term growth of capital and to keep the value of its shares more

10
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stable than other growth mutual funds.

Under normal market conditions, the Fund invests primarily in a diversified
portfolio of common stocks which the Adviser believes offers above-average
appreciation potential yet, as a portfolio, offers the potential for less share
price volatility than other growth mutual funds.

In seeking such investments, the Adviser focuses its investment in high quality,
medium-to-large sized U.S. companies with leading competitive positions.

The Fund allocates its investments widely among different industries and
companies, and adjusts its portfolio securities based on long-term investment
considerations as opposed to short-term trading. While the Fund emphasizes U.S.
investments, it can commit a portion of assets to the equity securities of
foreign growth companies that meet the criteria applicable to domestic
investments.

The Fund can purchase other types of equity securities including securities
convertible into common stocks, preferred stocks, rights and warrants. The Fund
may invest up to 20% of its net assets in debt securities when the Adviser
anticipates that the capital appreciation on debt securities is likely to equal
or exceed the capital appreciation on common stocks over a selected time, such
as during periods of unusually high interest rates.

Scudder Development Fund is a diversified investment company which seeks
long-term growth of capital by investing primarily in securities of emerging
growth companies. The Fund generally invests in equity securities, including
common stocks and convertible securities, of relatively small or little-known
companies, commonly referred to as emerging growth companies, that the Adviser
believes have above-average earnings growth potential and/or may receive greater
market recognition.

To help reduce risk, the Fund allocates its investments among many companies and
different industries. In selecting industries and companies for investment, the
Adviser will consider overall growth prospects, financial condition, competitive
position, technology, research and development, productivity, labor costs, raw
material costs and sources, profit margins, return on investment, structural
changes in local economies, capital resources, the degree of governmental
regulation or deregulation, management and other factors.

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 when the anticipated performance of
foreign securities is believed by the Adviser to offer equal or more potential
than domestic alternatives in keeping with the investment objective of the Fund.
However, the Fund has no current intention of investing more than 20% of its net
assets in foreign securities.

Scudder Emerging Markets Growth Fund is a non-diversified investment company
which seeks long-term growth of capital primarily through equity investment in
emerging markets around the globe. The Fund will invest in the Asia-Pacific
region, Latin America, less developed nations in Europe, the Middle East and
Africa, focusing investments in countries and regions where there appear to be
the best value and appreciation potential, subject to considerations of
portfolio diversification and liquidity. At least 65% of the Fund's total assets
will be invested in the equity securities of emerging market issuers. 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 intends to
allocate its investments among at least three countries at all times, and does
not expect to concentrate in any particular industry. The Fund deems an issuer
to be located in an emerging market if:

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Description of the Underlying Scudder Funds (cont'd)

o the issuer is organized under the laws of an emerging market country;

o the issuer's principal securities trading market is in an emerging market;
or

o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is derived
(directly or indirectly through subsidiaries) from assets or activities
located in emerging markets.

The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depository receipts and warrants. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid securities.

The Fund may invest up to 35% of its total assets in emerging market and
domestic debt securities if the Adviser determines that the capital appreciation
of debt securities is likely to equal or exceed the capital appreciation of
equity securities. Under normal market conditions, the Fund may invest up to 35%
of its assets in equity securities of issuers in the U.S. and other developed
markets.

In pursuit of its objective, the Fund generally invests in small, rapidly
growing companies which offer the potential for above-average returns relative
to larger companies, yet are frequently overlooked and thus undervalued by the
market. The Fund has the flexibility to invest in any region of the world. It
can invest in companies based in emerging markets, typically the Far East, Latin
America and lesser developed countries in Europe, as well as in firms operating
in developed economies, such as those of the United States, Japan and Western
Europe.

Under normal circumstances, the Fund invests at least 65% of its total assets in
the equity securities of small companies. While the Adviser believes that
smaller, lesser-known companies can offer greater growth potential than larger,
more established firms, the former also involve greater risk and price
volatility. To help reduce risk, the Fund expects, under normal market
conditions, to diversify its portfolio widely by company, industry and country.
The Fund intends to allocate investments among at least three countries at all
times, one of which may be the U.S. The Fund invests primarily in companies
whose individual equity market capitalization would place them in the same size
range as companies in approximately the lowest 20% of world market
capitalization as represented by the Salomon Brothers Broad Market Index, an
index comprised of equity securities of more than 6,500 small-, medium- and
large-sized companies based in 22 markets around the globe. Based on this
policy, the companies held by the Fund typically will have individual equity
market capitalizations of between approximately $50 million and $2 billion
(although the Fund will be free to invest in smaller capitalization issues that
satisfy the Fund's size standard). Furthermore, the median market capitalization
of the companies in which the Fund invests will not exceed $750 million.

The Fund may invest up to 35% of its total assets in equity securities of larger
companies located throughout the world and in investment-grade debt securities
if the Adviser determines that the capital appreciation of debt securities is
likely to exceed the capital appreciation of equity securities. The Fund may
invest up to 5% of its net assets in debt securities rated below
investment-grade.

Scudder Global Fund is a diversified investment company which seeks long-term
growth of capital through a diversified portfolio of marketable securities,

12
<PAGE>

primarily equity securities, including common stocks, preferred stocks and debt
securities convertible into common stocks. The Fund invests on a worldwide basis
in equity securities of companies which are incorporated in the U.S. or in
foreign countries. It also may invest in the debt securities of U.S. and foreign
issuers.

The Fund will be invested usually in securities of issuers located in at least
three countries, one of which may be the U.S. It is expected that investments
will include companies of varying size as measured by assets, sales or
capitalization. The Fund generally invests in equity securities of established
companies listed on U.S. or foreign securities exchanges, but also may invest in
securities traded over-the-counter. It also may invest in debt securities
convertible into common stock, convertible and non-convertible preferred stock,
and fixed-income securities of governments, government agencies, supranational
agencies and companies when the Adviser believes the potential for appreciation
will equal or exceed that available from investments in equity securities. These
debt and fixed-income securities will be investment-grade, except that the Fund
may invest up to 5% of its total assets in debt securities rated below
investment-grade.

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

The Fund pursues its objective primarily through a portfolio of gold-related
investments. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in (1) equity securities (defined as common stock,
investment-grade preferred stock and debt securities that are convertible into
or exchangeable for common stock) of U.S. and foreign companies primarily
engaged in the exploration, mining, fabrication, processing or distribution of
gold, (2) gold bullion, and (3) gold coins. A company will be considered
"primarily engaged" in a business or an activity if it devotes or derives at
least 50% of its assets, revenues and/or operating earnings from that business
or activity. The remaining 35% of the Fund's assets may be invested in any
precious metals other than gold; in equity securities of companies engaged in
activities primarily relating to precious metals and minerals other than gold;
in investment-grade debt securities, including zero coupon bonds, of companies
engaged in activities relating to gold or other precious metals and minerals; in
certain debt securities, a portion of the return on which is indexed to the
price of precious metals. In addition, the Fund may engage in Strategic
Transactions and, to a limited extent, may invest in illiquid and restricted
securities.

Up to 10% of the Fund's total assets may be invested directly in gold, silver,
platinum and palladium bullion and in gold and silver coins. In addition, the
Fund's assets may be invested in wholly owned subsidiaries of the Scudder Mutual
Funds, Inc., of which the Fund is a series, that invest in gold, silver,
platinum and palladium bullion and in gold and silver coins.

Scudder International Fund is a diversified investment company which seeks
long-term growth of capital primarily through a diversified portfolio of
marketable foreign equity securities. The Fund invests in companies, wherever
organized, which do business primarily outside the United States. The Fund
intends to diversify investments among several countries and to have represented
in the portfolio, in substantial proportions, business activities in not less
than three different countries. The Fund does not intend to concentrate
investments in any particular industry.

The Fund's investments are generally denominated in foreign currencies. The
strength or weakness of the U.S. dollar against these currencies is responsible
for part of the Fund's investment performance.

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<PAGE>

Description of the Underlying Scudder Funds (cont'd)

The Fund may invest up to 20% of its total assets in investment-grade debt
securities except that the Fund may not invest more than 5% of its total assets
in debt securities which are rated below investment-grade.

Scudder Latin America Fund is a non-diversified investment company which seeks
to provide long-term capital appreciation through investment primarily in the
securities of Latin American issuers.

The Fund involves above-average investment risk. The Fund seeks to benefit from
economic and political trends emerging throughout Latin America. These trends
are supported by governmental initiatives designed to promote freer trade and
market-oriented economies. The Adviser believes that efforts by Latin American
countries to, among other things, reduce government spending and deficits,
control inflation, lower trade barriers, stabilize currency exchange rates,
increase foreign and domestic investment and privatize state-owned companies,
will set the stage for attractive investment returns over time.

At least 65% of the Fund's total assets will be invested in the securities of
Latin American issuers, and 50% of the Fund's total assets will be invested in
Latin American equity securities. To meet its objective to provide long-term
capital appreciation, the Fund normally invests at least 65% of its total assets
in equity securities. The Fund considers Latin American countries to include
Mexico, Central America, South America and the Spanish-speaking islands of the
Caribbean. The Fund defines securities of Latin American issuers as follows:

o Securities of companies organized under the laws of a Latin American
country or for which the principal securities trading market is in Latin
America;

o Securities issued or guaranteed by the government of a country in Latin
America, its agencies or instrumentalities, political subdivisions or the
central bank of such country;

o Securities of companies, wherever organized, when at least 50% of an
issuer's non-current assets, capitalization, gross revenue or profit in any
one of the two most recent fiscal years represents (directly or indirectly
through subsidiaries) assets or activities located in Latin America; or

o Securities of Latin American issuers, as defined above, in the form of
depositary shares.

The Fund may invest in debt securities when management anticipates that the
potential for capital appreciation is likely to equal or exceed that of equity
securities, and which are unrated, rated or the equivalent of those rated below
investment-grade although the Fund will not invest more than 10% of its net
assets in securities rated B or lower by Moody's and S&P and may invest in
securities rated C by Moody's or D by S&P. Please refer to the attached Appendix
for further information.

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

The Fund seeks to provide long-term growth of capital by investing, under normal
market conditions, at least 80% of its assets in common stocks issued by U.S.
micro-cap companies. The Fund will typically invest in companies that, at the
time of purchase, are smaller than the smallest stocks in the Russell 2000 Index
at its annual reconstitution. The median market capitalization (i.e., current
stock price times shares outstanding) of the portfolio is not expected to exceed
$125 million.

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<PAGE>

or traded over-the-counter. The Fund may invest up to 20% of its assets in U.S.
Treasuries, agency and instrumentality obligations, may enter into repurchase
agreements and may engage in strategic transactions to increase stock market
participation, enhance liquidity and manage transaction costs.

The Fund invests, under normal market conditions, at least 65% of its assets in
the equity securities of Pacific Basin companies. Pacific Basin countries
include Australia, the Peoples Republic of China, India, Indonesia, Malaysia,
New Zealand, the Philippines, Sri Lanka, Pakistan and Thailand, as well as Hong
Kong, Singapore, South Korea and Taiwan--the so-called "four tigers." The Fund
may invest in other countries in the Pacific Basin when their markets become
sufficiently developed. The Fund will not, however, invest in Japanese
securities. The Fund intends to allocate investments among at least three
countries at all times and does not expect to concentrate investments in any
particular industry. The Fund defines securities of Pacific Basin companies as
follows:

o Securities of companies organized under the laws of a Pacific Basin country
or for which the principal securities trading market is in the Pacific
Basin; or

o Securities of companies, wherever organized, when at least 50% of a
company's non-current assets, capitalization, gross revenue or profit in
any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in the
Pacific Basin.

Under normal market conditions, the Fund may invest up to 35% of its assets in
equity securities of U.S. and other non-Pacific Basin issuers (excluding Japan).
The Fund may invest up to 35% of its total assets in foreign and domestic
high-grade debt securities if the Adviser determines that the capital
appreciation of debt securities is likely to equal or exceed the capital
appreciation of equity securities.

Scudder Quality Growth Fund is a diversified investment company which seeks to
provide long-term growth of capital through investment primarily in the equity
securities of seasoned, financially-strong U.S. growth companies.

The Fund's equity investments consist of common stocks, preferred stocks and
securities convertible into common stocks of companies which are of
above-average financial quality and offer the prospect for above-average growth
in earnings, cash flow or assets relative to the overall market as defined by
the Standard & Poor's 500 Composite Price Index ("S&P 500").

The Fund invests at least 65% of its total assets in the equity securities of
seasoned, financially- strong U.S. growth companies which are considered to be
of above-average financial quality. The common stocks issued by these companies
qualify, at the time of purchase, for one of the three highest equity ranking
categories (A+, A or A-) of S&P or, if not ranked by S&P, are judged to be of
comparable quality by the Adviser. Rankings by S&P are not an appraisal of a
company's creditworthiness, as is true for S&P's debt security ratings, nor are
these rankings intended as a forecast of future stock market performance. In
addition to using S&P rankings of earnings and dividends of common stocks, the
Adviser conducts its own analysis of a company's history, current financial
position, and earnings prospects.

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<PAGE>
Description of the Underlying Scudder Funds (cont'd)

can commit a portion of assets to the equity securities of foreign growth
companies which meet the criteria applicable to domestic investments. The Fund
may invest in convertible securities which must be investment-grade.

Scudder Small Company Value Fund is a diversified investment company which
invests for long-term growth of capital by seeking out undervalued stocks of
small U.S. companies. In pursuit of long-term growth of capital, the Fund
invests, under normal circumstances, at least 80% of its assets in the common
stock of small U.S. companies. The Fund will invest in securities of companies
that are similar in size to those in the Russell 2000(R) Index of small stocks.
The median market capitalization (i.e., current stock price times shares
outstanding) of the portfolio will be below $500 million. The Fund may continue
to hold securities which have grown in market capitalization above the Russell
2000(R) Index, but will generally not add to these holdings.

Companies represented in the portfolio of the Fund typically have the following
characteristics:

o Attractive valuations relative to the Russell 2000 Index--a widely used
benchmark of small stock performance--based on measures such as price to
earnings, price to book value and price to cash flow ratios.

o Favorable trends in earnings growth rates and stock price momentum.

While the Fund invests predominantly in common stocks, it can purchase other
types of equity securities including preferred stocks (either convertible or
nonconvertible), rights and warrants. Securities may be listed on national
exchanges or, more commonly, traded over-the-counter. The Fund may invest up to
20% of its assets in U.S. Treasury, agency and instrumentality obligations, may
enter into repurchase agreements and may engage in strategic transactions, using
such derivatives contracts as index options and futures, to increase stock
market participation, enhance liquidity and manage transaction costs.

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

The Fund generally invests in equity securities, including common stocks and
convertible securities, of relatively small or little-known companies, commonly
referred to as emerging growth companies, with market capitalization typically
below $750 million. The Adviser believes these companies are well-positioned for
above-average earnings growth and/or greater market recognition. Such favorable
prospects may be a result of new or innovative products or services a given
company is developing or provides, products or services that have the potential
to impact significantly the industry in which the company competes or to change
dramatically customer behavior into the 21st century.

To help reduce risk in its search for high quality, emerging growth companies,
the Adviser allocates the Fund's investments among many companies and different
industries in the U. S. and, where opportunity warrants, abroad as well.
Emerging growth companies are those with the ability, in the Adviser's opinion,
to expand earnings per share by at least 15% per annum over the next three to
five years at a minimum.

16
<PAGE>

undervalued in relation to current and estimated future earnings and dividends.
The investment process also involves an assessment of business risk, including
the Adviser's analysis of the strength of a company's balance sheet, the
accounting practices a company follows, the volatility of a company's earnings
over time, and the vulnerability of earnings to changes in external factors,
such as the general economy, the competitive environment, governmental action,
and technological change. The Fund invests in the securities of companies that,
in the opinion of its Adviser, are undervalued in the marketplace in relation to
current and estimated future earnings and dividends. These companies generally
sell at price-earnings ratios below the market average, as defined by the S&P
500. The Fund invests at least 80% of its assets in equity securities, which
consist of common stocks, preferred stocks and securities convertible into
common stocks. While the Fund emphasizes U.S. investments, it can invest its
assets in securities of foreign companies which meet the same criteria
applicable to domestic investments. The Fund may invest up to 20% of its total
assets in debt obligations, including zero coupon securities, may enter into
repurchase agreements and may also engage in strategic transactions for hedging
purposes and to seek to increase gain.

The debt securities in which the Fund may invest may be rated below
investment-grade, although the Fund will invest no more than 10% of its net
assets in securities rated B or lower by S&P or Moody's, and may not invest more
than 5% of its net assets in securities rated C by Moody's or D by S&P.

Information about policies, investments and risks

In pursuing their investment objectives, each of the Underlying Scudder Funds is
permitted to engage in a wide range of investment policies. The Underlying
Scudder Funds' risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. Certain of these policies
are described below. Further information about the Underlying Scudder Funds is
contained in the Appendix to this prospectus, and in the Statement of Additional
Information. Also, detailed information is presented in the prospectuses of such
funds.

Foreign securities. Each Underlying Scudder Fund (except Scudder Cash Investment
Trust and Scudder GNMA Fund) may invest in foreign securities. Investments in
foreign securities involve special considerations due to more limited
information, higher brokerage costs, different accounting standards, thinner
trading markets and the likely impact of foreign taxes on the income from
securities. They may also entail certain 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
government 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, an Underlying Scudder Fund may incur currency
conversion costs and may be affected favorably or unfavorably by changes in the
value of foreign currencies against the U.S. dollar. Further, it may be more
difficult for an Underlying Scudder Fund's agents to keep currently informed
about corporate actions which may affect the prices of portfolio securities.
Communications between the United States and foreign countries may be less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Certain markets may require payment for securities before delivery.
An Underlying Scudder Fund's ability and decisions

17
<PAGE>

Information about policies, investments and risks (cont'd)

to purchase and sell portfolio securities may be affected by laws or regulations
relating to the convertibility of currencies and repatriation of assets. These
risks are greater in emerging markets.

Debt securities. In general, the prices of debt securities rise when interest
rates fall, and vice versa. This effect is usually more pronounced for longer
term debt securities.

The debt securities in which certain of the Underlying Scudder Funds may invest
are rated, or determined by the Adviser to be the equivalent of those rated, by
two nationally recognized rating organizations, Moody's and S&P. High quality
securities are those rated in the two highest categories by Moody's (Aaa or Aa)
or S&P (AAA or AA). High-grade securities are those rated in the three highest
categories by Moody's (Aaa, Aa, or A) or by S&P (AAA, AA, or A).
Investment-grade securities are those rated in the four highest categories by
Moody's (Aaa, Aa, A, or Baa) or by S&P (AAA, AA, A or BBB).

Certain Underlying Scudder Funds may invest in debt securities which are rated
below investment-grade; that is, rated below Baa by Moody's or BBB by S&P
(commonly referred to as "junk bonds"). The lower the ratings of such debt
securities, the greater their risks render them like equity securities. Moody's
considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. Certain Underlying Scudder Funds may also make
a portion of their below investment-grade investments in securities which are
rated D by S&P or, if unrated, are of equivalent quality. Securities rated D may
be in default with respect to payment of principal or interest. Additional
information regarding the ratings of debt securities and the identity of those
Underlying Scudder Funds that can invest in investment-grade or below
investment-grade debt securities may be found in the section entitled
"Description of the Underlying Scudder Funds" and in the Appendix to this
prospectus.

To the extent an Underlying Scudder Fund invests in high-grade securities, it
will be unable to avail itself of opportunities for higher income which may be
available with lower grade investments. Conversely, although some lower-grade
securities have produced higher yields in the past than the investment-grade
securities, lower-grade securities are considered to be predominantly
speculative and, therefore, carry greater risk. Please refer to the attached
Appendix for further information.

Strategic Transactions and derivatives. Each Underlying Scudder Fund (except for
Scudder Cash Investment Trust) 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 each Underlying Scudder 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.

18
<PAGE>

or currency futures (collectively, all the above are called "Strategic
Transactions"). Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of an Underlying Scudder Fund's assets
will be committed to Strategic Transactions entered into for non-hedging
purposes.

Strategic Transactions 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 an
Underlying Scudder 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 an Underlying Scudder Fund can realize on its investments or
cause an Underlying Scudder Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Underlying Scudder 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 an Underlying Scudder Fund creates the possibility that losses on
the hedging instrument may be greater than gains in the value of an Underlying
Scudder 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, an Underlying Scudder 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 an Underlying Scudder Fund
may use and some of their risks are described more fully in Pathway Series'
Statement of Additional Information and the Statement of Additional Information
of certain Underlying Scudder Funds.

Investment restrictions of the Portfolio

The Portfolio has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Portfolio's
investment risk. The Portfolio may not borrow money except as a temporary
measure for extraordinary or emergency purposes, or through reverse repurchase
agreements and may not make loans except through the purchase of portfolio
securities or through repurchase agreements. A complete description of these and
other policies and restrictions is contained under "Investment Restrictions" in
the Portfolio's Statement of Additional Information.

Risks of investing in the Portfolio

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<PAGE>

Risks of investing in the Portfolio (cont'd)

the Adviser. The following are descriptions of certain risks related to
investments in the Portfolio.

o As the investments in the Portfolio are concentrated within a group of
Underlying Scudder Funds, the performance of the Portfolio is directly
related to the investment performance of those Underlying Scudder Funds.
The ability of the Portfolio to meet its investment objective is directly
related to the ability of the Underlying Scudder Funds to meet their
objectives as well as the allocation among those Underlying Scudder Funds
by the Portfolio's portfolio management team.

o The Portfolio's share price and yield will fluctuate in response to various
market and economic factors related to both the stock and bond markets.
Some of the Underlying Scudder Funds invest in debt securities making them
subject to credit risk, interest rate risk and pre-payment risk. Also, the
Portfolio invests in Underlying Scudder Funds that are in turn invested in
international securities and thus are subject to additional risks of these
investments including changes in foreign currency exchange rates and
political risk.

For information about the investment techniques and the risks involved in the
Underlying Scudder Funds, please refer to "Additional Information about
policies, investments and risks" and the Appendix to this prospectus.

Distribution and performance information

Dividends and capital gains distributions

The Portfolio intends to distribute dividends from net investment income
quarterly in April, July, October and December. The Portfolio intends to
distribute net realized capital gains, if any, in November or December to
prevent application of federal excise tax, although an additional distribution
may be made within three months of the Portfolio's fiscal year end, 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 Portfolio. If an investment in the
Portfolio is in the form of a retirement plan, then all distributions will
automatically be reinvested in additional shares of the Portfolio.

Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains for federal income tax purposes, 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. Distributions received by the Portfolio from an Underlying
Scudder Fund generally will be ordinary income dividends, includible in the
Portfolio's net investment income, if paid from the Underlying Scudder Fund's
net investment income, short-term capital gains or other taxable income.
Distributions paid from an Underlying Scudder Fund's long-term capital gains,
however, generally will be treated by the Portfolio as long-term capital gains
for federal income tax purposes, regardless of how long the Portfolio held the
Underlying Scudder Fund's shares.

The Portfolio sends detailed tax information to shareholders about the amount
and type of its distributions by January 31 of the following year. It is
anticipated that the Portfolio's turnover rate will not exceed 50% for the
initial fiscal year.

Performance information

From time to time, quotations of the Portfolio's performance may be included in
advertisements, sales literature, or shareholder reports. All performance

20
<PAGE>

figures are historical, show the performance of a hypothetical investment and
are not intended to indicate future performance.

The "SEC yield" of the Portfolio is an annualized expression of the net income
generated by the Portfolio over a specified 30-day (one month) period, as a
percentage of the Portfolio's share price on the last day of that period. This
yield is calculated according to methods required by the Securities and Exchange
Commission (the "SEC"), and therefore may not equate to the level of income paid
to shareholders. Yield is expressed as an annualized percentage. "Total return"
is the change in value of an investment in the Portfolio for a specified period.
The "average annual total return" of the Portfolio is the average annual
compound rate of return of an investment in the Portfolio assuming the
investment has been held for one year, and the life of the Portfolio as of a
stated ending date. "Cumulative total return" represents the cumulative change
in value of an investment in the Portfolio for various periods. Total return
calculations assume that all dividends and capital gains distributions during
the period were reinvested in shares of the Portfolio. "Capital change" measures
return from capital, including reinvestment of any capital gains distributions
but does not include the reinvestment of dividends.

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

Provided below are performance figures for the Scudder Managed Retirement
Trust-Income (the "MRT/Income"), a collective investment trust for defined
contribution plans offered by Scudder Trust Company, an affiliate of the
Adviser. MRT/Income invests its assets within the Scudder Family of Funds and
has the same investment adviser, same lead portfolio manager and substantially
similar investment objectives, policies and strategies as the Portfolio.
MRT/Income imposes a trustee fee and an audit fee at the trust level. The
following performance figures are not necessarily indicative of the future
performance of the Portfolio.

Average Annual Total Return for periods
ended October 31, 1996

1 Year 3 Years Life of Fund
10.62% 7.37% 7.43%*

* For the period beginning August 23, 1993.

Portfolio organization

Scudder Pathway Series (the "Trust") is a diversified, open-end management
investment company, commonly referred to as a "mutual fund," registered under
the Investment Company Act of 1940 (the "1940 Act"). The Trust was organized as
a Massachusetts business trust on July 1, 1994.

The Trust offers four portfolios: Conservative Portfolio, Balanced Portfolio,
Growth Portfolio and International Portfolio. The Declaration of Trust provides
that each Portfolio can offer additional classes of shares and the Board of
Trustees has the ability to offer additional portfolios. Each Portfolio
represents a separate series of shares and has different objectives and
investment policies. Each Portfolio intends to qualify separately as a regulated
investment company for the purposes of Subchapter M of the Internal Revenue
Code.

The Portfolio's activities are supervised by its Board of Trustees. Shareholders
have one vote for each share held on matters on which they are entitled to vote.
The Portfolio is not required to hold, 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 management contract.

Special Servicing Agreement

All the expenses of the Portfolio will be paid for in accordance with a Special
Servicing Agreement (the "Agreement") entered into by the Adviser, the

21
<PAGE>

Portfolio organization (cont'd)

Underlying Scudder Funds, Scudder Service Corporation, Scudder Fund Accounting
Corporation, Scudder Investor Services, Inc., Scudder Trust Company and the
Portfolio. Under the Agreement, the Adviser will arrange for all services
pertaining to the operation of the Portfolio including the services of Scudder
Service Corporation and Scudder Fund Accounting Corporation as the Shareholder
Servicing Agent and the Accounting Agent, respectively, for the Portfolio. If
the officers of an Underlying Scudder Fund determine that the aggregate expenses
of the Portfolio are less than the estimated savings to the Underlying Scudder
Fund from the operation of the Portfolio, the Underlying Scudder Fund will bear
those expenses in proportion to the average daily value of its shares owned by
the Portfolio. Consequently, no Underlying Scudder Fund will be expected to
carry expenses that are in excess of the estimated savings to it. The estimated
savings are expected to result from the reduction of shareholder servicing costs
due to the elimination of separate shareholder accounts which either currently
are or have potential to be invested in the Underlying Scudder Funds. The
estimated savings produced by the operation of the Portfolio will most likely
suffice to offset most, if not all, the expenses incurred by the Portfolio.

In the event that the aggregate financial benefits to the Underlying Scudder
Funds do not exceed the costs of the Portfolio, the Adviser will pay, on behalf
of the Portfolio, that portion of costs determined to be greater than the
benefits.

All expenses of the Portfolio, excluding certain non-recurring and extraordinary
expenses, will be paid for in accordance with the Agreement, including fees and
expenses incurred in connection with membership in investment company
organizations; fees and expenses of the Portfolio's accounting agent; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and employees of the Portfolio who are not affiliated with
the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians.

Certain Underlying Scudder Funds impose a fee upon the redemption or exchange of
shares held less than one year. The fees, which range between 1% and 2% of the
net asset value of the shares being redeemed or exchanged, are assessed and
retained by the Underlying Scudder Funds for the benefit of the remaining
shareholders. The fee is intended to encourage long-term investment in the Fund.
The fee is not a deferred sales charge, is not a commission paid to the Adviser
of its subsidiary 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. As a
shareholder of such Underlying Scudder Funds, the Portfolio will be subject to
such fees. Under normal market conditions, the Portfolio will seek to avoid
taking action that would result in the imposition of such a fee. However, in the
event that a fee is incurred, the net assets of the Portfolio would be reduced
by the amount of such fees that are assessed and retained by the Underlying
Scudder Funds for the benefit of their shareholders.

Investment adviser

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

Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.

22
<PAGE>

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 Portfolio.

Underwriter

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

Portfolio 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 Portfolio.

Custodian

State Street Bank and Trust Company is the custodian for the Portfolio.

Transaction information

For concise instruction on how to purchase, exchange or redeem shares, refer to
pages 32 and 33.

Purchasing shares

Purchases are executed at the next calculated net asset value per share after
the Portfolio'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 Portfolio may hold redemption proceeds until the purchase check has cleared.
If you purchase shares by federal funds wire, you may avoid this delay.

Redemption requests by telephone prior to the expiration of the seven-day period
will not be accepted.

By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and the Portfolio 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 Portfolio in which the money is to be invested,
- -- the account number of the Portfolio, 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. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Portfolio resulting from this cancellation.
Telephone orders are not available for shares held in Scudder IRA accounts and

23
<PAGE>
Transaction information (cont'd)

most other Scudder retirement plan accounts.

By "AutoBuy." If you elected "AutoBuy" 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 "AutoBuy," call
1-800-225-5163 for more information.

To purchase additional shares, call 1-800-225-5163. Purchases must be for at
least $250 but not 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. "AutoBuy" 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 "AutoBuy" and redeem them within seven days of the
purchase, the Portfolio 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. "AutoBuy" transactions are not
available for Scudder IRA accounts and most other retirement plan accounts.

By exchange. 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 on SAIL, the Scudder Automated Information Line, by
calling 1-800-343-2890.

Redeeming shares

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

By telephone. This is the quickest and easiest way to sell Portfolio shares. If
you elected telephone redemption to your bank on your application, you can call
to request that federal funds be sent to your authorized bank account. If you
did not elect telephone redemption to your bank 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 on SAIL by calling 1-800-343-2890.

If you open an account by wire, you cannot redeem shares by telephone until the
Portfolio'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 Portfolio by telephone, you should
write to the Portfolio; see "How to contact Scudder" for the address.

By "AutoSell." If you elected "AutoSell" 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 "AutoSell,"

24
<PAGE>

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. "AutoSell" 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.

"AutoSell" 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 $50,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Portfolio reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations, or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by 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 wired
to a predesignated bank account. The Portfolio 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 Portfolio does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Portfolio 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 the Portfolio's 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 assets of the Portfolio, less
its liabilities, by the total number of shares of the Portfolio outstanding.

Processing time

All purchase and redemption requests must be received in good order by the
Portfolio'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.

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

25
<PAGE>

Transaction information (cont'd)

Purchase restrictions

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

Tax information

A redemption of shares, including an exchange into another Portfolio or 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 Portfolio's
application when you open an account. Federal tax law requires the Portfolio 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 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 Portfolio reserves the right to reject new account
applications without a certified Social Security or tax identification number.
The Portfolio also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing the
Portfolio 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 balance requirements. The initial
investment and minimum account balance for fiduciary accounts such as IRAs will
increase from $500 to $1,000 per fund account, while the subsequent minimum
investment will remain at $50. A shareholder may open a regular account with a
minimum of $1,000, if an investment program of at least $100 per month is
established.

Shareholders with non-fiduciary accounts who maintain an account balance of less
than $2,500 in the Portfolio without establishing a regular investment program
may be assessed an annual $10.00 per fund charge with the fee to be paid to the
Portfolio. The $10.00 charge will not apply to shareholders with a combined
household account balance (same surname, same address) in any of the Scudder
Funds of $25,000 or more. The Portfolio reserves the right, following 60 days'
written notice to shareholders, to redeem all shares in accounts below $250,
where a reduction in value has occurred due to a redemption or exchange out of
the account. The shareholder may restore the share balance to $250 or more
during the 60-day notice period and must maintain it at no lower than that
minimum to avoid an involuntary redemption. The Portfolio 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 Portfolio's Statement of Additional
Information.

Third party transactions

If purchases and redemptions of Portfolio 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.

26
<PAGE>

Shareholder benefits

Experienced professional management

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

A team approach to investing

Scudder Pathway Series: Conservative Portfolio is managed by a team of Scudder
investment professionals who each play an important role in the Portfolio's
management process. Team members work together to develop investment strategies
and select Underlying Funds for the Portfolio. They are supported by Scudder's
large staff of portfolio managers, economists, research analysts, traders and
other investment specialists. Scudder believes its team approach benefits the
Portfolio's investors by bringing together many disciplines and leveraging
Scudder's extensive resources. All members of the Pathway investment team are
members of Scudder's Global Asset Allocation Committee. This group is
responsible for analyzing the global economy and capital markets, integrating
information from the firm's equity and fixed income specialists, and developing
the outlook for the investment characteristics of the major markets in which the
Portfolio invests.

Lead Portfolio Manager Benjamin W. Thorndike, who has 17 years of investment
experience, joined Scudder in 1983 as a portfolio manager. Since 1986, he has
served as a portfolio manager for Scudder Growth and Income Fund. Mr. Thorndike
will develop portfolio strategy utilizing the research, analysis and guidance
provided by other members of the investment team. Cornelia Small, Portfolio
Manager, is Director of Global Equity Investments and Chairman of the Capital
Markets Group, and has also served as Director of Global Equity Research.
Margaret (Peg) Hadzima, Portfolio Manager, is Director of Scudder's
Institutional Group, which includes a focus on asset allocation strategy. Ms.
Hadzima has 23 years of experience in fixed-income investing during which she
has served as Director of Global Bond Research and Chairman of Global Bond
Strategy. Philip Fortuna, Portfolio Manager, joined Scudder in 1986 as manager
of institutional equity accounts. He has served as Director of Quantitative
Research and Director of Investment Operations. Mr. Fortuna is Lead Portfolio
Manager for Scudder Small Company Value Fund, as well as a portfolio manager for
Scudder Micro Cap Fund. Maureen Allyn, Portfolio Manager, is Scudder's Chief
Economist, a position she has held since 1989, and is responsible for analyzing
both the world and U.S. economies.

SAIL(TM)--Scudder Automated Information Line

For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund or portfolio
accounts, or to obtain information on any Scudder fund or portfolio,
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
Portfolio; 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. Telephone and
fax redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Portfolio or the transfer agent. In some
cases, the transfer agent or Scudder Investor Services, Inc. may impose

27
<PAGE>

Shareholder benefits (cont'd)

additional conditions on telephone transactions.

Dividend reinvestment plan

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

Shareholder statements

You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.

Shareholder reports

In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.To reduce the volume of mail you receive, only one copy of
most Portfolio reports, such as the Portfolio'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 Funds Centers

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

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 $2,000 per person for anyone with 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 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

28
<PAGE>

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.

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, 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.

Trustees and Officers

David S. Lee*
President and Trustee

Daniel Pierce*
Vice President and Trustee

Edgar R. Fiedler
Trustee; Vice President and Economic Counsellor, The Conference Board, Inc.

Dr. J.D. Hammond
Trustee; Dean, Smeal College of Business Administration, Pennsylvania State
University

Richard M. Hunt
Trustee; University Marshal and Senior Lecturer, Harvard University

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Juris Padegs*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Kathryn L. Quirk*
Vice President and Assistant Secretary

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

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<PAGE>
Investment products and services

The Scudder Family of Funds

Money Market

Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund

Tax Free Money Market+

Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*

Tax Free+

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

Growth and Income

Scudder Balanced Fund
Scudder Growth and Income Fund

Income

Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund

Growth

Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund
The Japan Fund

Asset Allocation

Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
Scudder Pathway Series: International Portfolio

Retirement Plans and Tax-Advantaged Investments

IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans

Closed-End Funds#

The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.

Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++

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. +A portion of the income from the tax-free funds may
be subject to federal, state, and local taxes. *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, Stevens & Clark, Inc., are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust,(TM) an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.

30
<PAGE>

<TABLE>
<CAPTION>
How to contact Scudder

<S> <C> <C> <C>
Account Service and Information: Scudder Brokerage Services:

For existing account Scudder Investor To receive information Scudder Brokerage
service and transactions Relations about this discount Services**
brokerage service and
1-800-225-5163 to obtain an application 1-800-700-0820

For personalized Scudder Automated Please address all correspondence to:
information about your Information Line The Scudder Funds
Scudder accounts; (SAIL) P.O. Box 2291
exchanges and Boston, Massachusetts
redemptions; or 1-800-343-2890 02107-2291
information on any
Scudder fund
Visit the Scudder World Wide Web Site at:

http://funds.scudder.com
Investment Information: Or Stop by a Scudder Funds Center:

To receive information Scudder Investor Many shareholders enjoy the personal, one-on-one
about the Scudder funds, Relations service of the Scudder Funds Centers. Check for a
for additional applications Funds Center near you--they can be found in the
and prospectuses, or for 1-800-225-2470 following cities:
investment questions

For establishing 401(k) and Scudder Defined Boca Raton New York
403(b) plans Contribution Services Boston San Francisco
1-800-323-6105 Chicago

For information on Scudder Treasurers Trust(TM), For information on Scudder Institutional Funds*,
an institutional cash management service for funds designed to meet the broad investment
corporations, non-profit organizations and trusts management and service needs of banks and other
which utilizes certain portfolios of Scudder institutions, call: 1-800-854-8525.
Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
</TABLE>

Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.

* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.

** Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.

31
<PAGE>

<TABLE>
<CAPTION>
Purchases

Opening
an account Minimum initial investment: $2,500; IRAs $1,000
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 Scudder Shareholder
P.O. Box 2291 Service Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612

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 Funds Centers to complete your application
with the help of a Scudder representative. Funds 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
Scudder Funds." Fund name, to the appropriate address listed above.

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

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

o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy for more details.

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

32
<PAGE>

Exchanges and redemptions

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

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

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

Send your instructions

by regular mail to: or by express, registered, or by fax to:
or certified mail to:

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

o By Mail Send your instructions for redemption to the appropriate address or fax
or Fax number above and include:

- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.

A signature guarantee is required for redemptions over $50,000.
See Transaction information--Redeeming shares.

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

</TABLE>

33
<PAGE>

APPENDIX

DESCRIPTIONS OF CERTAIN RISKS RELATED TO VARIOUS SECURITIES INVESTED IN,
AND INVESTMENT TECHNIQUES EMPLOYED BY, THE UNDERLYING SCUDDER FUNDS IN WHICH
SCUDDER PATHWAY SERIES: INTERNATIONAL
PORTFOLIO MAY INVEST

Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, an Underlying Scudder Fund's right to dispose of the securities may
be restricted. 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, an Underlying Scudder Fund may
encounter delay and incur costs before being able to sell the securities. Also,
if a seller defaults, the value of such securities may decline before an
Underlying Scudder Fund is able to dispose of them.

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 entail less credit risk than the issuer's common stock.

Non-diversified investment company. Certain Underlying Scudder Funds are
classified as non-diversified investment companies under the Investment Company
Act of 1940 (the "1940 Act"), which means that an Underlying Scudder Fund is not
limited by the 1940 Act in the proportion of its assets that it may invest in
the obligations of a single issuer. The investment of a large percentage of an
Underlying Scudder Fund's assets in the securities of a small number of issuers
may cause an Underlying Scudder Fund's share price to fluctuate more than that
of a diversified investment company.

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

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

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

Indexed securities. Indexed securities may be positively or negatively indexed,
so that appreciation of the reference instrument may produce an increase or a
decrease in the interest rate or value at maturity of the security. In addition,
the change in the interest rate or value at maturity of the security may be some
multiple of the change in the value of the reference instrument. Thus, in
addition to the credit risk of the security's issuer, an Underlying Scudder Fund
will bear the market risk of the reference instrument.

A-1
<PAGE>

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. An Underlying Scudder 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 an Underlying Scudder Fund to a lower rate of
return upon reinvestment. To the extent that such mortgage-backed securities are
held by an Underlying Scudder Fund, the prepayment right of mortgagors may limit
the increase in net asset value of an Underlying Scudder Fund because the value
of the mortgage-backed securities held by an Underlying Scudder 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.

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 an Underlying Scudder Fund is
uninvested and no return is earned thereon. The inability of an Underlying
Scudder Fund to make intended security purchases due to settlement problems
could cause an Underlying Scudder Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to an Underlying Scudder Fund due to
subsequent declines in value of the portfolio security or, if an Underlying
Scudder 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 higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.

Foreign investment in certain emerging market debt obligations is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain emerging market debt obligations and
increase the costs and expenses of an Underlying Scudder Fund. Certain emerging
markets require prior governmental approval of investments by foreign persons,
and/or impose additional taxes on foreign investors. These markets may also
restrict investment opportunities in issuers in industries deemed important to
national interests.

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. An Underlying Scudder 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 an Underlying Scudder 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 an Underlying Scudder Fund's non-dollar denominated securities and on the

A-2
<PAGE>

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 an Underlying Scudder 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
an Underlying Scudder 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.

High yield/high risk securities. Certain Underlying Scudder Funds may invest in
debt securities which are rated below investment-grade (hereinafter referred to
as "lower rated securities") or which are unrated, but equivalent to those rated
below investment- grade. 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 and lesser liquidity.

The lack of a liquid secondary market for certain securities may also make it
more difficult for an Underlying Scudder Fund to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions, to changes in the financial condition of
their issuers, and to price fluctuation in response to changes in interest
rates. During periods of economic downturn 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. 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.

Securities lending. From time to time certain Underlying Scudder Funds may lend
their portfolio securities to registered broker/dealers as described above. The
risks of lending portfolio securities, as with other extensions of secured
credit, consist of possible delays in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made to registered broker/dealers
deemed by the Adviser to be of good standing and will not be made unless, in the
judgment of the Adviser, the consideration to be earned from such loans would
justify the risk.

A-3
<PAGE>

Investing in emerging growth companies. The investment risk associated with
emerging growth companies is higher than that normally associated with larger,
older companies due to the greater business risks of small size, the relative
age of the company, limited product lines, distribution channels and financial
and managerial resources. Further, there is typically less publicly available
information concerning smaller companies than for larger, more established ones.

The securities of small companies are often traded over-the-counter and may not
be traded in the volumes typical on a national securities exchange.
Consequently, in order to sell this type of holding, an Underlying Scudder Fund
may need to discount the securities from recent prices or dispose of the
securities over a long period of time. The prices of this type of security may
be more volatile than those of larger companies which are often traded on a
national securities exchange.

Precious metals. Investments in precious metals and in precious metals-related
securities and companies involve a relatively high degree of risk. Prices of
gold and other precious metals can be influenced by a variety of global
economic, financial and political factors and may fluctuate markedly over short
periods of time. Among other things, precious metals values can be affected by
changes in inflation, investment speculation, metal sales by governments or
central banks, changes in industrial and commercial demand, and any governmental
restrictions on private ownership of gold or other precious metals.

Correlation of gold and gold securities. The Adviser believes that the value of
the securities of firms that deal in gold will correspond generally, over time,
with the prices of the underlying metal. At any given time, however, changes in
the price of gold may not strongly correlate with changes in the value of
securities related to gold, which are expected to constitute part of certain
Underlying Scudder Funds' assets. In fact, there may be periods in which the
price of gold stocks and gold will move in different directions. The reason for
this potential disparity is that political and economic factors, including
behavior of the stock market, may have differing impacts on gold versus gold
stocks.

Investing in Latin America. The Adviser believes that investment opportunities
may result from recent trends in Latin America encouraging greater market
orientation and less governmental intervention in economic affairs. Investors,
however, should be aware that the Latin American economies have experienced
considerable difficulties in the past decade. Although there have been
significant improvements in recent years, the Latin American economies continue
to experience challenging problems, including high inflation rates and high
interest rates relative to the U.S. The emergence of the Latin American
economies and securities markets will require continued economic and fiscal
discipline which has been lacking at times in the past, as well as stable
political and social conditions. Recovery may also be influenced by
international economic conditions, particularly those in the U.S., and by world
prices for oil and other commodities. There is no assurance that recent economic
initiatives will be successful.

A-4
<PAGE>

sector. In certain cases, the government still owns or controls many companies,
including some of the largest in the country. Accordingly, government actions in
the future could have a significant effect on economic conditions in Latin
American countries, which could affect private sector companies and an
Underlying Scudder Fund, as well as the value of securities in an Underlying
Scudder Fund's portfolio.

Most Latin American countries 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 negative
effects on the economies and securities markets of certain Latin American
countries.

Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Some of these countries have in the past
defaulted on their sovereign debt. Holders of sovereign debt (including an
Underlying Scudder 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.

The limited size of many Latin American securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities could
cause prices to be erratic for reasons apart from factors that affect the
quality of securities.

The portion of an Underlying Scudder Fund's assets invested directly in Chile
may be less than the portions invested in other countries in Latin America
because, at present, capital invested in Chile normally cannot be repatriated
for as long as five years.

Borrowing. Although the principal of an Underlying Scudder Fund's borrowing will
be fixed, an Underlying Scudder Fund's assets may change in value during the
time a borrowing is outstanding, increasing exposure to capital risk.

Investing in the Pacific Basin. Certain Underlying Scudder Funds are susceptible
to political and economic factors affecting issuers in Pacific Basin countries.
Many of the countries of the Pacific Basin are developing both economically and
politically. Pacific Basin countries may have relatively unstable governments,
economies based on only a few commodities or industries, and securities markets
trading infrequently or in low volumes. Some Pacific Basin countries restrict
the extent to which foreigners may invest in their securities markets.
Securities of issuers located in some Pacific Basin countries tend to have
volatile prices and may offer significant potential for loss as well as gain.
Further, certain companies in the Pacific Basin may not have firmly established
product markets, may lack depth of management, or may be more vulnerable to
political or economic developments such as nationalization of their own
industries.

Corporate and Municipal Bond Ratings. The following is a description of the
ratings given by S&P and Moody's to corporate and municipal bonds. Should the
rating of a portfolio security held by an Underlying Scudder Fund be downgraded,
the Adviser will determine whether it is in the best interest of the Underlying
Scudder Fund to retain or dispose of such security.

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.

A-5
<PAGE>

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:

Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.

Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal

A-6
<PAGE>

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.

A-7
<PAGE>
This prospectus sets forth concisely the information about Scudder Pathway
Series: Balanced Portfolio (the "Portfolio"), a diversified, open-end management
investment company, that a prospective investor should know before investing.
Scudder Pathway Series is composed of four separate Portfolios with distinctly
different investment objectives. Each Portfolio, one of which is offered herein,
seeks to accomplish its objective by investing primarily in a number of other
Scudder funds (the "Underlying Scudder Funds"). Please retain this prospectus
for future reference.

Contents--see page 4.

Scudder
Pathway Series: Balanced
Portfolio

Prospectus
November 15, 1996

A pure no-load(TM) (no sales charges) mutual fund which seeks a balance of
growth and income by investing in a select mix of Scudder Funds.
<PAGE>

Expense information

This information is designed to help you understand the various costs and
expenses that an investor in Scudder Pathway Series: Balanced Portfolio will
bear directly or indirectly. With Scudder's pure no-load(TM) portfolios and
funds, you pay no commissions to purchase or redeem shares, or to exchange from
one portfolio or 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 Portfolio for various transactions.

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

Investment management fee NONE
12b-1 fees NONE
Other expenses NONE
Total Portfolio operating expenses** NONE

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

** The payment of the Portfolio's pro rata share of expenses is subject to the
Special Servicing Agreement. Please refer to "Portfolio
organization--Special Servicing Agreement."

2
<PAGE>

Expense Ratios of the Underlying Scudder Funds

Underlying Scudder Funds Expense Ratio
- ----------------------- -------------

Money Market Fund
Scudder Cash Investment Trust 0.83%

Bond Mutual Funds
Scudder Emerging Markets Income Fund 1.50%
Scudder Global Bond Fund+ 1.00%
Scudder GNMA Fund 0.94%
Scudder High Yield Bond Fund+ 0.00%
Scudder Income Fund 0.99%
Scudder International Bond Fund 1.26%
Scudder Short Term Bond Fund 0.75%

Underlying Scudder Funds Expense Ratio
- ----------------------- -------------

Equity Mutual Funds
Scudder Capital Growth Fund 0.92%
Scudder Classic Growth Fund+ 1.25%
Scudder Development Fund 1.24%
Scudder Emerging Markets Growth Fund+ 2.00%
Scudder Global Discovery Fund 1.69%
Scudder Global Fund 1.34%
Scudder Gold Fund 1.50%
Scudder Growth and Income Fund 0.80%
Scudder International Fund 1.14%
Scudder Latin America Fund 2.08%
Scudder Micro Cap Fund+ 1.75%
Scudder Pacific Opportunities Fund 1.74%
Scudder Quality Growth Fund 1.17%
Scudder Small Company Value Fund 1.50%
Scudder 21st Century Growth Fund+ 1.75%
Scudder Value Fund+ 1.25%

Based on the foregoing, the range for the average weighted expense ratio borne
by the Portfolio is expected to be 0.32% to 1.91%. A range is provided since the
average assets of the Portfolio invested in each of the Underlying Scudder Funds
will fluctuate.

Example

1 Year 3 Years
$11 $35

3
<PAGE>

A message from Scudder's chairman

/s/Daniel Pierce

Scudder Pathway Series: Balanced Portfolio

Investment Objective

o a balance of growth and income

Investment Characteristics

o a professionally managed portfolio which allocates its investments among
select Scudder Funds

o provides exposure to a wide range of asset classes, securities and markets
around the globe

o no added fees or expenses associated with the operation of Scudder Pathway
Series: Balanced Portfolio

o appropriate for IRA, 401(k) and other retirement plans

Contents

Investment objective and policies 5
Why invest in the Portfolio? 6
Description of the Underlying
Scudder Funds 7
Information about policies,
investments and risks 17
Investment restrictions of the Portfolio 19
Risks of investing in the Portfolio 20
Distribution and performance information 20
Portfolio organization 21
Transaction information 23
Shareholder benefits 27
Trustees and Officers 29
Investment products and services 30
How to contact Scudder 31
Purchases 32
Exchanges and redemptions 33
Appendix

4
<PAGE>

Investment objective and policies

Scudder Pathway Series: Balanced Portfolio (the "Portfolio") is one of four
professionally managed, diversified portfolios of Scudder Pathway Series (the
"Trust"). The Portfolio invests primarily in a select mix of Scudder Funds. The
Portfolio's investment objective is to provide investors with a balance of
growth and income. It seeks this objective by investing in a mix of money
market, bond and equity mutual funds.

The Scudder Funds in which the Portfolio may invest are referred to as the
"Underlying Scudder Funds," (see below). Some of these Underlying Scudder Funds
are equity mutual funds which invest largely in stocks to achieve growth. Other
Underlying Scudder Funds held by the Portfolio are bond mutual funds which
primarily seek current income or total return. The portfolio management team for
the Portfolio allocates investments based on the outlook of the Fund's
investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"), for the
financial markets, world economies and the relative performance potential of the
Underlying Scudder Funds. Under normal market conditions, the Balanced Portfolio
will invest 40-70% of total assets in equity mutual funds; 25-60% of total
assets in bond mutual funds; and 0-10% of total assets in a money market fund,
cash or cash equivalents. If, as a result of appreciation or depreciation, the
percentage of the Portfolio's assets invested in the above categories exceeds or
is less than the applicable ranges, the Adviser will consider, in its
discretion, whether to reallocate the assets of the Portfolio to comply with the
stated ranges.

--------------------------------------------------------
Underlying Scudder Funds in which the Pathway Balanced
Portfolio may invest
--------------------------------------------------------
Equity Mutual Funds

Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Growth and Income Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fun
Scudder Value Fund

Bond Mutual Funds

Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund

Money Market Fund

Scudder Cash Investment Trust

5
<PAGE>

Investment objective and policies (cont'd)

Except as otherwise indicated, the Portfolio's investment objective and policies
are not fundamental and may be changed without a vote of shareholders. If there
is a change in investment objective, shareholders should consider whether the
Portfolio remains an appropriate investment in light of their then current
financial position and needs.

There can be no assurance that the Portfolio's objective will be met.

Why invest in the Portfolio?

The Pathway Series Portfolios are designed for individuals and institutions who
prefer to have their asset allocation decisions made by professional money
managers, are looking for an appropriate core investment for their retirement
portfolio and appreciate the advantages of broad diversification. Scudder
Pathway Series: Balanced Portfolio seeks a balance of growth and income by
investing in a mix of Scudder Funds that pursue capital appreciation as well as
current income. The Balanced Portfolio's assets are carefully allocated among
the various mutual funds offered by the Scudder Family of Funds.

Pathway Balanced Portfolio is designed to meet the needs of investors with a
time horizon of at least 5-10 years seeking to develop a diversified portfolio
offering both growth and income. The Portfolio may be most appropriate for
long-term investors planning for retirement, particularly investors in
tax-advantaged retirement accounts including IRAs, 401(k) corporate employee
savings plans and 403(b) non-profit organization savings plans.

The Portfolio can serve as a complete investment program or as a core part of a
larger portfolio. Pathway Balanced Portfolio invests in a select group of
established pure no-load(TM) Underlying Scudder Funds. The allocation of assets
within the Portfolio is determined by the Adviser according to fundamental and
quantitative analysis. Shifts will be made among Underlying Scudder Funds and
asset classes based on the Adviser's then current outlook for the financial
markets and the world's economies. Because the Portfolio's assets will be
adjusted only periodically and only within the investment ranges described
above, there should not be any sudden large-scale changes in the Portfolio's
asset allocation. The Portfolio is not designed as a market timing vehicle, but
rather as a cost-effective, conservative and simple approach to helping
investors meet retirement and other long-term goals.

The Portfolio can invest in a variety of international and global Underlying
Scudder Funds and expects to invest some portion of assets in foreign markets.
The Adviser believes this commitment to global investment management
differentiates Pathway Balanced Portfolio from traditional funds of funds and
asset allocation products. Adding an international component to a retirement
portfolio can increase diversification and lower volatility, while enhancing and
providing the most consistent returns over time.

6
<PAGE>

In addition, the Portfolio offers all the benefits of the Scudder Family of
Funds. Scudder, Stevens & Clark, Inc. manages a diverse family of pure
no-load(TM) funds and provides a wide range of services to help investors meet
their investment needs. Please refer to "Investment products and services" for
additional information.

Description of the Underlying Scudder Funds

The following Underlying Scudder Fund is the money market fund in which the
Portfolio may invest and will likely serve as the primary cash reserve portion
of the Portfolio.

The following Underlying Scudder Funds are bond mutual funds which primarily
seek to provide current income or total return.

The Fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any one of the following: International
Bank for Reconstruction and Development (i.e., the World Bank), the
International Finance Corporation or the United Nations or its authorities.

7
<PAGE>
Description of the Underlying Scudder Funds (cont'd)

By focusing on fixed-income instruments issued in emerging markets, the Fund
invests predominantly in debt securities that are rated below investment-grade.
The Fund may invest up to 5% of its net assets in non-performing securities
whose quality is comparable to securities rated as low as D by S&P or C by
Moody's. Please refer to the attached Appendix for further information.

8
<PAGE>

apply only to the timely payment of both principal and interest of the GNMA
securities held in the Fund's portfolio. Up to 35% of the Fund's total assets
may be held in cash, cash equivalents or invested in securities issued or
directly guaranteed by the U.S. Government, including U.S. Treasury bills, notes
and bonds.

Scudder High Yield Bond Fund is a diversified investment company which seeks a
high level of current income and, secondarily, capital appreciation through
investment primarily in below investment-grade domestic debt securities. 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 sometimes referred to as "junk" bonds. Such 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 the
attached Appendix for further information. 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.
The Fund may invest up to 25% of its total assets in foreign securities,
including those of 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 weighted average maturity of
the Fund's portfolio and no restriction on the maturity of any individual
security held in the portfolio.

9
<PAGE>

Description of the Underlying Scudder Funds (cont'd)

Please refer to the attached Appendix for further information.

The net asset value of the Fund is expected to fluctuate with changes in
interest rates and bond market conditions, although this fluctuation should be
more moderate than that of a fund with a longer average maturity. The Adviser,
however, will attempt to minimize principal fluctuation through, among other
things, diversification, credit analysis and security selection, and adjustment
of the Fund's average portfolio maturity.

In addition, the Fund will not invest in any debt security rated at the time of
purchase below investment-grade.

The following Underlying Scudder Fund is an equity mutual fund which seeks a
combination of income and growth of capital.

The following Underlying Scudder Funds are equity mutual funds which seek
long-term growth of capital.

Scudder Classic Growth Fund is a diversified investment company which seeks to
provide long-term growth of capital and to keep the value of its shares more
stable than other growth mutual funds.

10
<PAGE>

In seeking such investments, the Adviser focuses its investment in high quality,
medium-to-large sized U.S. companies with leading competitive positions.

11
<PAGE>

Description of the Underlying Scudder Funds (cont'd)

o the issuer is organized under the laws of an emerging market country;

o the issuer's principal securities trading market is in an emerging market;
or

Scudder Global Fund is a diversified investment company which seeks long-term
growth of capital through a diversified portfolio of marketable securities,

12
<PAGE>

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

The Fund pursues its objective primarily through a portfolio of gold-related
investments. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in (1) equity securities (defined as common stock,
investment-grade preferred stock and debt securities that are convertible into
or exchangeable for common stock) of U.S. and foreign companies primarily
engaged in the exploration, mining, fabrication, processing or distribution of
gold, (2) gold bullion, and (3) gold coins. A company will be considered
"primarily engaged" in a business or an activity if it devotes or derives at
least 50% of its assets, revenues and/or operating earnings from that business
or activity. The remaining 35% of the Fund's assets may be invested in any
precious metals other than gold; in equity securities of companies engaged in
activities primarily relating to precious metals and minerals other than gold;
in investment-grade debt securities, including zero coupon bonds, of companies
engaged in activities relating to gold or other precious metals and minerals;
warrants; and in certain debt securities, a portion of the return on which is
indexed to the price of precious metals. In addition, the Fund may invest in
Strategic Transactions and to a limited extent, may invest in illiquid and
restricted securities.

13
<PAGE>

Description of the Underlying Scudder Funds (cont'd)

Scudder Latin America Fund is a non-diversified investment company which seeks
to provide long-term capital appreciation through investment primarily in the
securities of Latin American issuers.

o Securities of companies organized under the laws of a Latin American
country or for which the principal securities trading market is in Latin
America;

o Securities issued or guaranteed by the government of a country in Latin
America, its agencies or instrumentalities, political subdivisions or the
central bank of such country;

o Securities of Latin American issuers, as defined above, in the form of
depositary shares.

While the Fund invests predominantly in common stocks, it can purchase other
types of securities, including preferred stocks, convertible or non-convertible

14
<PAGE>

securities, rights and warrants. Securities may be listed on national exchanges
or traded over-the-counter. The Fund may invest up to 20% of its assets in U.S.
Treasuries, agency and instrumentality obligations, may enter into repurchase
agreements and may engage in strategic transactions to increase stock market
participation, enhance liquidity and manage transaction costs.

o Securities of companies organized under the laws of a Pacific Basin country
or for which the principal securities trading market is in the Pacific
Basin; or

15
<PAGE>

Description of the Underlying Scudder Funds (cont'd)

The Fund allocates its investments among different industries and companies, and
adjusts its portfolio securities based on long-term investment considerations as
opposed to short-term trading. While the Fund emphasizes U.S. investments, it
can commit a portion of assets to the equity securities of foreign growth
companies which meet the criteria applicable to domestic investments. The Fund
may invest in convertible securities which must be investment-grade.

Companies represented in the portfolio of the Fund typically have the following
characteristics:

o Favorable trends in earnings growth rates and stock price momentum.

Scudder Value Fund is a diversified investment company which seeks long-term
growth of capital through investment in undervalued equity securities. The Fund

16
<PAGE>

invests primarily in the equity securities of medium- to large-sized domestic
companies with annual revenues or market capitalization of at least $600
million. The Adviser uses in-depth fundamental research and a proprietary
computerized quantitative model to identify companies that are currently
undervalued in relation to current and estimated future earnings and dividends.
The investment process also involves an assessment of business risk, including
the Adviser's analysis of the strength of a company's balance sheet, the
accounting practices a company follows, the volatility of a company's earnings
over time, and the vulnerability of earnings to changes in external factors,
such as the general economy, the competitive environment, governmental action,
and technological change. The Fund invests in the securities of companies that,
in the opinion of its Adviser, are undervalued in the marketplace in relation to
current and estimated future earnings and dividends. These companies generally
sell at price-earnings ratios below the market average, as defined by the S&P
500. The Fund invests at least 80% of its assets in equity securities, which
consist of common stocks, preferred stocks and securities convertible into
common stocks.

While the Fund emphasizes U.S. investments, it can invest its assets in
securities of foreign companies which meet the same criteria applicable to
domestic investments. The Fund may invest up to 20% of its total assets in debt
obligations, including zero coupon securities, may enter into repurchase
agreements and may also engage in strategic transactions for hedging purposes
and to seek to increase gain.

Information about policies, investments and risks

17
<PAGE>

Information about policies, investments and risks (cont'd)

Communications between the United States and foreign countries may be less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Certain markets may require payment for securities before delivery.
An Underlying Scudder Fund's ability and decisions to purchase and sell
portfolio securities may be affected by laws or regulations relating to the
convertibility of currencies and repatriation of assets. These risks are greater
in emerging markets.

Debt securities. In general, the prices of debt securities rise when interest
rates fall, and vice versa. This effect is usually more pronounced for
longer-term debt securities.

In the course of pursuing these investment strategies, each Underlying Scudder
Fund may purchase and sell exchange-listed and over-the-counter put and call

18
<PAGE>

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"). Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of an Underlying Scudder Fund's assets
will be committed to Strategic Transactions entered into for non-hedging
purposes.

Investment restrictions of the Portfolio

19
<PAGE>

Risks of investing in the Portfolio

The Portfolio's risks are determined by the nature of the securities held by the
Underlying Scudder Funds as well as the proportion of investment in each
Underlying Scudder Fund pursuant to the portfolio management strategies used by
the Adviser. The following are descriptions of certain risks related to
investments in the Portfolio.

o The Portfolio's share price will fluctuate in response to various market
and economic factors related to both the stock and bond markets. Certain of
the Underlying Scudder Funds invest in debt securities making them subject
to credit risk, interest rate risk and pre-payment risk. Also, the
Portfolio invests in Underlying Scudder Funds that are in turn invested in
international securities and thus are subject to additional risks of these
investments including changes in foreign currency exchange rates and
political risk.

Distribution and performance information

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

20
<PAGE>

anticipated that the Portfolio's turnover rate will not exceed 50% for the
initial fiscal year.

Performance information

From time to time, quotations of the Portfolio's performance may be included in
advertisements, sales literature, or shareholder reports. All performance
figures are historical, show the performance of a hypothetical investment and
are not intended to indicate future performance. The "SEC yield" of the Fund is
an annualized expression of the net income generated by the Fund over a
specified 30-day (one month) period, as a percentage of the Fund's share price
on the last day of that period. This yield is calculated according to methods
required by the Securities and Exchange Commission (the "SEC"), and therefore
may not equate to the level of income paid to shareholders. Yield is expressed
as an annualized percentage. "Total return" is the change in value of an
investment in the Portfolio for a specified period. The "average annual total
return" of the Portfolio is the average annual compound rate of return of an
investment in the Portfolio assuming the investment has been held for one year,
and the life of the Portfolio as of a stated ending date. "Cumulative total
return" represents the cumulative change in value of an investment in the
Portfolio for various periods. Total return calculations assume that all
dividends and capital gains distributions during the period were reinvested in
shares of the Portfolio. "Capital change" measures return from capital,
including reinvestment of any capital gains distributions but does not include
the reinvestment of dividends.

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

Provided below are performance figures for the Scudder Managed Retirement
Trust-Balanced (the "MRT/Balanced"), a collective investment trust for defined
contribution plans offered by Scudder Trust Company, an affiliate of the
Adviser. MRT/Balanced invests its assets within the Scudder Family of Funds and
has the same investment adviser, same lead portfolio manager and substantially
similar investment objectives, policies and strategies as the Portfolio. The
MRT/Balanced imposes a trustee fee and an audit fee at the trust level. The
following performance figures are not necessarily indicative of the future
performance of the Portfolio.

Average Annual Total Return for periods ended October 31, 1996

1 Year 3 Years Life of Fund
3.89% 9.51% 10.89%*

* For the period beginning August 31, 1991.

Portfolio organization

21
<PAGE>
Portfolio organization (cont'd)

purposes such as electing or removing Trustees, changing fundamental investment
policies or approving an investment management contract.

Special Servicing Agreement

All the expenses of the Portfolio will be paid for in accordance with a Special
Servicing Agreement (the "Agreement") entered into by the Adviser, the
Underlying Scudder Funds, Scudder Service Corporation, Scudder Fund Accounting
Corporation, Scudder Investor Services, Inc., Scudder Trust Company and the
Portfolio. Under the Agreement, the Adviser will arrange for all services
pertaining to the operation of the Portfolio including the services of Scudder
Service Corporation and Scudder Fund Accounting Corporation as the Shareholder
Servicing Agent and the Accounting Agent, respectively, for the Portfolio. If
the officers of an Underlying Scudder Fund determine that the aggregate expenses
of the Portfolio are less than the estimated savings to the Underlying Scudder
Fund from the operation of the Portfolio, the Underlying Scudder Fund will bear
those expenses in proportion to the average daily value of its shares owned by
the Portfolio. Consequently, no Underlying Scudder Fund will be expected to
carry expenses that are in excess of the estimated savings to it. The estimated
savings are expected to result from the reduction of shareholder servicing costs
due to the elimination of separate shareholder accounts which either currently
are or have potential to be invested in the Underlying Scudder Funds. The
estimated savings produced by the operation of the Portfolio will most likely
suffice to offset most, if not all, the expenses incurred by the Portfolio.

22
<PAGE>

Investment adviser

Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.

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 Portfolio.

Underwriter

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 Portfolio.

Custodian

State Street Bank and Trust Company is the custodian for the Portfolio.

Transaction information

For concise instruction on how to purchase, exchange or redeem shares, refer to
pages 32 and 33.

Purchasing shares

Redemption requests by telephone prior to the expiration of the seven-day period
will not be accepted.

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 Portfolio in which the money is to be invested,
- -- the account number of the Portfolio, 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.

23
<PAGE>
Transaction information (cont'd)

times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Portfolio resulting from this cancellation.
Telephone orders are not available for shares held in Scudder IRA accounts and
most other Scudder retirement plan accounts.

By "AutoBuy." If you elected "AutoBuy" 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 "AutoBuy," call 1-800-225-5163 for
more information.

By exchange. Your new account will have the same registration and address as
your existing account.

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

Redeeming shares

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

You can also make redemptions on SAIL by calling 1-800-343-2890.

24
<PAGE>

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

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

Telephone transactions

Share price

Processing time

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

25
<PAGE>

Transaction information (cont'd)

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

Purchase restrictions

Tax information

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

Tax identification number

Minimum balances

26
<PAGE>

Third party transactions

Shareholder benefits

Experienced professional management

A team approach to investing

Scudder Pathway Series: Balanced Portfolio is managed by a team of Scudder
investment professionals who each play an important role in the Portfolio's
management process. Team members work together to develop investment strategies
and select Underlying Funds for the Portfolio. They are supported by Scudder's
large staff of portfolio managers, economists, research analysts, traders and
other investment specialists. Scudder believes its team approach benefits the
Portfolio's investors by bringing together many disciplines and leveraging
Scudder's extensive resources. All members of the Pathway investment team are
members of Scudder's Global Asset Allocation Committee. This group is
responsible for analyzing the global economy and capital markets, integrating
information from the firm's equity and fixed income specialists, and developing
the outlook for the investment characteristics of the major markets in which the
Portfolio invests.

SAIL(TM)--Scudder Automated Information Line

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,

27
<PAGE>

Shareholder benefits (cont'd)

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. Telephone and
fax redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Portfolio or the transfer agent. In some
cases, the transfer agent or Scudder Investor Services, Inc. may impose
additional conditions on telephone transactions.

Dividend reinvestment plan

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

Shareholder statements

Shareholder reports

Newsletters

Scudder Funds Centers

As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
New York and San Francisco.

T.D.D. service for the hearing impaired

Scudder tax-advantaged retirement plans

28
<PAGE>

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.

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.

Trustees and Officers

David S. Lee*
President and Trustee

Daniel Pierce*
Vice President and Trustee

Edgar R. Fiedler
Trustee; Vice President and Economic Counsellor, The Conference Board, Inc.

Dr. J.D. Hammond
Trustee; Dean, Smeal College of Business Administration, Pennsylvania State
University

Richard M. Hunt
Trustee; University Marshal and Senior Lecturer, Harvard University

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Juris Padegs*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Kathryn L. Quirk*
Vice President and Assistant Secretary

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

29
<PAGE>

Investment products and services

The Scudder Family of Funds

Money Market

Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund

Tax Free Money Market+

Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*

Tax Free+

Growth and Income

Scudder Balanced Fund
Scudder Growth and Income Fund

Income

Growth

Asset Allocation

Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
Scudder Pathway Series: International Portfolio

Retirement Plans and Tax-Advantaged Investments

IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans

Closed-End Funds#

Institutional Cash Management

Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++

30
<PAGE>

<TABLE>
<CAPTION>
How to contact Scudder

Account Service and Information: Scudder Brokerage Services:

http://funds.scudder.com

Investment Information: Or Stop by a Scudder Funds Center:

For establishing 401(k) and Scudder Defined Boca Raton New York
403(b) plans Contribution Services Boston San Francisco
1-800-323-6105 Chicago

Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.

** Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.

31
<PAGE>

<TABLE>
<CAPTION>
Purchases

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

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 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 Funds Centers to make an additional
investment in your Scudder fund account. Funds Center
locations are listed under Shareholder benefits.

o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy for more details.

32
<PAGE>
<TABLE>
<CAPTION>

Exchanges and redemptions

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

Send your instructions

by regular mail to: or by express, registered, or by fax to:
or certified mail to:

The Scudder Funds Scudder Shareholder 1-800-821-6234
P.O. Box 2291 Service Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA 02061-1612
-----------------------------------------------------------------------------------------------------------------------
Redeeming o By Telephone To speak with a service representative, call 1-800-225-5163 from
shares 8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to your address of record.

o By Mail Send your instructions for redemption to the appropriate address or fax
or Fax number above and include:

A signature guarantee is required for redemptions over $50,000.
See Transaction information--Redeeming shares.

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

</TABLE>

33
<PAGE>

APPENDIX

A-1
<PAGE>

A-2
<PAGE>

issuers of debt obligations generally.

A-3
<PAGE>

judgment of the Adviser, the consideration to be earned from such loans would
justify the risk.

Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Latin
American countries. For example, some of the currencies of Latin American
countries have experienced steady devaluations relative to the U.S. dollar, and
major adjustments have been made in certain of these currencies periodically. In
addition, although there is a trend toward less government involvement in
commerce, governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector. In certain cases, the government still owns or controls many companies,
including some of the largest in the country. Accordingly, government actions in
the future could have a significant effect on economic conditions in Latin
American countries, which could affect private sector companies and an

A-4
<PAGE>

Underlying Scudder Fund, as well as the value of securities in an Underlying
Scudder Fund's portfolio.

S&P:

A-5
<PAGE>

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.

Moody's:

A-6
<PAGE>

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.

A-7
<PAGE>
This prospectus sets forth concisely the information about Scudder Pathway
Series: Growth Portfolio (the "Portfolio"), a diversified open-end management
investment company, that a prospective investor should know before investing.
Scudder Pathway Series is composed of four separate Portfolios with distinctly
different investment objectives. Each Portfolio, one of which is offered herein,
seeks to accomplish its objective by investing primarily in a number of other
Scudder funds (the "Underlying Scudder Funds"). Please retain this prospectus
for future reference.

Contents--see page 4.

Scudder
Pathway Series:
Growth Portfolio

Prospectus
November 15, 1996

A pure no-load(TM) (no sales charges) mutual fund which seeks long-term growth
of capital by investing in a select mix of Scudder Funds.

<PAGE>

Expense information

This information is designed to help you understand the various costs and
expenses that an investor in Scudder Pathway Series: Growth Portfolio will bear
directly or indirectly. With Scudder's pure no-load(TM) portfolios and funds,
you pay no commissions to purchase or redeem shares, or to exchange from one
portfolio or 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 Portfolio for various transactions.

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

Investment management fee NONE
12b-1 fees NONE
Other expenses NONE
----
Total Portfolio operating expenses** NONE

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

** The payment of the Portfolio's pro rata share of expenses is subject to the
Special Servicing Agreement. Please refer to "Portfolio
organization--Special Servicing Agreement."

2
<PAGE>

Expense Ratios of the Underlying Scudder Funds

Underlying Scudder Funds Expense Ratio
------------------------ -------------

Based on the foregoing, the range for the average weighted expense ratio borne
by the Portfolio is expected to be 0.48% to 2.02%. A range is provided since the
average assets of the Portfolio invested in each of the Underlying Scudder Funds
will fluctuate.

Example

1 Year 3 Years
$13 $40

3
<PAGE>

A message from Scudder's chairman

/s/Daniel Pierce

Scudder Pathway Series: Growth Portfolio

Investment Objective

o long-term growth of capital

Investment Characteristics

o a professionally managed portfolio which allocates its investments among
select Scudder Funds

o provides exposure to a wide range of asset classes, securities and markets
around the globe

o no added fees or expenses associated with the operation of Scudder Pathway
Series: Growth Portfolio

o appropriate for IRA, 401(k) and other retirement plans

Contents

Investment objective and policies 5
Why invest in the Portfolio? 6
Description of the Underlying
Scudder Funds 7
Information about policies,
investments and risks 17
Investment restrictions of the Portfolio 19
Risks of investing in the Portfolio 20
Distribution and performance information 20
Portfolio organization 21
Transaction information 23
Shareholder benefits 27
Trustees and Officers 29
Investment products and services 30
How to contact Scudder 31
Purchases 32
Exchanges and redemptions 33
Appendix

4
<PAGE>

Investment objective and policies

Scudder Pathway Series: Growth Portfolio (the "Portfolio") is one of four
professionally managed, diversified portfolios of Scudder Pathway Series (the
"Trust"). The Portfolio invests primarily in a select mix of Scudder Funds. The
Portfolio's investment objective is to provide investors with long-term growth
of capital. In pursuing this objective, the Fund will, under normal market
conditions, invest predominantly in equity mutual funds designed to provide
long-term growth. Many of the Portfolio's bond mutual fund holdings offer the
potential for capital appreciation as well as income.

The Scudder Funds in which the Portfolio may invest are referred to as the
"Underlying Scudder Funds," (see below). Some of these Underlying Scudder Funds
are equity mutual funds which invest primarily in stocks to achieve growth.
Other Underlying Scudder Funds are bond mutual funds which primarily seek total
return. The portfolio management team for the Portfolio allocates investments
based on the outlook of the Fund's investment adviser, Scudder, Stevens & Clark,
Inc. (the "Adviser"), for the financial markets, world economies and the
relative performance potential of the Underlying Scudder Funds. Under normal
market conditions, the Growth Portfolio will invest 60-90% of total assets in
equity mutual funds; 10-40% of total assets in bond mutual funds; and 0-5% of
total assets in a money market fund, cash or cash equivalents. If, as a result
of appreciation or depreciation, the percentage of the Portfolio's assets
invested in the above categories exceeds or is less than the applicable range,
the Adviser will consider, in its discretion, whether to reallocate the assets
of the Portfolio to comply with the stated ranges.

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

- -----------------------------------------------------
Underlying Scudder Funds in which the Pathway
Growth Portfolio may invest
-----------------------------------------------------
Equity Mutual Funds
Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Growth and Income Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund

Bond Mutual Funds
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund

Money Market Fund
Scudder Cash Investment Trust

5
<PAGE>

Investment objective and policies (cont'd)

objective, shareholders should consider whether the Portfolio remains an
appropriate investment in light of their then current financial position and
needs. There can be no assurance that the Portfolio's objective will be met.

Why invest in the Portfolio?

The Pathway Series Portfolios are designed for individuals and institutions who
prefer to have their asset allocation decisions made by professional money
managers, are looking for an appropriate core investment for their retirement
portfolio and appreciate the advantages of broad diversification. Scudder
Pathway Series: Growth Portfolio seeks long-term growth of capital by investing
primarily in Scudder Funds that pursue capital appreciation. The Growth
Portfolio's assets are allocated primarily among the various equity mutual funds
offered by the Scudder Family of Funds, including funds which invest in small
and large company stocks, and those concentrated in domestic versus
international stocks.

Pathway Growth Portfolio is designed to meet the needs of investors with a time
horizon of 10 years or more who seek to develop a diversified portfolio offering
long-term growth of capital. The Portfolio may be most appropriate for long-term
investors planning for retirement, particularly investors in tax-advantaged
retirement accounts including IRAs, 401(k) corporate employee savings plans and
403(b) non-profit organization savings plans.

The Portfolio can serve as a complete investment program or as a core part of a
larger portfolio. Pathway Growth Portfolio invests in a select group of
established pure no-load(TM) Underlying Scudder Funds. The allocation of assets
within the Portfolio is determined by the Adviser according to fundamental and
quantitative analysis. Shifts will be made among Underlying Scudder Funds and
asset classes based on the Adviser's then current outlook for the financial
markets and the world's economies. Because the Portfolio's assets will be
adjusted only periodically and only within the investment ranges described
above, there should not be any sudden large-scale changes in the Portfolio's
asset allocation. The Portfolio is not designed as a market timing vehicle, but
rather as a cost-effective, conservative and simple approach to helping
investors meet retirement and other long-term goals.

The Portfolio can invest in a variety of international and global Underlying
Scudder Funds and expects to invest some portion of assets in foreign markets.
The Adviser believes this commitment to global investment management
differentiates Pathway Growth Portfolio from traditional funds of funds and
asset allocation products. Adding an international component to a retirement
portfolio can increase diversification and lower volatility, while enhancing and
providing the most consistent returns over time.

6
<PAGE>

Description of the Underlying Scudder Funds

The following is a concise description of the investment objectives and
practices for each of the Underlying Scudder Funds. There can be no assurance
that the Underlying Scudder Funds' objectives will be met. Additional
information regarding the investment practices of the Underlying Scudder Funds
is located in the section entitled "Additional information about policies and
investments," in the Appendix to this prospectus, in the sections entitled "The
Fund's Investment Objectives and Policies" and "Glossary" in the Statement of
Additional Information and in the prospectuses of each of the Underlying Scudder
Funds. Prospectuses for the Underlying Scudder Funds may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or by calling 1-800-225-2470. No offer is made in this
prospectus of shares of any of the Underlying Scudder Funds.

The following Underlying Scudder Fund is the money market fund in which the
Portfolio may invest and will likely serve as the primary cash reserve portion
of the Portfolio.

The following Underlying Scudder Funds are bond mutual funds which primarily
seek to provide current income or total return.

The Fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any one of the following: International

7
<PAGE>

Description of the Underlying Scudder Funds (cont'd)

Bank for Reconstruction and Development (i.e., the World Bank), the
International Finance Corporation or the United Nations or its authorities.To
reduce currency risk, the Fund invests at least 65% of its assets in U.S.
dollar-denominated debt securities. Therefore, no more than 35% of the Fund's
assets may be invested in debt securities denominated in foreign currencies. By
focusing on fixed-income instruments issued in emerging markets, the Fund
invests predominantly in debt securities that are rated below investment-grade.
The Fund may invest up to 5% of its net assets in non-performing securities
whose quality is comparable to securities rated as low as D by S&P or C by
Moody's. Please refer to the attached Appendix for further information.

8
<PAGE>

National Mortgage Association ("GNMA" or "Ginnie Mae"). Such guarantees are
supported by the full faith and credit of the U.S. Government. These guarantees
apply only to the timely payment of both principal and interest of the GNMA
securities held in the Fund's portfolio. Up to 35% of the Fund's total assets
may be held in cash, cash equivalents or invested in securities issued or
directly guaranteed by the U.S. Government, including U.S. Treasury bills, notes
and bonds.

Scudder High Yield Bond Fund is a diversified investment company which seeks a
high level of current income and, secondarily, capital appreciation through
investment primarily in below investment-grade domestic debt securities. 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 sometimes referred to as "junk" bonds. Such 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 the
attached Appendix for further information. 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.
The Fund may invest up to 25% of its total assets in foreign securities,
including those of 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 weighted average maturity of
the Fund's portfolio and no restriction on the maturity of any individual
security held in the portfolio.

9
<PAGE>

<PAGE>
Description of the Underlying Scudder Funds (cont'd)

invest no more than 15% of its total assets in debt securities rated below
investment-grade, but no lower than B. Please refer to the attached Appendix for
further information.

In addition, the Fund will not invest in any debt security rated at the time of
purchase below investment-grade.

The following Underlying Scudder Fund is an equity mutual fund which seeks a
combination of income and growth of capital.

The following Underlying Scudder Funds are equity mutual funds which seek
long-term growth of capital.

10
<PAGE>

Scudder Classic Growth Fund is a diversified investment company which seeks to
provide long-term growth of capital and to keep the value of its shares more
stable than other growth mutual funds.

In seeking such investments, the Adviser focuses its investment in high quality,
medium-to-large sized U.S. companies with leading competitive positions.

11
<PAGE>

Description of the Underlying Scudder Funds (cont'd)

Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation or the United Nations or its authorities. The Fund intends to
allocate its investments among at least three countries at all times, and does
not expect to concentrate in any particular industry. The Fund deems an issuer
to be located in an emerging market if:

o the issuer is organized under the laws of an emerging market country;

o the issuer's principal securities trading market is in an emerging market;
or

Scudder Global Discovery Fund is a diversified investment company which seeks
above-average capital appreciation over the long term by investing primarily in
the equity securities of small companies located throughout the world. In
pursuit of its objective, the Fund generally invests in small, rapidly growing
companies which offer the potential for above-average returns relative to larger
companies, yet are frequently overlooked and thus undervalued by the market. The
Fund has the flexibility to invest in any region of the world. It can invest in
companies based in emerging markets, typically the Far East, Latin America and
lesser developed countries in Europe, as well as in firms operating in developed
economies, such as those of the United States, Japan and Western Europe.

12
<PAGE>

likely to exceed the capital appreciation of equity securities. The Fund may
invest up to 5% of its net assets in debt securities rated below
investment-grade.

Scudder Global Fund is a diversified investment company which 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. The Fund invests on a worldwide basis
in equity securities of companies which are incorporated in the U.S. or in
foreign countries. It also may invest in the debt securities of U.S. and foreign
issuers.

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

Consistent with applicable state securities laws, up to 10% of the Fund's total
assets may be invested directly in gold, silver, platinum and palladium bullion
and in gold and silver coins. In addition, the Fund's assets may be invested in
wholly owned subsidiaries of the Scudder Mutual Funds, Inc., of which the Fund
is a series, that invest in gold, silver, platinum and palladium bullion and in
gold and silver coins.

13
<PAGE>
Description of the Underlying Scudder Funds (cont'd)

than three different countries. The Fund does not intend to concentrate
investments in any particular industry.

Scudder Latin America Fund is a non-diversified investment company which seeks
to provide long-term capital appreciation through investment primarily in the
securities of Latin American issuers.

o Securities of companies organized under the laws of a Latin American
country or for which the principal securities trading market is in Latin
America;

o Securities issued or guaranteed by the government of a country in Latin
America, its agencies or instrumentalities, political subdivisions or the
central bank of such country;

o Securities of Latin American issuers, as defined above, in the form of
depositary shares.

14
<PAGE>

at its annual reconstitution. The median market capitalization (i.e., current
stock price times shares outstanding) of the portfolio is not expected to exceed
$125 million.

While the Fund invests predominantly in common stocks, it can purchase other
types of securities, including preferred stocks, convertible or non-convertible
securities, rights and warrants. Securities may be listed on national exchanges
or traded over-the-counter. The Fund may invest up to 20% of its assets in U.S.
Treasuries, agency and instrumentality obligations, may enter into repurchase
agreements and may engage in strategic transactions to increase stock market
participation, enhance liquidity and manage transaction costs.

o Securities of companies organized under the laws of a Pacific Basin country
or for which the principal securities trading market is in the Pacific
Basin; or

15
<PAGE>

Description of the Underlying Scudder Funds (cont'd)

Adviser conducts its own analysis of a company's history, current financial
position, and earnings prospects.

Companies represented in the portfolio of the Fund typically have the following
characteristics:

o Favorable trends in earnings growth rates and stock price momentum.

16
<PAGE>

five years at a minimum.

Scudder Value Fund is a diversified investment company which seeks long-term
growth of capital through investment in undervalued equity securities. The Fund
invests primarily in the equity securities of medium- to large-sized domestic
companies with annual revenues or market capitalization of at least $600
million. The Adviser uses in-depth fundamental research and a proprietary
computerized quantitative model to identify companies that are currently
undervalued in relation to current and estimated future earnings and dividends.
The investment process also involves an assessment of business risk, including
the Adviser's analysis of the strength of a company's balance sheet, the
accounting practices a company follows, the volatility of a company's earnings
over time, and the vulnerability of earnings to changes in external factors,
such as the general economy, the competitive environment, governmental action,
and technological change. The Fund invests in the securities of companies that,
in the opinion of its Adviser, are undervalued in the marketplace in relation to
current and estimated future earnings and dividends. These companies generally
sell at price-earnings ratios below the market average, as defined by the S&P
500. The Fund invests at least 80% of its assets in equity securities, which
consist of common stocks, preferred stocks and securities convertible into
common stocks.

Information about policies, investments and risks

17
<PAGE>

Information about policies, investments and risks (cont'd)

costs and may be affected favorably or unfavorably by changes in the value of
foreign currencies against the U.S. dollar. Further, it may be more difficult
for an Underlying Scudder Fund's agents to keep currently informed about
corporate actions which may affect the prices of portfolio securities.
Communications between the United States and foreign countries may be less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Certain markets may require payment for securities before delivery.
An Underlying Scudder Fund's ability and decisions to purchase and sell
portfolio securities may be affected by laws or regulations relating to the
convertibility of currencies and repatriation of assets. These risks are greater
in emerging markets.

Debt securities. In general, the prices of debt securities rise when interest
rates fall, and vice versa. This effect is usually more pronounced for
longer-term debt securities.

18
<PAGE>

instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, each Underlying Scudder
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"). Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of an Underlying Scudder Fund's assets
will be committed to Strategic Transactions entered into for non-hedging
purposes.

Investment restrictions of the Portfolio

19
<PAGE>

Investment restrictions of the Portfolio (cont'd)

agreements and may not make loans except through the purchase of portfolio
securities or through repurchase agreements. A complete description of these and
other policies and restrictions is contained under "Investment Restrictions" in
the Portfolio's Statement of Additional Information.

Risks of investing in the Portfolio

o The Portfolio's share price will fluctuate in response to various market
and economic factors related to both the stock and bond markets. Some of
the Underlying Scudder Funds invest in debt securities making them subject
to credit risk, interest rate risk and pre-payment risk. Also, the
Portfolio invests in Underlying Scudder Funds that are in turn invested in
international securities and thus are subject to additional risks of these
investments including changes in foreign currency exchange rates and
political risk.

Distribution and performance information

The Portfolio intends to distribute net investment income and net realized
capital gains in November or December to prevent application of federal excise
tax, although an additional distribution may be made within three months of the
Portfolio's fiscal year end, 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.

20
<PAGE>

for federal income tax purposes, regardless of how long the Portfolio held the
Underlying Scudder Fund's shares.

Performance information

From time to time, quotations of the Portfolio'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. "Total return" is the change in
value of an investment in the Portfolio for a specified period. The "average
annual total return" of the Portfolio is the average annual compound rate of
return of an investment in the Portfolio assuming the investment has been held
for one year, and the life of the Portfolio as of a stated ending date.
"Cumulative total return" represents the cumulative change in value of an
investment in the Portfolio for various periods. Total return calculations
assume that all dividends and capital gains distributions during the period were
reinvested in shares of the Portfolio. "Capital change" measures return from
capital, including reinvestment of any capital gains distributions but does not
include the reinvestment of dividends.

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

Provided below are performance figures for the Scudder Managed Retirement
Trust-Growth (the "MRT/Growth"), a collective investment trust for defined
contribution plans offered by Scudder Trust Company, an affiliate of the
Adviser. MRT/Growth invests its assets within the Scudder Family of Funds and
has the same investment adviser, same lead portfolio manager and substantially
similar investment objectives, policies and strategies as the Portfolio.
MRT/Growth imposes a trustee fee and an audit fee at the trust level. The
following performance figures are not necessarily indicative of the future
performance of the Portfolio.

Average Annual Total Return for periods
ended October 31, 1996

1 Year 3 Years Life of Fund
15.92% 11.03% 11.51%*

* For the period beginning August 23, 1993.

Portfolio organization

21
<PAGE>

Portfolio organization (cont'd)

Special Servicing Agreement

Consequently, no Underlying Scudder Fund will be expected to carry expenses that
are in excess of the estimated savings to it. The estimated savings are expected
to result from the reduction of shareholder servicing costs due to the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Scudder Funds. The estimated savings
produced by the operation of the Portfolio will most likely suffice to offset
most, if not all, the expenses incurred by the Portfolio.

Investment adviser

22
<PAGE>

Trustees. The Trustees have overall responsibility for the management of the
Trust under Massachusetts law.

Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.

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 Portfolio.

Underwriter

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

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 Portfolio.

Custodian

State Street Bank and Trust Company is the custodian for the Portfolio.

Transaction information

For concise instruction on how to purchase, exchange or redeem shares, refer to
pages 32 and 33.

Purchasing shares

Redemption requests by telephone prior to the expiration of the seven-day period
will not be accepted.

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 Portfolio in which the money is to be invested,
- -- the account number of the Portfolio, 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.

23
<PAGE>

Transaction information (cont'd)

received. You must include with your payment the order number given at the time
the order is placed. If payment by check or wire is not received within three
business days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Portfolio resulting from this cancellation.
Telephone orders are not available for shares held in Scudder IRA accounts and
most other Scudder retirement plan accounts.

By exchange. Your new account will have the same registration and address as
your existing account.

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

Redeeming shares

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

You can also make redemptions on SAIL by calling 1-800-343-2890.

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

24
<PAGE>

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

Telephone transactions

Share price

Processing time

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

25
<PAGE>

Transaction information (cont'd)

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

Purchase restrictions

Tax information

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

Tax identification number

Minimum balances

26
<PAGE>

Third party transactions

Shareholder benefits

Experienced professional management

A team approach to investing

Scudder Pathway Series: Growth Portfolio is managed by a team of Scudder
investment professionals who each play an important role in the Portfolio's
management process. Team members work together to develop investment strategies
and select Underlying Funds for the Portfolio. They are supported by Scudder's
large staff of portfolio managers, economists, research analysts, traders and
other investment specialists. Scudder believes its team approach benefits the
Portfolio's investors by bringing together many disciplines and leveraging
Scudder's extensive resources. All members of the Pathway investment team are
members of Scudder's Global Asset Allocation Committee. This group is
responsible for analyzing the global economy and capital markets, integrating
information from the firm's equity and fixed income specialists, and developing
the outlook for the investment characteristics of the major markets in which the
Portfolio invests.

SAIL(TM)--Scudder Automated Information Line

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,

27
<PAGE>
Shareholder benefits (cont'd)

Dividend reinvestment plan

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

Shareholder statements

Shareholder reports

Newsletters

Scudder Funds Centers

As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
New York, and San Francisco.

T.D.D. service for the hearing impaired

Scudder tax-advantaged retirement plans

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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.

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.

Profit Sharing or Pension Plan accounts, call 1-800-225-5163.

Trustees and Officers

David S. Lee*
President and Trustee

Daniel Pierce*
Vice President and Trustee

Edgar R. Fiedler
Trustee; Vice President and Economic Counsellor, The Conference Board, Inc.

Dr. J.D. Hammond
Trustee; Dean, Smeal College of Business Administration, Pennsylvania State
University

Richard M. Hunt
Trustee; University Marshal and Senior Lecturer, Harvard University

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Juris Padegs*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Kathryn L. Quirk*
Vice President and Assistant Secretary

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc

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Investment products and services

The Scudder Family of Funds

Money Market

Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund

Tax Free Money Market+

Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*

Tax Free+

Growth and Income

Scudder Balanced Fund
Scudder Growth and Income Fund

Income

Growth

Asset Allocation

Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
Scudder Pathway Series: International Portfolio

Retirement Plans and Tax-Advantaged Investments

IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans

Closed-End Funds#

Institutional Cash Management

Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++

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How to contact Scudder

<S> <C> <C> <C>
Account Service and Information: Scudder Brokerage Services:

http://funds.scudder.com

Investment Information: Or Stop by a Scudder Funds Center:

For establishing 401(k) and Scudder Defined Boca Raton New York
403(b) plans Contribution Services Boston San Francisco
1-800-323-6105 Chicago

Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.

** Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.

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Purchases

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

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 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 Funds Centers to make an additional
investment in your Scudder fund account. Funds Center
locations are listed under Shareholder benefits.

o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy for more details.

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Exchanges and redemptions

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

Send your instructions

by regular mail to: or by express, registered, or by fax to:
or certified mail to:

o By Mail Send your instructions for redemption to the appropriate address or fax
or Fax number above and include:

A signature guarantee is required for redemptions over $50,000.
See Transaction information--Redeeming shares.

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

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APPENDIX

A-1
<PAGE>

A-2
<PAGE>

A-3
<PAGE>

A-4
<PAGE>

including some of the largest in the country. Accordingly, government actions in
the future could have a significant effect on economic conditions in Latin
American countries, which could affect private sector companies and an
Underlying Scudder Fund, as well as the value of securities in an Underlying
Scudder Fund's portfolio.

S&P:

A-5
<PAGE>

Moody's:

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

A-6
<PAGE>

A-7
<PAGE>
This prospectus sets forth concisely the information about Scudder Pathway
Series: International Portfolio (the "Portfolio"), a diversified open-end
management investment company, that a prospective investor should know before
investing. Scudder Pathway Series is composed of four separate Portfolios with
distinctly different investment objectives. Each Portfolio, one of which is
offered herein, seeks to accomplish its objective by investing in a number of
other Scudder funds (the "Underlying Scudder Funds"). Please retain this
prospectus for future reference.

Contents--see page 4.

Scudder
Pathway Series: International
Portfolio

Prospectus
November 15, 1996

A pure no-load(TM) (no sales charges) mutual fund which seeks maximum total
return by investing in a select mix of international and global Scudder Funds.
<PAGE>

Expense information

This information is designed to help you understand the various costs and
expenses that an investor in Scudder Pathway Series: International Portfolio
will bear directly or indirectly. With Scudder's pure no-load(TM) portfolios and
funds, you pay no commissions to purchase or redeem shares, or to exchange from
one portfolio or 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 Portfolio for various transactions.

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

Investment management fee NONE
12b-1 fees NONE
Other expenses NONE
----
Total Portfolio operating expenses** NONE

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

** The payment of the Portfolio's pro rata share of expenses is subject to the
Special Servicing Agreement. Please refer to "Portfolio
organization--Special Servicing Agreement."

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Expense Ratios of the Underlying Scudder Funds

Underlying Scudder Funds Expense Ratio
------------------------ -------------
Money Market Fund
Scudder Cash Investment Trust 0.83%
Bond Mutual Funds
Scudder Emerging Markets Income Fund 1.50%
Scudder Global Bond Fund+ 1.00%
Scudder International Bond Fund 1.26%
Scudder Short Term Bond Fund 0.75%

Underlying Scudder Funds Expense Ratio
------------------------ -------------
Equity Mutual Funds
Scudder Emerging Markets Growth Fund+ 2.00%
Scudder Global Discovery Fund 1.69%
Scudder Global Fund 1.34%
Scudder Gold Fund 1.50%
Scudder International Fund 1.14%
Scudder Latin America Fund 2.08%
Scudder Pacific Opportunities Fund 1.74%

Based on the foregoing, the range for the average weighted expense ratio borne
by the Portfolio is expected to be 0.98% to 2.08%. A range is provided since the
average assets of the Portfolio invested in each of the Underlying Scudder Funds
will fluctuate.

Example

1 Year 3 Years
$16 $48

+The following funds maintained their expenses at the following rates for their
respective fiscal periods: Scudder Emerging Markets Growth Fund: 2.00% and
Scudder Global Bond Fund: 1.00%. If the Adviser had not maintained the Funds'
expenses, the total return for the period would have been lower. Please see the
appropriate Underlying Scudder Fund prospectus for details.

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A mesage from Scudder's chairman

/s/Daniel Pierce

Scudder Pathway Series: International Portfolio

Investment Objective

o maximum total return

Investment Characteristics

o a professionally managed portfolio which allocates its investments among
select international and global Scudder Funds

o provides exposure to a wide range of asset classes, securities and markets
around the globe

o no added fees or expenses associated with the operation of Scudder Pathway
Series: International Portfolio

o appropriate for IRA, 401(k) and other retirement plans

Contents

Investment objective and policies 5
Why invest in the Portfolio? 6
Description of the Underlying
Scudder Funds 7
Information about policies,
investments and risks 13
Investment restrictions of the Portfolio 15
Risks of investing in the Portfolio 15
Distribution and performance information 16
Portfolio organization 17
Transaction information 18
Shareholder benefits 22
Trustees and Officers 25
Investment products and services 26
How to contact Scudder 27
Purchases 28
Exchanges and redemptions 29
Appendix

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Investment objective and policies

Scudder Pathway Series: International Portfolio (the "Portfolio") is one of four
professionally managed, diversified portfolios of Scudder Pathway Series (the
"Trust"). The Portfolio's investment objective is to maximize 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.

The portfolio management team for the Portfolio allocates investments based on
the outlook of the Fund's investment adviser, Scudder, Stevens & Clark, Inc.
(the "Adviser"), for the financial markets, world economies and the relative
performance potential of the Underlying Scudder Funds.

Under normal market conditions, at least 65% of the Portfolio's total assets
will be invested in Underlying Scudder Funds investing primarily in non-domestic
securities. The Portfolio defines "non-domestic" securities as securities of
companies neither domiciled in the U.S. nor organized under the laws of the U.S.
and for which the U.S. trading market is not a primary market. Under normal
market conditions, the International Portfolio will invest at least 60% of total
assets in equity mutual funds. The balance of the Portfolio's total assets will
be invested in bond mutual funds or held in a money market fund, cash or cash
equivalents. If, as a result of appreciation or depreciation, the percentage of
the Portfolio's assets invested in the above categories exceeds or is less than
the applicable range, the Adviser will consider, in its discretion, whether to
reallocate the assets of the Portfolio to comply with the stated ranges.

Except as otherwise indicated, the Portfolio's investment objective and policies
are not fundamental and may be changed without a vote of shareholders. If there
is a change in investment objective, shareholders should consider whether
- -----------------------------------------------------
Underlying Scudder Funds in which the Pathway
International Portfolio may invest
-----------------------------------------------------
Equity Mutual Funds
Scudder Emerging Markets Growth Fun
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund

Bond Mutual Funds
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund

Money Market Fund
Scudder Cash Investment Trust

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Investment objective and policies (cont'd)

the Portfolio remains an appropriate investment in light of their then current
financial position and needs. There can be no assurance that the Portfolio's
objective will be met.

Why invest in the Portfolio?

The Pathway Series Portfolios are designed for individuals and institutions who
prefer to have their asset allocation decisions made by professional money
managers, are looking for core investments for their investment portfolio and
appreciate the advantages of broad diversification. Scudder Pathway Series:
International Portfolio seeks maximum total return (i.e., any capital
appreciation plus dividend income and interest). Investing to achieve this goal,
the International Portfolio's assets are carefully allocated among a wide
selection of international and global mutual funds offered by the Scudder Family
of Funds.

Pathway International Portfolio is designed to meet the needs of investors
seeking to add--through a single pure no-load(TM) investment--diversified
international exposure to their investment portfolio. The Portfolio may be most
appropriate for long-term investors, including those planning for retirement
using tax-advantaged retirement accounts including IRAs, 401(k) corporate
employee savings plans and 403(b) non-profit organization savings plans.

The Portfolio should appeal to those investors interested in an actively
managed, broad approach to international investing. The allocation of assets
within the Portfolio is determined by the Adviser according to fundamental and
quantitative analysis. Shifts will be made among Underlying Scudder Funds and
asset classes based on the Adviser's then current outlook for the financial
markets and the world's economies. Because the Portfolio's assets will be
adjusted only periodically and within the investment ranges described above,
there should not be any sudden large-scale changes in the Portfolio's asset
allocation. The Portfolio is not designed as a market timing vehicle, but rather
as a cost-effective, simple approach to helping investors participate in a range
of international opportunities with a goal of maximum total return.

International investing offers the investor the dual benefits of enhanced return
potential and greater overall portfolio diversification. Today, markets outside
the U.S. represent well over half the world's public companies and equity
values, and the economies of many foreign countries are growing faster than the
U.S. economy. Further, foreign markets don't always move in step with each other
and the U.S., so adding international exposure, such as through Pathway
International Portfolio, can reduce overall portfolio volatility over time.

In addition, the Portfolio offers all the benefits of the Scudder Family of
Funds. Scudder, Stevens & Clark, Inc. manages a diverse family of pure

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no-load(TM) funds and provides a wide range of services to help investors meet
their investment needs. Please refer to "Investment products and services" for
additional information.

Description of the Underlying Scudder Funds

The following is a concise description of the investment objectives and
practices for each of the Underlying Scudder Funds. There can be no assurance
that the Underlying Scudder Funds' objectives will be met. Additional
information regarding the investment practices of the Underlying Scudder Funds
is located in the section entitled "Additional information about policies and
investments," in the Appendix to this prospectus, in the sections entitled "The
Fund's Investment Objectives and Policies" and "Glossary" in the Statement of
Additional Information and in the prospectuses of each of the Underlying Scudder
Funds. Prospectuses for the Underlying Scudder Funds may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or by calling 1-800-225-2470. No offer is made in this
prospectus of shares of any of the Underlying Scudder Funds.

The following Underlying Scudder Fund is the money market fund in which the
Portfolio may invest and will likely serve as the primary cash reserve portion
of the Portfolio.

The following Underlying Scudder Funds are bond mutual funds which primarily
seek to provide current income or total return.

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Description of the Underlying Scudder Funds (cont'd)

To achieve its objectives, the Fund primarily invests in a managed portfolio of
high-grade debt securities denominated in foreign currencies, including bonds

8
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denominated in the European Currency Unit (ECU). Portfolio investments will be
selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund will normally invest at least 65% of its total
assets in bonds denominated in foreign currencies. The Fund will invest no more
than 35% of the value of its total assets in U.S. debt securities. The Fund will
invest no more than 15% of its total assets in debt securities rated below
investment-grade, but no lower than B.

In addition, the Fund will not invest in any debt security rated at the time of
purchase below investment-grade.

The following Underlying Scudder Funds are equity mutual funds which seek
long-term growth of capital.

o the issuer is organized under the laws of an emerging market country;

o the issuer's principal securities trading market is in an emerging market;
or

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Description of the Underlying Scudder Funds (cont'd)

securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid securities.

10
<PAGE>

securities traded over-the-counter. It also may invest in debt securities
convertible into common stock, convertible and non-convertible preferred stock,
and fixed-income securities of governments, government agencies, supranational
agencies and companies when the Adviser believes the potential for appreciation
will equal or exceed that available from investments in equity securities. These
debt and fixed-income securities will be investment-grade, except that the Fund
may invest up to 5% of its total assets in debt securities rated below
investment-grade.

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

The Fund pursues its objective primarily through a portfolio of gold-related
investments. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in (1) equity securities (defined as common stock,
investment-grade preferred stock and debt securities that are convertible into
or exchangeable for common stock) of U.S. and foreign companies primarily
engaged in the exploration, mining, fabrication, processing or distribution of
gold, (2) gold bullion, and (3) gold coins. A company will be considered
"primarily engaged" in a business or an activity if it devotes or derives at
least 50% of its assets, revenues and/or operating earnings from that business
or activity. The remaining 35% of the Fund's assets may be invested in any
precious metals other than gold; in equity securities of companies engaged in
activities primarily relating to precious metals and minerals other than gold;
in investment-grade debt securities, including zero coupon bonds, of companies
engaged in activities relating to gold or other precious metals and minerals;
warrants; and in certain debt securities, a portion of the return on which is
indexed to the price of precious metals. In addition, the Fund may engage in
Strategic Transactions and, to a limited extent, may invest in illiquid and
restricted securities.

Scudder Latin America Fund is a non-diversified investment company which seeks
to provide long-term capital appreciation through investment primarily in the
securities of Latin American issuers.

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Description of the Underlying Scudder Funds (cont'd)

market-oriented economies. The Adviser believes that efforts by Latin American
countries to, among other things, reduce government spending and deficits,
control inflation, lower trade barriers, stabilize currency exchange rates,
increase foreign and domestic investment and privatize state-owned companies,
will set the stage for attractive investment returns over time.

o Securities of companies organized under the laws of a Latin American
country or for which the principal securities trading market is in Latin
America;

o Securities issued or guaranteed by the government of a country in Latin
America, its agencies or instrumentalities, political subdivisions or the
central bank of such country;

o Securities of Latin American issuers, as defined above, in the form of
depositary shares.

o Securities of companies organized under the laws of a Pacific Basin country
or for which the principal securities trading market is in the Pacific
Basin; or

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Information about policies, investments and risks

Foreign securities. Each Underlying Scudder Fund (except Scudder Cash Investment
Trust) may invest in foreign securities. Investments in foreign securities
involve special considerations due to more limited information, higher brokerage
costs, different accounting standards, thinner trading markets and the likely
impact of foreign taxes on the income from securities. They may also entail
certain 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 government 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, an
Underlying Scudder Fund may incur currency conversion costs and may be affected
favorably or unfavorably by changes in the value of foreign currencies against
the U.S. dollar. Further, it may be more difficult for an Underlying Scudder
Fund's agents to keep currently informed about corporate actions which may
affect the prices of portfolio securities. Communications between the United
States and foreign countries may be less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Certain markets may require
payment for securities before delivery. An Underlying Scudder Fund's ability and
decisions to purchase and sell portfolio securities may be affected by laws or
regulations relating to the convertibility of currencies and repatriation of
assets. These risks are greater in emerging markets.

Debt securities. In general, the prices of debt securities rise when interest
rates fall, and vice versa. This effect is usually more pronounced for longer
term securities. The debt securities in which certain of the Underlying Scudder
Funds may invest are rated, or determined by the Adviser to be the equivalent of
those rated, by two nationally recognized rating organizations, Moody's and S&P.
High quality securities are those rated in the two highest categories by Moody's
(Aaa or Aa) or S&P (AAA or AA). High-grade securities are those rated in the
three highest categories by Moody's (Aaa, Aa, or A) or by S&P (AAA, AA, or A).
Investment-grade securities are those rated in the four highest categories by
Moody's (Aaa, Aa, A, or Baa) or by S&P (AAA, AA, A or BBB).

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Information about policies, investments and risks (cont'd)

14
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use of currency transactions can result in the Underlying Scudder 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 an Underlying Scudder Fund creates the possibility that losses on
the hedging instrument may be greater than gains in the value of an Underlying
Scudder 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, an Underlying Scudder 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 an Underlying Scudder Fund
may use and some of their risks are described more fully in Pathway Series'
Statement of Additional Information and the Statement of Additional Information
of certain Underlying Scudder Funds.

Investment restrictions of the Portfolio

Risks of investing in the Portfolio

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Risks of investing in the Portfolio (cont'd)

For information about the investment techniques and the risks involved in the
Underlying Scudder Funds, please refer to "Information about policies,
investments and risks" and the Appendix to this prospectus.

Distribution and performance information

Performance information

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reinvested in shares of the Portfolio. "Capital change" measures return from
capital, including reinvestment of any capital gains distributions but does not
include the reinvestment of dividends.

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

Portfolio organization

Special Servicing Agreement

17
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Portfolio organization (cont'd)

for registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and employees of the Portfolio who are not affiliated with
the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians.

Investment adviser

Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.

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 Portfolio.

Underwriter

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 Portfolio.

Custodian

State Street Bank and Trust Company is the custodian for the Portfolio.

Transaction information

For concise instruction on how to purchase, exchange or redeem shares, refer to
pages 28 and 29.

Purchasing shares

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the Portfolio may hold redemption proceeds until the purchase check has cleared.
If you purchase shares by federal funds wire, you may avoid this delay.

Redemption requests by telephone prior to the expiration of the seven-day period
will not be accepted.

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 Portfolio in which the money is to be invested,
- -- the account number of the Portfolio, 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 exchange. 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

19
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Transaction information (cont'd)

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 on SAIL, the Scudder Automated Information Line, by
calling 1-800-343-2890.

Redeeming shares

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

You can also make redemptions on SAIL by calling 1-800-343-2890.

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

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

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Telephone transactions

Share price

Processing time

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

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

Purchase restrictions

Tax information

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

Tax identification number

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Transaction information (cont'd)

Minimum balances

Third party transactions

Shareholder benefits

Experienced professional management

A team approach to investing

Scudder Pathway Series: International Portfolio is managed by a team of Scudder
investment professionals who each play an important role in the Portfolio's
management process. Team members work together to develop investment strategies
and select Underlying Funds for the Portfolio. They are supported by Scudder's
large staff of portfolio managers, economists, research analysts, traders and
other investment specialists. Scudder believes its team approach benefits the
Portfolio's investors by bringing together many disciplines and leveraging
Scudder's extensive resources. All members of the Pathway investment team are
members of Scudder's Global Asset Allocation Committee. This group is
responsible for analyzing the global economy and capital markets, integrating
information from the firm's equity and fixed income specialists, and developing
the outlook for the investment characteristics of the major markets in which the
Portfolio invests.

Lead Portfolio Manager Benjamin W. Thorndike, who has 17 years of investment
experience, joined Scudder in 1983 as a portfolio manager. Since 1986, he has

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served as a portfolio manager for Scudder Growth and Income Fund. Mr. Thorndike
will develop portfolio strategy utilizing the research, analysis and guidance
provided by other members of the investment team. Cornelia Small, Portfolio
Manager, is Director of Global Equity Investments and Chairman of the Capital
Markets Group, and has also served as Director of Global Equity Research.
Margaret (Peg) Hadzima, Portfolio Manager, is Director of Scudder's
Institutional Group, which includes a focus on asset allocation strategy. Ms.
Hadzima has 23 years of experience in fixed-income investing during which she
has served as Director of Global Bond Research and Chairman of Global Bond
Strategy. Philip Fortuna, Portfolio Manager, joined Scudder in 1986 as manager
of institutional equity accounts. He has served as Director of Quantitative
Research and Director of Investment Operations. Mr. Fortuna is Lead Portfolio
Manager for Scudder Small Company Value Fund, as well as a portfolio manager for
Scudder Micro Cap Fund. Maureen Allyn, Portfolio Manager, is Scudder's Chief
Economist, a position she has held since 1989, and is responsible for analyzing
both the world and U.S. economies.

SAIL(TM)--Scudder Automated Information Line

Investment flexibility

Dividend reinvestment plan

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

Shareholder statements

Shareholder reports

Newsletters

23
<PAGE>

Scudder Funds Centers

As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
New York and San Francisco.

T.D.D. service for the hearing impaired

Scudder tax-advantaged retirement plans

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

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.

24
<PAGE>

Trustees and Officers

David S. Lee*
President and Trustee

Daniel Pierce*
Vice President and Trustee

Edgar R. Fiedler
Trustee; Vice President and Economic Counsellor, The Conference Board, Inc.

Dr. J.D. Hammond
Trustee; Dean, Smeal College of Business Administration, Pennsylvania
State University

Richard M. Hunt
Trustee; University Marshal and Senior Lecturer, Harvard University

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Juris Padegs*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Kathryn L. Quirk*
Vice President and Assistant Secretary

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

25
<PAGE>

Investment products and services

The Scudder Family of Funds

Money Market

Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund

Tax Free Money Market+

Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*

Tax Free+

Growth and Income

Scudder Balanced Fund
Scudder Growth and Income Fund

Income

Growth

Asset Allocation

Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
Scudder Pathway Series: International Portfolio

Retirement Plans and Tax-Advantaged Investments

IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans

Closed-End Funds#

Institutional Cash Management

Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++

26
<PAGE>

<TABLE>
<CAPTION>
How to contact Scudder

<S> <C> <C> <C>
Account Service and Information: Scudder Brokerage Services:

http://funds.scudder.com

Investment Information: Or Stop by a Scudder Funds Center:

For establishing 401(k) and Scudder Defined Boca Raton New York
403(b) plans Contribution Services Boston San Francisco
1-800-323-6105 Chicago

Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.

** Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.

27
<PAGE>
<TABLE>
<CAPTION>
Purchases

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

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 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 Funds Centers to make an additional
investment in your Scudder fund account. Funds Center
locations are listed under Shareholder benefits.

o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy for more details.

28
<PAGE>

Exchanges and redemptions

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

Send your instructions

by regular mail to: or by express, registered, or by fax to:
or certified mail to:

o By Mail Send your instructions for redemption to the appropriate address or fax
or Fax number above and include:

A signature guarantee is required for redemptions over $50,000.
See Transaction information--Redeeming shares.

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

</TABLE>

29
<PAGE>

APPENDIX

A-1
<PAGE>

A-2
<PAGE>

issuers of debt obligations generally.

A-3
<PAGE>

A-4
<PAGE>

A-5
<PAGE>

S&P:

Moody's:

A-6
<PAGE>

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

A-7
<PAGE>

SCUDDER PATHWAY SERIES
Two International Place
Boston, Massachusetts 02110

Scudder Pathway Series is a professionally managed, open-end
investment company which offers four investment portfolios.

CONSERVATIVE PORTFOLIO
BALANCED PORTFOLIO
GROWTH PORTFOLIO
INTERNATIONAL PORTFOLIO

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

STATEMENT OF ADDITIONAL INFORMATION

November 15, 1996

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

This combined Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectuses of Scudder Pathway Series
Portfolios dated November 15, 1996, 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>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>

PATHWAY SERIES' INVESTMENT OBJECTIVES AND POLICIES....................................................................1
General Investment Objectives and Policies...................................................................1
The Underlying Scudder Funds.................................................................................1
Risk Factors of Underlying Scudder Funds....................................................................10
Investment Restrictions of the Portfolios...................................................................10

PURCHASES............................................................................................................11
Additional Information About Opening An Account.............................................................11
Additional Information About Making Subsequent Investments..................................................11
Additional Information About Making Subsequent Investments by AutoBuy.......................................12
Checks......................................................................................................12
Wire Transfer of Federal Funds..............................................................................12
Share Price.................................................................................................13
Share Certificates..........................................................................................13
Other Information...........................................................................................13

EXCHANGES AND REDEMPTIONS............................................................................................13
Exchanges...................................................................................................13
Redemption By Telephone.....................................................................................14
Redemption by AutoSell......................................................................................15
Redemption by Mail or Fax...................................................................................15
Redemption-in-Kind..........................................................................................16
Other Information...........................................................................................16

FEATURES AND SERVICES OFFERED BY THE TRUST...........................................................................17
The Pure No-Load(TM) Concept...............................................................................17
Dividend and Capital Gain Distribution Options..............................................................18
Scudder Funds Centers.......................................................................................18
Reports to Shareholders.....................................................................................19
Transaction Summaries.......................................................................................19

THE SCUDDER FAMILY OF FUNDS..........................................................................................19

SPECIAL PLAN ACCOUNTS................................................................................................22
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals..............................................................................23
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........23
Scudder IRA: Individual Retirement Account.................................................................23
Scudder 403(b) Plan.........................................................................................24
Automatic Withdrawal Plan...................................................................................24
Group or Salary Deduction Plan..............................................................................24
Automatic Investment Plan...................................................................................25
Uniform Transfers/Gifts to Minors Act.......................................................................25

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................25

PERFORMANCE INFORMATION..............................................................................................26
Average Annual Total Return.................................................................................26
Cumulative Total Return.....................................................................................26
SEC Yields of Conservative Portfolio and Balanced Portfolio.................................................27
Total Return................................................................................................27
Capital Change..............................................................................................27

TRUST ORGANIZATION...................................................................................................32

i
<PAGE>

TABLE OF CONTENTS (continued)
Page

INVESTMENT ADVISER...................................................................................................33
Personal Investments by Employees of the Adviser............................................................35
Management Fees of Underlying Scudder Funds.................................................................35

SPECIAL SERVICING AGREEMENT..........................................................................................36

TRUSTEES AND OFFICERS................................................................................................37

REMUNERATION.........................................................................................................38

DISTRIBUTOR..........................................................................................................38

TAXES................................................................................................................39
Taxation of the Portfolios and Their Shareholders...........................................................39
Taxation of the Underlying Scudder Funds....................................................................41

PORTFOLIO TRANSACTIONS...............................................................................................42
Portfolio Turnover..........................................................................................42

NET ASSET VALUE......................................................................................................42

ADDITIONAL INFORMATION...............................................................................................43
Other Information...........................................................................................43

FINANCIAL STATEMENTS.................................................................................................44

GLOSSARY
</TABLE>

ii
<PAGE>

PATHWAY SERIES' INVESTMENT OBJECTIVES AND POLICIES

(See "Investment objectives and policies" and
"Additional information about policies and
investments" in the Portfolios' prospectuses.)

General Investment Objectives and Policies

The Series is composed of six separate non-diversified portfolios (the
"Portfolios"), four of which are currently offered, which invest primarily in
existing, pure no-load(TM) Scudder Funds (the "Underlying Scudder Funds"),
according to well-defined investment objectives. The Portfolios may also invest
in money market instruments to provide for redemptions for temporary or
defensive purposes. Each Portfolio offers a professionally managed, long-term
investment program that can, with the exception of the "International
Portfolio," serve as a complete investment program or as a core part of a larger
portfolio. Achievement of each Portfolio's objective cannot be assured.

The Portfolios are professionally managed portfolios which allocate
their investments among select funds in the Scudder Family of Funds. Each
Portfolio is designed for investors seeking a distinct investment style: a
conservative investment approach ("Pathway Series: Conservative Portfolio"), a
balance of growth and income ("Pathway Series: Balanced Portfolio"), growth of
capital ("Pathway Series: Growth Portfolio"), or international exposure
("Pathway Series: International Portfolio"). The Portfolios have been created in
response to increasing demand by mutual fund investors for a simple and
effective means of structuring a diversified mutual fund investment program
suited to their general needs. As has been well documented in the financial
press, the proliferation of mutual funds over the last several years has left
many investors confused and in search of a simpler means to manage their
investments. Many mutual fund investors realize the value of diversifying their
investments in a number of mutual funds (e.g., a money market fund for liquidity
and price stability, a growth fund for long-term appreciation, an income fund
for current income and relative safety of principal, an international fund for
greater diversification), but need professional management to decide such
questions as which mutual funds to select, how much of their assets to commit to
each fund and when to allocate their selections. The Portfolios will allow
investors to rely on Scudder, Stevens & Clark, Inc. (the "Adviser") to determine
(within clearly explained parameters) the amount to invest in each of several
Underlying Scudder Funds and the timing of such investments.

The investment objectives of the four Portfolios are as follows:

Conservative Portfolio

The Conservative Portfolio seeks primarily current income and
secondarily long-term growth of capital primarily through investment in a
diversified mix of Underlying Scudder Funds.

Balanced Portfolio

The Balanced Portfolio seeks a balance of growth and income primarily
through investment in a diversified mix of Underlying Scudder Funds.

Growth Portfolio

The Growth Portfolio seeks long-term growth of capital primarily
through investment in a diversified mix of Underlying Scudder Funds.

International Portfolio

The International Portfolio seeks long-term growth of capital primarily
through investment in a diversified mix of global and international Underlying
Scudder Funds.

The Underlying Scudder Funds

Each Portfolio will purchase or sell securities to: (a) accommodate
purchases and sales of each Portfolio's shares, (b) change the percentages of

<PAGE>

each Portfolio's assets invested in each of the Underlying Scudder Funds in
response to changing market conditions, and (c) maintain or modify the
allocation of each Portfolio's assets in accordance with the investment mixes
described below.

Portfolio managers will allocate Portfolio assets among the Underlying
Scudder Funds in accordance with predetermined percentage ranges, based on the
Adviser's outlook for the financial markets, the world's economies and the
relative performance potential of the Underlying Scudder Funds. The Underlying
Scudder Funds have been selected to represent a broad spectrum of investment
options for the Portfolios, subject to the following investment ranges:
(Conservative) 40-80% bond mutual funds, 20-50% equity mutual funds, 0-15% money
market funds; (Balanced) 40-70% equity mutual funds, 25-60% bond mutual funds,
0-10% money market funds; (Growth) 60-90% equity mutual funds, 10-40% bond
mutual funds, 0-5% money market funds; (International) 60-100% equity mutual
funds, 0-40% bond mutual funds, 0-20% money market funds.
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------
Conservative Portfolio Balanced Portfolio Growth Portfolio International Portfolio
Underlying Scudder Funds Underlying Scudder Funds Underlying Scudder Funds Underlying Scudder Funds
------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>

Bond Mutual Funds Equity Mutual Funds Equity Mutual Funds Equity Mutual Funds

Scudder Emerging Markets Scudder Capital Growth Fund Scudder Capital Growth Fund Scudder Emerging Markets
Income Fund Scudder Classic Growth Fund Scudder Classic Growth Fund Growth Fund
Scudder Global Bond Fund Scudder Development Fund Scudder Development Fund Scudder Global Discovery Fund
Scudder GNMA Fund Scudder Emerging Markets Scudder Emerging Markets Scudder Global Fund
Scudder High Yield Bond Fund Growth Fund Growth Fund Scudder Gold Fund
Scudder Income Fund Scudder Global Discovery Fund Scudder Global Discovery Scudder International Fund
Scudder International Bond Scudder Global Fund Fund Scudder Latin America Fund
Fund Scudder Gold Fund Scudder Global Fund Scudder Pacific Opportunities
Scudder Short Term Bond Scudder Growth and Income Scudder Gold Fund Fund
Fund Fund Scudder Growth and Income Bond Mutual Funds
Equity Mutual Funds Scudder International Fund Fund
Scudder Latin America Fund Scudder International Fund Scudder Emerging Markets
Scudder Capital Growth Fund Scudder Micro Cap Fund Scudder Latin America Fund Income Fund
Scudder Classic Growth Fund Scudder Pacific Scudder Micro Cap Fund Scudder Global Bond Fund
Scudder Development Fund Opportunities Fund Scudder Pacific Scudder International Bond
Scudder Emerging Markets Scudder Quality Growth Fund Opportunities Fund Fund
Growth Fund Scudder Small Company Value Scudder Quality Growth Fund Scudder Short Term Bond Fund
Scudder Global Discovery Fund Scudder Small Company Value
Fund Scudder 21st Century Growth Fund
Scudder Global Fund Fund Scudder 21st Century Growth Money Market Fund
Scudder Gold Fund Scudder Value Fund Fund Scudder Cash Investment Trust
Scudder Growth and Income Bond Mutual Funds Scudder Value Fund
Fund Bond Mutual Funds
Scudder International Fund Scudder Emerging Markets
Scudder Latin America Fund Income Fund Scudder Emerging Markets
Scudder Micro Cap Fund Scudder Global Bond Fund Income Fund
Scudder Pacific Scudder GNMA Fund Scudder Global Bond Fund
Opportunities Fund Scudder High Yield Bond Fund Scudder GNMA Fund
Scudder Quality Growth Fund Scudder Income Fund Scudder High Yield Bond Fund
Scudder Small Company Value Scudder International Bond Scudder Income Fund
Fund Fund Scudder International Bond
Scudder 21st Century Growth Scudder Short Term Bond Fund Fund
Fund Money Market Fund Scudder Short Term Bond
Scudder Value Fund Fund
Money Market Fund Scudder Cash Investment Trust
Money Market Fund
Scudder Cash Investment Trust Scudder Cash Investment
Trust
------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following Underlying Scudder Fund is the money market fund in which
the Portfolios may invest and will likely serve as the primary cash reserve
portion of the Portfolios.

Scudder Cash Investment Trust seeks to maintain stability of capital
and, consistent therewith, to maintain liquidity of capital and to provide
current income. The Fund seeks to maintain a constant net asset value of $1.00
per share. There can be no assurance that the stable net asset value will be
maintained and shares of the Fund are not insured or guaranteed by the U.S.
Government. The Fund purchases domestic and foreign U.S. dollar-denominated
money market securities. All of the Fund's portfolio securities must meet
certain quality criteria at the time of purchase. Generally, the Fund may
purchase only securities which are rated, or issued by a company with comparable

2
<PAGE>

securities rated, within the two highest quality rating categories of one or
more of the following rating agencies: Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's ("S&P") and Fitch Investors Service, Inc.
("Fitch"). The maturity of each investment in the Fund's portfolio is 397
calendar days or less, except in the case of U.S. Government securities which
may have maturities of up to 762 calendar days. The dollar-weighted average
maturity of the Fund's portfolio investments varies with money market
conditions, but is always 90 days or less. As a money market fund with a
short-term maturity, the Fund's income fluctuates with changes in interest rates
but its price is expected to remain fixed at $1.00 per share.

The following Underlying Scudder Funds are bond mutual funds which seek
to provide current income.

Scudder Emerging Markets Income Fund is a non-diversified investment
company which seeks to provide high current income. As a secondary objective,
the Fund seeks long-term capital appreciation. In pursuing these goals, the Fund
invests primarily in high-yielding, high-risk debt securities issued by
governments and corporations 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 following: International Bank for Reconstruction and
Development (i.e., the World Bank), the International Finance Corporation or the
United Nations or its authorities. To reduce currency risk, the Fund will invest
at least 65% of its assets in U.S. dollar-denominated debt securities.
Therefore, no more than 35% of the Fund's assets may be invested in debt
securities denominated in foreign currencies. By focusing on fixed-income
instruments issued in emerging markets, the Fund invests predominantly in debt
securities that are rated below investment-grade. The Fund may invest up to 5%
of its net assets in non-performing securities whose quality is comparable to
securities rated as low as D by S&P or C by Moody's. The Fund involves
above-average bond fund risk and can invest entirely in high yield/high risk
bonds. Investments in emerging markets can be volatile. The Fund's share price
and yield can fluctuate daily in response to political events, changes in the
perceived creditworthiness of emerging nations, fluctuations in interest rates
and, to a certain extent, movements in foreign currencies.

Scudder GNMA Fund seeks to provide high current income and safety of
principal from a portfolio of high quality, U.S. Government guaranteed
mortgage-backed securities and U.S. Treasury securities. Under normal
conditions, the Fund invests at least 65% of its total assets in mortgage-backed
securities issued or guaranteed by the Government National Mortgage Association
("GNMA" or "Ginnie Mae"). Such guarantees are supported by the full faith and
credit of the U.S. Government. These guarantees apply only to the timely payment
of both principal and interest of the GNMA securities held in the Fund's
portfolio. Up to 35% of the Fund's total assets may be held in cash, cash
equivalents or invested in securities issued or directly guaranteed by the U.S.
Government, including U.S. Treasury bills, notes and bonds. The market values of
the Fund's investments and correspondingly the Fund's share price will vary
inversely with changes in prevailing interest rates and in response to other
bond market factors, such as changes in the supply and demand for
mortgage-backed securities.

Scudder Global Bond Fund is a non-diversified investment company which
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 seeks capital appreciation. The Fund
invests principally in a managed portfolio of high-grade intermediate- and
long-term bonds denominated in the U.S. dollar and foreign currencies, including
bonds denominated in the European Currency Unit (ECU). (Intermediate-term bonds
generally have maturities between three and eight years, and long-term bonds
generally have maturities of greater than eight years.) Portfolio investments
are selected on the basis of, among other things, yields, credit quality, and
the fundamental outlooks for currency and interest rate trends in different
parts of the globe, taking into account the ability to hedge a degree of
currency or local bond price risk. At least 65% of the Fund's investments will
consist of high-grade debt securities, which are those rated in one of the three
highest rating categories of one of the major U.S. rating services or, if
unrated, considered to be of equivalent quality in local currency terms as
determined by the Adviser. The Fund may also invest up to 15% of its net assets
in debt securities rated BBB or BB by S&P or Baa or Ba by Moody's, or unrated
securities considered to be of equivalent quality by the Adviser. The Fund does
not invest in any securities rated B or lower. Under normal market conditions,
the Fund will invest at least 15% of its total assets in U.S. dollar-denominated
securities, issued domestically or abroad. The Fund may invest in debt
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities; obligations issued or guaranteed by foreign national
governments, their agencies, instrumentalities or political subdivisions; and
debt securities issued or guaranteed by supranational organizations such as the
European Investment Bank, Inter-American Development Bank and The World Bank.
The Fund may also invest in non-government securities including corporate debt
securities, bank or bank holding company obligations (e.g., certificates of
deposit and bankers acceptances), and mortgage and other asset-backed issues.

3
<PAGE>

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. The Fund invests primarily in a broad range of high-grade,
income-producing securities such as corporate bonds and government securities.
All bonds purchased by the Fund will be investment-grade bonds. The majority of
the Fund's assets are usually invested in intermediate and longer term
fixed-income securities.

Scudder International Bond Fund is a non-diversified investment company
which seeks to provide income primarily by investing in a managed portfolio of
high-grade debt securities denominated in foreign currencies. 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. To achieve its objectives, the Fund primarily invests in a managed
portfolio of debt securities denominated in foreign currencies, including bonds
denominated in the European Currency Unit (ECU). Portfolio investments are
selected on the basis of, among other things, yields, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund normally invests at least 65% of its total
assets in bonds denominated in foreign currencies. The Fund invests no more than
35% of the value of its total assets in U.S. debt securities. The Fund invests
no more than 15% of its total assets in debt securities rated below
investment-grade, but no lower than B.

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. 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. The Fund may invest in a variety of other
securities including convertible and preferred securities, U.S. Treasury and
Agency bonds, Brady bonds, mortgage-backed and asset-backed securities, common
stocks and warrants, securities issued by real estate investment trusts, bank
loans, loan participations, dollar rolls, indexed securities and restricted
securities, such as those acquired through private placements. The Fund may
invest up to 25% of its total assets in foreign securities. 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.

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. The dollar-weighted average effective maturity
of the Fund's portfolio may not exceed three years. The net asset value of the
Fund is expected to fluctuate with changes in interest rates and bond market
conditions, although this fluctuation should be more moderate than that of a
fund with a longer average maturity. The Adviser, however, will attempt to
minimize principal fluctuation through, among other things, diversification,
credit analysis and security selection, and adjustment of the Fund's average
portfolio maturity. When, in the opinion of the Adviser, economic or other
conditions warrant, for temporary defensive purposes the Fund may invest more
than 35% of its assets in money market instruments. The Fund emphasizes high
quality investments. At least 65% of the Fund's net assets will be invested in
(1) obligations of the U.S. Government, its agencies or instrumentalities, and
(2) debt securities rated, at the time of purchase, in one of the two highest
categories of S&P or Moody's. In addition, the Fund will not invest in any debt
security rated at the time of purchase below investment-grade.

The following Underlying Scudder Fund is an equity mutual fund which
seeks a combination of income and growth.

Scudder Growth and Income Fund seeks long-term growth of capital,
current income and growth of income. The Fund attempts to achieve its investment
objective by investing primarily in dividend-paying common stocks, preferred
stocks and securities convertible into common stocks of companies with
long-standing records of earnings growth. The Fund may also purchase securities
which do not pay current dividends but which offer prospects for growth of
capital and future income. Convertible securities (which may be current coupon
or zero coupon securities) are bonds, notes, debentures, preferred stocks and
other securities which may be converted or exchanged at a stated or determinable
exchange ratio into underlying shares of common stock. The Fund may also invest
in nonconvertible preferred stocks consistent with its objective.

4
<PAGE>

The following Underlying Scudder Funds are equity mutual funds which
seek long-term growth or capital appreciation.

Scudder Capital Growth Fund seeks to maximize long-term capital growth
through a broad and flexible investment program. The Fund invests in marketable
securities, principally common stocks and, consistent with its objective of
long-term capital growth, preferred stocks. The Fund is free to invest in a wide
range of marketable securities which the Adviser believes offer the potential
for long-term, above-average growth. The Fund looks for companies whose
securities appear to present a favorable relationship between market price and
opportunity. These may include securities of companies whose fundamentals or
products may be of only average promise. The Fund may invest up to 20% of its
net assets in debt securities when management anticipates that the capital
appreciation on debt securities is likely to equal or exceed the capital
appreciation on common stocks over a selected time, such as during periods of
unusually high interest rates. Such debt securities may be rated below
investment-grade, or of equivalent quality as determined by the Adviser.
However, the Fund will invest no more than 10% of its net assets in securities
rated B or lower.

Scudder Classic Growth Fund seeks to provide long-term growth of
capital and to keep the value of its shares more stable than other capital
growth mutual funds. Under normal market conditions, the Fund invests primarily
in a diversified portfolio of common stocks which the Adviser believes offers
above-average appreciation potential yet, as a portfolio, offers the potential
for less share price volatility than other growth mutual funds. In seeking such
investments, the Adviser focuses its investment in high quality, medium-to-large
sized U. S. companies with leading competitive positions. The Fund allocates its
investments widely among different industries and companies, and adjusts its
portfolio securities based on long-term investment considerations as opposed to
short-term trading. While the Fund emphasizes U.S. investments, it can commit a
portion of assets to the equity securities of foreign growth companies that meet
the criteria applicable to domestic investments. The Fund can purchase other
types of equity securities including securities convertible into common stocks,
preferred stocks, rights and warrants. The Fund may invest up to 20% of its net
assets in debt securities when the Adviser anticipates that the capital
appreciation on debt securities is likely to equal or exceed the capital
appreciation on common stocks over a selected time, such as during periods of
unusually high interest rates.

Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of emerging growth companies. The Fund generally invests
in equity securities, including common stocks and convertible securities, of
relatively small or little-known companies, commonly referred to as emerging
growth companies, that the Adviser believes have above-average earnings growth
potential and/or may receive greater market recognition. To help reduce risk,
the Fund allocates its investments among many companies and different
industries. In selecting industries and companies for investment, the Adviser
will consider overall growth prospects, financial condition, competitive
position, technology, research and development, productivity, labor costs, raw
material costs and sources, profit margins, return on investment, structural
changes in local economies, capital resources, the degree of governmental
regulation or deregulation, management and other factors. 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 when the anticipated performance of foreign
securities is believed by the Adviser to offer more potential than domestic
alternatives in keeping with the investment objective of the Fund. However, the
Fund has no current intention of investing more than 20% of its net assets in
foreign securities.

Scudder Emerging Markets Growth Fund is a non-diversified investment
company which seeks long-term growth of capital primarily through equity
investment in emerging markets around the globe. The Fund will invest in the
Asia-Pacific region, Latin America, less developed nations in Europe, the Middle
East and Africa, focusing investments in countries and regions where there
appear to be the best value and appreciation potential, subject to
considerations of portfolio diversification and liquidity. At least 65% of the
Fund's total assets will be invested in the equity securities of emerging market
issuers. 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 intends to allocate its investments among at least three countries at all
times, and does not expect to concentrate in any particular industry. The Fund
deems an issuer to be located in an emerging market if:

- - the issuer is organized under the laws of an emerging market country;

5
<PAGE>

- - the issuer's principal securities trading market is in an emerging market;
or

- - at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is derived
(directly or indirectly through subsidiaries) from assets or activities
located in emerging markets.

The Fund may invest up to 35% of its total assets in emerging market
and domestic debt securities if the Adviser determines that the capital
appreciation of debt securities is likely to equal or exceed the capital
appreciation of equity securities. Under normal market conditions, the Fund may
invest up to 35% of its assets in equity securities of issuers in the U.S. and
other developed markets.

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. In pursuit of its objective, the Fund
generally invests in small, rapidly growing companies which offer the potential
for above-average returns relative to larger companies, yet are frequently
overlooked and thus undervalued by the market. The Fund has the flexibility to
invest in any region of the world. Under normal circumstances, the Fund invests
at least 65% of its total assets in the equity securities of small companies.
While the Adviser believes that smaller, lesser-known companies can offer
greater growth potential than larger, more established firms, the former also
involve greater risk and price volatility. To help reduce risk, the Fund
expects, under normal market conditions, to diversify its portfolio widely by
company, industry and country. The Fund intends to allocate investments among at
least three countries at all times, one of which may be the United States. The
Fund invests primarily in companies whose individual equity market
capitalization would place them in the same size range as companies in
approximately the lowest 20% of world market capitalization as represented by
the Salomon Brothers Broad Market Index, an index comprised of equity securities
of more than 6,500 small-, medium- and large-sized companies based in 22 markets
around the globe. Based on this policy, the companies held by the Fund typically
will have individual equity market capitalizations of between approximately $50
million and $2 billion (although the Fund will be free to invest in smaller
capitalization issues that satisfy the Fund's size standard). Furthermore, the
median market capitalization of the companies in which the Fund invests will not
exceed $750 million. The Fund may invest up to 35% of its total assets in equity
securities of larger companies located throughout the world and in
investment-grade debt securities if the Adviser determines that the capital
appreciation of debt securities is likely to exceed the capital appreciation of
equity securities. The Fund may invest up to 5% of its net assets in debt
securities rated below investment-grade.

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. The Fund invests on a worldwide basis in equity securities of
companies which are incorporated in the U.S. or in foreign countries. It also
may invest in the debt securities of U.S. and foreign issuers. The Fund will be
invested usually in securities of issuers located in at least three countries,
one of which may be the U.S. It is expected that investments will include
companies of varying size as measured by assets, sales or capitalization. The
Fund generally invests in equity securities of established companies listed on
U.S. or foreign securities exchanges, but also may invest in securities traded
over-the-counter. It also may invest in debt securities convertible into common
stock, convertible and non-convertible preferred stock, and fixed-income
securities of governments, government agencies, supranational agencies and
companies when the Adviser believes the potential for appreciation will equal or
exceed that available from investments in equity securities. These debt and
fixed-income securities will be investment-grade, except that the Fund may
invest up to 5% of its total assets in debt securities rated below
investment-grade.

Scudder Gold Fund is a non-diversified investment company which seeks
maximum return (principal change and income) consistent with investing in a
portfolio of gold-related equity securities and gold. The Fund pursues its
objective primarily through a portfolio of gold-related investments. Under
normal market conditions, at least 65% of the Fund's total assets will be
invested in (1) equity securities (defined as common stock, investment-grade

6
<PAGE>

preferred stock, warrants and debt securities that are convertible into or
exchangeable for common stock) of U.S. and foreign companies primarily engaged
in the exploration, mining, fabrication, processing or distribution of gold, (2)
gold bullion, and (3) gold coins. A company will be considered "primarily
engaged" in a business or an activity if it devotes or derives at least 50% of
its assets, revenues and/or operating earnings from that business or activity.
The remaining 35% of the Fund's assets may be invested in any precious metals
other than gold; in equity securities of companies engaged in activities
primarily relating to precious metals and minerals other than gold; in
investment-grade debt securities, including zero coupon bonds, of companies
engaged in activities relating to gold or other precious metals and minerals; in
certain debt securities, a portion of the return on which is indexed to the
price of precious metals; and, for hedging purposes, in precious metals; and
utilize various other strategic transactions. Consistent with applicable state
securities laws, up to 10% of the Fund's total assets may be invested directly
in gold, silver, platinum and palladium bullion and in gold and silver coins. In
addition, the Fund's assets may be invested in wholly owned subsidiaries of the
Scudder Mutual Funds, Inc., of which the Fund is a series, that invest in gold,
silver, platinum and palladium bullion and in gold and silver coins.

Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity securities. The
Fund invests in companies, wherever organized, which do business primarily
outside the United States. The Fund intends to diversify investments among
several countries and to have represented in the portfolio, in substantial
proportions, business activities in not less than three different countries. The
Fund does not intend to concentrate investments in any particular industry. The
Fund's investments are generally denominated in foreign currencies. The strength
or weakness of the U.S. dollar against these currencies is responsible for part
of the Fund's investment performance. The Fund may invest up to 20% of its total
assets in investment-grade debt securities except that the Fund may invest up to
5% of its total assets in debt securities which are rated below
investment-grade.

Scudder Latin America Fund is a non-diversified investment company
which seeks to provide long-term capital appreciation through investment
primarily in the securities of Latin American issuers. The Fund involves
above-average investment risk. The Fund seeks to benefit from economic and
political trends emerging throughout Latin America. These trends are supported
by governmental initiatives designed to promote freer trade and market-oriented
economies. The Adviser believes that efforts by Latin American countries to,
among other things, reduce government spending and deficits, control inflation,
lower trade barriers, stabilize currency exchange rates, increase foreign and
domestic investment and privatize state-owned companies, will set the stage for
attractive investment returns over time. At least 65% of the Fund's total assets
will be invested in the securities of Latin American issuers, and 50% of the
Fund's total assets will be invested in Latin American equity securities. To
meet its objective to provide long-term capital appreciation, the Fund normally
invests at least 65% of its total assets in equity securities. The Fund
considers Latin American countries to include Mexico, Central America, South
America and the Spanish-speaking islands of the Caribbean. The Fund defines
securities of Latin American issuers as follows:

- - Securities of companies organized under the laws of a Latin American
country or for which the principal securities trading market is in Latin
America;

- - Securities issued or guaranteed by the government of a country in Latin
America, its agencies or instrumentalities, political subdivisions or the
central bank of such country;

- - Securities of companies, wherever organized, when at least 50% of an
issuer's non-current assets, capitalization, gross revenue or profit in any
one of the two most recent fiscal years represents (directly or indirectly
through subsidiaries) assets or activities located in Latin America; or

- - Securities of Latin American issuers, as defined above, in the form of
depositary shares.

The Fund may invest in debt securities which are unrated, rated or the
equivalent of those rated below investment-grade although the Fund will not
invest more than 10% of its net assets in securities rated B or lower by Moody's
and S&P and may invest in securities rated C by Moody's or D by S&P.

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. The Fund seeks to provide long-term growth of capital by
investing, under normal market conditions, at least 80% of its assets in common
stocks issued by U.S. micro-cap companies. The Fund will typically invest in
companies that, at the time of purchase, are smaller than the smallest stocks in
the Russell 2000 Index at its annual reconstitution. The median market
capitalization (i.e., current stock price times shares outstanding) of the
portfolio is not expected to exceed $125 million. While the Fund invests
predominantly in common stocks, it can purchase other types of securities,
including preferred stocks, convertible or non-convertible securities, rights
and warrants. Securities may be listed on national exchanges or traded
over-the-counter. The Fund may invest up to 20% of its assets in U. S.
Treasuries, agency and instrumentality obligations, may enter into repurchase

7
<PAGE>

agreements and may engage in strategic transactions to increase stock market
participation, enhance liquidity and manage transaction costs.

Scudder Pacific Opportunities Fund is a non-diversified investment
company which seeks long-term growth of capital through investment primarily in
the equity securities of Pacific Basin companies, excluding Japan. The Fund
invests, under normal market conditions, at least 65% of its assets in the
equity securities of Pacific Basin companies. Pacific Basin countries include
Australia, the Peoples Republic of China, India, Indonesia, Malaysia, New
Zealand, the Philippines, Sri Lanka, Pakistan and Thailand, as well as Hong
Kong, Singapore, South Korea and Taiwan--the so-called "four tigers." The Fund
may invest in other countries in the Pacific Basin when their markets become
sufficiently developed. The Fund will not, however, invest in Japanese
securities. The Fund intends to allocate investments among at least three
countries at all times and does not expect to concentrate investments in any
particular industry. The Fund defines securities of Pacific Basin companies as
follows:

- - Securities of companies organized under the laws of a Pacific Basin country
or for which the principal securities trading market is in the Pacific
Basin; or

- - Securities of companies, wherever organized, when at least 50% of a
company's non-current assets, capitalization, gross revenue or profit in
any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in the
Pacific Basin.

Under normal market conditions, the Fund may invest up to 35% of its
assets in equity securities of U.S. and other non-Pacific Basin issuers
(excluding Japan). The Fund may invest up to 35% of its total assets in foreign
and domestic high-grade debt securities if the Adviser determines that the
capital appreciation of debt securities is likely to equal or exceed the capital
appreciation of equity securities.

Scudder Quality 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. The Fund's equity investments consist
of common stocks, preferred stocks and securities convertible into common stocks
of companies which are of above-average financial quality and offer the prospect
for above-average growth in earnings, cash flow or assets relative to the
overall market as defined by the Standard & Poor's 500 Composite Price Index
("S&P 500"). The Fund invests at least 65% of its total assets in the equity
securities of seasoned, financially-strong U.S. growth companies which are
considered to be of above-average financial quality. The common stocks issued by
these companies qualify, at the time of purchase, for one of the three highest
equity ranking categories (A+, A or A-) of S&P or, if not ranked by S&P, are
judged to be of comparable quality by the Adviser. Rankings by S&P are not an
appraisal of a company's creditworthiness, as is true for S&P's debt security
ratings, nor are these rankings intended as a forecast of future stock market
performance. In addition to using S&P rankings of earnings and dividends of
common stocks, the Adviser conducts its own analysis of a company's history,
current financial position, and earnings prospects. The Fund allocates its
investments among different industries and companies, and adjusts its portfolio
securities based on long-term investment considerations as opposed to short-term
trading. While the Fund emphasizes U.S. investments, it can commit a portion of
assets to the equity securities of foreign growth companies which meet the
criteria applicable to domestic investments. The Fund may invest in convertible
securities which must be investment-grade.

Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies. In pursuit of
long-term growth of capital, the Fund invests, under normal circumstances, at
least 80% of its assets in the common stock of small U.S. companies. The Fund
will invest in securities of companies that are similar in size to those in the
Russell 2000(R) Index of small stocks. The median market capitalization (i.e.,
current stock price times shares outstanding) of the portfolio will be below
$500 million. Companies represented in the portfolio of the Fund typically have
the following characteristics:

- - Attractive valuations relative to the Russell 2000 Index--a widely used
benchmark of small stock performance--based on measures such as price to
earnings, price to book value and price to cash flow ratios.

- - Favorable trends in earnings growth rates and stock price momentum.

8
<PAGE>

The Fund may invest up to 20% of its assets in U.S. Treasury, agency
and instrumentality obligations, may enter into repurchase agreements and may
engage in strategic transactions, using such derivatives contracts as index
options and futures, to increase stock market participation, enhance liquidity
and manage transaction costs.

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. The Fund generally invests in equity securities,
including common stocks and convertible securities, of relatively small or
little-known companies, commonly referred to as emerging growth companies, with
market capitalizations typically below $750 million. The Adviser believes these
companies are well-positioned for above-average earnings growth and/or greater
market recognition. Such favorable prospects may be a result of new or
innovative products or services a given company is developing or provides,
products or services that have the potential to impact significantly the
industry in which the company competes or to change dramatically customer
behavior in the 21st century. To help reduce risk in its search for high
quality, emerging growth companies, the Adviser allocates the Fund's investments
among many companies and different industries in the U.S. and, where opportunity
warrants, abroad as well. Emerging growth companies are those with the ability,
in the Adviser's opinion, to expand earnings per share by at least 15% per annum
over the next three to five years at a minimum.

Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities. The Fund invests primarily in the equity
securities of medium- to large-sized domestic companies with annual revenues or
market capitalization of at least $600 million. The Fund invests in the
securities of companies that, in the opinion of its Adviser, are undervalued in
the marketplace in relation to current and estimated future earnings and
dividends. These companies generally sell at price-earnings ratios below the
market average, as defined by the S&P 500. The Fund invests at least 80% of its
assets in equity securities, which consist of common stocks, preferred stocks
and securities convertible into common stocks. While the Fund emphasizes U.S.
investments, it can invest its assets in securities of foreign companies which
meet the same criteria applicable to domestic investments. The Fund may invest
up to 20% of its total assets in debt obligations, including zero coupon
securities, may enter into repurchase agreements and may also engage in
strategic transactions for hedging purposes and to seek to increase gain. The
debt securities in which the Fund may be invested may be rated below
investment-grade, although the Fund will invest no more than 10% of its net
assets in securities rated B or lower by S&P or Moody's, and may not invest more
than 5% of its net assets in securities rated C by Moody's or D by S&P.

If you require more detailed information about an Underlying Scudder
Fund call Scudder Investor Relations at 1-800-225-2470 to obtain the complete
prospectus and statement of additional information for that fund.

The following chart shows the Average Annual Total Returns for each of
the Underlying Scudder Funds for their most recent one-, five-, ten-year and
life of fund periods.
<TABLE>
<CAPTION>

Assets as
of 10/31/96 Average Annual Total Returns(1)
Inception (in One Five Ten Life of
Date millions) Year Years Years Fund
---- --------- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund
Scudder Cash Investment Trust 7/23/76 1,417.0 4.89% 4.01% 5.61% -
Bond Mutual Funds
Scudder Emerging Markets Income Fund 12/31/93 304.6 36.96% - - 8.64%
Scudder Global Bond Fund 3/1/91 217.3 3.67 4.80% - 4.81
Scudder GNMA Fund 7/5/85 405.6 10.20 7.28 7.82% -
Scudder High Yield Bond Fund 6/28/96 33.1 - - - 2.51
Scudder Income Fund 5/10/28 588.3 18.54 9.82 9.40 -
Scudder International Bond Fund 7/1/88 414.6 2.59 8.32 - 9.46
Scudder Short Term Bond Fund 4/2/84 1,513.2 5.11 5.81 7.28 -
Equity Mutual Funds
Scudder Capital Growth Fund 6/6/56 1,689.1 33.88% 13.88% 12.68% -
Scudder Classic Growth Fund 9/9/96 9.0 - - - -
Scudder Development Fund 1/18/71 981.0 35.26 18.77 13.56 -

9
<PAGE>

Assets as
of 10/31/96 Average Annual Total Returns(1)
Inception (in One Five Ten Life of
Date millions) Year Years Years Fund
---- --------- ---- ----- ----- ----

Scudder Emerging Markets Growth Fund 5/8/96 74.7 - - - -
Scudder Global Discovery Fund 9/10/91 351.2 33.71% - - 13.22%
Scudder Global Fund 7/23/86 1,350.1 16.65 13.23% - 12.49
Scudder Gold Fund 8/22/88 203.3 36.91 13.98 - 6.15
Scudder Growth and Income Fund 3/15/29 3,911.7 31.18 16.91 13.97% -
Scudder International Fund 6/15/54 2,515.5 19.25 9.40 11.50 -
Scudder Latin America Fund 12/08/92 622.8 22.60 - 17.56
Scudder Micro Cap Fund 8/12/96 26.0 - - 0.58
Scudder Pacific Opportunities Fund 12/08/92 328.6 13.11 - - 11.46
Scudder Quality Growth Fund 5/15/91 220.8 30.30 - - 14.01
Scudder Small Company Value Fund 10/6/95 46.5 - - - 13.54
Scudder 21st Century Growth Fund 9/9/96 5.8 - - - -
Scudder Value Fund 12/31/92 92.0 17.18 - - 14.20

</TABLE>
(1) As of each Underlying Scudder Fund's most recent fiscal reporting period.
All total return calculations assume that dividends and capital gains
distributions, if any, were reinvested.
Performance figures are historical and are not intended to indicate future
investment performance.

Risk Factors of Underlying Scudder Funds

In pursuing their investment objectives, each of the Underlying Scudder
Funds is permitted to engage in a wide range of investment policies. The
Underlying Scudder Funds' risks are determined by the nature of the securities
held and the portfolio management strategies used by the Adviser. Certain of
these policies are described in the "Glossary" and further information about the
Underlying Scudder Funds is contained in the statement of additional information
as well as the prospectuses of such funds. Because each Portfolio invests in
certain of the Underlying Scudder Funds, shareholders of each Portfolio will be
affected by these investment policies in direct proportion to the amount of
assets each Portfolio allocates to the Underlying Scudder Funds pursuing such
policies.

Investment Restrictions of the Portfolios

The policies set forth below are fundamental policies of each Portfolio
and may not be changed with respect to each of the Portfolios without the
approval of a majority of such Portfolios' outstanding shares. As used in this
combined Statement of Additional Information, a "majority of the outstanding
voting securities of such Portfolio" 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 such Portfolio are present or represented
by proxy; or (2) more than 50% of the outstanding voting securities of such
Portfolio. Each Portfolio may not:

(1) borrow money, except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse
repurchase agreements; provided that a Portfolio maintains
asset coverage of 300% for all borrowings;

(2) act as an underwriter of securities issued by others, except
to the extent that it may be deemed an underwriter in
connection with the disposition of portfolio securities of a
Portfolio;

(3) make loans to other persons, except to the extent that the
entry into repurchase agreements in accordance with its
investment objectives and investment policies may be deemed to
be loans;

(4) purchase or sell real estate (except that an Underlying
Scudder Fund may invest in (i) securities of companies which
deal in real estate or mortgages, and (ii) securities secured

10
<PAGE>

by real estate or interests therein, and that an Underlying
Scudder Fund reserves freedom of action to hold and to sell
real estate acquired as a result of an Underlying Scudder
Fund's ownership of securities); and

(5) purchase or sell physical commodities or contracts relating to
physical commodities.

In addition, as a matter of fundamental policy, each Portfolio may:

(1) concentrate more than 25% of their assets in mutual funds. In
accordance with the Portfolios' investment programs set forth
in the Portfolios' prospectuses, each Portfolio may invest
more than 25% of its assets in certain of the Underlying
Scudder Funds. However, each Underlying Scudder Fund in which
each Portfolio will invest, with the exception of Scudder Gold
Fund, will not concentrate more than 25% of its total assets
in any one industry.

Each Portfolio may not as a matter of nonfundamental policy:

(a) invest in companies for the purpose of exercising management
or control; and

(b) borrow money in excess of 5% of total assets (taken at market
value) except for temporary or emergency purposes or borrow
other than from banks.

The Portfolios will not invest in reverse repurchase agreements (except
that an Underlying Scudder Fund may invest in reverse repurchase agreements).

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 Portfolios.

PURCHASES

(See "Purchases" and "Transaction information" in the
Portfolios' prospectuses.)

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 Portfolio
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 certified a tax 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 Portfolio 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 tax identification number or social security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to State Street Bank, Attention: The Scudder Funds, State Street Bank
and Trust Company, Boston, MA 02101, ABA Number 011000028, DDA Account
9903-5552. The investor must give the Portfolio name, account name and the new
account number. Finally, the investor must send a completed and signed
application to the Portfolio promptly.

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

Additional Information About Making Subsequent Investments

Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual

11
<PAGE>

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

Additional Information About Making Subsequent Investments by AutoBuy

Shareholders, whose predesignated bank account of record is a Member of
the Automated Clearing House Network (ACH) and have elected to participate in
the AutoBuy program, may purchase shares of a Portfolio by telephone. Through
this service shareholders may purchase up to $250,000 but not less than $250. To
purchase shares at the net asset value per share calculated on the day of your
call by AutoBuy, shareholders should call before the close of trading on the New
York Stock Exchange (the "Exchange") (normally 4 p.m. eastern time). 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. AutoBuy requests received after the close of regular trading on the
Exchange will begin their processing the following business day and will be
purchased at the net asset value per share calculated at the close of trading on
the business day following your call. If you purchase shares by AutoBuy and
redeem them within seven days of the purchase, the Portfolio 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. AutoBuy transactions are not available for Scudder IRA accounts and
most other retirement plan accounts.

In order to request purchases by AutoBuy, shareholders must have
completed and returned to the transfer agent, Scudder Service Corporation (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 AutoBuy may so indicate on the application. Existing shareholders who
wish to add AutoBuy to their account may do so by completing an AutoBuy
Enrollment Form. After sending in an enrollment form shareholders should allow
for 15 days for this service to be available.

Checks

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

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

Wire Transfer of Federal Funds

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

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

12
<PAGE>

Boston banks are closed on certain holidays although the Exchange may
be open. These holidays are Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the custodian is not open to receive such federal funds on
behalf of a Portfolio.

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
per share normally will be computed as of the close of regular trading on each
day the Exchange is open for trading. Orders received after the close of regular
trading on the Exchange will be executed at the next business day's net asset
value. If the order has been placed by a member of the NASD, other than the
Distributor, it is the responsibility of that member broker, rather than a
Portfolio, to forward the purchase order to the Transfer Agent by the close of
regular trading on the Exchange.

Share Certificates

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

Other Information

If purchases or redemptions of Portfolio shares are arranged and
settlement is made at an investor's election through a member of the NASD, other
than the Distributor, that member may, at its discretion, charge a fee for that
service.

The Board of Trustees and the Distributor each has 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 a Portfolio 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 Trust may issue shares of each Portfolio 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 Investment Company Act of 1940 (the "1940
Act").

EXCHANGES AND REDEMPTIONS

(See "Exchanges and redemptions" and "Transaction information" in the
Portfolios' prospectuses.)

Exchanges

Exchanges are comprised of a redemption from one Portfolio and a
purchase into another Portfolio or 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 Portfolio or Scudder 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(TM)) transaction
authorization and dividend option as the existing account. Other features will
not carry over automatically to the new account. Exchanges to a new Portfolio or
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 to be 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 a
Portfolio's prospectus.

13
<PAGE>

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

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

No commission is charged to the shareholder for any exchange described
above. An exchange into another Portfolio or 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 Portfolios 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
or Portfolio into which the exchange is being contemplated.

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 $50,000 and have the proceeds mailed
to their address of record. Shareholders may also request to have the proceeds
mailed or wired to their predesignated bank account. In order to request wire
redemptions by telephone, shareholders must have completed and returned to the
Transfer Agent the application, including the designation of a bank account to
which the redemption proceeds are to be sent.

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

(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Profit-Sharing or Money Purchase Pension Plans,
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.

Telephone redemption is not available with respect to shares held in
IRA accounts.

14
<PAGE>

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

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

The 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 Portfolio or fund and the shareholder) of shares purchased by check
will not be accepted until the purchase check has cleared.

Redemption by AutoSell

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 AutoSell program, may redeem shares of a Portfolio by AutoSell. To redeem
shares by AutoSell, shareholders should call before the close of regular trading
on the Exchange. Redemptions must be for at least $250. Redemption proceeds will
be transferred to your bank checking account in two or three business days
following your call. Shares will be redeemed at the net asset value per share
calculated at the close of trading on the day of your call. AutoSell requests
after the close of regular trading on the Exchange will begin their processing
and be redeemed at the net asset value calculated as of the close of regular
trading on the Exchange the following business day. AutoSell transactions are
not available for Scudder IRA accounts and most other retirement plan accounts.

In order to request redemptions by AutoSell, 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 AutoSell may so indicate on the application.
Existing shareholders who wish to add AutoSell to their account may do so by
completing an AutoSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.

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/executrix, certificates of corporate authority and waivers of tax
(required in some states when settling estates).

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

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

15
<PAGE>

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 Portfolio'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 relevant Portfolio at
the beginning of the period.

Other Information

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

If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder receives in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. The Trust does not
impose a redemption or repurchase charge, although a wire charge may be
applicable for redemption proceeds wired to an investor's bank account.
Redemption of shares, including redemptions undertaken to effect an exchange for
shares of another Portfolio or 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 and a shareholder's right to
redeem shares and to receive payment may be suspended at times (a) during which
the Exchange is closed, other than customary weekend and holiday closings, (b)
during which trading on the Exchange is restricted for any reason, (c) during
which an emergency exists as a result of which disposal by 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)
during which the SEC by order permits a suspension of the right of redemption or
a postponement of the date of payment or of redemption; provided that applicable
rules and regulations of the SEC (or any succeeding governmental authority)
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.

Shareholders should maintain a share balance worth at least $2,500
($1,000 for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act
accounts), which amount may be changed by the Board of Trustees. Scudder
retirement plans have similar or lower minimum balance requirements. A
shareholder may open an account with at least $1,000 ($500 for an UGMA, UTMA,
IRA and other retirement accounts), if an automatic investment plan (AIP) of
$100/month ($50/month for an UGMA, UTMA, IRA and other retirement accounts) is
established.

Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in a Portfolio, without establishing an AIP, will be assessed an annual
$10.00 per fund charge with the fee to be reinvested in a Portfolio. The $10.00

16
<PAGE>

charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. Each Portfolio 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. Each
Portfolio will mail the proceeds of the redeemed account to the shareholder at
the address of record. Reductions in value that result solely from market
activity will not trigger an involuntary redemption. UGMA, UTMA, IRA and other
retirement accounts will not be assessed the $10.00 charge or be subject to
automatic liquidation.

FEATURES AND SERVICES OFFERED BY THE TRUST

(See "Shareholder benefits" in the Portfolios'
prospectuses.)

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 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 Scudder 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 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.

17
<PAGE>
<TABLE>
<CAPTION>

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

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

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

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

Investors are encouraged to review pages 2 and 3 of each Portfolio's
prospectus and the section entitled "Management Fees of Underlying Scudder
Funds" in this combined Statement of Additional Information for more specific
information about the rates at which management fees and other expenses of the
Underlying Scudder Funds are assessed.

Dividend 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 a Portfolio. 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 instruction 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 gain
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Portfolio.

Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders 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 a Portfolio pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163.

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.

Scudder Funds Centers

Investors may visit any of the Funds Centers maintained by the
Distributor listed in each Portfolio's prospectus. The Centers are designed to
provide individuals with services during any business day. Investors may pick up
literature or find 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 should be mailed to "The Scudder Funds" at the address listed
under "How to contact Scudder" in the prospectus.

18
<PAGE>

Reports to Shareholders

The Portfolios issue to their shareholders unaudited semiannual
financial statements and annual financial statements audited by independent
accountants, including a list of investments held and statements of assets and
liabilities, operations, changes in net assets and financial highlights. Each
distribution will be accompanied by a brief explanation of the source of the
distribution.

Transaction Summaries

Annual summaries of all transactions in a Portfolio 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 a
Portfolio's prospectus.)

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.
Initial purchases in each Scudder fund must be at least $2,500 or $1,000 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower.

MONEY MARKET

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 through investment in a
supervised portfolio of short-term debt securities. SCIT intends to
seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.

Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and
U.S. Government guaranteed obligations with maturities of not more than
762 calendar days. The Fund intends to seek to maintain a constant net
asset value of $1.00 per share, although in certain circumstances this
may not be possible.

INCOME

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 in
emerging markets.

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 GNMA Fund seeks to provide investors with high current income
from a portfolio of high-quality GNMA securities.

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

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

Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. As a
secondary objective, the Fund seeks protection and possible enhancement

19
<PAGE>

of principal value by actively managing currency, bond market and
maturity exposure and by security selection.

Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments,
and more price stability than investments in intermediate- and
long-term bonds.

Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon
securities.

TAX FREE MONEY MARKET

Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking
stability of principal. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may
not be possible.

Scudder California Tax Free Money Fund* is designed to provide
California taxpayers income exempt from California state and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.

Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.

TAX FREE

Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in municipal
securities.

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 Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in
long-term municipal securities with an emphasis on high grade.

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 by investing in high-grade municipal securities of
intermediate maturities.

Scudder California Tax Free Fund* seeks to provide income exempt from
both California and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
California state, municipal and local government obligations.

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

Scudder Massachusetts Tax Free Fund* seeks to provide income exempt
from both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.

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

20
<PAGE>

Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government
obligations.

Scudder Ohio Tax Free Fund* seeks to provide income exempt from both
Ohio and regular federal income taxes through the professional and
efficient management of a portfolio consisting of Ohio state, municipal
and local government obligations.

Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.

GROWTH AND INCOME

Scudder Balanced Fund seeks to provide a balance of growth and income,
as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities.

Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio
invested primarily in common stocks and convertible securities by
companies which offer the prospect of growth of earnings while paying
current dividends.

GROWTH

Scudder Capital Growth Fund seeks to maximize long-term growth of
capital through a broad and flexible investment program emphasizing
common stocks.

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

Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally
common stocks, of relatively small or little-known companies which in
the opinion of management have promise of expanding their size and
profitability or of gaining increased market recognition for their
securities, or both.

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

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 Global Fund seeks long-term growth of capital primarily through
a diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S.
and foreign issuers. Income is an incidental consideration.

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

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

Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.

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

21
<PAGE>

companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.

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

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

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

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

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

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

The Japan Fund, Inc. seeks capital appreciation through investment
in Japanese securities, primarily in common stocks 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; easy telephone exchanges
into other Scudder funds; shares redeemable at net asset value at any time.

SPECIAL PLAN ACCOUNTS

(See "Scudder tax-advantaged retirement plans," "Purchases--By
Automatic Investment Plan" and "Exchanges and redemptions--By
Automatic Withdrawal Plan" in each Portfolio'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. 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 IRA's 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.

22
<PAGE>

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.

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 (beginning in 1997, 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.)

<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution

- -----------------------------------------------------------------------------------------------------------
Starting
Age Annual Rate of Return
of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
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>

23
<PAGE>

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.)

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

- -----------------------------------------------------------------------------------------------------------
Starting
Age Annual Rate of Return
of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
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 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. Payments are mailed at the end
of each month. The check amounts may be based on the redemption of a fixed
dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains distributions,
if any, to be reinvested in additional shares. Shares are then liquidated as
necessary to provide for withdrawal payments. Since the withdrawals are in
amounts selected by the investor and have no relationship to yield or income,
payments received cannot be considered as yield or income on the investment and
the resulting liquidations may deplete or possibly extinguish the initial
investment. Requests for increases in withdrawal amounts or to change 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 a Portfolio's prospectus. Any such requests
must be received by the Fund's transfer agent by the 15th of the month in which
such change is to take effect. 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 a Portfolio 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 $2,500
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
$2,500 and the account value is not increased to $2,500 within a reasonable time

24
<PAGE>

after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.

Automatic Investment Plan

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

The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.

Uniform Transfers/Gifts to Minors Act

Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.

The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

(See "Distribution and performance information --
Dividends and capital gains distributions" in the
Portfolios' prospectuses.)

Each Portfolio intends to follow the practice of distributing all of
its investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. Each
Portfolio may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, a Portfolio may retain all or part of such gain for reinvestment after
paying the related federal income taxes for which the shareholders may then be
asked to claim a credit against their federal income tax liability. (See
"TAXES.")

If a Portfolio does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, the Portfolio may be subject to that excise tax. (See "TAXES.") In certain
circumstances, a Portfolio may determine that it is in the interest of
shareholders to distribute less than the required amount.

Earnings and profits distributed to shareholders on redemptions of
Portfolio shares may be utilized by the Portfolio, to the extent permissible, as
part of the Portfolio's dividends paid deduction on its federal tax return.

The Balanced Portfolio intends to distribute investment company taxable
income, exclusive of net short-term capital gains in excess of net long-term
capital losses on a quarterly basis, and distributions of net capital gains
realized during the fiscal year will be made in November or December to avoid
federal excise tax, although an additional distribution may be made within three
months of its fiscal year end, if necessary. The Conservative, Growth and
International Portfolios intend to distribute their investment company taxable
income and any net realized capital gains in November or December to avoid
federal excise tax, although an additional distribution may be made within three
months of the Portfolios' fiscal year end, if necessary.

25
<PAGE>

Both types of distributions will be made in Portfolio shares and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in shares or cash.

Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year each Portfolio issues to each shareholder a statement of
the federal income tax status of all distributions in the prior calendar year.

PERFORMANCE INFORMATION

(See "Distribution and performance information--Performance information"
in the Portfolios' prospectuses.)

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

Average Annual Total Return

Average Annual Total Return is the average annual compound rate of
return for the periods of one year, five years, ten years or for the life of the
Portfolio, all ended on the last day of a recent calendar quarter. Average
annual total return quotations reflect changes in the price of a Portfolio's
shares and assume that all dividends and capital gains distributions during the
respective periods were reinvested in Portfolio shares. Average annual total
return is calculated by finding the average annual compound rates of return of a
hypothetical investment over such periods, according to the following formula
(average annual total return is then expressed as a percentage):

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

Where:

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

Cumulative Total Return

Cumulative Total Return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of a Portfolio's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Portfolio 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.

26
<PAGE>

SEC Yields of Conservative Portfolio and Balanced Portfolio

A Portfolio's yield is the net annualized yield based on a specified
30-day (or one month) period assuming semiannual compounding of income. 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

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

Quotations of each Portfolio's performance are based on historical
earnings 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 a Fund will vary based on changes in market conditions and the
level of the Portfolio's expenses.

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.

Capital Change

Capital Change measures the return from invested capital including
reinvested capital gains distributions. Capital Change does not include the
reinvestment of income dividends.

Quotations of a Portfolio'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 a Portfolio will
vary based on changes in market conditions and the level of the Underlying
Scudder Funds' expenses.

Comparison of Portfolio 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 a Portfolio with performance quoted with respect to other
investment companies or types of investments.

In connection with communicating its performance to current or
prospective shareholders, a 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 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.

Because some or all of an Underlying Scudder Fund's investments are
denominated in foreign currencies, the strength or weakness of the U.S. dollar
as against these currencies may account for part that Fund's investment
performance. Historical information on the value of the dollar versus foreign
currencies may be used from time to time in advertisements concerning the

27
<PAGE>

Underlying Scudder Funds. Such historical information is not indicative of
future fluctuations in the value of the U.S. dollar against these currencies. In
addition, marketing materials may cite country and economic statistics and
historical stock market performance for any of the countries in which the
Underlying Scudder Funds invest, including, but not limited to, the following:
population growth, gross domestic product, inflation rate, average stock market
price-earnings ratios and the total value of stock markets. Sources for such
statistics may include official publications of various foreign governments and
exchanges.

From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations 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, a 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, the Scudder Pathway Series: Growth Portfolio will be
compared to funds in the growth fund category; the Scudder Pathway Series:
Conservative Portfolio will be compared to funds in the income fund category;
and so on. The Portfolios may also be compared to funds with similar volatility,
as measured statistically by independent organizations.

From time to time, in marketing and other Portfolio literature,
Trustees and officers of the Trust, each Portfolio's Lead 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 Funds. In addition, the amount of assets that the
Adviser has under management in various geographical areas may be quoted in
advertising and marketing materials.

The Funds 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 Funds. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.

Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase

28
<PAGE>

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 Funds, including reprints of, or selections from, editorials or
articles about these Funds. Sources for Fund performance information and
articles about the Funds include the following:

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

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

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

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

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

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

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

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.

29
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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.

30
<PAGE>

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

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

Taking a Global Approach

Many U.S. investors limit their holdings to U.S. securities because they assume
that international or global investing is too risky. While there are risks
connected with investing overseas, it's important to remember that no investment
- -- even in blue-chip domestic securities -- is entirely risk free. Looking
outside U.S. borders, an investor today can find opportunities that mirror
domestic investments -- everything from large, stable multinational companies to
start-ups in emerging markets. To determine the level of risk with which you are
comfortable, and the potential for reward you're seeking over the long term, you
need to review the type of investment, the world markets, and your time horizon.

The U.S. is unusual in that it has a very broad economy that is well represented
in the stock market. However, many countries around the world are not only
undergoing a revolution in how their economies operate, but also in terms of the
role their stock markets play in financing activities. There is vibrant change
throughout the global economy and all of this represents potential investment
opportunity.

Investing beyond the United States can open this world of opportunity, due
partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed -- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.

Stocks in many foreign markets can be attractively priced. The global stock
markets do not move in lock step. When the valuations in one market rise, there
are other markets that are less expensive. There is also volatility within
markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.

International or global investing offers diversification because the investment
is not limited to a single country or economy. In fact, many experts agree that
investment strategies that include both U.S. and non-U.S. investments strike the
best balance between risk and reward.

Scudder's 30% Solution
The 30 Percent Solution -- A Global Guide for Investors Seeking Better
Performance With Reduced Portfolio Risk is a booklet, created by Scudder, to
convey its vision about the new global investment dynamic. This dynamic is a
result of the profound and ongoing changes in the global economy and the
financial markets. The booklet explains how Scudder believes an equity
investment portfolio with up to 30% in international holdings and 70% in
domestic holdings can improve long-term performance while simultaneously helping
to reduce overall risk.

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

31
<PAGE>

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.

TRUST ORGANIZATION

(See "Trust organization" in the Portfolios' prospectuses.)

The Trust is a Massachusetts business trust established under a
Declaration of Trust dated July 1, 1994. 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 Trust is comprised of six separate portfolios: Conservative
Portfolio, Pure Income Portfolio, Balanced Portfolio, Growth Portfolio, Pure
Growth Portfolio, and International Portfolio, all of which were organized on
July 1, 1994. The Trust offers four portfolios: Conservative Portfolio, Balanced
Portfolio, Growth Portfolio and International Portfolio. Each series consists of
an unlimited number of shares. The Trustees have the authority to issue
additional portfolios to the Trust.

The Trustees, in their discretion, may authorize the division of shares
of a Portfolio into different classes permitting shares of different classes to
be distributed by different methods. Although shareholders of different classes
of a Portfolio would have interest in the same portfolio of assets, shareholders
of different classes may bear different expenses in connection with different
methods of distribution. The Trustees have no present intention of taking the
action necessary to effect the division of shares into separate classes (which
under present regulations would require the Trust first to obtain an exemptive
order of the SEC), nor changing the method of distribution of shares. The Trust
will vote its shares in each Underlying Scudder Fund in proportion to the vote
of all other shareholders of each respective Underlying Scudder Fund.

The Declaration of Trust (the "Declaration") 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 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 protects or indemnifies a Trustee or officer against any liability
to which he or she would otherwise be subject by reason of willful misfeasance,

32
<PAGE>

bad faith, gross negligence, of reckless disregard of duties involved in the
conduct of his or her office.

INVESTMENT ADVISER

(See "Trust organization--Investment adviser" in the
Portfolios' prospectuses.)

Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to the Trust. This organization is one of the most
experienced investment management firms in the United States. 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 the Scudder
International Fund, Inc., the first mutual fund available in the United States,
investing internationally in securities of issuers in several foreign countries.
The firm reorganized from a partnership to a corporation on June 28, 1985.

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 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,
Scudder World Income Opportunities Fund, Inc., The Argentina Fund, Inc., The
Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund, Inc., The Japan
Fund, Inc. and The Latin America Dollar Income 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 aggregating over $12 billion and
includes the AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust
and AARP Cash Investment Funds.

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 each Portfolio may invest, the conclusions and
investment decisions of the Adviser with respect to the Portfolios are based
primarily on the analyses of its own research department.

Certain investments may be appropriate for the Underlying Scudder Funds
held by each Portfolio and also for other clients advised by the Adviser.
Investment decisions for the Underlying Scudder Funds 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 Underlying Scudder Fund. Purchase and sale orders for the
Underlying Scudder Fund may be combined with those of other clients of the
Adviser in the interest of achieving the most favorable net results to the
Underlying Scudder Fund.

The Investment Management Agreement (the "Agreement") was approved by
the Trustees on January 10, 1995. The Agreement will continue in effect until
September 30, 1997 and from year to year thereafter only if its continuance is

33
<PAGE>

approved annually by the vote of a majority of those Trustees who are not
parties to such 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 Trustees or of a majority of the outstanding voting
securities of the Trust. The Agreement may be terminated at any time without
payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.

The Adviser regularly provides the Trust with continuing investment
management for the Portfolios consistent with the Portfolios' investment
objectives, policies and restrictions and determines what Underlying Scudder
Funds shall be purchased, held or sold and what portion of each Portfolio's
assets shall be held uninvested, subject to the Declaration of Trust, the 1940
Act, the Code, the Order and to the Portfolios' investment objectives, policies
and restrictions, and subject, further, to such policies and instructions as the
Board of Trustees may from time to time establish.

The Adviser provides each Portfolio with discretionary investment
services. Specifically, the Adviser is responsible for supervising and directing
the investments of each Portfolio in accordance with each Portfolio's investment
objectives, program, and restrictions as provided in the prospectus and this
Statement of Additional Information. The Adviser is also responsible for
effecting all security transactions on behalf of each Portfolio, including the
negotiation of commissions and the allocation of principal business and
portfolio brokerage. However, it should be understood that each Portfolio will
invest their assets almost exclusively in the shares of the Underlying Scudder
Funds and such investments will be made without the payment of any commission or
other sales charges. In addition to these services, the Adviser provides the
Trust with certain corporate administrative services, including: maintaining the
corporate existence, corporate records, and registering and qualifying Portfolio
shares under federal and state laws; monitoring the financial accounting, and
administrative functions of each Portfolio; maintaining liaison with the agents
employed by the Trust such as the custodian and transfer agent; assisting the
Trust in the coordination of such agents' activities; and permitting the
Adviser's employees to serve as officers, trustees, and committee members of the
Trust without cost to the Trust.

The Adviser also renders significant administrative services (not
otherwise provided by third parties) necessary for the Trust'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
Trust (such as the Trust's transfer agent, pricing agents, custodian, fund
accounting agent and others); preparing and making filings with the SEC and
other regulatory agencies; assisting in the preparation and filing of the
Trust's federal, state and local tax returns; preparing and filing the Trust'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 each Portfolio under applicable
federal and state securities laws; maintaining the Trust's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Trust; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Trust's operating budget;
processing the payment of the Trust's bills; assisting each Portfolio in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Trust in the conduct of its business, subject to the
direction and control of the Trustees.

The Adviser pays the compensation and expenses (except those of
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 Trust,
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 Trust's office space and
facilities.

In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Fund who are not
"interested persons" of the Adviser are represented by independent counsel.
Dechert Price & Rhoads acts as general counsel for the Trust.

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 Trust 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.

34
<PAGE>

Each Portfolio expects to operate at a zero expense level. Under the
Agreement with the Trust, and the Special Servicing Agreement, the Adviser has
agreed to bear any expenses of the Trust which exceed the estimated savings to
each of the Underlying Scudder Funds. Of course, shareholders of the Trust will
still indirectly bear their fair and proportionate share of the cost of
operating the Underlying Scudder Funds in which the Trust invests because, the
Trust, as a shareholder of the Underlying Scudder Funds, will bear its
proportionate share of any fees and expenses paid by the Underlying Scudder
Funds. The Trust, as a shareholder of the selected Underlying Scudder Funds,
will benefit only from cost-sharing reductions in proportion to its interest in
such Underlying Scudder Funds.

The range of the average weighted pro rata share of expenses borne by
each Portfolio is expected to be as follows: Conservative Portfolio, 0.16% to
1.79%, Balanced Portfolio, 0.32% to 1.91%, Growth Portfolio, 0.48% to 2.02% and
International Portfolio, 0.98% to 2.08%.

The Agreement also provides that the Adviser, its directors, officers,
employees, and certain other persons performing specific functions for the Trust
will only be liable to the Trust for losses resulting from willful misfeasance,
bad faith, gross negligence, or reckless disregard of duty.

The Adviser charges nonadvisory fees under the Agreement.

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 Portfolios. 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 appropriate personnel.

Management Fees of Underlying Scudder Funds

The Adviser has agreed not to be paid a management fee for performing
its services. However, the Adviser will receive management fees from managing
the Underlying Scudder Funds in which each Portfolio invests.

Each Underlying Scudder Fund pays the Adviser a management fee as
determined by the Investment Management Agreement between each Underlying
Scudder Fund and the Adviser. As manager of the assets of each Underlying
Scudder Fund, the Adviser directs the investments of an Underlying Scudder Fund
in accordance with each Underlying Scudder Fund's investment objective, policies
and restrictions. The Adviser determines the securities, instruments and other
contracts relating to investments to be purchased, sold or entered into by an
Underlying Scudder Fund. If an Underlying Scudder Fund's expenses, exclusive of
taxes, interest and extraordinary expenses, exceed specified limits, such excess
up to the amount of the management fee, will be paid by the Adviser.

The management fees of the Underlying Scudder Funds are as follows:

Management
Name of Fund Fee(1) (%)
- ------------ ----------

Scudder Cash Investment Trust 0.41
Scudder Emerging Markets Income Fund 1.00
Scudder Global Bond Fund 0.55
Scudder GNMA Fund 0.62
Scudder High Yield Bond Fund 0.00
Scudder Income Fund 0.62
Scudder International Bond Fund 0.85

35
<PAGE>

Scudder Short Term Bond Fund 0.49
Scudder Capital Growth Fund 0.67
Scudder Classic Growth Fund 0.00
Scudder Development Fund 0.98
Scudder Emerging Markets Growth Fund 0.00
Scudder Global Fund 0.96
Scudder Global Discovery Fund 1.10
Scudder Gold Fund 1.00
Scudder Growth and Income Fund 0.51
Scudder International Fund 0.82
Scudder Latin America Fund 1.22
Scudder Micro Cap Fund 0.64
Scudder Pacific Opportunities Fund 1.10
Scudder Quality Growth Fund 0.70
Scudder Small Company Value Fund 0.10
Scudder 21st Century Growth Fund 0.03
Scudder Value Fund 0.51

(1)The management fees of the Underlying Scudder Funds reflected are consistent
with the management fee in each of the Underlying

Scudder Fund's current prospectus, as of the effective date of the Trust.

Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Portfolios' 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
Trust relationships.

None of the officers or Trustees may have dealings with the Trust as
principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Trust.

SPECIAL SERVICING AGREEMENT

The Special Servicing Agreement (the "Service Agreement") is to be
entered into among the Adviser, the Underlying Scudder Funds, Scudder Service
Corporation, Scudder Fund Accounting Corporation, Scudder Investor Services,
Inc., Scudder Trust Company and the Trust. Under the Service Agreement, the
Adviser will arrange for all services pertaining to the operation of the Trust
including the services of Scudder Service Corporation and Scudder Fund
Accounting Corporation to act as Shareholder Servicing Agent and Fund Accounting
Agent, respectively, for each Portfolio. In addition, the Service Agreement will
provide that, if the officers of any Underlying Scudder Fund, at the direction
of the Board of Directors/Trustees, determine that the aggregate expenses of a
Portfolio are less than the estimated savings to the Underlying Scudder Fund
from the operation of that Portfolio, the Underlying Scudder Fund will bear
those expenses in proportion to the average daily value of its shares owned by
that Portfolio. No Underlying Scudder Fund will bear such expenses in excess of
the estimated savings to it. Such savings are expected to result primarily from
the elimination of numerous separate shareholder accounts which are or would
have been invested directly in the Underlying Scudder Funds and the resulting
reduction in shareholder servicing costs. In this regard, the shareholder
servicing costs to any Underlying Scudder Fund for servicing one account
registered to the Trust would be significantly less than the cost to that same
Underlying Scudder Fund of servicing the same pool of assets contributed in the
typical fashion by a large group of individual shareholders owning small
accounts in each Underlying Scudder Fund.

Based on actual expense data from the Underlying Scudder Funds and
certain very conservative assumptions with respect to the Trust, the Adviser,
the Underlying Scudder Funds, Scudder Service Corporation, Scudder Investor
Services, Inc., Scudder Fund Accounting Corporation, Scudder Trust Company and
the Series anticipate that the aggregate financial benefits to the Underlying
Scudder Funds from these arrangements will exceed the costs of operating the
Portfolios. If such turns out to be the case, there will be no charge to the
Trust for the services under the Service Agreement. Rather, in accordance with
the Service Agreement, such expenses will be passed through to the Underlying
Scudder Funds in proportion to the value of each Underlying Scudder Fund's
shares held by each Portfolio.

36
<PAGE>

In the event that the aggregate financial benefits to the Underlying
Scudder Funds do not exceed the costs of a Portfolio, the Adviser will pay, on
behalf of that Portfolio, that portion of costs, as set forth herein, determined
to be greater than the benefits. The determination of whether and the extent to
which the benefits to the Underlying Scudder Funds from the organization of the
Trust will exceed the costs to such funds will be made based upon the analysis
criteria set forth in the Order. This cost-benefit analysis was initially
reviewed by the Directors/Trustees of the Underlying Scudder Funds before
participating in the Service Agreement. For future years, there will be an
annual review of the Service Agreement to determine its continued
appropriateness for each Underlying Scudder Fund.

Certain non-recurring and extraordinary expenses will not be paid in
accordance with the Service Agreement including: the fees and costs of actions,
suits or proceedings and any penalties or damages in connection therewith, to
which the Series and/or a Portfolio may incur directly, or may incur as a result
of its legal obligation to provide indemnification to its officers, director and
agents; the fees and costs of any governmental investigation and any fines or
penalties in connection therewith; and any federal, state or local tax, or
related interest penalties or additions to tax, incurred, for example, as a
result of the Series' failure to distribute all of its earnings, failure to
qualify under subchapter M of the Internal Revenue Code, or failure to timely
file any required tax returns or other filings. Under unusual circumstances, the
parties to the Service Agreement may agree to exclude certain other expenses.

<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
Position with
Underwriter,
Position Scudder Investor
Name, Age and Address with Trust Principal Occupation** Services, Inc.
- --------------------- ---------- ---------------------- --------------
<S> <C> <C> <C>

David S. Lee+*@ (62) President and Trustee Managing Director of Scudder, President, Assistant
Stevens & Clark, Inc. Treasurer and
Director

Edgar R. Fiedler (67) Trustee Vice President and Economic --
845 Third Avenue Counsellor, The Conference
New York, NY 10022 Board, Inc.

Dr. J. D. Hammond (62) Trustee Dean, Smeal College of Business --
801 Business Administration Building Administration, Pennsylvania
Pennsylvania State University State University
University Park, PA 16801

Richard M. Hunt (70) Trustee University Marshal and Senior --
University Marshal's Office Lecturer, Harvard University
Wadsworth House
1341 Massachusetts Avenue
Harvard University
Cambridge, MA 02138

Daniel Pierce+*@ (62) Vice President and Chairman of the Board and Vice President,
Trustee Managing Director, Scudder, Assistant Treasurer
Stevens & Clark, Inc. and Director

Jerard K. Hartman# (63) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.

Thomas W. Joseph+ (57) Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Treasurer, Assistant
Clerk and Director

Thomas F. McDonough+ (49) Vice President and Principal of Scudder, Stevens & Clerk
Secretary Clark, Inc.

37
<PAGE>

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

Pamela A. McGrath+ (43) Vice President and Managing Director of Scudder, --
Treasurer Stevens & Clark, Inc.

Edward J. O'Connell# (51) Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.

Kathryn L. Quirk# (43) Vice President and Managing Director of Scudder, Vice President
Assistant Secretary Stevens & Clark, Inc.

Coleen Downs Dinneen+ (35) Assistant Secretary Vice President of Scudder, Assistant Clerk
Stevens & Clark, Inc.

* Messrs. Lee and Pierce 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 Investment Company Act of 1940, as amended.
** Unless otherwise stated, all officers and Trustees have been associated
with their respective companies for more than five years, but not
necessarily in the same capacity.
@ Messrs. Lee and Pierce are members of the Executive Committee which may
exercise substantially all of the powers of the Board of Trustees when
it is not in session.
+ Address: Two International Place, Boston, Massachusetts 02110
# Address: 345 Park Avenue, New York, New York 10154

All Trustees and officers of the Trust as a group owned beneficially
(as that term is defined under Section 13(d) of the Securities Exchange Act)
less than 1% of the shares of the Trust outstanding as of commencement of
operations.

The Trustees who are "interested persons" and the officers serve in
similar capacities with other Scudder Funds.

REMUNERATION

The Trust pays no direct remuneration to any officer of the Trust.
However, several of the officers and Trustees of the Trust may be officers or
Directors of the Adviser, Scudder Service Corporation, Scudder Trust Company,
Scudder Investor Services, Inc. or of Scudder Fund Accounting Corporation and
participate in the fees paid by the Underlying Scudder Funds. Each Underlying
Scudder Fund pays their disinterested Trustees/Directors an annual
trustees'/directors' fee plus a proportionate share of travel and other expenses
incurred in attending Board meetings of the Underlying Scudder Fund on which he
or she serves.

DISTRIBUTOR

The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The Trust's underwriting agreement will
remain in effect until September 30, 1997 and from year to year thereafter only
if its continuance is approved annually by a majority of the members of the
Board of 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 the Trust. The underwriting
agreement was approved by the Trustees on January 10, 1995.

Under the underwriting agreement, the Distributor is not 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 or
dealer in various states as required; the fees and expenses of preparing,

38
<PAGE>

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 each Portfolio;
the cost of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both the Trust and the
Distributor. Such fees will be borne by the Underlying Scudder Funds (or the
Adviser) under the Service Agreement.

The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of Portfolio shares
to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of Portfolio shares to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by a Portfolio, unless a Rule 12b-1 Plan is in effect
which provides that the Portfolio shall bear some or all of such expenses.

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

As agent, the Distributor currently offers shares of the Portfolios on
a continuous basis to investors in all states in which shares of the Portfolios
may from time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of a Portfolio.

TAXES

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

Taxation of the Portfolios and Their Shareholders

Each Portfolio intends to qualify annually and elects to be treated as
a regulated investment company under Subchapter M of the Code. As a regulated
investment company, each Portfolio 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.

Each Portfolio 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 each Portfolio's ordinary income for the calendar
year, at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses) realized during the one-year period
ending October 31 during such year, and all ordinary income and capital gains
for prior years that were not previously distributed.

Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of a Portfolio. Presently,
each Portfolio has no capital loss carryforwards.

If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Portfolio for reinvestment,
requiring federal income taxes to be paid thereon by the Portfolio, the
Portfolio intends to elect to treat such capital gains as having been
distributed to shareholders. As a result, each shareholder will report such

39
<PAGE>

capital gains as long-term capital gains, will be able to claim a proportionate
share of federal income taxes paid by the Portfolio 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 Portfolio shares by the
difference between the shareholder's pro rata share of such gains and the
shareholder's tax credit. If a Portfolio 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.

If an Underlying Scudder Fund derives dividends from domestic
corporations, a portion of the income distributions of a Portfolio which invests
in that 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
held by Underlying Scudder Fund with respect to which the dividends are received
are treated as debt-financed under federal income tax law and is eliminated if
either those shares or the shares of the Underlying Scudder Fund or the
Portfolio are deemed to have been held by the Underlying Scudder Fund, the
Portfolio or the shareholders, as the case may be, for less than 46 days.

Income received by an Underlying Scudder Fund from sources within a
foreign country may be subject to withholding and other taxes imposed by that
country. If more than 50% of the value of an Underlying Scudder Fund's total
assets at the close of its taxable year consists of stock or securities of
foreign corporations, the Underlying Scudder Fund will be eligible and may elect
to "pass-through" to its shareholders, including a Portfolio, the amount of
foreign income and similar taxes paid by the Underlying Scudder Fund. Pursuant
to this election, the Portfolio would be required to include in gross income (in
addition to taxable dividends actually received), its pro rata share of foreign
income and similar taxes in computing its taxable income or to use it as a
foreign tax credit against its U.S. federal income taxes, subject to
limitations. A Portfolio, would not, however, be eligible to elect to
"pass-through" to its shareholders the ability to claim a deduction or credit
with respect to foreign income and similar taxes paid by the Underlying Scudder
Fund.

Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of a Portfolio 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 (up to
$2,250 to IRAs for an individual and his or her nonearning spouse) 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

40
<PAGE>

spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.

Distributions by a Portfolio result in a reduction in the net asset
value of the Portfolio's shares. Should a distribution reduce the net asset
value below a shareholder's cost basis, such distribution would nevertheless be
taxable to the shareholder as ordinary income or capital gain as described
above, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should consider the tax implications
of buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of capital upon
the distribution, which will nevertheless be taxable to them.

Each Portfolio will be required to report to the Internal Revenue
Service ("IRS") all distributions of investment company taxable income and
capital gains as well as gross proceeds from the redemption or exchange of
Portfolio shares, except in the case of certain exempt shareholders. Under the
backup withholding provisions of Section 3406 of the Code, distributions of
investment company taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if a
Portfolio is notified by the IRS or a broker that the taxpayer identification
number furnished by the shareholder is incorrect or that the shareholder has
previously failed to report interest or dividend income. If the withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld.

Shareholders of a Portfolio may be subject to state and local taxes on
distributions received from the Portfolio and on redemptions of the Portfolio's
shares.

The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of a Portfolio, 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.

Taxation of the Underlying Scudder Funds

Each Underlying Scudder Fund intends to qualify annually and elects to
be treated as a regulated investment company under Subchapter M of the Code. In
any year in which an Underlying Scudder Fund qualifies as a regulated investment
company and timely distributes all of its taxable income, the Fund generally
will not pay any federal income or excise tax.

Distributions of an Underlying Scudder Fund's investment company
taxable income are taxable as ordinary income to a Portfolio which invests in
the Fund. Distributions of the excess of an Underlying Scudder Fund's net
long-term capital gain over its net short-term capital loss, which are properly
designated as "capital gain dividends," are taxable as long-term capital gain to
a Portfolio which invests in the Fund, regardless of how long the Portfolio held
the Fund's shares, and are not eligible for the corporate dividends-received
deduction. Upon the sale or other disposition by a Portfolio of shares of an
Underlying Scudder Fund, the Portfolio generally will realize a capital gain or
loss which will be long-term or short-term, generally depending upon the
Portfolio's holding period for the shares.

Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of addition al information
in light of their particular tax situations.

41
<PAGE>

PORTFOLIO TRANSACTIONS

Portfolio Turnover

Each Portfolio'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. Purchases and
sales are made for each Portfolio whenever necessary, in management's opinion,
to meet that Portfolio's objective. Each Portfolio expects to have an annual
portfolio turnover rate not exceeding 50% for its initial fiscal year.

Each Portfolio is expected to operate at a zero expense ratio. To
accomplish this, the payment of a Portfolio's expenses is subject to the Service
Agreement and certain provisions mentioned in the Agreement with the Adviser.

Underlying Scudder Fund Portfolio Turnover Rate (%)(1)

Scudder Cash Investment Trust(2) n/a
Scudder Emerging Markets Income Fund 302.2
Scudder Global Bond Fund 182.8
Scudder GNMA Fund 157.8
Scudder High Yield Bond Fund -
Scudder Income Fund 128.25
Scudder International Bond Fund 275.7
Scudder Short Term Bond Fund 101.1
Scudder Capital Growth Fund 153.6
Scudder Classic Growth Fund -
Scudder Development Fund 58.8
Scudder Emerging Markets Growth Fund -
Scudder Global Fund 29.1
Scudder Global Discovery Fund 43.7
Scudder Gold Fund 29.7
Scudder Growth and Income Fund 26.9
Scudder International Fund 45.2
Scudder Latin America Fund 39.5
Scudder Micro Cap Fund 0.00
Scudder Pacific Opportunities Fund 64.0
Scudder Quality Growth Fund 91.6
Scudder Small Company Value Fund 33.97
Scudder 21st Century Growth Fund -
Scudder Value Fund 98.2
- -------------------------------
(1) As of each Underlying Scudder Fund's most recent fiscal reporting period.
(2) Scudder Cash Investment Trust is a money market fund.
</TABLE>

NET ASSET VALUE

The net asset value of Portfolio shares is 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 Exchange is scheduled to be closed on the
following holidays: New Year's 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.

The net asset value of each Underlying Scudder Fund is determined based
upon the nature of the securities as set forth in the prospectus and statement
of additional information of such Underlying Scudder Fund. Shares of each
Underlying Scudder Fund in which a Portfolio may invest are valued at the net
asset value per share of each Underlying Scudder Fund as of the close of regular
trading on the Exchange on each day the Exchange is open for trading. The net
asset value per share of the Underlying Scudder Funds will be calculated and
reported to a Portfolio by each Underlying Scudder Fund's accounting agent.

42
<PAGE>

Short-term securities with a remaining maturity of sixty days or less are valued
by the amortized cost method.

If, in the opinion of a Portfolio's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by a Portfolio
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.

ADDITIONAL INFORMATION

Other Information

Many of the investment changes in each Portfolio will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of a Portfolio. 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 Conservative Portfolio is 811189-30-7.
The CUSIP number of the Balanced Portfolio is 811189-50-5.
The CUSIP number of the Growth Portfolio is 811189-20-8.
The CUSIP number of the International Portfolio is 811189-60-4.

Each Portfolio has a fiscal year end of September 30.

The Series employs State Street Bank and Trust Company as Custodian.
State Street Bank and Trust Company maintains shares of the Underlying Scudder
Funds in the book entry system of such funds' transfer agent, Scudder Service
Corporation.

The firm of Dechert Price & Rhoads is counsel to the Series.

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 Trust. 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 Portfolios' prospectuses and this combined Statement of Additional
Information omit certain information contained in the Registration Statement
which the Trust 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 Portfolios 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.

43
<PAGE>

FINANCIAL STATEMENTS

[to be filed by amendment]

44
<PAGE>

GLOSSARY

Prospective investors should consider certain Underlying Scudder Funds
may engage in the following investment practices.

Strategic Transactions and Derivatives. Certain Underlying Scudder Funds may,
but are 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 an
Underlying Scudder 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 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 Underlying
Scudder 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 to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Underlying Scudder Fund's portfolio resulting from securities markets or
currency exchange rate fluctuations, to protect the Underlying Scudder 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 Underlying Scudder 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 Underlying Scudder 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 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 Underlying Scudder Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Underlying
Scudder 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 for speculative purposes.

Strategic Transactions 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 Underlying Scudder 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 Underlying Scudder Fund can realize on its investments or
cause the Underlying Scudder Fund to hold a security it might otherwise sell.
The use of currency transactions can result in the Underlying Scudder 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 Underlying Scudder Fund creates the possibility that
losses on the hedging instrument may be greater than gains in the value of the
Underlying Scudder 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 Underlying Scudder 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

<PAGE>

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 Underlying Scudder 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, an Underlying Scudder 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 an Underlying Scudder 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. An
Underlying Scudder Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect an
Underlying Scudder 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. An Underlying Scudder Fund is authorized to purchase and sell exchange
listed options and over-the-counter options ("OTC options"). Exchange listed
options are issued by a regulated intermediary such as the Options Clearing
Corporation ("OCC"), which guarantees the performance of the obligations of the
parties to such options. The discussion below uses the OCC as an example, but is
also applicable to other financial intermediaries.

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

An Underlying Scudder 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

<PAGE>

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. An
Underlying Scudder Fund will only sell OTC options (other than OTC currency
options) that are subject to a buy-back provision permitting the Underlying
Scudder Fund to require the Counterparty to sell the option back to the
Underlying Scudder Fund at a formula price within seven days. An Underlying
Scudder Fund expects generally to enter into OTC options that have cash
settlement provisions, although 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 an Underlying Scudder Fund or fails to
make a cash settlement payment due in accordance with the terms of that option,
an Underlying Scudder 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. An Underlying Scudder 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 an Underlying Scudder Fund, and portfolio
securities "covering" the amount of an Underlying Scudder 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 an Underlying
Scudder Fund's limitation on investing no more than 10% of its assets in
illiquid securities.

If an Underlying Scudder 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 an Underlying Scudder Fund's income. The sale of
put options can also provide income.

An Underlying Scudder 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 an Underlying
Scudder Fund must be "covered" (i.e., an Underlying Scudder 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 an Underlying Scudder Fund will receive the option premium to help
protect it against loss, a call sold by an Underlying Scudder Fund exposes an
Underlying Scudder 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 an Underlying Scudder Fund to hold a
security or instrument which it might otherwise have sold.

An Underlying Scudder 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. An Underlying Scudder Fund will not sell put
options if, as a result, more than 50% of an Underlying Scudder 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 an Underlying Scudder Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.

General Characteristics of Futures. Certain Underlying Scudder Funds
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

<PAGE>

below. The sale of a futures contract creates a firm obligation by an Underlying
Scudder 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.

An Underlying Scudder 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
an Underlying Scudder 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 an Underlying Scudder Fund. If an Underlying
Scudder 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.

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

Currency Transactions. Certain Underlying Scudder Funds 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. An Underlying Scudder Fund may enter into
currency transactions with Counterparties which have received (or the guarantors
of the obligations of 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.

<PAGE>

An Underlying Scudder 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 an Underlying Scudder 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.

An Underlying Scudder 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.

An Underlying Scudder 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 an Underlying Scudder
Fund has or in which an Underlying Scudder Fund expects to have portfolio
exposure.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, an Underlying Scudder Fund may
also engage in proxy hedging. Proxy hedging is often used when the currency to
which an Underlying Scudder Fund's portfolio is exposed is difficult to hedge or
to hedge against the dollar. Proxy hedging entails entering into a forward
contract to sell a currency whose changes in value are generally considered to
be linked to a currency or currencies in which some or all of an Underlying
Scudder Fund's portfolio securities are or are expected to be denominated, and
to buy U.S. dollars. The amount of the contract would not exceed the value of an
Underlying Scudder Fund's securities denominated in linked currencies. For
example, if the Adviser considers that the Austrian schilling is linked to the
German deutschemark (the "D-mark"), an Underlying Scudder 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 contract 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 an Underlying Scudder 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 linkage between
various currencies may not be present or may not be present during the
particular time that an Underlying Scudder Fund is engaging in proxy hedging. If
an Underlying Scudder Fund enters into a currency hedging transaction, an
Underlying Scudder 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 an Underlying Scudder Fund if it is unable to
deliver or receive currency or funds in settlement of obligations and could also
cause hedges it has entered into to be rendered useless, resulting in full
currency exposure as well as incurring transaction costs. Buyers and sellers of
currency futures are subject to the same risks that apply to the use of futures
generally. Further, settlement of a currency futures contract for the purchase
of most currencies must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market which may not always be available. Currency exchange rates may fluctuate
based on factors extrinsic to that country's economy.

Combined Transactions. Certain Underlying Scudder Funds may enter into
multiple transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts) and multiple interest rate transactions and any combination of
futures, options, currency and interest rate transactions ("component"
transactions), instead of a single Strategic Transaction, as part of a single or
combined strategy when, in the opinion of the Adviser, it is in the best
interests of an Underlying Scudder Fund to do so. A combined transaction will
usually contain elements of risk that are present in each of its component

<PAGE>

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 certain Underlying Scudder Funds may enter are interest rate, currency and
index swaps and the purchase or sale of related caps, floors and collars. An
Underlying Scudder 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 an
Underlying Scudder Fund anticipates purchasing at a later date. An Underlying
Scudder 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 an Underlying
Scudder Fund may be obligated to pay. Interest rate swaps involve the exchange
by an Underlying Scudder 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.

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

Risks of Strategic Transactions Outside the U.S. When conducted outside
the U.S., Strategic Transactions may not be regulated as rigorously as in the
U.S., may not involve a clearing mechanism and related guarantees, and are
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities, currencies and other instruments. The value of such
positions also could be adversely affected by: (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the U.S.
of data on which to make trading decisions, (iii) delays in an Underlying
Scudder Fund's ability to act upon economic events occurring in foreign markets

<PAGE>

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 an Underlying
Scudder Fund segregate liquid assets with its custodian to the extent an
Underlying Scudder Fund's 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 an Underlying Scudder 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 an Underlying Scudder Fund will require an
Underlying Scudder Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid securities sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by an
Underlying Scudder Fund on an index will require an Underlying Scudder Fund to
own portfolio securities which correlate with the index or to segregate liquid
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by an Underlying Scudder Fund requires an
Underlying Scudder Fund to segregate liquid assets equal to the exercise price.

Except when an Underlying Scudder 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 an Underlying
Scudder Fund to buy or sell currency will generally require an Underlying
Scudder Fund to hold an amount of that currency or liquid securities denominated
in that currency equal to an Underlying Scudder Fund's obligations or to
segregate liquid assets equal to the amount of an Underlying Scudder Fund's
obligation.

OTC options entered into by an Underlying Scudder 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 an Underlying Scudder 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 an
Underlying Scudder 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 an
Underlying Scudder Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, an Underlying Scudder 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 an
Underlying Scudder Fund other than those above generally settle with physical
delivery, or with an election of either physical delivery or cash settlement and
an Underlying Scudder 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, an Underlying
Scudder 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, an Underlying Scudder 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 an Underlying
Scudder Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. An Underlying Scudder 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, an Underlying Scudder Fund could purchase a

<PAGE>

put option if the strike price of that option is the same or higher than the
strike price of a put option sold by an Underlying Scudder Fund. Moreover,
instead of segregating assets if an Underlying Scudder Fund held a futures or
forward contract, it could purchase a put option on the same futures or forward
contract with a strike price as high or higher than the price of the contract
held. Other Strategic Transactions may also be offset in combinations. If the
offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

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

Foreign Securities. Certain Underlying Scudder Funds may invest in foreign
securities. The Adviser believes that diversification of assets on an
international basis decreases the degree to which events in any one country,
including the U.S., will affect an investor's entire investment holdings. In
certain periods since World War II, many leading foreign economies and foreign
stock market indices have grown more rapidly than the U.S. economy and leading
U.S. stock market indices, although there can be no assurance that this will be
true in the future. 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 an Underlying Scudder Fund's
performance. As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies, there may be
less publicly available information about a foreign company than about a
domestic company. Many foreign securities markets, while growing in volume of
trading activity, have substantially less volume than the U.S. market, and
securities of some foreign issuers are less liquid and more volatile than
securities of domestic issuers. Similarly, volume and liquidity in most foreign
bond markets is less than in the U.S. and, at times, volatility of price can be
greater than in the U.S. Fixed commissions on some foreign securities exchanges
and bid to asked spreads in foreign bond markets are generally higher than
commissions or bid to asked spreads on U.S. markets, although an Underlying
Scudder Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of securities exchanges, brokers and listed companies than in the
U.S. It may be more difficult for an Underlying Scudder Fund's agents to keep
currently informed about corporate actions which may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Payment for securities without delivery may be required in certain
foreign markets. In addition, with respect to certain foreign countries, there
is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect U.S.
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The management of an
Underlying Scudder Fund seeks to mitigate the risks associated with the
foregoing considerations through continuous professional management.

Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because certain Underlying Scudder
Funds may hold foreign currencies and forward contracts, futures contracts and
options on foreign currencies and foreign currency futures contracts, the value
of the assets of such Underlying Scudder 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 Underlying Scudder Fund may incur
costs in connection with conversions between various currencies. Although an
Underlying Scudder Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to an Underlying
Scudder Fund at one rate, while offering a lesser rate of exchange should the
Underlying Scudder Fund desire to resell that currency to the dealer. An
Underlying Scudder Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into options or forward or futures
contracts to purchase or sell foreign currencies.

<PAGE>

Repurchase Agreements. Certain Underlying Scudder Funds may enter into
repurchase agreements with member banks of the Federal Reserve System, any
foreign bank, if the repurchase agreement is fully secured by government
securities of the particular foreign jurisdiction, or with any domestic or
foreign broker/dealer which is recognized as a reporting government securities
dealer if the creditworthiness of the bank or broker/dealer has been determined
by the Adviser to be at least as high as that of other obligations the relevant
Underlying Scudder Fund may purchase, or to be at least equal to that of issuers
of commercial paper rated within the two highest grades assigned by Moody's or
S&P.

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

For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from an Underlying Scudder Fund to the seller of the Obligation subject to
the repurchase agreement and is therefore subject to that Underlying Scudder
Fund's investment restriction applicable to loans. It is not clear whether a
court would consider the Obligation purchased by an Underlying Scudder Fund
subject to a repurchase agreement as being owned by the Underlying Scudder Fund
or as being collateral for a loan by the Underlying Scudder 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, an Underlying Scudder Fund may encounter delay and
incur costs before being able to sell the security. Delays may involve loss of
interest or decline in price of the Obligation. If the court characterizes the
transaction as a loan and the Underlying Scudder Fund has not perfected a
security interest in the Obligation, the Underlying Scudder 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 Underlying Scudder Fund
would be at risk of losing some or all of the principal and income involved in
the transaction. As with any unsecured debt instrument purchased for the
Underlying Scudder 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 an Underlying Scudder Fund may incur a
loss if the proceeds to the Underlying Scudder Fund of the sale to a third party
are less than the repurchase price. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Underlying Scudder Fund will direct the seller
of the Obligation to deliver additional securities so that the market value of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that an Underlying Scudder Fund will be
unsuccessful in seeking to impose on the seller a contractual obligation to
deliver additional securities.

Convertible Securities. Certain Underlying Scudder Funds 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 an Underlying Scudder 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 o

<PAGE>

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.

High Yield, High Risk Securities. Below investment grade securities (rated Ba
and lower by Moody's and BB and lower by S&P) or unrated securities of
equivalent quality, in which certain Underlying Scudder Funds 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 render them like equity
securities. See the Appendix to this combined Statement of Additional
Information for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.

Economic downturns have in the past, and could in the future, disrupted
the high yield market and impaired the ability of issuers to repay principal and
interest. Also, an increase in interest rates would likely have a greater
adverse impact on the value of such obligations than on comparable higher
quality debt securities. During an economic downturn or period of rising
interest rates, highly leveraged issues may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations. Prices and yields of high yield securities will fluctuate
over time and, during periods of economic uncertainty, volatility of high yield
securities may adversely affect an Underlying Scudder 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 an
Underlying Scudder Fund to accurately value high yield securities in the
Underlying Scudder 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.

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 an
Underlying Scudder 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 Underlying
Scudder Fund to retain or dispose of such security.

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

<PAGE>

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

An Underlying Scudder Fund will not use such transactions for
leveraging purposes and, accordingly, will segregate cash, U.S. Government
securities or other high grade debt obligations in an amount sufficient to meet
its purchase obligations under the transactions. An Underlying Scudder 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
an Underlying Scudder 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 Underlying Scudder Fund. For example, while the Underlying Scudder
Fund receives a fee as consideration for agreeing to repurchase the security,
the Underlying Scudder 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 Underlying Scudder Fund,
thereby effectively charging the Underlying Scudder Fund interest on its
borrowing. Further, although the Underlying Scudder 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
Underlying Scudder Fund's borrowing.

The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, an Underlying Scudder Fund's
right to purchase from the counterparty might be restricted. Additionally, the
value of such securities may change adversely before the Underlying Scudder Fund
is able to purchase them. Similarly, the Underlying Scudder 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
Underlying Scudder Fund, the security that the Underlying Scudder Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that an Underlying Scudder Fund's
use of the cash that it receives from a dollar roll will provide a return that
exceeds borrowing costs.

The Directors/Trustees of the Underlying Scudder Funds have adopted
guidelines to ensure that those securities received are substantially identical
to those sold. To reduce the risk of default, an Underlying Scudder Fund will
engage in such transactions only with counterparties selected pursuant to such
guidelines.

Lending of Portfolio Securities. Certain Underlying Scudder Funds may seek to
increase their income by lending portfolio securities. Such loans may be made to
registered broker/dealers, and are required to be secured continuously by
collateral in cash, U.S. Government securities and high grade debt obligations,
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. An Underlying Scudder Fund has
the right to call a loan and obtain the securities loaned on no more than five
days' notice. During the existence of a loan, the Underlying Scudder Fund
continues to receive the equivalent of any distributions paid by the issuer on
the securities loaned and also receives 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 may be made only to firms deemed
by the Adviser to be of good standing.

Indexed Securities. Certain Underlying Scudder Funds 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.

<PAGE>

Indexed securities differ from other types of debt securities in which
an Underlying Scudder 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.

Zero Coupon Securities. Certain Underlying Scudder Funds 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 convertible securities offer the opportunity for capital appreciation (or
depreciation) as increases (or decreases) in market value of such securities
closely follow 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 because zero coupon convertible securities are
usually issued with shorter maturities (15 years or less) and 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") and Certificate of Accrual on Treasuries
("CATS"). 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 has stated that for federal tax and securities purposes, in
their opinion purchasers of such certificates, such as an Underlying Scudder
Fund, most likely will be deemed the beneficial holder of the underlying U.S.
government securities.

The Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupons 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.

<PAGE>

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 in such bundled 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.")

When-Issued Securities. Certain Underlying Scudder Funds may purchase securities
on a "when-issued" or "forward delivery" basis for payment and delivery at a
later date. The price of such securities, which is generally expressed in yield
terms, is generally 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 an Underlying Scudder Fund to the issuer and no interest on
the when-issued or forward delivery securities accrues to the Underlying Scudder
Fund. To the extent that assets of the Underlying Scudder Fund are held in cash
pending the settlement of a purchase of securities, the Underlying Scudder Fund
will earn no income; however, it is the Underlying Scudder 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 Underlying Scudder 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 Underlying Scudder Fund makes the commitment
to purchase a security on a when-issued or forward delivery basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. At the time of settlement, the market value of the when-issued
or forward delivery securities may be more or less than the purchase price. The
Underlying Scudder 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.

Mortgage-Backed Securities and Mortgage Pass-Through Securities. Certain
Underlying Scudder Funds 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. An Underlying Scudder 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 an Underlying Scudder Fund to a lower rate
of return upon reinvestment. To the extent that such mortgage-backed securities
are held by the Underlying Scudder Fund, the prepayment right will tend to limit
to some degree the increase in net asset value of the Underlying Scudder Fund
because the value of the mortgage-backed securities held by the Underlying
Scudder Fund may not appreciate as rapidly as the price of non-callable debt
securities.

Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying property, refinancing, or foreclosure, net of
fees or costs which may be incurred. 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

<PAGE>

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

CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.

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

<PAGE>

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. An Underlying Scudder 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 10% of the value of the Underlying Scudder
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 Underlying Scudder Fund's investment objective, 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 an Underlying Scudder Fund's investment
objectives and policies, the Underlying Scudder Fund may invest in these and
other types of asset-backed securities that may be developed in the future. In
general, the collateral supporting these securities is of shorter maturity than
mortgage loans and is less likely to experience substantial prepayments with
interest rate fluctuations.

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

<PAGE>

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. An Underlying Scudder 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.

An Underlying Scudder 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 would be subject to the Underlying
Scudder Fund's restriction on restricted or illiquid securities. 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 Underlying Scudder Fund to dispose of any then existing holdings
of such securities.

Repurchase Commitments. Certain Underlying Scudder Funds may enter into
repurchase commitments with any party deemed creditworthy by the Adviser,
including foreign banks and broker/dealers, if the transaction is entered into
for investment purposes and the counterparty's creditworthiness is at least
equal to that of issuers of securities which an Underlying Scudder Fund may
purchase. Such transactions may not provide the Underlying Scudder Fund with
collateral marked-to-market during the term of the commitment.

Investing in Latin America. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, those
Underlying Scudder Funds which are permitted to invest in securities of Latin
American issuers could lose their entire investment in any such country.

<PAGE>

The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.

The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.

An Underlying Scudder Fund may invest a portion of its assets in
securities denominated in currencies of Latin American countries. Accordingly,
changes in the value of these currencies against the U.S. dollar may result in
corresponding changes in the U.S. dollar value of the Underlying Scudder Fund's
assets denominated in those currencies.

Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Underlying Scudder Fund's portfolio securities are
denominated may have a detrimental impact on the Underlying Scudder Fund's net
asset value.

The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain Latin
American countries have experienced high levels of inflation which can have a
debilitating effect on an economy, although some have begun to control inflation
in recent years through prudent economic policies. Furthermore, certain Latin
American countries may impose withholding taxes on dividends payable to the
Underlying Scudder Fund at a higher rate than those imposed by other foreign
countries. This may reduce the Underlying Scudder Fund's investment income
available for distribution to shareholders.

Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt.

Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock and agriculture. The
region has a large population (roughly 300 million) representing a large
domestic market. Economic growth was strong in the 1960's and 1970's, but slowed
dramatically (and in some instances was negative) in the 1980's as a result of
poor economic policies, higher international interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently experiencing lower rates of inflation and higher rates of real growth
in Gross Domestic Product than they have in the past, other Latin American
countries continue to experience significant problems, including high inflation
rates and high interest rates. Capital flight has proven a persistent problem
and external debt has been forcibly restructured. Political turmoil, high
inflation, capital repatriation restrictions, and nationalization have further
exacerbated conditions.

Governments of many Latin American 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 those countries. As a result, government actions in the future could
have a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Underlying Scudder Fund's investments in this region.

<PAGE>

Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left home
country) has begun to return. Inflation control efforts have also been
implemented. Free Trade Zones are being discussed in various areas around the
region, the most notable being a free zone among Mexico, the U.S. and Canada and
another zone among four countries in the southernmost point of Latin America.
Currencies are typically weak, but most are now relatively free floating, and it
is not unusual for the currencies to undergo wide fluctuations in value over
short periods of time due to changes in the market.

Depositary Receipts. Certain Underlying Scudder Funds 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 United States 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 an Underlying Scudder Fund's investment policies, the Underlying Scudder
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.

Loan Participations and Assignments. Certain Underlying Scudder Funds may invest
in fixed and floating rate loans ("Loans") arranged through private negotiations
between an issuer of emerging market debt instruments and one or more financial
institutions ("Lenders"). An Underlying Scudder Fund's investments in Loans in
Latin America are expected in most instances to be in the form of participations
in Loans ("Participations") and assignments of portions of Loans ("Assignments")
from third parties. Participations typically will result in the Underlying
Scudder Fund having a contractual relationship only with the Lender and not with
the borrower. The Underlying Scudder Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations, the
Underlying Scudder Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and the Underlying Scudder Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Underlying Scudder Fund will
assume the credit risk of both the borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Underlying Scudder Fund may be treated as a general creditor
of the Lender and may not benefit from any set-off between the Lender and the
borrower. The Underlying Scudder Fund will acquire Participations only if the
Lender interpositioned between the Underlying Scudder Fund and the borrower is
determined by the Adviser to be creditworthy.

When an Underlying Scudder Fund purchases Assignments from Lenders, the
Underlying Scudder Fund will acquire direct rights against the borrower on the
Loan. Because Assignments are arranged through private negotiations between
potential assignees and potential assignors, however, the rights and obligations
acquired by the Underlying Scudder Fund as the purchaser of an Assignment may
differ from, and may be more limited than, those held by the assigning Lender.

An Underlying Scudder Fund may have difficulty disposing of Assignments
and Participations. Because no liquid market for these obligations typically
exists, the Underlying Scudder Fund anticipates that these obligations could be

<PAGE>

sold only to a limited number of institutional investors. The lack of a liquid
secondary market will have an adverse effect on the Underlying Scudder Fund's
ability to dispose of particular Assignments or Participations when necessary to
meet the Underlying Scudder Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid secondary market for Assignments and Participations may
also make it more difficult for the Underlying Scudder Fund to assign a value to
those securities for purposes of valuing the Underlying Scudder Fund's portfolio
and calculating its net asset value.

Illiquid or Restricted Securities. Certain Underlying Scudder Funds 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 (the "1933
Act") or the availability of an exemption from registration (such as Rules 144
or 144A) or because they are subject to other legal or contractual delays in or
restrictions on resale.

Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the 1933 Act. An Underlying Scudder Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event the Underlying Scudder 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.

Some Underlying Scudder Funds will not invest more than 15% of their
net assets in securities which are not readily marketable, the disposition of
which is restricted under Federal securities laws or in repurchase agreements
not terminable within 7 days, and such Underlying Scudder Funds will not invest
more than 10% of their total assets in restricted securities. Certain Underlying
Scudder Funds will not invest more than 10% of their net assets in securities
which are not readily marketable, the disposition of which are restricted under
Federal securities laws or in repurchase agreements not terminable within seven
days, and such Underlying Scudder Funds will not invest more than 5% of their
total assets in restricted securities. Certain Underlying Scudder Funds will not
invest more than 15% of their net assets in illiquid securities.

Special Considerations Affecting the Pacific Basin. Economies of
individual Pacific Basin countries in which certain Underlying Scudder Funds may
invest, 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, interest rate levels, and balance of
payments position. Of particular importance, most of the economies in this
region of the world are heavily dependent upon exports, particularly to
developed countries, and, accordingly, have been and may continue to be
adversely affected by trade barriers, managed adjustments in relative currency
values, and other protectionist measures imposed or negotiated by the U.S. and
other countries with which they trade. These economies also have been and may
continue to be negatively impacted by economic conditions in the U.S. and other
trading partners, which can lower the demand for goods produced in the Pacific
Basin.

With respect to the Peoples Republic of China and other markets in
which an Underlying Scudder Fund may participate, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments that could
adversely impact a Pacific Basin country or the Underlying Scudder Fund's
investment in that country.

Trading volume on Pacific Basin stock exchanges outside of Japan,
although increasing, is substantially less than in the U.S. stock market.
Further, securities of some Pacific Basin companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
Pacific Basin stock exchanges are generally higher than negotiated commissions
on U.S. exchanges, although the Underlying Scudder Fund endeavors to achieve the
most favorable net results on its portfolio transactions and may be able to
purchase securities in which the Underlying Scudder Fund may invest on other
stock exchanges where commissions are negotiable.

<PAGE>

Foreign companies, including Pacific Basin companies, are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and disclosure requirements comparable to those applicable to U.S.
companies. Consequently, there may be less publicly available information about
such companies than about U.S. companies. Moreover, there is generally less
government supervision and regulation of Pacific Basin stock exchanges, brokers,
and listed companies than in the U.S.

Investing in Europe. Most Eastern European nations in which certain
Underlying Scudder Funds may invest, including Hungary, Poland, Czechoslovakia,
and Romania have had centrally planned, socialist economies since shortly after
World War II. A number of their governments, including those of Hungary, the
Czech Republic, and Poland are currently implementing or considering reforms
directed at political and economic liberalization, including efforts to foster
multi-party political systems, decentralize economic planning, and move toward
free market economies. At present, no Eastern European country has a developed
stock market, but Poland, Hungary, and the Czech Republic have small securities
markets in operation. Ethnic and civil conflict currently rage through the
former Yugoslavia. The outcome is uncertain.

Both the EC and Japan, among others, have made overtures to establish
trading arrangements and assist in the economic development of the Eastern
European nations. A great deal of interest also surrounds opportunities created
by the reunification of East and West Germany. Following reunification, the
Federal Republic of Germany has remained a firm and reliable member of the EC
and numerous other international alliances and organizations. To reduce
inflation caused by the unification of East and West Germany, Germany has
adopted a tight monetary policy which has led to weakened exports and a reduced
domestic demand for goods and services. However, in the long-term, reunification
could prove to be an engine for domestic and international growth.

The conditions that have given rise to these developments are
changeable, and there is no assurance that reforms will continue or that their
goals will be achieved.

Portugal is a genuinely emerging market which has experienced rapid
growth since the mid-1980s, except for a brief period of stagnation over
1990-91. Portugal's government remains committed to privatization of the
financial system away from one dependent upon the banking system to a more
balanced structure appropriate for the requirements of a modern economy.
Inflation continues to be about three times the EC average.

Economic reforms launched in the 1980s continue to benefit Turkey in
the 1990s. Turkey's economy has grown steadily since the early 1980s, with real
growth in per capita Gross Domestic Product (GDP) increasing more than 6%
annually. Agriculture remains the most important economic sector, employing
approximately 55% of the labor force, and accounting for nearly 20% of GDP and
20% of exports. Inflation and interest rates remain high, and a large budget
deficit will continue to cause difficulties in Turkey's substantial
transformation to a dynamic free market economy.

Like many other Western economies, Greece suffered severely from the
global oil price hikes of the 1970s, with annual GDP growth plunging from 8% to
2% in the 1980s, and inflation, unemployment, and budget deficits rising
sharply. The fall of the socialist government in 1989 and the inability of the
conservative opposition to obtain a clear majority have led to business
uncertainty and the continued prospects for flat economic performance. Once
Greece has sorted out its political situation, it will have to face the
challenges posed by the steadily increasing integration of the EC, including the
progressive lowering of trade and investment barriers. Tourism continues as a
major industry, providing a vital offset to a sizable commodity trade deficit.

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 of which have not been entirely settled. There can be no assurance that
the Underlying Scudder Fund's investments in Eastern Europe would not also be
expropriated, nationalized or otherwise confiscated. Finally, any change in
leadership or policies of Eastern European countries, or countries that exercise

<PAGE>

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.

Investing in Africa. Many of the countries in which certain Underlying
Scudder Funds may invest are fraught with political instability. However, there
has been a trend over the past five years toward democratization. Many countries
are moving from a military style, Marxist, or single party government to a
multi-party system. Still, there remain many countries that do not have a stable
political process. Other countries have been enmeshed in civil wars and border
clashes.

Africa is a continent of roughly 50 countries with a total population
of approximately 840 million people. Literacy rates (the percentage of people
who are over 15 years of age and who can read and write) are relatively low,
ranging from 20% to 60%. The primary industries include crude oil, natural gas,
manganese ore, phosphate, bauxite, copper, iron, diamond, cotton, coffee, cocoa,
timber, tobacco, sugar, tourism, and cattle.

Economically, the Northern Rim countries (including Morocco, Egypt, and
Algeria) and Nigeria, Zimbabwe and South Africa are the wealthier countries on
the continent. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges. However, religious and ethnic strife has been a
significant source of instability.

On the other end of the economic spectrum are countries, such as
Burkina, Madagascar, and Malawi, that are considered to be among the poorest or
least developed in the world. These countries are generally landlocked or have
poor natural resources. The economies of many African countries are heavily
dependent on international oil prices. Of all the African industries, oil has
been the most lucrative, accounting for 40% to 60% of many countries' GDP.
However, general decline in oil prices has had an adverse impact on many
economies.

Brady Bonds. Certain Underlying Scudder Funds 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 Mexico, Uruguay,
Venezuela, Costa Rica, Argentina, Nigeria, and the Philippines.

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.

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. Over $82
billion in Brady Bonds have been issued by countries in Africa and Latin
America, with 90% of these Brady Bonds being denominated in U.S. dollars.

Sovereign Debt. Investment in sovereign debt can involve a high degree of risk.
The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the

<PAGE>

relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt 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.

Borrowing. Certain Underlying Scudder Funds are authorized to borrow money for
purposes of liquidity and to provide for redemptions and distributions. An
Underlying Scudder Fund will borrow only when the Adviser believes that
borrowing will benefit the Underlying Scudder Fund after taking into account
considerations such as the costs of the borrowing. The Underlying Scudder Fund
does not expect to borrow for investment purposes, to increase return or
leverage the portfolio. Borrowing by the Underlying Scudder Fund will involve
special risk considerations. Although the principal of the Underlying Scudder
Fund's borrowings will be fixed, the Underlying Scudder Fund's assets may change
in value during the time a borrowing is outstanding, thus increasing exposure to
capital risk.

Municipal Obligations. Certain Underlying Scudder Funds may acquire municipal
obligations when, due to disparities in the debt securities markets, the
anticipated total return on such obligations is higher than that on taxable
obligations. The Underlying Scudder Fund has no current intention of purchasing
tax-exempt municipal obligations that would amount to greater than 5% of the
Underlying Scudder Fund's total assets.

Municipal obligations are issued by or on behalf of states,
territories, and possessions of the U.S., and their political subdivisions,
agencies, and instrumentalities, and the District of Columbia to obtain funds
for various public purposes. The interest on these obligations is generally
exempt from federal income tax in the hands of most investors. The two principal
classifications of municipal obligations are "notes" and "bonds." The return on
municipal obligations is ordinarily lower than that of taxable obligations.

Eastern Europe. Certain Underlying Scudder Funds may invest up to 5% of their
total assets in the securities of issuers domiciled in Eastern European
countries. Investments in companies domiciled in Eastern European countries may
be subject to potentially greater risks than those of other foreign issuers.
These risks include (i) potentially less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the low volume of trading, which result in less liquidity and in greater price
volatility; (iii) certain national policies which may restrict the Underlying
Scudder Fund's investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed legal structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries, or in the countries of the former Soviet Union.

Investments in such countries involve risks of nationalization,
expropriation and confiscatory taxation. The Communist governments of a number
of East European countries expropriated large amounts of private property in the
past, in many cases without adequate compensation, and there may be no assurance
that such expropriation will not occur in the future. In the event of such
expropriation, the Underlying Scudder Fund could lose a substantial portion of
any investments it has made in the affected countries. Further, no accounting
standards exist in East European countries. Finally, even though certain East
European currencies may be convertible into U.S. dollars, the conversion rates
may be artificial to the actual market values and may be adverse to the
Underlying Scudder Fund's shareholders.

<PAGE>

Small Company Risk. The Adviser believes that small companies often have sales
and earnings growth rates which exceed those of larger companies, and that such
growth rates may in turn be reflected in more rapid share price appreciation
over time. However, investing in smaller company stocks involves greater risk
than is customarily associated with investing in larger, more established
companies. For example, smaller companies can have limited product lines,
markets, or financial and managerial resources. Smaller companies may also be
dependent on one or a few key persons, and may be more susceptible to losses and
risks of bankruptcy. Also, the securities of the smaller companies in which
certain Underlying Scudder Funds may invest, may be thinly traded (and therefore
have to be sold at a discount from current market prices or sold in small lots
over an extended period of time). Transaction costs in smaller company stocks
may be higher than those of larger companies.

Asset-Indexed Securities. Certain Underlying Scudder Funds may purchase
asset-indexed securities which are debt securities usually issued by companies
in precious metals related businesses such as mining, the principal amount,
redemption terms, or interest rates of which are related to the market price of
a specified precious metal. An Underlying Scudder Fund will only enter into
transactions in publicly traded asset-indexed securities. Market prices of
asset-indexed securities will relate primarily to changes in the market prices
of the precious metals to which the securities are indexed rather than to
changes in market rates of interest. However, there may not be a perfect
correlation between the price movements of the asset-indexed securities and the
underlying precious metals. Asset-indexed securities typically bear interest or
pay dividends at below market rates (and in certain cases at nominal rates). The
Underlying Scudder Fund will purchase asset-indexed securities to the extent
permitted by law.

Short Sales Against the Box. Certain Underlying Scudder Funds may make short
sales of common stocks if, at all times when a short position is open, an
Underlying Scudder Fund owns the stock or owns preferred stocks or debt
securities convertible or exchangeable, without payment of further
consideration, into the shares of common stock sold short. Short sales of this
kind are referred to as short sales "against the box." The broker/dealer that
executes a short sale generally invests cash proceeds of the sale until they are
paid to the Underlying Scudder Fund. Arrangements may be made with the
broker/dealer to obtain a portion of the interest earned by the broker on the
investment of short sale proceeds. The Underlying Scudder Fund will segregate
the common stock or convertible or exchangeable preferred stock or debt
securities in a special account with the Custodian. The extent to which the
Underlying Scudder Fund may make short sales of common stocks may be limited by
the requirements contained in the Internal Revenue Code of 1986, as amended (the
"Code") for qualification as a regulated investment company. (See "TAXES.")

Investing in Emerging Markets. Most emerging securities markets in which certain
Underlying Scudder Funds may invest, 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 United States.

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 an
Underlying Scudder Fund is uninvested and no cash is earned thereon. The
inability of the Underlying Scudder Fund to make intended security purchases due
to settlement problems could cause the Underlying Scudder Fund to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Underlying Scudder Fund due to subsequent declines in value of the portfolio
security or, if the Underlying Scudder Fund has entered into a contract to sell
the security, could result in possible liability to the purchaser. Costs
associated with transactions in foreign securities are generally higher than
costs associated with transactions in U.S. securities. Such transactions also
involve additional costs for the purchase or sale of foreign currency.

Foreign investment in certain emerging market debt obligations is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain emerging markets debt
obligations and increase the costs and expenses of an Underlying Scudder 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

<PAGE>
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. An Underlying
Scudder 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 Underlying Scudder Fund of any restrictions on
investments.

In the course of investment in emerging market debt obligations, an
Underlying Scudder 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 Underlying Scudder Fund will manage 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 Underlying Scudder Fund to suffer a loss
of value in respect of the securities in the Underlying Scudder 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 an Underlying Scudder Fund's
securities in such markets may not be readily available. The Corporation may
suspend redemption of its shares for any period during which an emergency
exists, as determined by the Securities and Exchange Commission (the
"Commission"). Accordingly if the Underlying Scudder Fund believes that
appropriate circumstances exist, it will promptly apply to the Commission for a
determination that an emergency is present. During the period commencing from
the Underlying Scudder Fund's identification of such condition until the date of
the Commission action, the Underlying Scudder Fund's securities in the affected
markets will be valued at fair value determined in good faith by or under the
direction of the Board of Directors.

Volume and liquidity in most foreign bond markets are less than in the
United States 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 an Underlying Scudder 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 United
States. Mail service between the United States and foreign countries may be
slower or less reliable than within the United States, 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 Underlying
Scudder 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.

<PAGE>

Sovereign Risk Ratings for Selected Emerging Market Countries as of 2/23/96
(Source: J.P. Morgan Securities, Inc., Emerging Markets Research)

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

Chile Baa1 A-
Turkey Ba3 B+
Mexico Ba2 BB
Czech Republic Baa1 A
Hungary Ba1 BB+
Colombia Baa3 BBB-
Venezuela Ba2 B+
Morocco NR NR
Argentina B1 BB-
Brazil B1 B+
Poland Baa3 BB
Ivory Coast NR NR

An Underlying Scudder 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 Underlying Scudder Fund defaults, the
Underlying Scudder 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 Underlying Scudder
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 an Underlying Scudder Fund could be
reduced by a withholding tax on the source or other taxes imposed by the
emerging market countries in which the Underlying Scudder Fund makes its
investments. The Underlying Scudder Fund's net asset value may also be affected
by changes in the rates or methods of taxation applicable to the Underlying
Scudder Fund or to entities in which the Underlying Scudder 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

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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
Underlying Scudder Fund's portfolio. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments have occurred frequently over the history of certain emerging
markets and could adversely affect the Underlying Scudder 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.

Investments Involving Above-Average Risk. Certain Underlying Scudder Funds may
purchase securities involving above-average risk. For example, an Underlying
Scudder Fund has invested from time to time in relatively new companies but is
limited by a non-fundamental policy that it may not invest more than 5% of its
total assets in companies that, with their predecessors, have been in continuous
operation for less than three years. The Underlying Scudder Fund's portfolio may
also include the securities of small or little-known companies, commonly
referred to as emerging growth companies, that the Adviser believes have
above-average earnings growth potential and/or may receive greater market
recognition. Both factors are believed to offer significant opportunity for
capital appreciation. Investment risk is higher than that normally associated
with larger, older companies due to the higher business risks associated with
small size, frequently narrow product lines and relative immaturity. To help
reduce risk, the Underlying Scudder Fund allocates its investments among many
companies and different industries.

The securities of such companies are often traded only over-the-counter
and may not be traded in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Underlying Scudder Fund of
holdings of such securities may require the Underlying Scudder Fund to offer a
discount from recent prices or to make many small sales over a lengthy period of
time. Such securities may be subject to more abrupt or erratic market movements
than those typically encountered on national securities exchanges.