SCUDDER PATHWAY SERIES /NEW/
485APOS, 1997-11-28
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     Filed with the Securities and Exchange Commission on November 28, 1997


                                                               File No. 33-86070
                                                               File No. 811-8606


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                
                                    FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

     Pre-Effective Amendment No. ___

     Post-Effective Amendment No.  2
                                  ---

                                       and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

     Amendment No.  4
                   ---


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

It is proposed that this filing will become effective

      ___    immediately upon filing pursuant to paragraph (b)
          
      ___    on November 15, 1996 pursuant to paragraph (b)
          
      ___    60 days after filing pursuant to paragraph (a)(i)
          
       X     on February 1, 1998 pursuant to paragraph (a)(i)
      ---
   
      ___    75 days after filing pursuant to paragraph (a)(ii)
          
      ___    on ____________ pursuant to paragraph (a)(ii) of Rule 485

     The Registrant has filed a declaration registering an
indefinite amount of securities pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.  The Registrant
intends to file the notice required by Rule 24f-2 for its most
recent fiscal year on or about November 28, 1997.


<PAGE>

                 SCUDDER PATHWAY SERIES: CONSERVATIVE PORTFOLIO
                              CROSS-REFERENCE SHEET
                                
                           Items Required By Form N-1A
                                
 PART A

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

                 SCUDDER PATHWAY SERIES: CONSERVATIVE PORTFOLIO
                              CROSS-REFERENCE SHEET
                                
PART B
- ------
                              Caption in Statement of
Item No.  Item Caption        Additional Information
- --------  ------------        -----------------------

  10.     Cover Page          COVER PAGE
                              
  11.     Table of Contents   TABLE OF CONTENTS
                              
  12.     General             PATHWAY SERIES ORGANIZATION
          Information and
          History
                              
  13.     Investment          PATHWAY SERIES' INVESTMENT
          Objectives and       OBJECTIVES AND POLICIES
          Policies            PORTFOLIO TRANSACTIONS-Portfolio
                               Turnover
                              
  14.     Management of the   INVESTMENT ADVISER
          Fund                TRUSTEES AND OFFICERS
                              REMUNERATION
                              
  15.     Control Persons     TRUSTEES AND OFFICERS
          and Principal
          Holders of
          Securities
                              
  16.     Investment          INVESTMENT ADVISER
          Advisory and        ADDITIONAL INFORMATION-Experts and
          Other Services       Other Information
                              
  17.     Brokerage           NOT APPLICABLE
          Allocation
                              
  18.     Capital Stock and   PATHWAY SERIES ORGANIZATION
          Other Securities    DIVIDENDS AND CAPITAL GAINS
                               DISTRIBUTIONS
                              
  19.     Purchase,           PURCHASES
          Redemption and      EXCHANGES AND REDEMPTIONS
          Pricing of          FEATURES AND SERVICES OFFERED
          Securities Being     BY PATHWAY SERIES-Distribution
          Offered              Plans
                              SPECIAL PLAN ACCOUNTS
                              NET ASSET VALUE
                              
  20.     Tax Status          DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
                              TAXES
                              
  21.     Underwriters        DISTRIBUTOR
                              
  22.     Calculation of      PERFORMANCE INFORMATION
          Performance Data
                              
  23.     Financial           FINANCIAL STATEMENTS
          Statements


                             Cross Reference - Page 2
<PAGE>

                   SCUDDER PATHWAY SERIES: BALANCED PORTFOLIO
                              CROSS-REFERENCE SHEET
                                
                           Items Required By Form N-1A
                           ---------------------------     
PART A
- ------

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


                             Cross Reference - Page 3
<PAGE>

                   SCUDDER PATHWAY SERIES: BALANCED PORTFOLIO
                              CROSS-REFERENCE SHEET
                                 
PART B
- ------
                              Caption in Statement of
Item No.  Item Caption        Additional Information
- --------  ------------        -----------------------

  10.     Cover Page          COVER PAGE
                              
  11.     Table of Contents   TABLE OF CONTENTS
                              
  12.     General             PATHWAY SERIES ORGANIZATION
          Information and
          History
                              
  13.     Investment          PATHWAY SERIES' INVESTMENT
          Objectives and       OBJECTIVES AND POLICIES
          Policies            PORTFOLIO TRANSACTIONS-Portfolio
                               Turnover
                              
  14.     Management of the   INVESTMENT ADVISER
          Fund                TRUSTEES AND OFFICERS
                              REMUNERATION
                              
  15.     Control Persons     TRUSTEES AND OFFICERS
          and Principal
          Holders of
          Securities
                              
  16.     Investment          INVESTMENT ADVISER
          Advisory and        ADDITIONAL INFORMATION-Experts and
          Other Services       Other Information
                              
  17.     Brokerage           NOT APPLICABLE
          Allocation
                              
  18.     Capital Stock and   PATHWAY SERIES ORGANIZATION
          Other Securities    DIVIDENDS AND CAPITAL GAINS
                               DISTRIBUTIONS
                              
  19.     Purchase,           PURCHASES
          Redemption and      EXCHANGES AND REDEMPTIONS
          Pricing of          FEATURES AND SERVICES OFFERED
          Securities Being     BY PATHWAY SERIES-Distribution
          Offered              Plans
                              SPECIAL PLAN ACCOUNTS
                              NET ASSET VALUE
                              
  20.     Tax Status          DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
                              TAXES
                              
  21.     Underwriters        DISTRIBUTOR
                              
  22.     Calculation of      PERFORMANCE INFORMATION
          Performance Data
                              
  23.     Financial           FINANCIAL STATEMENTS
          Statements


                             Cross Reference - Page 4
<PAGE>

                    SCUDDER PATHWAY SERIES: GROWTH PORTFOLIO
                              CROSS-REFERENCE SHEET

                           Items Required By Form N-1A
                           ---------------------------     
PART A
- ------

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


                             Cross Reference - Page 5
<PAGE>
                    SCUDDER PATHWAY SERIES: GROWTH PORTFOLIO
                              CROSS-REFERENCE SHEET
                                
                                 
PART B
- ------
                              Caption in Statement of
Item No.  Item Caption        Additional Information
- --------  ------------        -----------------------

  10.     Cover Page          COVER PAGE
                              
  11.     Table of Contents   TABLE OF CONTENTS
                              
  12.     General             PATHWAY SERIES ORGANIZATION
          Information and
          History
                              
  13.     Investment          PATHWAY SERIES' INVESTMENT
          Objectives and       OBJECTIVES AND POLICIES
          Policies            PORTFOLIO TRANSACTIONS-Portfolio
                               Turnover
                              
  14.     Management of the   INVESTMENT ADVISER
          Fund                TRUSTEES AND OFFICERS
                              REMUNERATION
                              
  15.     Control Persons     TRUSTEES AND OFFICERS
          and Principal
          Holders of
          Securities
                              
  16.     Investment          INVESTMENT ADVISER
          Advisory and        ADDITIONAL INFORMATION-Experts and
          Other Services       Other Information
                              
  17.     Brokerage           NOT APPLICABLE
          Allocation
                              
  18.     Capital Stock and   PATHWAY SERIES ORGANIZATION
          Other Securities    DIVIDENDS AND CAPITAL GAINS
                               DISTRIBUTIONS
                              
  19.     Purchase,           PURCHASES
          Redemption and      EXCHANGES AND REDEMPTIONS
          Pricing of          FEATURES AND SERVICES OFFERED
          Securities Being     BY PATHWAY SERIES-Distribution
          Offered              Plans
                              SPECIAL PLAN ACCOUNTS
                              NET ASSET VALUE
                              
  20.     Tax Status          DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
                              TAXES
                              
  21.     Underwriters        DISTRIBUTOR
                              
  22.     Calculation of      PERFORMANCE INFORMATION
          Performance Data
                              
  23.     Financial           FINANCIAL STATEMENTS
          Statements


                             Cross Reference - Page 6
<PAGE>

                 SCUDDER PATHWAY SERIES: INTERNATIONAL PORTFOLIO
                              CROSS-REFERENCE SHEET
                                
                           Items Required By Form N-1A
                           ---------------------------     
PART A
- ------

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


                             Cross Reference - Page 7
<PAGE>

                 SCUDDER PATHWAY SERIES: INTERNATIONAL PORTFOLIO
                              CROSS-REFERENCE SHEET
                                
                                 
PART B
- ------
                              Caption in Statement of
Item No.  Item Caption        Additional Information
- --------  ------------        -----------------------

  10.     Cover Page          COVER PAGE
                              
  11.     Table of Contents   TABLE OF CONTENTS
                              
  12.     General             PATHWAY SERIES ORGANIZATION
          Information and
          History
                              
  13.     Investment          PATHWAY SERIES' INVESTMENT
          Objectives and       OBJECTIVES AND POLICIES
          Policies            PORTFOLIO TRANSACTIONS-Portfolio
                               Turnover
                              
  14.     Management of the   INVESTMENT ADVISER
          Fund                TRUSTEES AND OFFICERS
                              REMUNERATION
                              
  15.     Control Persons     TRUSTEES AND OFFICERS
          and Principal
          Holders of
          Securities
                              
  16.     Investment          INVESTMENT ADVISER
          Advisory and        ADDITIONAL INFORMATION-Experts and
          Other Services       Other Information
                              
  17.     Brokerage           NOT APPLICABLE
          Allocation
                              
  18.     Capital Stock and   PATHWAY SERIES ORGANIZATION
          Other Securities    DIVIDENDS AND CAPITAL GAINS
                               DISTRIBUTIONS
                              
  19.     Purchase,           PURCHASES
          Redemption and      EXCHANGES AND REDEMPTIONS
          Pricing of          FEATURES AND SERVICES OFFERED
          Securities Being     BY PATHWAY SERIES-Distribution
          Offered              Plans
                              SPECIAL PLAN ACCOUNTS
                              NET ASSET VALUE
                              
  20.     Tax Status          DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
                              TAXES
                              
  21.     Underwriters        DISTRIBUTOR
                              
  22.     Calculation of      PERFORMANCE INFORMATION
          Performance Data
                              
  23.     Financial           FINANCIAL STATEMENTS
          Statements


                             Cross Reference - Page 8
<PAGE>

This prospectus sets forth concisely the information about Scudder Pathway
Series: Conservative Portfolio, Balanced Portfolio and Growth Portfolio (each, a
"Portfolio," collectively the "Portfolios"), each a diversified open-end
management investment company, that a prospective investor should know before
investing. Scudder Pathway Series is composed of four separate Portfolios, three
of which are offered herein, with distinctly different investment objectives.
Each Portfolio 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 combined Statement of Additional
Information dated February 1, 1998, as amended from time to time, may be
obtained without charge by writing Scudder Investor Services, Inc., Two
International Place, Boston, MA 02110-4103 or calling 1-800-225-2470. The
Statement, which is incorporated by reference into this prospectus, has been
filed with the Securities and Exchange Commission and is available along with
other related materials on the Securities and Exchange Commission's Internet Web
site (http://www.sec.gov).
    

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

Contents--see page 7.

   
- ---------------------------
NOT FDIC- MAY LOSE VALUE
INSURED   NO BANK GUARANTEE
- ---------------------------
    

[LOGO] PRINTED WITH SOY INK           [RECYCLE LOGO] Printed on recycled paper


SCUDDER  [LOGO]


Scudder
Pathway Series:

Conservative
Portfolio

Balanced Portfolio

Growth Portfolio

   
Prospectus
February 1, 1998
    

Three pure no-load(TM) (no sales charges) mutual funds offering a broad range of
investment opportunities each 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 the Portfolios 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 each 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: Expenses paid by a Portfolio before it
   distributes its net investment income, expressed as a percentage of a
   Portfolio's average daily net assets for the most recent fiscal year.

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

Each Portfolio is expected to operate at a zero expense level. However, each
Portfolio's shareholders will indirectly bear that 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 each Portfolio, therefore, will
be net of that 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 a 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 each 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
- ---------------------------------------

                             [STAMP: TO BE UPDATED]

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

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

Money Market Fund
Scudder Cash Investment Trust                    0.83%
Scudder Premium Money Market Shares                  %

Bond Mutual Funds
Scudder Emerging Markets Income Fund             1.44%
Scudder Global Bond Fund+                        1.00%
Scudder GNMA Fund                                0.96%
Scudder High Yield Bond Fund+                    0.00%
Scudder Income Fund                              0.98%
Scudder International Bond Fund                  1.26%
Scudder Short Term Bond Fund                     0.80%

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

Equity Mutual Funds
Scudder Classic Growth Fund+                     1.25%
Scudder Development Fund                         1.24%
Scudder Emerging Markets Growth Fund+            2.00%
Scudder Global Discovery Fund                    1.60%
Scudder Global Fund                              1.34%
Scudder Gold Fund                                1.50%
Scudder Greater Europe Growth Fund+              1.97%
Scudder Growth and Income Fund                   0.78%
Scudder International Fund                       1.15%
Scudder International Growth and Income Fund         %
Scudder Large Company Growth Fund                1.07%
Scudder Large Company Value Fund                 0.92%
Scudder Latin America Fund                       1.96%
Scudder Micro Cap Fund+                          1.75%
Scudder Pacific Opportunities Fund               1.75%
Scudder Small Company Value Fund                 1.50%
Scudder 21st Century Growth Fund+                1.75%
Scudder Value Fund+                              1.25%
The Japan Fund                                   1.16%

Based on the foregoing, the ranges for the average weighted expense ratio borne
by the Conservative Portfolio, Balanced Portfolio and Growth Portfolio are
expected to be 0.16% to 1.72%, 0.31% to 1.83% and 0.47% to 1.94%, respectively.
Ranges are provided since the average assets of the Portfolios 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 a Portfolio. (As noted above, the Portfolios have
no redemption fees of any kind.)


             Portfolio                 1 Year              3 Years
             ---------                 ------              -------
             Conservative                $10                 $30
             Portfolio
             Balanced Portfolio           11                  34
             Growth Portfolio             12                  38

See "Portfolio organization--Special Servicing Agreement" for an explanation of
the Special Servicing Agreement. This example assumes that each 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
   Greater Europe Growth Fund: 1.50%, 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>

   
- ---------------------------------------
Financial Highlights
Pathway Conservative Portfolio
- ---------------------------------------

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

If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Portfolio's Annual Report dated September 30, 1997 and may be
obtained without charge by writing or calling Scudder Investor Services, Inc.

                                                               For the Period
                                                              November 15, 1996
                                                                (commencement
                                                               of operations)
                                                              to September 30,
                                                                    1997
- --------------------------------------------------------------------------------
Net asset value, beginning of period .......................       $12.00
                                                              ----------------
Income from investment operations:
Net investment income ......................................          .39
Net realized and unrealized gain on investment
  transactions .............................................         1.36
                                                              ----------------
Total from investment operations ...........................         1.75
                                                              ----------------
Less distributions:
From net investment income .................................         (.33)
From net realized gain on investments ......................         (.15)
                                                              ----------------
Total distributions ........................................         (.48)
                                                              ----------------
                                                              ----------------
Net asset value, end of period .............................       $13.27
- --------------------------------------------------------------------------------
Total Return (%) ...........................................        14.99**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .....................           17
Ratio of operating expenses to average daily net
  assets (%) (a) ...........................................           --
Ratio of net investment income to average daily net
  assets (%) ...............................................         3.67*
Portfolio turnover rate (%) ................................         42.0*

(a) This Portfolio invests in other Scudder Funds, and although the Portfolio
   did not incur any direct expenses for the period, the Portfolio did bear its
   share of the operating, administrative and advisory expenses of the
   Underlying Scudder Funds.
*  Annualized
** Not annualized

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


- --
4
<PAGE>

   
- ---------------------------------------
Financial Highlights
Pathway Balanced Portfolio
- ---------------------------------------

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

If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Portfolio's Annual Report dated September 30, 1997 and may be
obtained without charge by writing or calling Scudder Investor Services, Inc.

                                                             For the Period
                                                            November 15, 1996
                                                              (commencement
                                                            of operations) to
                                                              September 30,
                                                                  1997
- --------------------------------------------------------------------------------
Net asset value, beginning of period ..................         $12.00
                                                            -----------------
Income from investment operations:
Net investment income .................................            .37
Net realized and unrealized gain on investment
  transactions ........................................           1.59
                                                            -----------------
Total from investment operations ......................           1.96
                                                            -----------------
Less distributions:
From net investment income ............................           (.33)
From net realized gain on investments .................           (.07)
                                                            -----------------
Total distributions ...................................           (.40)
                                                            -----------------
                                                            -----------------
Net asset value, end of period ........................         $13.56
- --------------------------------------------------------------------------------
Total Return (%) ......................................          16.67**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................            192
Ratio of operating expenses to average daily net
  assets (%) (a) ......................................             --
Ratio of net investment income to average daily net
  assets (%) ..........................................           2.96*
Portfolio turnover rate (%) ...........................           24.3*

(a) This Portfolio invests in other Scudder Funds, and although the Portfolio
   did not incur any direct expenses for the period, the Portfolio did bear its
   share of the operating, administrative and advisory expenses of the
   Underlying Scudder Funds.

*  Annualized

** Not annualized

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


                                                                              --
                                                                               5
<PAGE>

   
- ---------------------------------------
Financial Highlights
Pathway Growth Portfolio
- ---------------------------------------

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

If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Portfolio's Annual Report dated September 30, 1997 and may be
obtained without charge by writing or calling Scudder Investor Services, Inc.

                                                            For the Period
                                                           November 15, 1996
                                                             (commencement
                                                           of operations) to
                                                             September 30,
                                                                 1997
- --------------------------------------------------------------------------------
Net asset value, beginning of period ...................        $12.00
                                                           -----------------
Income from investment operations:
Net investment income ..................................           .29
Net realized and unrealized gain on investment
  transactions .........................................          2.15
                                                           -----------------
Total from investment operations .......................          2.44
                                                           -----------------
Less distributions:
From net investment income .............................          (.16)
From net realized gain on investments ..................          (.13)
                                                           -----------------
Total distributions ....................................          (.29)
                                                           -----------------
                                                           -----------------
Net asset value, end of period .........................        $14.15
- --------------------------------------------------------------------------------
Total Return (%) .......................................         20.79**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................            50
Ratio of operating expenses to average daily net
  assets (%) (a) .......................................            --
Ratio of net investment income to average daily net
  assets (%) ...........................................          2.09*
Portfolio turnover rate (%) ............................          15.1*

(a) This Portfolio invests in other Scudder Funds, and although the Portfolio
   did not incur any direct expenses for the period, the Portfolio did bear its
   share of the operating, administrative and advisory expenses of the
   Underlying Scudder Funds.

* Annualized

** Not annualized

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


- --
6
<PAGE>

   
- ---------------------------------------
A message from Scudder's
chairman
- ---------------------------------------

[PHOTO]

Daniel Pierce, Chairman
Scudder Kemper Investments, Inc.

Scudder Kemper Investments Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. During the past year, Scudder entered into an alliance with Zurich
Insurance Company in which Zurich has acquired a majority interest in Scudder
and combined Scudder with Zurich Kemper Investments, Inc. Scudder's name has
been changed to Scudder Kemper Investments, Inc. Today, the combined forces of
Scudder Kemper manage in excess of $___ billion for many private accounts and
over ___ mutual fund portfolios. We continue to 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 as well as 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 Investor Centers. The funds of the Scudder Family
of 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
- ---------------------------------------

Investment Objective for Conservative Portfolio

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

Investment Objective for Balanced Portfolio

o  a balance of growth and income

Investment Objective for Growth Portfolio

o  long-term growth of capital

Investment Characteristics of Scudder Pathway Series

o  professionally managed portfolios which allocate their 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

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

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

Investment objectives and policies .................   8
Why invest in the Portfolios? ......................   9
Description of the Underlying Scudder Funds ........  10
Information about policies, investments and risks ..  22
Investment restrictions of the Portfolios ..........  25
Risks of investing in the Portfolios ...............  25
Distribution and performance information ...........  25
Portfolio organization .............................  27
Transaction information ............................  28
Shareholder benefits ...............................  32
Trustees and Officers ..............................  36
Investment products and services ...................  37
How to contact Scudder .............................  38
Purchases ..........................................  39
Exchanges and redemptions ..........................  40
Appendix


                                                                              --
                                                                               7
<PAGE>

- ---------------------------------------
Investment objectives and policies
- ---------------------------------------

Scudder Pathway Series ("the Trust") (also known as "the Series") consists of
four professionally managed, diversified portfolios, three of which are
described in this prospectus. The Portfolios invest primarily in a select mix of
Scudder Funds. The Portfolios' investment objectives are as follows:

o  Pathway Conservative Portfolio seeks to provide 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.

o  Pathway Balanced Portfolio seeks 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.

o  Pathway Growth Portfolio seeks to provide investors with long-term growth of
   capital. In pursuing this objective, the Portfolio will, under normal market
   conditions, invest predominantly in 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 Portfolios may invest are referred to as the
"Underlying Scudder Funds," (see table). 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 invest for income
and, in some cases, appreciation as well. The portfolio management team for each
Portfolio allocates investments based on the outlook of the Portfolios'
investment adviser, Scudder Kemper Investments, Inc. ("the Adviser"), for the
financial markets, world economies and the relative performance potential of the
Underlying Scudder Funds.

Under normal market conditions, the Portfolios will invest according to the
following guidelines:

o  Pathway 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.

o  Pathway 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.

o  Pathway 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.

   
- --------------------------------------
Underlying Scudder Funds in which
the Portfolios may invest
- --------------------------------------
Equity Mutual Funds
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Fund
Scudder Global Discovery Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder Growth and Income Fund
Scudder International Fund
Scudder International Growth and Income Fund
Scudder Large Company Growth Fund
Scudder Large Company Value Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund
The Japan 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
- --------------------------------------
    


- --
8
<PAGE>

   
- --------------------------------------
Money Market Funds
Scudder Cash Investment Trust
Scudder Premium Money Market Shares
- --------------------------------------
    

The Portfolios will purchase or sell shares of Underlying Scudder Funds to: (a)
accommodate purchases and sales of a Portfolio's shares, (b) change the
percentages of a 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 a Portfolio's assets in accordance with the investment mix
described above. If, as a result of appreciation or depreciation, the percentage
of a 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.
Further, to provide for redemptions or for temporary defensive purposes, the
Portfolios 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 Portfolios' investment objectives 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 a particular Portfolio remains an appropriate investment in light of
their then current financial position and needs. There can be no assurance that
a 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 Scudder Funds."
For information about purchasing, exchanging or redeeming shares, refer to
"Transaction information," "Purchases" and "Exchanges and redemptions."

- ---------------------------------------
Why invest in the Portfolios?
- ---------------------------------------

The Portfolios of Scudder Pathway Series are designed for individuals and
institutions who prefer to have their asset allocation decisions made by
professional money managers, appreciate the advantages of broad diversification,
and are looking for a core investment for their retirement portfolio.

The primary advantages of Scudder Pathway Series for investors are convenience
and economy. Pathway provides an investor access to many Scudder Funds without
the required minimum investment for each. Through a single pure no-load(TM)
investment, they will be able to achieve broad diversification in pursuit of one
of three distinct objectives.

o  Pathway Conservative Portfolio is comprised mainly of investments in Scudder
   domestic and global bond funds, and, to a lesser extent, equity funds. This
   combination of investments can provide income and modest growth potential for
   Pathway investors. The Conservative Portfolio is designed to meet the needs
   of investors with a time horizon of 3-5 years or more.

o  Pathway Balanced Portfolio allocates assets among Scudder domestic and global
   equity and bond funds, seeking a blend of current income and capital
   appreciation. The Balanced Portfolio is designed to meet the needs of
   investors with a time horizon of at least 5-10 years.

o  Pathway Growth Portfolio pursues long-term growth by allocating assets
   primarily among Scudder's growth-oriented equity funds, and, to a lesser
   extent, bond funds. The Growth Portfolio is designed to meet the needs of
   investors with a time horizon of 10 years or more.


                                                                              --
                                                                               9
<PAGE>

These three Pathway Portfolios are managed so that each can serve as a complete
investment program or as a core part of a larger portfolio, and 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 proliferation of mutual funds over the last several years and the increased
responsibilities shouldered by employees for managing their retirement and other
long-term assets have left many investors in search of a simple means to manage
their 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 or personal resources. The Portfolios offer broad
diversification and ongoing professional asset allocation.

Each of the Pathway Portfolios invests in a select group of pure no-load(TM)
Scudder Funds suited to the Portfolio's particular investment objective. The
allocation of assets within each Portfolio is determined by the Adviser
according to fundamental and quantitative investment 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 assets will be adjusted only periodically and only within
pre-determined ranges designed to ensure broad diversification, there should not
be any sudden large-scale changes in asset allocation. The Series is not
designed as a market timing vehicle, but rather as a cost-effective and simple
approach to helping investors meet retirement and other long-term goals.

The Portfolios can invest in a variety of existing international and global
Underlying Scudder Funds and expect to invest some portion of assets in foreign
markets at all times. The Adviser believes this ongoing commitment to global
investment management differentiates the Series from other funds of funds and
asset allocation products. Adding an international component to a long-term
portfolio can increase diversification and lower volatility, while enhancing and
providing the most consistent returns over time.

   
In addition, the Portfolios offer all the benefits of the Scudder Family of
Funds. Scudder Kemper Investments, 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 are the money market funds in which a
Portfolio may invest and will likely serve as the primary cash reserve portion
of each Portfolio.
    

Scudder Cash Investment Trust is a diversified investment company which seeks to
maintain stability of capital and, consistent therewith, to


- --
10
<PAGE>

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.

   
Scudder Premium Money Market Shares is a class of Scudder Money Market Series, a
diversified series of Scudder Fund, Inc. The Fund seeks to provide investors
with as high a level of current income as is consistent with its investment
policies and with preservation of capital and liquidity.

The bank obligations in which the Fund may invest include negotiable
certificates of deposit, bankers' acceptances, fixed time deposits or other
short-term bank obligations. Generally, the Fund may not invest less than 25% of
the current value of its total assets in bank obligations (including bank
obligations subject to repurchase agreements). The Fund limits its investments
in U.S. bank obligations to banks (including foreign branches, the obligations
of which are guaranteed by the U.S. parent) that have at least $1 billion in
total assets at the time of investment. "U.S. banks" include commercial banks
that are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the Federal Deposit
Insurance Corporation.

The Fund will maintain a dollar-weighted average maturity of 90 days or less in
an effort to maintain a constant net asset value of $1.00 per share, but there
is no assurance that it will be able to do so. Amendments have been proposed to
the federal rules regulating quality, maturity and diversification requirements
of money market funds. If the amendments are adopted, the Fund intends to comply
with such new requirements.
    

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

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


                                                                              --
                                                                              11
<PAGE>

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.

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 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
supported by the full faith and credit of the U.S. Government. These guarantees
apply only to the timely payment of both


- --
12
<PAGE>

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. Under normal
market conditions, the Fund will invest at least 65% of its assets in securities
rated within the three highest quality rating categories of Moody's Investors
Service, Inc. ("Moody's") (Aaa, Aa and A) or Standard & Poor's ("S&P") (AAA, AA
and A), or if unrated, in bonds judged by the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser"), to be of comparable quality at
the time of purchase. The Fund may invest up to 20% of its assets in debt
securities rated lower than Baa or BBB or, if unrated, of equivalent quality as
determined by the Adviser, but will not purchase bonds rated below B by Moody's
or S&P or their equivalent. During the fiscal year ended December 31, 1996, the
average monthly dollar-weighted market value of the bonds in the Fund's
portfolio was rated as follows: 56% AAA, 4% AA, 20% A and 20% BBB.

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
high-grade debt securities denominated in foreign currencies, including bonds
denominated in the European Currency Unit (ECU). Portfolio investments will


                                                                              --
                                                                              13
<PAGE>

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.

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 are equity mutual funds which seek 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.

   
Scudder International Growth and Income Fund is a diversified investment company
which seeks long-term growth of capital and current income primarily from
foreign equity securities. The Fund invests generally in common stocks of
established companies listed on foreign exchanges, which offer prospects for
growth of earnings while paying relatively high current dividends. The Fund can
also invest in other types of equity securities, including preferred stocks and
securities convertible into common stock. The Fund can invest throughout the
world, but will emphasize investments in developed economies other than the U.S.
In pursuing its dual objective, at least 80% of the Fund's net assets will be
invested in the equity securities of established non-U.S. companies. The Fund
generally invests in equity securities of established companies listed on
foreign securities exchanges, but also may invest in securities
    


- --
14
<PAGE>

   
traded over-the-counter. The Fund's equity investments include common stock,
convertible and non-convertible preferred stock, sponsored and unsponsored
depository receipts, and warrants.

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.

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


                                                                              --
                                                                              15
<PAGE>

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:

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.

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.

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


- --
16
<PAGE>

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,
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 Greater Europe Growth Fund is a non-diversified investment company which
seeks long-term growth of capital through investments primarily in the equity
securities of European companies. Although its focus is on long-term growth, the
Fund may provide current income


                                                                              --
                                                                              17
<PAGE>

principally through holdings in dividend-paying securities.

The Fund will invest, under normal market conditions, at least 80% of its total
assets in the equity securities of European companies. The Fund defines a
European company as follows:

o  A company organized under the laws of a European country or for which the
   principal securities trading market is in Europe; or

o  A company, wherever organized, where at least 50% of the company's
   non-current assets, capitalization, gross revenue or profit in its most
   recent fiscal year represents (directly or indirectly through subsidiaries)
   assets or activities located in Europe.

The Fund may invest, under normal market conditions, up to 20% of its total
assets in European debt securities. Within this 20% limit, the Fund may invest
in debt securities which are unrated, rated, or the equivalent of those rated
below investment-grade.

When, in the opinion of the Adviser, market conditions warrant, the Fund may
hold foreign or U.S. debt instruments as well as cash or cash equivalents,
including foreign and domestic money market instruments, short-term government
and corporate obligations, and repurchase agreements without limit for temporary
defensive purposes and up to 20% to maintain liquidity.

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.

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 Large Company 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.

The Fund allocates its investments among different industries and companies, and
adjusts


- --
18
<PAGE>

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 Large Company Value Fund is a diversified investment company which seeks
to maximize long-term capital appreciation through a value-driven investment
program. The Fund invests in marketable securities, principally common stocks
and, consistent with its objective of long-term capital appreciation, 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
appreciation. The Fund will normally invest at least 65% of its assets in the
equity securities of large U.S. companies, i.e. those with $1 billion or more in
total market capitalization. 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 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


                                                                              --
                                                                              19
<PAGE>

   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.

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.

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:

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 Small Company Value Fund is a diversified investment company which
invests


- --
20
<PAGE>

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.

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


                                                                              --
                                                                              21
<PAGE>

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.

The Japan Fund is a diversified mutual fund which seeks to achieve long-term
capital appreciation by investing primarily in equity securities (including
American Depositary Receipts) of Japanese companies. Equity securities are
defined as common and preferred stock, debt securities convertible into common
stock (sometimes referred to as "convertible debentures") and common stock
purchase warrants.

Under normal conditions, the Fund will invest at least 80% of its assets in
Japanese securities, that is, securities issued by entities that are organized
under the laws of Japan ("Japanese companies"), securities of affiliates of
Japanese companies, wherever organized or traded, and securities of issuers not
organized under the laws of Japan but deriving 50% or more of their revenues
from Japan. These securities may include debt securities (Japanese government
debt securities and debt securities of Japanese companies) when the Adviser
believes that the potential for capital appreciation from investment in debt
securities equals or exceeds that available from investment in equity
securities.

The Fund may also invest up to 30% of its net assets in equity securities of
Japanese companies which are traded in an over-the-counter market. These are
generally securities of relatively small or little-known companies that the
Adviser believes have above-average earnings growth potential. The Fund may
invest up to 20% of its assets in cash or short-term government or other
short-term prime obligations in order to have funds readily available for
general corporate purposes, including the payment of operating expenses,
dividends and redemptions, or the investment in securities through exercise of
rights or otherwise, or in repurchase agreements. Where the Adviser determines
that market or economic conditions so warrant, the Fund may, for temporary
defensive purposes, invest more than 20% of its assets in cash or such
securities.

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


- --
22
<PAGE>

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 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


                                                                              --
                                                                              23
<PAGE>

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 and Scudder Premium Money Market Shares) 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.

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.

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.


- --
24
<PAGE>

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
Portfolios
- ---------------------------------------

   
The Portfolios have adopted certain fundamental policies which may not be
changed without a vote of shareholders and which are designed to reduce the
Portfolios' investment risk. As a matter of fundamental policy, each Portfolio
may not borrow money, except as permitted under the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having jurisdiction, from time
to time; however, each Portfolio, as a matter of non-fundamental policy, does
not currently intend to borrow money except for temporary 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 Portfolios' Statement of Additional
Information.
    

- ---------------------------------------
Risks of investing in the
Portfolios
- ---------------------------------------

The Portfolios' 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 Portfolios.

o  As the investments in each Portfolio are concentrated within a group of
   Underlying Scudder Funds, the performance of that Portfolio is directly
   related to the investment performance of those Underlying Scudder Funds. The
   ability of a 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
   Portfolios' portfolio management team.

o  Each 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, each 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 Conservative Portfolio and Balanced Portfolio each intend to distribute
dividends from net investment income quarterly in April, July, October and
December. The Growth Portfolio intends to distribute net investment income in
November or December. Each 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 a
Portfolio's fiscal year end, if necessary. Any dividends or capital gains
distributions declared


                                                                              --
                                                                              25
<PAGE>

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 a Portfolio. If an investment in a
Portfolio is in the form of a retirement plan, then all distributions will
automatically be reinvested in additional shares of that 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 a Portfolio from an Underlying
Scudder Fund generally will be ordinary income dividends, includible in that
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 a Portfolio as long-term capital gains for
federal income tax purposes, regardless of how long that Portfolio held the
Underlying Scudder Fund's shares.

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

Performance information

From time to time, quotations of a 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.

   
For the Conservative Portfolio and Balanced Portfolio, the "SEC yield" is an
annualized expression of the net income generated by a Portfolio over a
specified 30-day (one month) period, as a percentage of a 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. For all Portfolios, "total return" is the
change in value of an investment in a Portfolio for a specified period. The
"average annual total return" of a Portfolio is the average annual compound rate
of return of an investment in a Portfolio assuming the investment has been held
for one year, and the life of a Portfolio as of a stated ending date.
"Cumulative total return" represents the cumulative change in value of an
investment in a Portfolio for various periods. Total return calculations assume
that all dividends and capital gains distributions during the period were
reinvested in shares of a Portfolio.
    

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"), the Scudder Managed Retirement Trust-Balanced,
(the "MRT/Balanced") and the Scudder Managed Retirement Trust-Growth (the
"MRT/Growth") (collectively, the "MRTs"), each a collective investment trust for
defined contribution plans offered by the Adviser. The MRTs invest their assets
within the Scudder Family of Funds and have the same investment adviser and same
lead portfolio manager as the Portfolios. MRT/Income, MRT/Balanced and
MRT/Growth


- --
26
<PAGE>

have substantially similar investment objectives, policies and strategies as
Conservative Portfolio, Balanced Portfolio and Growth Portfolio, respectively.

Unlike the Portfolios, however, the MRTs impose a trustee fee and an audit fee
at the trust level. Of course, the following performance figures are not
necessarily indicative of the future performance of a Portfolio.

   
                    Average Annual Total Returns for periods
                             ended October 31, 1997

                       1 Year   3 Years   Life of Fund
MRT/Income
MRT/Balanced
MRT/Growth

*For the period beginning August 23, 1993.
@ For the period beginning August 31, 1991.
    

- ---------------------------------------
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 Portfolios' 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 Portfolios are not required to hold, and have 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 Portfolios 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
Portfolios. Under the Agreement, the Adviser will arrange for all services
pertaining to the operation of the Portfolios including the services of Scudder
Service Corporation and Scudder Fund Accounting Corporation as the Shareholder
Servicing Agent and the Accounting Agent, respectively, for the Portfolios. If
the officers of an Underlying Scudder Fund 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
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 a Portfolio will most likely
suffice to offset most, if not all, the expenses incurred by that Portfolio.

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 determined to be greater than the
benefits.


                                                                              --
                                                                              27
<PAGE>

All expenses of the Portfolios, 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 Portfolios' 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 Portfolios 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 Portfolios will be subject to
such fees. Under normal market conditions, each 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 a 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 Portfolios retain the investment management firm of Scudder Kemper
Investments, Inc., a Delaware corporation, to manage the Portfolios' 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 Kemper Investments, 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 Portfolios.

Underwriter

Scudder Investor Services, Inc., a subsidiary of the Adviser, is the
Portfolios' principal underwriter. Scudder Investor Services, Inc. confirms, as
agent, all purchases of shares of the Portfolios. 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 Portfolios.

Custodian

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

- ---------------------------------------
Transaction information
- ---------------------------------------

For concise instruction on how to purchase, exchange or redeem shares, refer to
pages 39 and 40.

Purchasing shares

Purchases are executed at the next calculated net asset value per share after
the Portfolios' 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


- --
28
<PAGE>

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

To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.

If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, a 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. "QuickBuy" transactions are not
available for Scudder IRA accounts and most other retirement plan accounts.
    

By exchange. The Portfolios may be exchanged for shares of other funds in the
Scudder Family of


                                                                              --
                                                                              29
<PAGE>

Funds unless otherwise determined by the Board of Trustees. Your new account
will have the same registration and address as your existing account.

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

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

Redeeming shares

The Portfolios allow you to redeem shares (i.e., sell them back to a Portfolio)
without redemption fees.

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

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

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

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

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

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

To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.

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

Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Portfolios reserve 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


- --
30
<PAGE>

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

Share price

Purchases and redemptions, including exchanges, are made at each 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 a Portfolio, less
its liabilities, by the total number of shares of that Portfolio outstanding.

Processing time

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

Each 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).

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 a 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 Portfolios'
application when you open an account. Federal tax law requires each 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 correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. Each Portfolio reserves the right to reject
new account applications without a correct certified Social Security or tax
identification number. Each Portfolio also reserves the right, following 30
days' notice, to redeem all shares in accounts without a correct certified
Social Security or tax identification number. A shareholder may avoid
involuntary redemption by providing a Portfolio
    


                                                                              --
                                                                              31
<PAGE>

   
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 is
$1,000 per fund account, and the subsequent minimum investment is $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 a Portfolio without establishing a regular investment program may
be assessed an annual $10.00 per fund charge with the fee to be paid to that
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. Each 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. Each 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.

- ---------------------------------------
Shareholder benefits
- ---------------------------------------

   
Experienced professional management

Scudder Kemper Investments, 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

The Portfolios are managed by a team of Scudder investment professionals who
each play an important role in the Portfolios' management process. Team members
work together to develop investment strategies and select Underlying Funds for
each 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 Portfolios'
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 a Portfolio
invests.

Lead Portfolio Manager Benjamin W. Thorndike, who has 18 years of investment
experience,


- --
32
<PAGE>

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

Investment flexibility

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

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

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

Dividend reinvestment plan

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

Shareholder statements

You 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.


                                                                              --
                                                                              33
<PAGE>

Shareholder reports

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

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

Newsletters

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

   
Scudder Investor Centers

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

T.D.D. service for the hearing impaired

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


- --
34
<PAGE>

- ---------------------------------------
Scudder tax-advantaged
retirement plans
- ---------------------------------------

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

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

o     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. The
      Scudder Keogh charges you no annual custodial fee.

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

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

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

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

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

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


                                                                              --
                                                                              35
<PAGE>

- --------------------------------------------------------------------------------
Trustees and Officers
- --------------------------------------------------------------------------------
       

   
Daniel Pierce*
   President

Dr. Rosita P. Chang
   Trustee; Professor of Finance, University of Rhode Island
    

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

   
Peter B. Freeman
   Trustee; Corporate Director and Trustee
    

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

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

   
Caroline Pearson*
   Assistant Secretary
    

*Scudder Kemper Investments, Inc.


- --
36
<PAGE>

   
- --------------------------------------------------------------------------------
Investment products and services
- --------------------------------------------------------------------------------

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

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

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

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

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

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

U.S. Growth and Income
  Scudder Balanced Fund
  Scudder Growth and Income Fund
  Scudder S&P 500 Index Fund

U.S. Growth

  Value
   Scudder Large Company Value  Fund
   Scudder Value Fund
   Scudder Small Company Value Fund
   Scudder Micro Cap Fund

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

Global Growth

  Worldwide
   Scudder Global Fund
   Scudder International Growth and Income Fund
   Scudder International Fund
   Scudder Global Discovery Fund
   Scudder Emerging Markets Growth Fund
   Scudder Gold Fund

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

Retirement Programs
  IRA
  SEP IRA
  Keogh Plan
  401(k), 403(b) Plans
  Scudder Horizon Plan **+++ +++
   (a variable annuity)

Closed-End Funds#
- --------------------------------------------------------------------------------
  The Argentina Fund, Inc.
  The Brazil 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 Spain and Portugal Fund, Inc.
  Scudder World  Income  Opportunities
   Fund, Inc.

For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on various stock exchanges.
    


                                                                              --
                                                                              37
<PAGE>

   
- --------------------------------------------------------------------------------
How to contact Scudder
- --------------------------------------------------------------------------------

Account Service and Information:

      For existing account service and transactions
            Scudder Investor Relations -- 1-800-225-5163

      For 24 hour account information, fund information, exchanges, and an
      overview of all the services available to you
            Scudder Electronic Account Services -- http://funds.scudder.com

      For personalized information about your Scudder accounts, exchanges and
      redemptions
            Scudder Automated Information Line (SAIL) -- 1-800-343-2890

Investment Information:

      For information about the Scudder funds, including additional applications
      and prospectuses, or for answers to investment questions
            Scudder Investor Relations -- 1-800-225-2470
                                          [email protected]
            Scudder's World Wide Web Site -- http://funds.scudder.com

      For establishing 401(k) and 403(b) plans
            Scudder Defined Contribution Services -- 1-800-323-6105

Scudder Brokerage Services:

      To receive information about this discount brokerage service and to
      obtain an application
            Scudder Brokerage Services* -- 1-800-700-0820

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

      To receive information about this mutual fund portfolio guidance and
      management program
            Personal Counsel from Scudder -- 1-800-700-0183

Please address all correspondence to:

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

Or Stop by a Scudder Investor Center:

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

             Boca Raton  Chicago     San Francisco
             Boston      New York

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

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


- --
38
<PAGE>

- --------------------------------------------------------------------------------
Purchases
- --------------------------------------------------------------------------------

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


Make checks    o By Mail   Send your completed and signed application and
payable to                 check
"The Scudder
Funds."
                             by regular            or    by express,
                             mail to:                    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. Investor Center locations are listed
                            under Shareholder benefits.

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

Make checks    o By Mail     Send a check with a Scudder investment slip, or 
payable to                   with a letter of instruction including your account
"The Scudder                 number and the complete Portfolio name, to the 
Funds."                      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.
                             Investor Center locations are listed under
                             Shareholder benefits.
                            
                            
               o By          Please see Transaction information--Purchasing 
                 Telephone   shares--By QuickBuy or By telephone order for more
                             details.
                           

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

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


                                                                              --
                                                                              39
<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:
 
                                  The Scudder Funds
                                  P.O. Box 2291
                                  Boston, MA 02107-2291
 
                                  or   by express, registered,
                                       or certified mail to:

                                       Scudder Shareholder
                                       Service Center
                                       42 Longwater Drive
                                       Norwell, MA
                                       02061-1612

                                  or   by fax to:

                                       1-800-821-6234
- --------------------------------------------------------------------------------
Redeeming         o By Telephone  To speak with a service representative, call
shares                            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). You may have
                                  redemption proceeds sent to your
                                  predesignated bank account, or redemption
                                  proceeds of up to $50,000 sent to your
                                  address of record.

                  o By Mail       Send your instructions for redemption to the
                    or Fax        appropriate address 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 $100,000. See Transaction
                                  information--Redeeming shares.

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


- --
40
<PAGE>

                                    Appendix

    Descriptions Of Certain Risks Related To Various Securities Invested In,
       And Investment Techniques Employed By, The Underlying Scudder Funds
                       In Which The Portfolios 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.

Mortgage and other asset-backed securities. Unscheduled or early payments on the


                                      A-1
<PAGE>

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
issuers of debt obligations generally. Individual foreign economies may differ
favorably


                                      A-2
<PAGE>

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.

Investing in emerging growth companies. The investment risk associated with
emerging growth


                                      A-3
<PAGE>

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.

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,


                                      A-4
<PAGE>

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


                                      A-5
<PAGE>

likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighted by large uncertainties or major exposures to adverse conditions.

Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.

Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating. The rating CC typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Moody's:

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

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


                                      A-6
<PAGE>

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: 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.

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

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

Contents-see page 5.

- ---------------------------------------
NOT FDIC-      MAY LOSE VALUE                              
INSURED        NO BANK GUARANTEE                           
- ---------------------------------------

[LOGO] PRINTED WITH SOYINK          [LOGO] Printed on recycled paper

code
goes
here

SCUDDER

[Scudder LOGO]

Scudder
Pathway Series:  
International
Portfolio

   
Prospectus
February 1, 1998
    

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

2)    Annual Portfolio operating expenses: 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 most recent fiscal year.

      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
<PAGE>

- ---------------------------------------
Expense Ratios of the
Underlying Scudder Funds
- ---------------------------------------
- --------------------------------------------------------------------------------
                                 TO BE UPDATED

Underlying Scudder Funds                              Expense Ratio
- ------------------------                              -------------
Money Market Fund

Scudder Cash Investment Trust                               0.83%
Scudder Premium Money Market Shares                             %

Bond Mutual Funds

Scudder Emerging Markets Income Fund                        1.44%
Scudder Global Bond Fund+                                   1.00%
Scudder International Bond Fund                             1.26%
Scudder Short Term Bond Fund                                0.80%

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

Equity Mutual Funds

Scudder Emerging Markets Growth Fund+                       2.00%
Scudder Global Discovery Fund                               1.60%
Scudder Global Fund                                         1.34%
Scudder Gold Fund                                           1.50%
Scudder Greater Europe Growth Fund+                         1.97%
Scudder International Fund                                  1.15%
Scudder International Growth and Income Fund                    %
Scudder Latin America Fund                                  1.96%
Scudder Pacific Opportunities Fund                          1.75%
The Japan Fund                                              1.16%

Based on the foregoing, the range for the average weighted expense ratio borne
by the Portfolio is expected to be 1.01% to 2.00%. 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
                  ------                  -------
                   $15                      $48

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 Emerging Markets Growth Fund: 2.00%, Scudder
Global Bond Fund: 1.00% and Scudder Greater Europe Growth Fund: 1.50%. 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>

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

If you would like more detailed information concerning the Portfolio's
performance, a complete portfolio listing and audited financial statements are
available in the Portfolio's Annual Report dated September 30, 1997 and may be
obtained without charge by writing or calling Scudder Investor Services, Inc.

                                                          For the Period   
                                                        November 15, 1996  
                                                         (commencement of    
                                                          operations) to    
                                                        September 30, 1997 
- ---------------------------------------------------------------------------
                                                      ---------------------
Net asset value, beginning of period                          $12.00
                                                      ---------------------

Income from investment operations:
Net investment income                                            .31

Net realized and unrealized gain on investment transactions     1.63(a)

                                                      ---------------------
Total from investment operations                                1.94
                                                      ---------------------

Less distributions:

From net investment income                                      (.25)

From net realized gain on investments                           (.10)

                                                      ---------------------
Total distributions                                             (.35)
                                                      ---------------------

                                                      ---------------------
Net asset value, end of period                                $13.59
                                                      ---------------------
- ---------------------------------------------------------------------------
Total Return (%)                                               16.58**

Ratios and Supplemental Data
Net assets, end of period ($ millions)                            12

Ratio of operating expenses to average daily net assets (%)(b)     -

Ratio of net investment income to average daily net assets (%)  1.23*

Portfolio turnover rate (%)                                     35.1*

(a)   The amount shown for a share outstanding throughout the period does not
      accord with the change in the aggregate gains and losses in the portfolio
      securities during the period because of the timing of sales and
      repurchases of Portfolio shares in relation to fluctuating market values
      during the period.

(b)   This Portfolio invests in other Scudder Funds, and although the Portfolio
      did not incur any direct expenses for the period, the Portfolio did bear
      its share of the operating, administrative and advisory expenses of the
      Underlying Scudder Funds.

*     Annualized

**    Not annualized

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


- --
4
<PAGE>

- ---------------------------------------
A message from Scudder's chairman
- ---------------------------------------

   
[GRAPHIC OMITTED] 
Daniel Pierce, Chairman,
Scudder Kemper
Investments, Inc.

Scudder Kemper Investments Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. During the past year, Scudder entered into an alliance with Zurich
Insurance Company in which Zurich has acquired a majority interest in Scudder
and combined Scudder with Zurich Kemper Investments, Inc. Scudder's name has
been changed to Scudder Kemper Investments, Inc. Today, the combined forces of
Scudder Kemper manage in excess of $___ billion for many private accounts and
over ___ mutual fund portfolios. We continue to 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 as well as 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 Investor Centers. The funds of the Scudder Family
of 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:
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 ......................    9
Why invest in the Portfolio? ...........................   10
Description of the Underlying
Scudder Funds ..........................................   11
Information about policies,
investments and risks ..................................   19
Investment restrictions of the Portfolio ...............   21
Risks of investing in the Portfolio ....................   21
Distribution and performance information ...............   22
Portfolio organization .................................   23
Transaction information
Shareholder benefits ...................................   29
Trustees and Officers
Investment products and services
How to contact Scudder
Purchases ..............................................   54
Exchanges and redemptions ..............................   56
Appendix


                                                                              --
                                                                               5
<PAGE>

- ---------------------------------------
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 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 focus
on primarily seeking total return. Moreover, the Underlying Scudder Funds
represent both multiple and single regions of the world as well as established
versus emerging markets and economies.

   
The portfolio management team for the Portfolio allocates investments based on
the outlook of the Fund's investment adviser, Scudder Kemper Investments, 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.

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

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

   
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder International Growth and Income Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
The Japan Fund
    

Bond Mutual Funds

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

Money Market Funds

   
Scudder Cash Investment Trust
Scudder Premium Money Market Shares
- --------------------------------------------------------------------------------
    


- --
6
<PAGE>

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.

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 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 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 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 Kemper Investments, Inc. manages a diverse family of pure
no-load(TM) funds and provides a wide range of 
    


                                                                              --
                                                                               7
<PAGE>

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 Funds are the money market funds 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.

   
Scudder Premium Money Market Shares is a class of Scudder Money Market Series, a
diversified series of Scudder Fund, Inc. The Fund seeks to provide investors
with as high a level of current income as is consistent with its investment
policies and with preservation of capital and liquidity.

The bank obligations in which the Fund may invest include negotiable
certificates of deposit, bankers' acceptances, fixed time deposits or other
short-term bank obligations. Generally, the Fund may not invest less than 25% of
the current value of its total assets in bank obligations (including bank
obligations subject to repurchase agreements). The Fund limits its investments
in U.S. bank obligations to banks (including foreign branches, the obligations
of which are guaranteed by the U.S. parent) that have at least $1 billion in
total assets at the time of investment. "U.S. 
    


- --
8

<PAGE>

   
banks" include commercial banks that are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits are insured
by the Federal Deposit Insurance Corporation.

The Fund will maintain a dollar-weighted average maturity of 90 days or less in
an effort to maintain a constant net asset value of $1.00 per share, but there
is no assurance that it will be able to do so. Amendments have been proposed to
the federal rules regulating quality, maturity and diversification requirements
of money market funds. If the amendments are adopted, the Fund intends to comply
with such new requirements.

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

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 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.

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 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 


                                                                              --
                                                                               9
<PAGE>

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 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
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.

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 Funds are equity mutual funds which seek
long-term growth of capital.

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 


- --
10
<PAGE>

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:

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.

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.

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 


                                                                              --
                                                                              11
<PAGE>

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,
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;
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.

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 Greater Europe Growth Fund is a non-diversified investment company which
seeks long-term growth of capital through investments 


- --
12
<PAGE>

primarily in the equity securities of European companies. Although its focus is
on long-term growth, the Fund may provide current income principally through
holdings in dividend-paying securities.

The Fund will invest, under normal market conditions, at least 80% of its total
assets in the equity securities of European companies. The Fund defines a
European company as follows:

o     A company organized under the laws of a European country or for which the
      principal securities trading market is in Europe; or

o     A company, wherever organized, where at least 50% of the company's
      non-current assets, capitalization, gross revenue or profit in its most
      recent fiscal year represents (directly or indirectly through
      subsidiaries) assets or activities located in Europe.

The Fund may invest, under normal market conditions, up to 20% of its total
assets in European debt securities. Within this 20% limit, the Fund may invest
in debt securities which are unrated, rated, or the equivalent of those rated
below investment-grade.

When, in the opinion of the Adviser, market conditions warrant, the Fund may
hold foreign or U.S. debt instruments as well as cash or cash equivalents,
including foreign and domestic money market instruments, short-term government
and corporate obligations, and repurchase agreements without limit for temporary
defensive purposes and up to 20% to maintain liquidity.

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.

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 International Growth and Income Fund is a diversified investment company
which seeks long-term growth of capital and current income primarily from
foreign equity securities. The Fund invests generally in common stocks of
established companies listed on foreign exchanges, which offer prospects for
growth of earnings while paying relatively high current dividends. The Fund can
also invest in other types of equity securities, including preferred stocks and
securities convertible into common stock. The Fund can invest throughout the
world, but will emphasize investments in developed economies other than the U.S.
In pursuing its dual objective, at least 80% of the Fund's net assets will be
invested in the equity securities of established non-U.S. companies. The Fund
generally invests in equity securities of established companies listed on
foreign securities exchanges, but also may invest in securities traded
over-the-counter. The Fund's equity investments include common stock,
convertible and non-convertible preferred stock, sponsored and unsponsored
depository receipts, and warrants.
    

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 


                                                                              --
                                                                              13
<PAGE>

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 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:

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 


- --
14
<PAGE>

      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.

The Japan Fund is a diversified mutual fund which seeks to achieve long-term
capital appreciation by investing primarily in equity securities (including
American Depositary Receipts) of Japanese companies. Equity securities are
defined as common and preferred stock, debt securities convertible into common
stock (sometimes referred to as "convertible debentures") and common stock
purchase warrants.

Under normal conditions, the Fund will invest at least 80% of its assets in
Japanese securities, that is, securities issued by entities that are organized
under the laws of Japan ("Japanese companies"), securities of affiliates of
Japanese companies, wherever organized or traded, and securities of issuers not
organized under the laws of Japan but deriving 50% or more of their revenues
from Japan. These securities may include debt securities (Japanese government
debt securities and debt securities of Japanese companies) when the Adviser
believes that the potential for capital appreciation from investment in debt
securities equals or exceeds that available from investment in equity
securities.

The Fund may also invest up to 30% of its net assets in equity securities of
Japanese companies which are traded in an over-the-counter market. These are
generally securities of relatively small or little-known companies that the
Adviser believes have above-average earnings growth potential. The Fund may
invest up to 20% of its assets in cash or short-term government or other
short-term prime obligations in order to have funds readily available for
general corporate purposes, including the payment of operating expenses,
dividends and redemptions, or the investment in securities through exercise of
rights or otherwise, or in repurchase agreements. Where the Adviser determines
that market or economic conditions so warrant, the Fund may, for temporary
defensive purposes, invest more than 20% of its assets in cash or such
securities.

- ---------------------------------------
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) 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 


                                                                              --
                                                                              15
<PAGE>

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).

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 and Scudder Premium Money Market Shares) 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 


- --
16
<PAGE>

instruments may change over time as new 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.

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. As a matter of fundamental policy, the Portfolio may not borrow
money, except as permitted under the 
    


                                                                              --
                                                                              17
<PAGE>

   
1940 Act, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time; however, the Portfolio, as a matter of
non-fundamental policy, does not currently intend to borrow money except for
temporary 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
- ---------------------------------------

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     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 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.

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

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.

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 


- --
18
<PAGE>

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
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.

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

- ---------------------------------------
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
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. 


                                                                              --
                                                                              19
<PAGE>

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 Kemper
Investments, 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 Kemper Investments, 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.


- --
20
<PAGE>

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 and.

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
most other Scudder retirement plan accounts.

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

   
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share 
    


                                                                              --
                                                                              21
<PAGE>

   
calculated at the close of trading on the day of your call. "QuickBuy" requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day.

If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the 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. "QuickBuy" transactions are not
available for Scudder IRA accounts and most other retirement plan accounts.

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

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

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

Redeeming shares

The 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 Fund shares. If you
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information on your application, call 1-800-225-5163 for
more information.

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

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

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

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

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

To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.

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

Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written 


- --
22
<PAGE>

   
redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The 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).

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 Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and 
    


                                                                              --
                                                                              23
<PAGE>

   
exchange proceeds from accounts (other than those of certain exempt payees)
without a correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. The Fund reserves the right to reject new
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.
    

Minimum balances

Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum 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.

- ---------------------------------------
Shareholder benefits
- ---------------------------------------

Experienced professional management

Scudder Kemper Investments, 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: 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


- --
24
<PAGE>

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 18 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 24 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 accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.

Investment flexibility

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

Personal Counsel(SM) - A Managed Fund Portfolio Program

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


                                                                              --
                                                                              25
<PAGE>

initially and would like more information about Personal Counsel, please call
1-800-700-0183.

Dividend reinvestment plan

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

Shareholder statements

You 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 Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.

Newsletters

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

   
Scudder Investor Centers

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

T.D.D. service for the hearing impaired

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


- --
26
<PAGE>

- ---------------------------------------
Scudder tax-advantaged 
retirement plans
- ---------------------------------------

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

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

o     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. The
      Scudder Keogh charges you no annual custodial fee.

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

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

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

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

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

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


                                                                              --
                                                                              27
<PAGE>

   
Trustees and Officers

Daniel Pierce*
      President

Dr. Rosita P. Chang
      Trustee; Professor of Finance, University of Rhode Island
    

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

   
Peter B. Freeman
      Trustee; Corporate Director and Trustee
    

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

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

   
Caroline Pearson*
      Assistant Secretary
    

*Scudder Kemper Investments, Inc.


- --
28
<PAGE>

   
- --------------------------------------------------------------------------------
Investment products and services
- --------------------------------------------------------------------------------

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

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

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

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

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

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

U.S. Growth and Income
  Scudder Balanced Fund
  Scudder Growth and Income Fund
  Scudder S&P 500 Index Fund

U.S. Growth

  Value
   Scudder Large Company Value  Fund
   Scudder Value Fund
   Scudder Small Company Value Fund
   Scudder Micro Cap Fund

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

Global Growth

  Worldwide
   Scudder Global Fund
   Scudder International Growth and Income Fund
   Scudder International Fund
   Scudder Global Discovery Fund
   Scudder Emerging Markets Growth Fund
   Scudder Gold Fund

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

Retirement Programs
  IRA
  SEP IRA
  Keogh Plan
  401(k), 403(b) Plans
  Scudder Horizon Plan **+++ +++
   (a variable annuity)

Closed-End Funds#
- --------------------------------------------------------------------------------
  The Argentina Fund, Inc.
  The Brazil 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 Spain and Portugal Fund, Inc.
  Scudder World  Income  Opportunities
   Fund, Inc.

For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on various stock exchanges.
    


                                                                              --
                                                                              29
<PAGE>

   
- --------------------------------------------------------------------------------
How to contact Scudder
- --------------------------------------------------------------------------------

Account Service and Information:

      For existing account service and transactions
            Scudder Investor Relations -- 1-800-225-5163

      For 24 hour account information, fund information, exchanges, and an
      overview of all the services available to you
            Scudder Electronic Account Services -- http://funds.scudder.com

      For personalized information about your Scudder accounts, exchanges and
      redemptions
            Scudder Automated Information Line (SAIL) -- 1-800-343-2890

Investment Information:

      For information about the Scudder funds, including additional applications
      and prospectuses, or for answers to investment questions
            Scudder Investor Relations -- 1-800-225-2470
                                          [email protected]
            Scudder's World Wide Web Site -- http://funds.scudder.com

      For establishing 401(k) and 403(b) plans
            Scudder Defined Contribution Services -- 1-800-323-6105

Scudder Brokerage Services:

      To receive information about this discount brokerage service and to
      obtain an application
            Scudder Brokerage Services* -- 1-800-700-0820

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

      To receive information about this mutual fund portfolio guidance and
      management program
            Personal Counsel from Scudder -- 1-800-700-0183

Please address all correspondence to:

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

Or Stop by a Scudder Investor Center:

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

             Boca Raton  Chicago     San Francisco
             Boston      New York

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

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


- --
30
<PAGE>

- --------------------------------------------------------------------------------
Purchases
- --------------------------------------------------------------------------------

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


Make checks    o By Mail   Send your completed and signed application and
payable to                 check
"The Scudder
Funds."
                             by regular            or    by express,
                             mail to:                    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. Investor Center locations are listed
                            under Shareholder benefits.

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

Make checks    o By Mail     Send a check with a Scudder investment slip, or 
payable to                   with a letter of instruction including your account
"The Scudder                 number and the complete Portfolio name, to the 
Funds."                      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.
                             Investor Center locations are listed under
                             Shareholder benefits.
                            
               o By          Please see Transaction information--Purchasing 
                 Telephone   shares--By QuickBuy or By telephone order for more
                             details.

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

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


                                                                              --
                                                                              31
<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:
 
                                  The Scudder Funds
                                  P.O. Box 2291
                                  Boston, MA 02107-2291
 
                                  or   by express, registered,
                                       or certified mail to:

                                       Scudder Shareholder
                                       Service Center
                                       42 Longwater Drive
                                       Norwell, MA
                                       02061-1612

                                  or   by fax to:

                                       1-800-821-6234
- --------------------------------------------------------------------------------
Redeeming         o By Telephone  To speak with a service representative, call
shares                            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). You may have
                                  redemption proceeds sent to your
                                  predesignated bank account, or redemption
                                  proceeds of up to $50,000 sent to your
                                  address of record.

                  o By Mail       Send your instructions for redemption to the
                    or Fax        appropriate address 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 $100,000. See Transaction
                                  information--Redeeming shares.

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


- --
32
<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.

Mortgage and other asset-backed securities. Unscheduled or early payments on the


                                      A-1
<PAGE>

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
issuers of debt obligations generally.


                                      A-2
<PAGE>

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.


                                      A-3
<PAGE>

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.

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>

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
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.


                                      A-5
<PAGE>

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.

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 


                                      A-6
<PAGE>

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

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

                             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

                                February 1, 1998

   
      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 February 1, 1998, 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 OF CONTENTS

                                                                            Page

PATHWAY SERIES' INVESTMENT OBJECTIVES AND POLICIES .........................   1
     General Investment Objectives and Policies ............................   1
     Master/feeder Fund Structure ..........................................   2
     The Underlying Scudder Funds ..........................................   2
     Risk Factors of Underlying Scudder Funds ..............................  12
     Investment Restrictions of the Portfolios .............................  12

PURCHASES ..................................................................  14
     Additional Information About Opening An Account .......................  14
     Additional Information About Making Subsequent Investments ............  14
     Additional Information About Making Subsequent Investments by
       QuickBuy ............................................................  14
     Checks ................................................................  15
     Wire Transfer of Federal Funds ........................................  15
     Share Price ...........................................................  15
     Share Certificates ....................................................  15
     Other Information .....................................................  15

EXCHANGES AND REDEMPTIONS ..................................................  16
     Exchanges .............................................................  16
     Redemption By Telephone ...............................................  17
     Redemption by QuickSell ...............................................  18
     Redemption by Mail or Fax .............................................  18
     Redemption-in-Kind ....................................................  18
     Other Information .....................................................  18

FEATURES AND SERVICES OFFERED BY THE TRUST .................................  19
     The Pure No-Load(TM) Concept ..........................................  19
     Dividend and Capital Gain Distribution Options ........................  21
     Scudder Investor Centers ..............................................  21
     Reports to Shareholders ...............................................  21
     Transaction Summaries .................................................  21

THE SCUDDER FAMILY OF FUNDS ................................................  22

SPECIAL PLAN ACCOUNTS ......................................................  26
     Scudder Retirement Plans:  Profit-Sharing and Money Purchase
       Pension Plans for Corporations and Self-Employed Individuals ........  26
     Scudder 401(k): Cash or Deferred Profit-Sharing Plan for
       Corporations and Self-Employed Individuals ..........................  27
     Scudder IRA:  Individual Retirement Account ...........................  27
     Scudder 403(b) Plan ...................................................  28
     Automatic Withdrawal Plan .............................................  28
     Group or Salary Deduction Plan ........................................  28
     Automatic Investment Plan .............................................  29
     Uniform Transfers/Gifts to Minors Act .................................  29

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS ..................................  29

PERFORMANCE INFORMATION ....................................................  30
     Average Annual Total Return ...........................................  30
     Cumulative Total Return ...............................................  30
     SEC Yields of Conservative Portfolio and Balanced Portfolio ...........  30
     Total Return ..........................................................  31

TRUST ORGANIZATION .........................................................  36


                                       i
<PAGE>

                         TABLE OF CONTENTS (continued)

                                                                            Page

INVESTMENT ADVISER .........................................................  36
     Personal Investments by Employees of the Adviser ......................  39
     Management Fees of Underlying Scudder Funds ...........................  40

SPECIAL SERVICING AGREEMENT ................................................  41

TRUSTEES AND OFFICERS ......................................................  42

REMUNERATION ...............................................................  43

DISTRIBUTOR ................................................................  43

TAXES ......................................................................  44
     Taxation of the Portfolios and Their Shareholders .....................  44
     Taxation of the Underlying Scudder Funds ..............................  46

PORTFOLIO TRANSACTIONS .....................................................  47
     Portfolio Turnover ....................................................  47

NET ASSET VALUE ............................................................  47

ADDITIONAL INFORMATION .....................................................  48
     Other Information .....................................................  48

FINANCIAL STATEMENTS .......................................................  48

GLOSSARY ...................................................................   0


                                       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 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 Kemper Investments, Inc. , 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
Portfolios may each borrow money for temporary, emergency or other purposes,
including investment leverage purposes, as determined by the Trustees. The
Portfolios may each also borrow under reverse repurchase agreements. The
Investment Company Act of 1940 (the "1940 Act") requires borrowings to have 300%
asset coverage.
    

      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.
    


<PAGE>

   
Master/feeder Fund Structure

At a special meeting of shareholders, a majority of the shareholders of
Conservative Portfolio and International Portfolio approved a proposal which
gives the Board of Trustees the discretion to retain the current distribution
arrangement for the Portfolios while investing in a master fund in a
master/feeder fund
structure as described below.

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

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
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 Classic Growth Fund    Scudder Classic Growth Fund    Scudder Emerging Markets     
 Income Fund                   Scudder Development Fund       Scudder Development Fund        Growth Fund                 
Scudder Global Bond Fund       Scudder Emerging Markets       Scudder Emerging Markets       Scudder Global Discovery     
Scudder GNMA Fund               Growth Fund                    Growth Fund                    Fund                        
Scudder High Yield Bond Fund   Scudder Global Discovery Fund  Scudder Global Discovery Fund  Scudder Global Fund          
Scudder Income Fund            Scudder Global Fund            Scudder Global Fund            Scudder Gold Fund            
Scudder International Bond     Scudder Gold Fund              Scudder Gold Fund              Scudder Greater Europe       
 Fund                          Scudder Greater Europe         Scudder Greater Europe          Growth Fund                 
Scudder Short Term Bond Fund    Growth Fund                    Growth Fund                   Scudder International Fund   
Equity Mutual Funds            Scudder Growth and Income      Scudder Growth and Income      Scudder International Growth 
Scudder Classic Growth Fund     Fund                           Fund                           and Income Fund             
Scudder Development Fund       Scudder International Fund     Scudder International Fund     Scudder Latin America Fund   
Scudder Emerging Markets       Scudder International          Scudder International Growth   Scudder Pacific Opportunities
 Growth Fund                    Growth and Income Fund         and Income Fund                Fund                        
Scudder Global Discovery Fund  Scudder Large Company          Scudder Large Company          The Japan Fund               
Scudder Global Fund             Growth Fund                    Growth Fund                   Bond Mutual Funds            
Scudder Gold Fund              Scudder Large Company          Scudder Large Company          Scudder Emerging Markets     
Scudder Greater Europe          Value Fund                     Value Fund                     Income Fund                 
 Growth Fund                   Scudder Latin America Fund     Scudder Latin America Fund     Scudder Global Bond Fund     
Scudder Growth and             Scudder Micro Cap Fund         Scudder Micro Cap Fund         Scudder International Bond   
 Income Fund                   Scudder Pacific Opportunities  Scudder Pacific Opportunities   Fund                        
Scudder International Fund      Fund                           Fund                          Scudder Short Term Bond      
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
    


                                                            2
<PAGE>

   
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                            <C>                            <C>
Scudder International          Scudder Small Company          Scudder Small Company           Fund                        
 Growth and Income Fund         Value Fund                     Value Fund                    Money Market Funds           
Scudder Large Company          Scudder 21st Century           Scudder 21st Century           Scudder Cash Investment      
 Growth Fund                    Growth Fund                    Growth Fund                    Trust                       
Scudder Large Company          Scudder Value Fund             Scudder Value Fund             Scudder Premium Money        
 Value Fund                    The Japan Fund                 The Japan Fund                  Market Shares               
Scudder Latin America Fund     Bond Mutual Funds              Bond Mutual Funds              
Scudder Micro Cap Fund         Scudder Emerging Markets       Scudder Emerging Markets      
Scudder Pacific Opportunities   Income Fund                    Income Fund                  
 Fund                          Scudder Global Bond Fund       Scudder Global Bond Fund      
Scudder Small Company          Scudder GNMA Fund              Scudder GNMA Fund             
 Value Fund                    Scudder High Yield Bond Fund   Scudder High Yield Bond Fund  
Scudder 21st Century           Scudder Income Fund            Scudder Income Fund           
 Growth Fund                   Scudder International          Scudder International Bond    
Scudder Value Fund              Bond Fund                      Fund                         
The Japan Fund                 Scudder Short Term Bond Fund   Scudder Short Term Bond Fund  
Money Market Funds             Money Market Funds             Money Market Funds            
Scudder Cash Investment Trust  Scudder Cash Investment Trust  Scudder Cash Investment Trust 
Scudder Premium Money          Scudder Premium Money          Scudder Premium Money         
 Market Shares                  Market Shares                  Market Shares                
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

      The following Underlying Scudder Funds areis the money market funds 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
securities rated, within the two highest quality rating categories of one or
more of the following rating agencies: Moody's Investors Services, Inc.
("Moody's"), Standard & Poor's Corporation ("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.

      Scudder Premium Money Market Shares is a class of Scudder Money Market
Series, a diversified series of Scudder Fund, Inc. The Fund seeks to provide
investors with as high a level of current income as is consistent with its
investment policies and with preservation of capital and liquidity.

      The bank obligations in which the Fund may invest include negotiable
certificates of deposit, bankers' acceptances, fixed time deposits or other
short-term bank obligations. Generally, the Fund may not invest less than 25% of
the current value of its total assets in bank obligations (including bank
obligations subject to repurchase agreements). The Fund limits its investments
in U.S. bank obligations to banks (including foreign branches, the obligations
of which are guaranteed by the U.S. parent) that have at least $1 billion to
total assets at the time of investment. "U.S. banks" include commercial banks
that are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the Federal Deposit
Insurance Corporation.

      The Fund will maintain a dollar-weighted average maturity of 90 days or
less in an effort to maintain a constant net asset value of $1.00 per share, but
there is no assurance that it will be able to do so. Amendments have been
proposed to the federal rules regulating quality, maturity and diversification
of money market funds. If the amendments are adopted, the Fund intends to comply
with such new requirements.
    


                                       3
<PAGE>

      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.

   
      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.
Under normal market conditions, the Fund will invest at least 65% of its assets
in securities rated within the three highest quality rating categories of
Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa and A) or Standard & Poor's
("S&P") S&P (AAA, AA and A), or if unrated, in bonds judged by the Adviser,
Fund's investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"), to be
of comparable quality at the time of purchase. The Fund may invest up to 20% of
its assets in 
    


                                       4
<PAGE>

debt securities rated lower than Baa or BBB or, if unrated, of equivalent
quality as determined by the Adviser, but will not purchase bonds rated below B
by Moody's or S&P or their equivalent.

       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 Funds areis an equity mutual funds 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.

   
      Scudder International Growth and Income Fund is a diversified investment
company which seeks long-term growth of capital and current income primarily
from foreign equity securities. The Fund invests generally in common stocks of
established companies listed on foreign exchanges, which offer prospects for
growth of earnings 
    


                                       5
<PAGE>

   
while paying relatively high current dividends. The Fund can also invest in
other types of equity securities, including preferred stocks and securities
convertible into common stock. The Fund can invest throughout the world, but
will emphasize investments in developed economies other than the U.S. In
pursuing its dual objective, at least 80% of the Fund's net assets will be
invested in the equity securities of established non-U.S. companies. The Fund
generally invests in equity securities of established companies listed on
foreign securities exchanges, but also may invest in securities traded
over-the-counter. The Fund's equity investments include common stock,
convertible and non-convertible preferred stock, sponsored and unsponsored
depository receipts, and warrants.
    

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

      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;

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


                                       6
<PAGE>

- -     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 Greater Europe Growth Fund is a non-diversified investment company
which seeks long-term growth of capital through investments primarily in the
equity securities of European companies. Although its focus is on long-term
growth, the Fund may provide current income principally through holdings in
dividend-paying securities. The Fund will invest, under normal market
conditions, at least 80% of its total assets in the equity securities of
European companies.


                                       7
<PAGE>

The Fund defines a European company as follows:

- -     A company organized under the laws of a European country or for which the
      principal securities trading market is in Europe; or

- -     A company, wherever organized, where at least 50% of the company's
      non-current assets, capitalization, gross revenue or profit in its most
      recent fiscal year represents (directly or indirectly through
      subsidiaries) assets or activities located in Europe.

      The Fund may invest, under normal market conditions, up to 20% of its
total assets in European debt securities. Within this 20% limit, the Fund may
invest in debt securities which are unrated, rated, or the equivalent of those
rated below investment-grade. When, in the opinion of the Adviser, market
conditions warrant, the Fund may hold foreign or U.S. debt instruments as well
as cash or cash equivalents, including foreign and domestic money market
instruments, short-term government and corporate obligations, and repurchase
agreements without limit for temporary defensive purposes and up to 20% to
maintain liquidity.

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



                                       8
<PAGE>

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


                                       9
<PAGE>

      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 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 2000r 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.

      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. 


                                       10
<PAGE>

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.

      The Japan Fund is a diversified mutual fund which seeks to achieve
long-term capital appreciation by investing primarily in equity securities
(including American Depositary Receipts) of Japanese companies. Equity
securities are defined as common and preferred stock, debt securities
convertible into common stock (sometimes referred to as "convertible
debentures") and common stock purchase warrants. Under normal conditions, the
Fund will invest at least 80% of its assets in Japanese securities, that is,
securities issued by entities that are organized under the laws of Japan
("Japanese companies"), securities of affiliates of Japanese companies, wherever
organized or traded, and securities of issuers not organized under the laws of
Japan but deriving 50% or more of their revenues from Japan. These securities
may include debt securities (Japanese government debt securities and debt
securities of Japanese companies) when the Adviser believes that the potential
for capital appreciation from investment in debt securities equals or exceeds
that available from investment in equity securities. The Fund may also invest up
to 30% of its net assets in equity securities of Japanese companies which are
traded in an over-the-counter market. These are generally securities of
relatively small or little-known companies that the Adviser believes have
above-average earnings growth potential. The Fund may invest up to 20% of its
assets in cash or short-term government or other short-term prime obligations in
order to have funds readily available for general corporate purposes, including
the payment of operating expenses, dividends and redemptions, or the investment
in securities through exercise of rights or otherwise, or in repurchase
agreements. Where the Adviser determines that market or economic conditions so
warrant, the Fund may, for temporary defensive purposes, invest more than 20% of
its assets in cash or such securities.

      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
                                                  10/31/976          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 Funds
Scudder Cash Investment Trust           7/23/76    1,417.0        4.89%       4.01        5.61%        --
Scudder Premium Money Market Shares
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 Classic Growth Fund              9/9/96        9.0          --          --          --         --
Scudder Development Fund                1/18/71      981.0       35.26       18.77       13.56         --
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
</TABLE>
    


                                       11
<PAGE>

   
<TABLE>
<CAPTION>
                                                Assets as of
                                                  10/31/976          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>
Scudder Greater Europe Growth Fund     10/10/94      120.3       25.11          --          --      20.21
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 International Growth and
  Income Fund
Scudder Large Company Growth Fund      5115/9 1      220.8       30.30          --          --      14.01
Scudder Large Company Value Fund         6/6/56    1,689.1       33.88%      13.88       12.68%        --
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 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
The Japan Fund                                       406.0      -10.92       -1.71        3.44         --
</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 permitted under the Investment Company Act of
      1940, as amended, and as interpreted or modified by regulatory authority
      having jurisdiction, from time to time;

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

      (3) engage in the business of underwriting securities issued by others,
      except to the extent that a Portfolio may be deemed to be an underwriter
      in connection with the disposition of portfolio securities;

      (4) concentrate its investments in investment companies, as the term
      "concentrate" is used in the Investment Company Act of 1940, as amended
      and interpreted by regulatory authority having jurisdiction from time to
      time; except that the Fund may concentrate in an underlying Fund. However,
      each Underlying Scudder Fund in which each Portfolio will invest may
      concentrate its investments in a particular;
    


                                       12
<PAGE>

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

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

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

   
     (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 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)  (i) borrow money in an amount greater than 5% of its total assets,
          except for temporary or emergency purposes and (ii) by engaging in
          reverse repurchase agreements, entering into dollar rolls, or making
          other investments or engagingin other transactions which may be deemed
          to be borrowings but are consistent with each Portfolio's investment
          objective.
     (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.


                                       13
<PAGE>

                                    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
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 QuickBuyAutoBuy

      Shareholders, whose predesignated bank account of record is a Member of
the Automated Clearing House Network (ACH) and have elected to participate in
the QuickBuyAutoBuy 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 QuickBuyAutoBuy, 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. QuickBuyAutoBuy 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 QuickBuyAutoBuy 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
    


                                       14
<PAGE>

   
fees incurred in the transaction. QuickBuyAutoBuy transactions are not available
for Scudder IRA accounts and most other retirement plan accounts.

     In order to request purchases by QuickBuyAutoBuy, 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 QuickBuyAutoBuy may so indicate on the application. Existing
shareholders who wish to add QuickBuyAutoBuy to their account may do so by
completing an QuickBuyAutoBuy 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.

   
      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, also the Fund's principal
underwriter, each has the right to limit the 
    


                                       15
<PAGE>

   
amount of purchases by, and to refuse to sell to, any person. and each tThe
Trustees and the Distributor may each suspend or terminate the offering of
shares of a Portfolio at any time for any reason.

      The "Tax Identification Number" section of the application must be
completed when opening an account. Applications and purchase orders without a
correct 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" (SAILT) 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.

      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.


                                       16
<PAGE>

   
      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.

     The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds. For more information, please call
1-800-225-5163.
    

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

Redemption By Telephone

       Shareholders currently receive the right, automatically without having to
elect it, to redeem by telephone up to $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.

      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.


                                       17
<PAGE>

   
Redemption by QuickSellAutoSell

      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 QuickSellAutoSell program, may redeem shares of a Portfolio by
QuickSellAutoSell. To redeem shares by QuickSellAutoSell, 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. QuickSellAutoSell 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. QuickSellAutoSell transactions are not available for
Scudder IRA accounts and most other retirement plan accounts.

       In order to request redemptions by QuickSellAutoSell, 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 QuickSellAutoSell may so indicate on the
application. Existing shareholders who wish to add QuickSellAutoSell to their
account may do so by completing an QuickSellAutoSell 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.

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 


                                       18
<PAGE>

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
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-


                                       19
<PAGE>

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.

================================================================================
                Scudder                                 No-Load
    YEARS       Pure No-      8.50% Load   Load Fund   Fund with
              Load(TM) Fund     Fund      with 0.75%  0.25% 12b-1
                                          12b-1 Fee       Fee
- --------------------------------------------------------------------------------
      10        $ 25,937     $ 23,733     $ 24,222     $ 25,354
- --------------------------------------------------------------------------------
      15          41,772       38,222       37,698       40,371
- --------------------------------------------------------------------------------
      20          67,275       61,557       58,672       64,282
================================================================================

Internet access

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

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


                                       20
<PAGE>

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

      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 InvestorFunds Centers

      Investors may visit any of the InvestorFunds Centers maintained by the
Distributor listed in each Portfolio's prospectus. The Investor 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 Investor Centers but should be mailed to "The Scudder Funds" at
the address listed under "How to contact Scudder" in the prospectus.
    

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.


                                       21
<PAGE>

                           THE SCUDDER FAMILY OF FUNDS

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

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

MONEY MARKET

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

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

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

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

TAX FREE MONEY MARKET

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

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

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

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

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


                                       22
<PAGE>

TAX FREE

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

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

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

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

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

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

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

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

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

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

U.S. INCOME

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

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

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

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


                                       23
<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.

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

GLOBAL INCOME

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

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

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

ASSET ALLOCATION

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

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

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

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

U.S. GROWTH AND INCOME

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

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

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


                                       24
<PAGE>

U.S. GROWTH

  Value

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

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

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

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

  Growth

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

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

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

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

GLOBAL GROWTH

  Worldwide

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

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

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

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

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

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

  Regional

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


                                       25
<PAGE>

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

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

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

      The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.

      The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds may not be available
for purchase or exchange. For more information, please call 1-800-225-5163.

                              SPECIAL PLAN ACCOUNTS

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

     Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. 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.

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.


                                       26
<PAGE>

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

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

Scudder IRA:  Individual Retirement Account

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

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

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

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

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

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

     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.)


                                       27
<PAGE>

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

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

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. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information-Redeeming shares-Signature guarantees"
in the Fund's prospectus. Any such requests must be received by the Fund's
transfer agent ten days prior to the date of the first automatic withdrawal. An
Automatic Withdrawal Plan may be terminated at any time by the shareholder, the
[Trust, Corporation] or its agent on written notice, and will be terminated when
all shares of the Fund under the Plan have been liquidated or upon receipt by
the [Trust, Corporation] 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,
Corporation] and its agents reserve the right to establish a maintenance charge
in the future depending on the services required by the investor.

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


                                       28
<PAGE>

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

             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 Conservative Portfolio and the Balanced Portfolio each intend 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.

      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.


                                       29
<PAGE>

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

Cumulative Total Return

      Cumulative Total Return is the 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.

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 


                                       30
<PAGE>

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
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 


                                       31
<PAGE>

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
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.


                                       32
<PAGE>

      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.

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.


                                       33
<PAGE>

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.

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

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


                                       34
<PAGE>

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.
    

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.


                                       35
<PAGE>

      A Call Me(TM) feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call 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,
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 Kemper Investments, Inc., , Stevens & Clark, Inc., an investment
counsel firm, acts as investment adviser to the Trust. This organization
Scudder, Stevens & Clark, Inc. ("Scudder"), the predecessor organization to the
Adviser, 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.

      On June 26, 1997, Scudder entered into an agreement with Zurich Insurance
Company ("Zurich") pursuant to which Scudder and Zurich agreed to form an
alliance. On November   , 1997, Zurich acquired a majority interest in Scudder,
and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of
Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.

     Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich 
    


                                       36
<PAGE>

   
Insurance Group"). Zurich and the Zurich Insurance Group provide an extensive
range of insurance products and services and have branch offices and
subsidiaries in more than 40 countries throughout the world. Zurich Insurance
Group is particularly strong in the insurance of international companies and
organizations. Over the past few years, Zurich's global presence, particularly
in the United States, has been strengthened by means of selective acquisitions.

      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 Korea Fund, Inc., The
Japan Fund, Inc., The Latin America Dollar Income Fund, Inc. and Scudder Spain
and Portugal Fund, Inc. Some of the foregoing companies or trusts have two or
more series.

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

      Pursuant to an Agreement between Scudder, Stevens & Clark, Kemper
Investments, Inc. and AMA Solutions, Inc., a subsidiary of the American Medical
Association (the "AMA"), dated May 9, 1997, Scudder has agreed, subject to
applicable state regulations, to pay AMA Solutions, Inc. royalties in an amount
equal to 5% of the management fee received by Scudder with respect to assets
invested by AMA members in Scudder funds in connection with the AMA
InvestmentLinkSM Program. Scudder will also pay AMA Solutions, Inc. a general
monthly fee, currently in the amount of $833. The AMA and AMA Solutions, Inc.
are not engaged in the business of providing investment advice and neither is
registered as an investment adviser or broker/dealer under federal securities
laws. Any person who participates in the AMA InvestmentLinkSM Program will be a
customer of Scudder (or of a subsidiary thereof) and not the AMA or AMA
Solutions, Inc. AMA InvestmentLinkSM is a service mark of AMA Solutions, Inc.

      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 over $13 billion and includes the AARP Growth
Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed Investment
Portfolios Trust and AARP Cash Investment Funds.
    

      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


                                       37
<PAGE>

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 An Iinvestment Mmanagement Aagreement (the "Agreement") was approved
by the Trustees on January 10, 1995. Because tThe transaction between Scudder
and Zurich resulted in the assignment of the Fund's investment management
agreement with Scudder, that agreement was deemed to be automatically terminated
at the consummation of the transaction. In anticipation of the transaction,
however, a new investment management agreement between each Portfolio and the
Adviser was approved by the Portfolios' Trustees on ______________. At the
special meeting of the Fund's stockholders held on October 23, 1997, the
stockholders also approved a proposed new investment management. The new
investment management agreement (the "Agreement") became effective as of
November , 1997 and will be in effect for an initial term ending on September
30, 1998. The Agreement is in all material respects on the same terms as the
previous investment management agreement which it supersedes. The Agreement
incorporates conforming changes which promote consistency among all of the funds
advised by the Adviser and which permit ease of administration. The Agreement
will continue in effect until September 30, 19987 and from year to year
thereafter only if its continuance is approved annually by the vote of a
majority of those Trustees who are not parties to 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.


                                       38
<PAGE>

      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.

      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, ____% to ____%,
0.16% to 1.79%, Balanced Portfolio, ____% to ____%, 0.31% to 1.83%, Growth
Portfolio, ____% to ____% 0.47% to 1.94% and International Portfolio, ____% to
____%.1.01% to 2.00%.

     The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Portfolios, has the
non-exclusive right to use and sublicense the Scudder name and marks as part of
its name, and to use the Scudder Marks in the Trust's investment products and
services. 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 


                                       39
<PAGE>

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:

                                          Fiscal Year     Management
Name of Fund                                  End           Fee (%)
- ------------                                  ---           -------

   
Scudder Cash Investment Trust               6/30/97 96      0.41
Scudder  Emerging Markets Income Fund       10/31/97 96     0.99
Scudder Global Bond Fund                    10/31/97 96     0.47
Scudder GNMA Fund                           3/31/97         0.62
Scudder High Yield Bond Fund                2/28/97         0.00
Scudder Income Fund                         12/31/97 96     0.61
Scudder International Bond Fund             6/30/97 96      0.85
Scudder Short Term Bond Fund                12/31/97 96     0.51
Scudder Classic Growth Fund                 Estimate        0.00
Scudder Development Fund                    6/30/97 96      0.98
Scudder  Emerging Markets Growth Fund       10/31/97 96     0.00(1)
Scudder Global Fund                         6/30/97 96      0.96
Scudder Global Discovery Fund               10/31/97 96     1.09
Scudder Gold Fund                           6/30/97 96      1.00
Scudder Greater Europe Growth Fund          10/31/97 96     0.53(2)
Scudder Growth and Income Fund              12/31/97 96     0.49
Scudder International Fund                  3/31/97         0.82
Scudder Large Company Growth Fund           10/31/97 96     0.70
Scudder Large Company Value Fund            9/30/97 96      0.66
Scudder Latin America Fund                  10/31/97 96     1.25
Scudder Micro Cap Fund                      8/31/97 96      0.00(3)
Scudder Pacific Opportunities Fund          10/31/97 96     1.10
Scudder Small Company Value Fund            8/31/97 96      0.00
Scudder 21st Century Growth Fund            8/31/97 96      0.00
                                             Estimate
Scudder Value Fund                          9/30/97 96      0.64
The Japan Fund, Inc.                        12/31/97 96     0.75
    
                                                      
(1)   Fees estimated for prospectus dated 3/1/97: Management fee: 0.98% and
      Other: 1.02%.


                                       40
<PAGE>

(2)   Current management fee: 1.00%.
(3)   Fees estimated for prospectus dated 2/7/97: Management fee: 0.64% and
      Other: 1.11%.

      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.

      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.


                                       41
<PAGE>

                              TRUSTEES AND OFFICERS

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

   
Daniel Pierce+ (63)        President      Chairman of the        --
                                          Board and              
                                          Managing Director      
                                          of Scudder             
                                          Kemper                 
                                          Investments, Inc.      
David S. Lee+*@ (62)       President      Managing Director      President,
                           and Trustee    of Scudder,            Assistant
                                          Stevens & Clark,       Treasurer
                                          Inc.                   and
                                                                 Director
                                                                 
Dr. Rosita P. Chang        Trustee        Professor of           --
(42)                                      Finance,               
PACAP Research Center                     University of          
College of Business                       Rhode Island           
Administration                                                   
University of Rhode                                              
Island                                                           
7 Lippitt Rd.                                                    
Kingston, RI 02881-                                              
0802                                                             
                                                                 
Edgar R. Fiedler*@         Trustee        Vice President and     --
(68)(67)                                  Economic               
845 Third Avenue                          Counsellor, The        
New York, NY 10022                        Conference Board,      
                                          Inc.                   
                                                                 
Peter B. Freeman@          Trustee        Corporate Director     --
(65)                                      and Trustee            
100 Alumni Avenue                                                
Providence, RI 02906                                             
                                                                 
Dr. J. D. Hammond@         Trustee        Dean, Smeal            --
(63)(62)                                  College of             
801 Business                              Business               
Administration                            Administration,        
Building                                  Pennsylvania State     
Pennsylvania State                        University             
University                                                       
University Park, PA                                              
16801                                                            
                                                                 
Richard M. Hunt (70)       Trustee        University Marshal     --
University Marshal's                      and Senior             
Office                                    Lecturer, Harvard      
Wadsworth House                           University             
1341 Massachusetts                                               
Avenue                                                           
Harvard University                                               
Cambridge, MA 02138                                              
                                                                 
Daniel Pierce+*@ (62)      Vice           Chairman of the        Vice
                           President      Board and Managing     President,
                           and Trustee    Director, Scudder,     Assistant
                                          Stevens & Clark,       Treasurer
                                          Inc.                   and
                                                                 Director
                                                                 
Jerard K. Hartman#         Vice           Managing Director      --
(64)(63)                   President      of Scudder Kemper      
                                          Investments, Inc.,     
                                          Stevens & Clark,       
                                          Inc.                   
                                                                 
Thomas W. Joseph+          Vice           Principal of           Vice
(58)(57)                   President      Scudder Kemper         President,
                                          Investments, Inc.,     Treasurer,
                                          Stevens & Clark,       Assistant
                                          Inc.                   Clerk and
                                                                 Director
                                                                 
Thomas F. McDonough+       Vice           Principal of           Clerk
(50)(49)                   President      Scudder Kemper         
                           and            Investments, Inc.,     
                           Secretary      Stevens & Clark,       
                                          Inc.                   
    
                                                                 


                                       42
<PAGE>

   
                                                                 Position with 
                                                                 Underwriter,  
                                                                 Scudder       
                           Position       Principal              Investor      
Name, Age and Address      with Trust     Occupation**           Services, Inc.
- ---------------------      ----------     ------------           --------------
Pamela A. McGrath+         Vice           Managing Director      --
(43)                       President      of Scudder Kemper      
                           and            Investments, Inc.,     
                           Treasurer      Stevens & Clark,       
                                          Inc.                   
                                                                 
Edward J. O'Connell#       Vice           Principal of           Assistant
(52)(51)                   President      Scudder Kemper         Treasurer
                           and            Investments, Inc.,     
                           Assistant      Stevens & Clark,       
                           Treasurer      Inc.                   
                                                                 
Kathryn L. Quirk#          Vice           Managing Director      Vice
(44)(43)                   President      of Scudder, Kemper     President
                           and            Investments,           
                           Assistant      Inc.Stevens &          
                           Secretary      Clark, Inc.            
                                                                 
Caroline Pearson +         Assistant      Vice President of      --
(35)                       Secretary      Scudder Kemper         
                                          Investments, Inc.      
                                                          
*     Trustee considered by the Trust and its counsel to be an "interested
      person" (as defined in the 1940 Act) of the Trust or of its investment
      manager because of their employment by the Investment Manager and, in some
      cases, holding offices with the Trust. Although the Trustees do not
      currently intend to permit a Fund to borrow for investment leverage
      purposes, such borrowings would increase the Fund's volatility and the
      risk of loss in a declining market. Although Mr. Fiedler is currently not
      an "interested person," he may be deemed to be so in the future by the
      Commission because of his prior service as a director of Zurich American
      Insurance Company, a subsidiary of Zurich. Mr. Fiedler resigned from that
      position in July 1997 and has had no further affiliation with Zurich or
      any of its subsidiaries since that date. 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. Fiedler, Freeman and HammondLee 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 


                                       43
<PAGE>

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,
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 


                                       44
<PAGE>

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
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.


                                       45
<PAGE>

      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
$2,000 per individual for married couples if only one spouse has earned income)
for that year. There are special rules for determining how withdrawals are to be
taxed if an IRA contains both deductible and nondeductible amounts. In general,
a proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.

      Distributions by a 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 


                                       46
<PAGE>

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.

                             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 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 Greater Europe Growth Fund                 39.0
Scudder Growth and Income Fund                     26.9
Scudder International Fund                         45.2
Scudder International Growth and Income Fund              
Scudder Large Company Growth Fund                  91.6
Scudder Large Company Value Fund                  153.6
Scudder Latin America Fund                         39.5
Scudder Micro Cap Fund                             0.00
Scudder Pacific Opportunities Fund                 64.0
Scudder Premium Money Market Shares(2)              n/a
Scudder Small Company Value Fund                  33.97
Scudder 21st Century Growth Fund                     --
Scudder Value Fund                                 98.2
The Japan Fund                                     72.6
    

- ----------
(1)   As of each Underlying Scudder Fund's most recent fiscal reporting period.
(2)   Scudder Cash Investment Trust and Scudder Premium Money Market Shares are
      is a money market funds.

                                 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 


                                       47
<PAGE>

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.
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. 

                              FINANCIAL STATEMENTS

      The financial statements, including the investment portfolios of Scudder
 Pathway Series, together with the Financial Highlights and notes to financial
statements are incorporated by reference and attached hereto, in the


                                       48
<PAGE>

   
AnnualSemiannual Report to Shareholders of the Series dated September 30March
31, 1997, and are hereby deemed to be part of this Statement of Additional
Information.
    


                                       49
<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
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.
<PAGE>

      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
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.
<PAGE>

      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 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 

<PAGE>

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.

      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.
<PAGE>

      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
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 

<PAGE>

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
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.
<PAGE>

      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
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,

<PAGE>

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.

   
Borrowing. As a matter of fundamental policy, the Portfolios will not borrow
money, except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Trustees do not currently intend to borrow for investment leverage purposes,
if such a strategy were implemented in the future it would increase a
Portfolio's volatility and the risk of loss in a declining market. Borrowing by
the Portfolios will involve special risk considerations. Although the principal
of a Portfolio's borrowing will be fixed, a Portfolio's assets may change in
value during the time a borrowing is outstanding, thus increasing exposure to
capital risk.
    

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.
<PAGE>

     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 of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.

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

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 

<PAGE>

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.

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 

<PAGE>

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.

      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.

Trust Preferred Securities. Certain Underlying Scudder Funds invest in Trust
Preferred Securities, which are hybrid instruments issued by a special purpose
trust (the "Special Trust"), the entire equity interest of which is owned by a
single issuer. The proceeds of the issuance to the Underlying Scudder Funds of
Trust Preferred Securities are typically used to purchase a junior subordinated
debenture, and distributions from the Special Trust are funded by the payments
of principal and interest on the subordinated debenture.
<PAGE>

      If payments on the underlying junior subordinated debentures held by the
Special Trust are deferred by the debenture issuer, the debentures would be
treated as original issue discount ("OID") obligations for the remainder of
their term. As a result, holders of Trust Preferred Securities, such as the
Underlying Scudder Funds, would be required to accrue daily for Federal income
tax purposes, their share of the stated interest and the de minimis OID on the
debentures (regardless of whether an Underlying Scudder Fund receives any cash
distributions from the Special Trust), and the value of Trust Preferred
Securities would likely be negatively affected. Interest payments on the
underlying junior subordinated debentures typically may only be deferred if
dividends are suspended on both common and preferred stock of the issuer. The
underlying junior subordinated debentures generally rank slightly higher in
terms of payment priority than both common and preferred securities of the
issuer, but rank below other subordinated debentures and debt securities. Trust
Preferred Securities may be subject to mandatory prepayment under certain
circumstances. The market values of Trust Preferred Securities may be more
volatile than those of conventional debt securities. Trust Preferred Securities
may be issued in reliance on Rule 144A under the Securities Act of 1933, as
amended, and, unless and until registered, are restricted securities; there can
be no assurance as to the liquidity of Trust Preferred Securities and the
ability of holders of Trust Preferred Securities, such as the Underlying Scudder
Funds, to sell their holdings.

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.

      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.")
<PAGE>

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.

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

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

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

<PAGE>

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
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 

<PAGE>

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
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 ReceivablesSM ("CARSSM").
CARSSM represent undivided fractional interests in a trust ("Trust") whose

<PAGE>

assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the Trust. An investor's return on CARSSM may be affected by early
prepayment of principal on the underlying vehicle sales contracts. If the letter
of credit is exhausted, the trust may be 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 

<PAGE>

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.

      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
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 

<PAGE>

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.

      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.
<PAGE>

      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
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.
<PAGE>

      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
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.
<PAGE>

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.

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

<PAGE>

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
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, 

<PAGE>

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.

  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 

<PAGE>

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
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 

<PAGE>

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.

<PAGE>

     PART C.  OTHER INFORMATION

Item 24.   Financial Statements and Exhibits
- --------   ---------------------------------

           a. Financial Statements

               Included in Part A of this Registration Statement:
               
                    For Scudder Pathway Series: Conservative Portfolio:
                    
                         Financial highlights for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                    
                    For Scudder Pathway Series: Balanced Portfolio:
                    
                         Financial highlights for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                    
                    For Scudder Pathway Series: Growth Portfolio:
                    
                         Financial highlights for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                    
                    For Scudder Pathway Series: International Portfolio:
                    
                         Financial highlights for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
               
               Included in Part B of this Registration Statement:
                         
                    For Scudder Pathway Series: Conservative Portfolio:
                         
                         Investment Portfolio as of September 30, 1997
                         Statement of Assets and Liabilities as
                         of September 30, 1997
                         Statement of Operations for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                         Statement of Changes in Net Assets for
                         the period November 15, 1996
                         (commencement of operations) to
                         September 30, 1997
                         Financial Highlights for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                         Notes to Financial Statements
                         
                    For Scudder Pathway Series: Balanced Portfolio:
                         
                         Investment Portfolio as of September 30, 1997
                         Statement of Assets and Liabilities as
                         of September 30, 1997
                         Statement of Operations for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                         Statement of Changes in Net Assets for
                         the period November 15, 1996
                         (commencement of operations) to September 30, 1997
                         Financial Highlights for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                         Notes to Financial Statements
                         


                                 Part C - Page 1
<PAGE>

                    For Scudder Pathway Series: Growth Portfolio:
                         
                         Investment Portfolio as of September 30, 1997
                         Statement of Assets and Liabilities as
                         of September 30, 1997
                         Statement of Operations for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                         Statement of Changes in Net Assets for
                         the period November 15, 1996
                         (commencement of operations) to September 30, 1997
                         Financial Highlights for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                         Notes to Financial Statements
                         
                    For Scudder Pathway Series: International Portfolio:
                         
                         Investment Portfolio as of September 30, 1997
                         Statement of Assets and Liabilities as
                         of September 30, 1997
                         Statement of Operations for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                         Statement of Changes in Net Assets for
                         the period November 15, 1996
                         (commencement of operations) to
                         September 30, 1997
                         Financial Highlights for the period
                         November 15, 1996 (commencement of
                         operations) to September 30, 1997
                         Notes to Financial Statements
                         
               Statements, schedules and historical information
               other than those listed above have been omitted
               since they are either not applicable or are not
               required.

          b.   Exhibits:
                         
               1.   (a)     Declaration of Trust dated July 1, 1994.
                            (Incorporated by reference to Exhibit
                            1 to the Registration Statement filed
                            on November 7, 1994.)
                            
                    (b)     Certificate of Amendment to
                            Declaration of Trust dated January 10, 1995.
                            (Incorporated by reference to Exhibit
                            1(b) to Pre-Effective Amendment No. 1
                            to the Registration Statement filed
                            November 13, 1996.)
                            
                    (b)(1)  Certificate of Amendment to
                            Declaration of Trust dated September
                            16, 1996.
                            (Incorporated by reference to Exhibit
                            1(b)(1) to Pre-Effective Amendment No.
                            1 to the Registration Statement filed
                            November 13, 1996.)
                           
               2.   By-Laws dated July 1, 1994.
                    (Incorporated by reference to Exhibit 2 to
                    the Registration Statement filed on
                    November 7, 1994.)
                    
               3.   Inapplicable.
                    
               4.   Inapplicable.
                    

                                 Part C - Page 2
<PAGE>

               5.   Investment Management Agreement between the
                    Registrant and Scudder, Stevens & Clark,
                    Inc. dated November 15, 1996 is filed herein.
                    (Incorporated by reference to Exhibit 5 to
                    Post-Effective Amendment No. 1 to the
                    Registration Statement.)
                    
               6.   Underwriting Agreement between the
                    Registrant and Scudder Investor Services,
                    Inc. dated November 15, 1996.
                    (Incorporated by reference to Exhibit 6 to
                    Post-Effective Amendment No. 1 to the
                    Registration Statement.)
                    
               7.   Inapplicable.
                    
               8.   (a)     Custodian Contract between the
                            Registrant and State Street Bank and
                            Trust Company dated November 15, 1996
                            is filed herein.
                            
               9.   (a)     Special Servicing Agreement between
                            the Registrant, the Underlying Scudder
                            Funds, Scudder Service Corporation,
                            Scudder Fund Accounting Corporation,
                            Scudder Trust Company and Scudder,
                            Stevens & Clark, Inc. dated November 15, 1996.
                            (Incorporated by reference to Exhibit
                            9(a) to Post-Effective Amendment No. 1
                            to the Registration Statement.)
                            
                    (b)     Transfer Agency and Service Agreement
                            between the Registrant and Scudder
                            Service Corporation dated November 15,
                            1996.  reference "9(b)"
                            (Incorporated by reference to Exhibit
                            9(a) to Post-Effective Amendment No. 1
                            to the Registration Statement.)
                            
                    (b)(1)  Form of a COMPASS Service Agreement
                            with Scudder Trust Company.
                            (Incorporated by reference to Exhibit
                            9(b)(1) to Pre-Effective Amendment No.
                            1 to the Registration Statement filed
                            November 13, 1996.)
                            
                    (c)(1)  Fund Accounting Services Agreement
                            between Scudder Pathway Series:
                            Conservative Portfolio and Scudder
                            Fund Accounting Corporation dated
                            November 15, 1996.  reference "9(c)(1)"
                            (Incorporated by reference to Exhibit
                            9(a) to Post-Effective Amendment No. 1
                            to the Registration Statement.)
                          
                    (c)(2)  Fund Accounting Services Agreement
                            between Scudder Pathway Series:
                            Balanced Portfolio and Scudder Fund
                            Accounting Corporation dated November
                            14, 1996.  reference "9(c)(2)"
                            (Incorporated by reference to Exhibit
                            9(a) to Post-Effective Amendment No. 1
                            to the Registration Statement.)
                          
                    (c)(3)  Fund Accounting Services Agreement
                            between Scudder Pathway Series: Growth
                            Portfolio and Scudder Fund Accounting
                            Corporation dated November 14, 1996.
                            reference "9(c)(3)"
                            (Incorporated by reference to Exhibit
                            9(a) to Post-Effective Amendment No. 1
                            to the Registration Statement.)
                      
                                 Part C - Page 3
<PAGE>

                    (c)(4)  Fund Accounting Services Agreement
                            between Scudder Pathway Series:
                            International Portfolio and Scudder
                            Fund Accounting Corporation dated
                            November 14, 1996. reference "9(c)(4)"
                            (Incorporated by reference to Exhibit
                            9(a) to Post-Effective Amendment No. 1
                            to the Registration Statement.)
                        
               10.  Inapplicable.
                    
               11.  Inapplicable.
                    
               12.  Inapplicable.
                    
               13.  Letter of agreement between the Registrant
                    and the Purchaser of the Initial Shares.
                    (to be filed by amendment.)
                    
               14.  (a)     Scudder Flexi-Plan for Corporations
                            and Self-Employed Individuals.
                            (Incorporated by reference to Exhibit
                            14(a) to Scudder Income Fund
                            Post-Effective Amendment No. 46 to its
                            Registration Statement on Form N-1A
                            (File Nos. 2-13627 and 811-42).)
                            
                    (b)     Scudder Individual Retirement Plan.
                            (Incorporated by reference to Exhibit
                            14(b) to Scudder Income Fund
                            Post-Effective Amendment No. 46 to its
                            Registration Statement on Form N-1A
                            (File Nos.  2-13627 and 811-42).)
                            
                    (c)     Scudder Funds 403(b) Plan.
                            (Incorporated by reference to Exhibit
                            14(c) to Scudder Income Fund
                            Post-Effective Amendment No. 46 to its
                            Registration Statement on Form N-1A
                            (File Nos.  2-13627 and 811-42).)
                            
                    (d)     Scudder Employer - Select 403(b) Plan.
                            (Incorporated by reference to Exhibit
                            14(e)(2) to Scudder Income Fund, Inc.
                            Post-Effective Amendment No. 43 to its
                            Registration Statement on Form N-1A
                            (File Nos. 2-13627 and 811-42).)
                            
                    (e)     Scudder Cash or Deferred Profit
                            Sharing Plan under Section 401(k).
                            (Incorporated by reference to Exhibit
                            14(f) to Scudder Income Fund, Inc.
                            Post-Effective Amendment No. 43 to its
                            Registration Statement on Form N-1A
                            (File Nos. 2-13627 and 811-42).)
                            
               15.  Inapplicable.
                    
               16.  Inapplicable.
                    
               17.  Inapplicable.
                    
               18.  Inapplicable.


                                 Part C - Page 4
<PAGE>

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

            All of the outstanding shares of the Registrant, representing all of
            the interests in the Scudder Pathway Series, on the date
            Registrant's Registration Statement becomes effective will be owned
            by Scudder Investor Services, Inc. ("The Distributor").

    
Item 26.    Number of Holders of Securities (as of November 21, 1997).
- --------    ----------------------------------------------------------

                     (1)                              (2)

                Title of Class            Number of Record Shareholders
                --------------            -----------------------------

            Shares of beneficial                    
            interest
                 ($.01 par value)
                                                       
            Scudder Pathway Series: Conservative Portfolio         910
            Scudder Pathway Series: Balanced Portfolio           1,923
            Scudder Pathway Series: Growth Portfolio             3,123
            Scudder Pathway Series: International Portfolio      1,430
               
                                

Item 27.    Indemnification.
- --------    ----------------

A           policy of insurance covering Scudder, Stevens & Clark, Inc., its
            affiliates including Scudder Investor Services, Inc., and all of the
            registered investment companies advised by Scudder, Stevens & Clark,
            Inc. insures the Registrant's Trustees and officers and others
            against liability arising by reason of an alleged breach of duty
            caused by any negligent act, error or accidental omission in the
            scope of their duties.
               
            Article IV of Registrant's Declaration of Trust state as follows:
               
            Section 4.1. No Personal Liability of Shareholders,Trustees, Etc. No
            Shareholder shall be subject to any personal liability whatsoever to
            any Person in connection with Trust Property or the acts,
            obligations or affairs of the Trust. No Trustee, officer, employee
            or agent of the Trust shall be subject to any personal liability
            whatsoever to any Person, other than to the Trust or its
            Shareholders, in connection with Trust Property or the affairs of
            the Trust, save only that arising from bad faith, willful
            misfeasance, gross negligence or reckless disregard of his duties
            with respect to such Person; and all such Persons shall look solely
            to the Trust Property for satisfaction of claims of any nature
            arising in connection with the affairs of the Trust. If any
            Shareholder, Trustee, officer, employee, or agent, as such, of the
            Trust, is made a part to any suit or proceeding to enforce any such
            liability of the Trust, he shall not, on account thereof, be held to
            any personal liability. The Trust shall indemnify and hold each
            Shareholder harmless from and against all claims and liabilities, to
            which such Shareholder may become subject by reason for his being or
            having been a Shareholder, and shall reimburse such Shareholder for
            all legal and other expenses reasonably incurred by him in
            connection with any such claim or liability. The indemnification and
            reimbursement required by the preceding sentence shall be made only
            out of the assets of the one or more Series of which the Shareholder
            who is entitled to indemnification or reimbursement was a
            Shareholder at the time the act or event occurred which gave rise to
            the claim against or liability of said Shareholder. The rights
            accruing to a Shareholder under this Section 4.1 shall not impair
            any other right to which such Shareholder may be lawfully entitled,
            nor shall anything herein contained restrict the right of the Trust
            to indemnify or reimburse a Shareholder in any appropriate situation
            even though not specifically provided herein.
          
            Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer,
            employee or agent of the Trust shall be liable to the Trust, its
            Shareholders, or to any Shareholder, Trustee, officer, employee, or
            agent thereof for any action or failure to act (including without
            limitation the failure to compel in any way any former or acting
            Trustee to redress any breach of trust) except for his own bad
            faith,
     

                                 Part C - Page 5
<PAGE>

            willful misfeasance, gross negligence or reckless disregard of the
            duties involved in the conduct of his office.
          
          Section 4.3.  Mandatory Indemnification.
          ------------  --------------------------

            (a) Subject to the exceptions and limitations contained in paragraph
            (b) below:

                  (i) every person who is, or has been, a Trustee or officer of
                  the Trust shall be indemnified by the Trust to the fullest
                  extent permitted by law against all liability and against all
                  expenses reasonably incurred or paid by him in connection with
                  any claim, action, suit or proceeding in which he becomes
                  involved as a party or otherwise by virtue of his being or
                  having been a Trustee or officer and against amounts paid or
                  incurred by him in the settlement thereof;

                  (ii) the words "claim," "action," "suit," or "proceeding"
                  shall apply to all claims, actions, suits or proceedings
                  (civil, criminal, administrative or other, including appeals),
                  actual or threatened; and the words "liability" and "expenses"
                  shall include, without limitation, attorneys' fees, costs,
                  judgments, amounts paid in settlement, fines, penalties and
                  other liabilities.

            (b) No indemnification shall be provided hereunder to a Trustee or
            officer:

                  (i) against any liability to the Trust, a Series thereof, or
                  the Shareholders by reason of a final adjudication by a court
                  or other body before which a proceeding was brought that he
                  engaged in willful misfeasance, bad faith, gross negligence or
                  reckless disregard of the duties involved in the conduct of
                  his office;
               
                  (ii) with respect to any matter as to which he shall have been
                  finally adjudicated not to have acted in good faith in the
                  reasonable belief that his action was in the best interest of
                  the Trust:
                    
                  (iii) in the event of a settlement or other disposition not
                  involving a final adjudication as provided in paragraph (b)(i)
                  or (b)(ii) resulting in a payment by a Trustee or officer,
                  unless there has been a determination that such Trustee or
                  officer did not engage in willful misfeasance, bad faith,
                  gross negligence or reckless disregard of the duties involved
                  in the conduct of his office:
                              
                         (A) by the court or other body approving the settlement
                         or other disposition; or
                         
                         (B) based upon a review of readily available facts (as
                         opposed to a full trial-type inquiry) by (x) vote of a
                         majority of the Disinterested Trustees acting on the
                         matter (provided that a majority of the Disinterested
                         Trustees then in office act on the matter) or (y)
                         written opinion of independent legal counsel.

            (c) The rights of indemnification herein provided may be insured
            against by policies maintained by the Trust, shall be severable,
            shall not affect any other rights to which any Trustee or officer
            may now or hereafter be entitled, shall continue as to a person who
            has ceased to be such Trustee or officer and shall inure to the
            benefit of the heirs, executors, administrators and assigns of such
            a person. Nothing contained herein shall affect any rights to
            indemnification to which personnel of the Trust other than Trustees
            and officers may be entitled by contract or otherwise under law.


                                 Part C - Page 6
<PAGE>

            (d) Expenses of preparation and presentation of a defense to any
            claim, action, suit or proceeding of the character described in
            paragraph (a) of this Section 4.3 may be advanced by the Trust prior
            to final disposition thereof upon receipt of an undertaking by or on
            behalf of the recipient to repay such amount if it is ultimately
            determined that he is not entitled to indemnification under this
            Section 4.3, provided that either:

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

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

Item 28.  Business or Other Connections of Investment Adviser
- --------  ---------------------------------------------------

          The Adviser has stockholders and employees who are
          denominated officers but do not as such have
          corporation-wide responsibilities.  Such persons are
          not considered officers for the purpose of this Item 28.
      

                       Business and Other Connections of Board
     Name              of Directors of Registrant's Adviser
     ----              ---------------------------------------

Stephen R. Beckwith    Director, Vice President, Treasurer, Chief
                          Operating Officer & Chief Financial Officer,
                          Scudder, Stevens & Clark, Inc. (investment
                          adviser)**
                   
Lynn S. Birdsong       Director, Scudder, Stevens & Clark, Inc.
                          (investment adviser)**
                       President & Director, The Latin America Dollar
                          Income Fund, Inc.  (investment company)**
                       President & Director, Scudder World Income
                          Opportunities Fund, Inc.  (investment
                          company)**
                       President, The Japan Fund, Inc. (investment
                          company)**
                       Supervisory Director, The Latin America Income
                          and Appreciation Fund N.V. (investment
                          company) +
                       Supervisory Director, The Venezuela High Income
                          Fund N.V. (investment company) xx
                       Supervisory Director, Scudder Mortgage Fund
                          (investment company)+
                       Supervisory Director, Scudder Floating Rate
                          Funds for Fannie Mae Mortgage Securities I &
                          II (investment company) +
                       Director, Canadian High Income Fund (investment
                          company)#
                       Director, Hot Growth Companies Fund (investment
                          company)#
                       Director, Sovereign High Yield Investment
                          Company (investment company)+
                       Director, Scudder, Stevens & Clark (Luxembourg)
                          S.A. (investment manager) #

Nicholas Bratt         Director, Scudder, Stevens & Clark, Inc.
                          (investment adviser)**
                       President & Director, Scudder New Europe Fund,
                          Inc. (investment company)**
                       President & Director, The Brazil Fund, Inc.
                          (investment company)**
                       President & Director, The First Iberian Fund,
                          Inc. (investment company)**
                       President & Director, Scudder International
                          Fund, Inc.  (investment company)**


                                  Part C - Page 7
<PAGE>

                       President & Director, Scudder Global Fund, Inc.
                          (President on all series except Scudder
                          Global Fund) (investment company)**
                       President & Director, The Korea Fund, Inc.
                          (investment company)**
                       President & Director, Scudder New Asia Fund,
                          Inc. (investment company)**
                       President, The Argentina Fund, Inc. (investment
                          company)**
                       Vice President, Scudder, Stevens & Clark
                          Corporation (Delaware) (investment adviser)**
                       Vice President, Scudder, Stevens & Clark Japan,
                          Inc. (investment adviser)###
                       Vice President, Scudder, Stevens & Clark of
                          Canada Ltd. (Canadian investment adviser)
                          Toronto, Ontario, Canada
                       Vice President, Scudder, Stevens & Clark
                          Overseas Corporationoo

E. Michael Brown       Director, Chief Administrative Officer, Scudder,
                          Stevens & Clark, Inc. (investment adviser)**
                       Trustee, Scudder GNMA Fund (investment company)*
                       Trustee, Scudder Portfolio Trust (investment
                          company)*
                       Trustee, Scudder U.S. Treasury Fund (investment
                          company)*
                       Trustee, Scudder Tax Free Money Fund (investment
                          company)*
                       Trustee, Scudder State Tax Free Trust
                          (investment company)*
                       Trustee, Scudder Cash Investment Trust
                          (investment company)*
                       Assistant Treasurer, Scudder Investor Services,
                          Inc. (broker/dealer)*
                       Director & President, Scudder Realty Holding
                          Corporation (a real estate holding company)*
                       Director & President, Scudder Trust Company (a
                          trust company)+++
                       Director, Scudder Trust (Cayman) Ltd.
          
Mark S. Casady         Director, Scudder, Stevens & Clark, Inc.
                          (investment adviser)**
                       Director & Vice President, Scudder Investor
                          Services, Inc. (broker/dealer)*
                       Director & Vice President, Scudder Service
                          Corporation (in-house transfer agent)*
                       Director, SFA, Inc. (advertising agency)*
                      
Linda C. Coughlin      Director, Scudder, Stevens & Clark, Inc.
                       (investment adviser)**
                       Chairman & Trustee, AARP Cash Investment Funds
                          (investment company)**
                       Chairman & Trustee, AARP Growth Trust
                          (investment company)**
                       Chairman & Trustee, AARP Income Trust
                          (investment company)**
                       Chairman & Trustee, AARP Tax Free Income Trust
                          (investment company)**
                       Chairman & Trustee, AARP Managed Investment
                          Portfolios Trust  (investment company)**
                       Director & Senior Vice President, Scudder
                          Investor Services, Inc. (broker/dealer)*
                       Director, SFA, Inc. (advertising agency)*
                    
Margaret D. Hadzima    Director, Scudder, Stevens & Clark, Inc.
                       (investment adviser)**
                       Assistant Treasurer, Scudder Investor Services,
                          Inc. (broker/dealer)*
                    
Jerard K. Hartman      Director, Scudder, Stevens & Clark, Inc.
                          (investment adviser)**
                       Vice President, Scudder California Tax Free
                          Trust (investment company)*
                       Vice President, Scudder Equity Trust (investment
                          company)**
                       Vice President, Scudder Cash Investment Trust
                          (investment company)*
                       Vice President, Scudder Fund, Inc. (investment
                          company)**
                       Vice President, Scudder Global Fund, Inc.
                          (investment company)**
                       Vice President, Scudder GNMA Fund (investment
                          company)*
                       Vice President, Scudder Portfolio Trust
                          (investment company)*
                       Vice President, Scudder Institutional Fund, Inc.
                          (investment company)**
                       Vice President, Scudder International Fund, Inc.
                          (investment company)**
                       Vice President, Scudder Investment Trust
                          (investment company)*
                       Vice President, Scudder Municipal Trust
                          (investment company)*


                                 Part C - Page 8
<PAGE>

                       Vice President, Scudder Mutual Funds, Inc.
                          (investment company)**
                       Vice President, Scudder New Asia Fund, Inc.
                          (investment company)**
                       Vice President, Scudder New Europe Fund, Inc.
                          (investment company)**
                       Vice President, Scudder Securities Trust
                          (investment company)*
                       Vice President, Scudder State Tax Free Trust
                          (investment company)*
                       Vice President, Scudder Funds Trust (investment
                          company)**
                       Vice President, Scudder Tax Free Money Fund
                          (investment company)*
                       Vice President, Scudder Tax Free Trust
                          (investment company)*
                       Vice President, Scudder U.S. Treasury Money Fund
                          (investment company)*
                       Vice President, Scudder Pathway Series
                          (investment company)*
                       Vice President, Scudder Variable Life Investment
                          Fund (investment company)*
                       Vice President, The Brazil Fund, Inc.
                          (investment company)**
                       Vice President, The Korea Fund, Inc. (investment
                          company)**
                       Vice President, The Argentina Fund, Inc.
                          (investment company)**
                       Vice President & Director, Scudder, Stevens &
                          Clark of Canada, Ltd. (Canadian investment
                          adviser) Toronto, Ontario, Canada
                       Vice President, The First Iberian Fund, Inc.
                          (investment company)**
                       Vice President, The Latin America Dollar Income
                          Fund, Inc. (investment company)**
                       Vice President, Scudder World Income
                          Opportunities Fund, Inc. (investment
                          company)**

Richard A. Holt        Director, Scudder, Stevens & Clark, Inc.
                            (investment adviser)**
                       Vice President, Scudder Variable Life Investment
                          Fund (investment company)*
                      
John T. Packard        Director, Scudder, Stevens & Clark, Inc.
                          (investment adviser)**
                       President, Montgomery Street Income Securities,
                          Inc. (investment company) o
                       Chairman, Scudder Realty Advisors, Inc. (realty
                          investment adviser) x
                      
Daniel Pierce          Chairman & Director, Scudder, Stevens & Clark,
                          Inc. (investment adviser)**
                       Chairman, Vice President & Director, Scudder
                          Global Fund, Inc.  (investment company)**
                       Chairman & Director, Scudder New Europe Fund,
                          Inc. (investment company)**
                       Chairman & Director, The First Iberian Fund,
                          Inc. (investment company)**
                       Chairman & Director, Scudder International Fund,
                          Inc. (investment company)**
                       Chairman & Director, Scudder New Asia Fund, Inc.
                          (investment company)**
                       President & Trustee, Scudder Equity Trust
                          (investment company)**
                       President & Trustee, Scudder GNMA Fund
                          (investment company)*
                       President & Trustee, Scudder Portfolio Trust
                          (investment company)*
                       President & Trustee, Scudder Funds Trust
                          (investment company)**
                       President & Trustee, Scudder Securities Trust
                          (investment company)*
                       President & Trustee, Scudder Investment Trust
                          (investment company)*
                       President & Director, Scudder Institutional
                          Fund, Inc. (investment company)**
                       President & Director, Scudder Fund, Inc.
                          (investment company)**
                       President & Director, Scudder Mutual Funds, Inc.
                          (investment company)**
                       Vice President & Trustee, Scudder Municipal
                          Trust (investment company)*
                       Vice President & Trustee, Scudder Variable Life
                          Investment Fund (investment company)*
                       Vice President & Trustee, Scudder Pathway Series
                          (investment company)*
                       Trustee, Scudder California Tax Free Trust
                          (investment company)*
                       Trustee, Scudder State Tax Free Trust
                          (investment company)*
                       Vice President, Montgomery Street Income
                          Securities, Inc. (investment company)o
                       Chairman & President, Scudder, Stevens & Clark
                          of Canada, Ltd. (Canadian investment
                          adviser), Toronto, Ontario, Canada
                       Chairman & Director, Scudder Global
                          Opportunities Funds (investment company)
                          Luxembourg
                       Chairman, Scudder, Stevens & Clark, Ltd.
                          (investment adviser) London, England


                                 Part C - Page 9
<PAGE>

                       President & Director, Scudder Precious Metals,
                          Inc. xxx
                       Vice President, Director & Assistant Secretary,
                          Scudder Realty Holdings Corporation
                          (a real estate holding company)*
                       Vice President, Director & Assistant Treasurer,
                          Scudder Investor Services, Inc.
                          (broker/dealer)*
                       Director, Scudder Latin America Investment Trust
                          PLC (investment company)@
                       Director, Fiduciary Trust Company (banking &
                          trust company) Boston, MA
                       Director, Fiduciary Company Incorporated
                          (banking & trust company) Boston, MA
                       Trustee, New England Aquarium, Boston, MA
                       Incorporator, Scudder Trust Company (a trust
                          company)+++

Kathryn L. Quirk       Director, Chief Legal Officer, Chief Compliance
                          Officer and Secretary, Scudder, Stevens &
                          Clark, Inc. (investment adviser)**
                       Director, Vice President & Assistant Secretary,
                          The Argentina Fund, Inc. (investment
                          company)**
                       Director, Vice President & Assistant Secretary,
                          Scudder International Fund, Inc. (investment
                          company)**
                       Director, Vice President & Assistant Secretary,
                          Scudder New Asia Fund (investment company)**
                       Director, Vice President & Assistant Secretary,
                          Scudder Global Fund, Inc. (investment
                          company)**
                       Trustee, Vice President & Assistant Secretary,
                          Scudder Equity Trust (investment company)**
                       Trustee, Vice President & Assistant Secretary,
                          Scudder Securities Trust (investment
                          company)*
                       Trustee, Vice President & Assistant Secretary,
                          Scudder Funds Trust (investment company)**
                       Trustee, Scudder Investment Trust (investment
                          company)*
                       Trustee, Scudder Municipal Trust (investment
                          company)*
                       Vice President & Trustee, Scudder Cash
                          Investment Trust (investment company)*
                       Vice President & Trustee, Scudder Tax Free Money
                          Fund (investment company)*
                       Vice President & Trustee, Scudder Tax Free Trust
                          (investment company)*
                       Vice President & Secretary, AARP Growth Trust
                          (investment company)**
                       Vice President & Secretary, AARP Income Trust
                          (investment company)**
                       Vice President & Secretary, AARP Tax Free Income
                          Trust (investment company)**
                       Vice President & Secretary, AARP Cash Investment
                          Funds (investment company)**
                       Vice President & Secretary, AARP Managed
                          Investment Portfolios Trust (investment
                          company)**
                       Vice President & Secretary, The Japan Fund, Inc.
                          (investment company)**
                       Vice President & Assistant Secretary, Scudder
                          World Income Opportunities Fund, Inc.
                          (investment company)**
                       Vice President & Assistant Secretary, The Korea
                          Fund, Inc. (investment company)**
                       Vice President & Assistant Secretary, The Brazil
                          Fund, Inc. (investment company)**
                       Vice President & Assistant Secretary, Montgomery
                          Street Income Securities, Inc. (investment
                          company)o
                       Vice President & Assistant Secretary, Scudder
                          Mutual Funds, Inc. (investment company)**
                       Vice President & Assistant Secretary, Scudder
                          Pathway Series (investment company)*
                       Vice President & Assistant Secretary, Scudder
                          New Europe Fund, Inc. (investment company)**
                       Vice President & Assistant Secretary, Scudder
                          Variable Life Investment Fund (investment
                          company)*
                       Vice President & Assistant Secretary, The First
                          Iberian Fund, Inc. (investment company)**
                       Vice President & Assistant Secretary, The Latin
                          America Dollar Income Fund, Inc. (investment
                          company)**


                                 Part C - Page 10
<PAGE>

                       Vice President, Scudder Fund, Inc. (investment
                          company)**
                       Vice President, Scudder Institutional Fund, Inc.
                          (investment company)**
                       Vice President, Scudder GNMA Fund (investment
                          company)*
                       Director, Senior Vice President & Clerk, Scudder
                          Investor Services, Inc. (broker/dealer)*
                       Director, Vice President & Secretary, Scudder
                          Fund Accounting Corporation (in-house fund
                          accounting agent)*
                       Director, Vice President & Secretary, Scudder
                          Realty Holdings Corporation (a real estate
                          holding company)*
                       Director & Clerk, Scudder Service Corporation
                          (in-house transfer agent)*
                       Director, SFA, Inc. (advertising agency)*
                       Vice President, Director & Assistant Secretary,
                          Scudder Precious Metals, Inc. xxx
                      
Cornelia M. Small      Director, Scudder, Stevens & Clark, Inc.
                          (investment adviser)**
                       President, AARP Cash Investment Funds
                          (investment company)**
                       President, AARP Growth Trust (investment
                          company)**
                       President, AARP Income Trust (investment
                          company)**
                       President, AARP Tax Free Income Trust
                          (investment company)**
                       President, AARP Managed Investment Portfolio
                          Trust (investment company)**
                      
Edmond D. Villani      Director, President & Chief Executive Officer, 
                          Scudder, Stevens & Clark, Inc. (investment
                          adviser)**
                       Chairman & Director, The Argentina Fund, Inc.
                          (investment company)**
                       Chairman & Director, The Latin America Dollar
                          Income Fund, Inc. (investment company)**
                       Chairman & Director, Scudder World Income
                          Opportunities Fund, Inc.  (investment
                          company)**
                       Supervisory Director, Scudder Mortgage Fund
                          (investment company) +
                       Supervisory Director, Scudder Floating Rate
                          Funds for Fannie Mae Mortgage Securities I &
                          II (investment company)+
                       Director, Scudder, Stevens & Clark Japan, Inc.
                          (investment adviser)###
                       Director, The Brazil Fund, Inc. (investment
                          company)**
                       Director, Indosuez High Yield Bond Fund
                          (investment company) Luxembourg
                       President & Director, Scudder, Stevens & Clark
                          Overseas Corporationoo
                       President & Director, Scudder, Stevens & Clark
                          Corporation (Delaware) (investment adviser)**
                       Director, Scudder Realty Advisors, Inc. (realty
                          investment adviser) x
                       Director, IBJ Global Investment Management S.A.,
                          (Luxembourg investment management company)
                          Luxembourg, Grand-Duchy of Luxembourg
                   
Stephen A. Wohler      Director, Scudder, Stevens & Clark, Inc.
                          (investment adviser)**
                       Vice President, Montgomery Street Income
                          Securities, Inc. (investment company)o
            
     *    Two International Place, Boston, MA
     x    333 South Hope Street, Los Angeles, CA
     **   345 Park Avenue, New York, NY
     ++   Two Prudential Plaza, 180 N. Stetson Avenue,
          Chicago, IL
     +++  5 Industrial Way, Salem, NH
     o    101 California Street, San Francisco, CA
     #    Societe Anonyme, 47, Boulevard Royal, L-2449
          Luxembourg, R.C. Luxembourg B 34.564
     +    John B. Gorsiraweg 6, Willemstad Curacao,
          Netherlands Antilles
     xx   De Ruyterkade 62, P.O. Box 812, Willemstad
          Curacao, Netherlands Antilles
     ##   2 Boulevard Royal, Luxembourg
     ***  B1 2F3F 248 Section 3, Nan King East Road, Taipei,
          Taiwan
     xxx  Grand Cayman, Cayman Islands, British West Indies
     oo   20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan


                                Part C - Page 11
<PAGE>

     ###  1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
     @    c/o Sinclair Hendersen Limited, 23 Cathedral Yard,
          Exeter, Devon, U.K.

Item 29.  Principal Underwriters.
- --------  -----------------------

     (a)  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 Institutional Fund, Inc.
          Scudder International Fund, Inc.
          Scudder Investment Trust
          Scudder Municipal Trust
          Scudder Mutual Funds, Inc.
          Scudder Pathway Series
          Scudder Portfolio Trust
          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
          AARP Cash Investment Funds
          AARP Growth Trust
          AARP Income Trust
          AARP Tax Free Income Trust
          AARP Managed Investment Portfolios Trust
          The Japan Fund, Inc.


     (b)

     (1)                (2)                    (3)

     Name and           Position and Offices   
     Principal          with                   Positions and 
     Business           Scudder Investor       Offices with  
     Address            Services, Inc.         Registrant    
     -------            --------------         ----------    
                                               
     Lynn S. Birdsong   Senior Vice President  None
     345 Park Avenue
     New York, NY
     10154

     E. Michael Brown   Assistant Treasurer    None
     Two International
     Place
     Boston, MA  02110

     Mark S. Casady     Director and Vice      None
     Two International  President
     Place
     Boston, MA  02110

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


                                Part C - Page 12
<PAGE>

     Name and           Position and Offices   
     Principal          with                   Positions and 
     Business           Scudder Investor       Offices with  
     Address            Services, Inc.         Registrant    
     -------            --------------         ----------    

     Richard W.         Vice President         Assistant
     Desmond                                   Secretary
     345 Park Avenue
     New York, NY
     10154

     Paul J. Elmlinger  Senior Vice President  None
     345 Park Avenue    and
     New York, NY       Assistant Clerk
     10154

     Margaret D.        Assistant Treasurer    None
     Hadzima
     Two International
     Place
     Boston, MA  02110

     Thomas W. Joseph   Director, Vice         Vice
     Two International  President, Treasurer   President
     Place              and Assistant Clerk
     Boston, MA 02110

     David S. Lee       Director, President    Vice
     Two International  and                    President and
     Place              Assistant Treasurer    Assistant
     Boston, MA 02110                          Treasurer

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

     Thomas H. O'Brien  Assistant Treasurer    None
     345 Park Avenue
     New York, NY
     10154

     Edward J.          Assistant Treasurer    Vice
     O'Connell                                 President and
     345 Park Avenue                           Assistant
     New York, NY                              Treasurer
     10154

     Daniel Pierce      Director, Vice         Chairman of
     Two International  President and          the Board and
     Place              Assistant Treasurer    Director
     Boston, MA 02110

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

     Robert A. Rudell   Vice President         None
     Two International
     Place
     Boston, MA 02110

     Edmund J. Thimme   Vice President         None
     345 Park Avenue
     New York, NY
     10154

     Benjamin           Vice President         None
     Thorndike
     Two International
     Place
     Boston, MA 02110


                                Part C - Page 13
<PAGE>

     Name and           Position and Offices   
     Principal          with                   Positions and 
     Business           Scudder Investor       Offices with  
     Address            Services, Inc.         Registrant    
     -------            --------------         ----------    

     Sydney S. Tucker   Vice President         None
     Two International
     Place
     Boston, MA 02110

     David B. Watts     Assistant Treasurer    None
     Two International
     Place
     Boston, MA 02110

     Linda J. Wondrack  Vice President         None
     Two International
     Place
     Boston, MA 02110

     The Underwriter has employees who are denominated officers
     of an operational area.  Such persons do not have
     corporation-wide responsibilities and are not considered
     officers for the purpose of this Item 29.

     (c)

           (1)           (2)              (3)             (4)          (5)
        Name of   Net Underwriting  Compensation on
       Principal    Discounts and     Redemptions      Brokerage      Other
      Underwriter    Commissions     and Repurchases  Commissions  Compensation
      -----------    -----------     ---------------  -----------  ------------
      
        Scudder         None            None            None         None
        Investor
     Services, Inc.

Item 30.       Location of Accounts and Records.
- --------       ---------------------------------

               Certain accounts, books and other documents required to
               be maintained by Section 31(a) of the 1940 Act and the
               Rules promulgated thereunder are maintained by Scudder,
               Stevens & Clark, Inc., Two International Place, Boston,
               MA 02110-4103.  Records relating to the duties of the
               Registrant's custodian are maintained by State Street
               Bank & Trust Company, 225 Franklin Street, Boston,
               Massachusetts  02110.  Records relating to the duties
               of the Registrant's transfer agent are maintained by
               Scudder Service Corporation, Two International Place,
               Boston, Massachusetts 02110-4103.  Records relating to
               the duties of the Registrant's pricing agent are
               maintained by Scudder Fund Accounting Corporation, Two
               International Place, Boston, Massachusetts 02110-4103.
               Records relating to the duties of the Registrant's
               underwriter are maintained by Scudder Investor
               Services, Inc., Two International Place, Boston,
               Massachusetts  02110-4103.
 
Item 31.       Management Services.
- --------       --------------------

               Inapplicable.

Item 32.       Undertakings
- --------       ------------

               Inapplicable.
          

                                Part C - Page 14
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(a) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 26th day of November, 1997.

                                   SCUDDER PATHWAY SERIES

                                   By /s/ Thomas F. McDonough
                                     ------------------------
                                     Thomas F. McDonough,
                                     Vice President and Secretary

      Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.


SIGNATURE                        TITLE                         DATE
- ---------                        -----                         ----


/s/ Daniel Pierce
- -------------------------
Daniel Pierce*                   President (Principal          November 26, 1997
                                 Executive Officer)  
                                                  
/s/ Edgar R. Fiedler
- -------------------------
Edgar R. Fiedler*                Trustee                       November 26, 1997
                                                 

/s/ Peter B. Freeman
- -------------------------
Peter B. Freeman*                Trustee                       November 26, 1997
                                                  
                                                  
/s/ Dr. J. D. Hammond
- -------------------------
Dr. J. D. Hammond*               Trustee                       November 26, 1997
                                                  
                                                  
/s/ Richard M. Hunt
- -------------------------
Richard M. Hunt*                Vice President and             November 26, 1997
                                Trustee                   
                                                  
/s/ Pamela A. McGrath
- -------------------------
Pamela A. McGrath               Vice President and             November 26, 1997
                                Treasurer (Principal      
                                Financial and
                                Accounting Officer)


      *By:/s/ Thomas F. McDonough
          -----------------------
          Thomas F. McDonough                                     
          Attorney-in-fact pursuant to powers                      
          of attorney contained in the signature                   
          page of Post-Effective Amendment No. 1                   
          to the Registration Statement filed May                   
          15, 1997 and Post-Effective Amendment                    
          No. 2 to the Registration Statement                       
          filed herein.                                           


<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(a) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 26th day of November, 1997.

                                   SCUDDER PATHWAY SERIES


                                   By /s/ Thomas F. McDonough
                                     ------------------------
                                     Thomas F. McDonough,
                                     Vice President and Secretary

      Pursuant to the requirements of the Securities Act of 1933, this amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated. By so signing, the undersigned in her
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, her true
and lawful attorney and agent to execute in her name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.

SIGNATURE                           TITLE                      DATE        
                                                  
/s/ Dr. Rosita P. Chang
- -----------------------
Dr. Rosita P. Chang                 Trustee                    November 26, 1997


                                       2
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(a) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 26th day of November, 1997.

                                   SCUDDER PATHWAY SERIES

                                   By /s/ Thomas F. McDonough
                                     ------------------------
                                     Thomas F. McDonough,
                                     Vice President and Secretary


      Pursuant to the requirements of the Securities Act of 1933, this amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated. By so signing, the undersigned in his
capacity as a trustee or officer, or both, as the case may be of the Registrant,
does hereby appoint David S. Lee, Thomas F. McDonough and Sheldon A. Jones and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.


SIGNATURE                           TITLE                      DATE
- ---------                           -----                      ---- 

/s/ Peter B. Freeman
- --------------------
Peter B. Freeman                    Trustee                    November 26, 1997
                                 

                                       3
<PAGE>

                                                  File No. 33-86070
                                                  File No. 811-8606


                       SECURITIES AND EXCHANGE COMMISSION
                                
                             Washington, D.C. 20549
                                
                                
                                    EXHIBITS
                                
                                       TO
                                
                                    FORM N-1A
                                
                         POST-EFFECTIVE AMENDMENT NO. 2
                                
                            TO REGISTRATION STATEMENT
                                
                                      UNDER
                                
                           THE SECURITIES ACT OF 1933
                                
                                       AND
                                
                                 AMENDMENT NO. 4
                                
                            TO REGISTRATION STATEMENT
                                
                                      UNDER
                                
                       THE INVESTMENT COMPANY ACT OF 1940
                                
                                
                             SCUDDER PATHWAY SERIES
                                

<PAGE>
                             SCUDDER PATHWAY SERIES

                                  EXHIBIT INDEX
                                
                                
                                  Exhibit 8(a)
                                



                                                                    Exhibit 8(a)

                               CUSTODIAN CONTRACT
                                     Between
                             SCUDDER PATHWAY SERIES
                                       and
                       STATE STREET BANK AND TRUST COMPANY

Series/Trust
21B
<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

1.    Employment of Custodian and Property to be Held By It ................  1

2.    Duties of the Custodian with Respect to Property
      of the Fund Held by the Custodian ....................................  2

      2.1   Holding Securities .............................................  2
      2.2   Delivery of Securities .........................................  2
      2.3   Registration of Securities .....................................  4
      2.4   Bank Accounts ..................................................  5
      2.5   Availability of Federal Funds ..................................  5
      2.6   Collection of Income ...........................................  5
      2.7   Payment of Fund Monies .........................................  5
      2.8   Liability for Payment in Advance of Receipt of
            Securities Purchased ...........................................  5
      2.9   Appointment of Agents ..........................................  7
      2.10  Deposit of Fund Assets in Securities System ....................  7
      2.10A Deposit of Fund Assets with Scudder Service Corporation ........  8
      2.11  Fund Assets Held in the Custodian's Direct
            Paper System ...................................................  9
      2.12  Segregated Account.............................................. 10
      2.13  Ownership Certificates for Tax Purposes......................... 11
      2.14  Proxies......................................................... 11
      2.15  Communications Relating to Portfolio
            Securities...................................................... 11

3.    Payments for Repurchases or Redemptions and Sales
      of Shares of the Fund ................................................ 11

4.    Proper Instructions .................................................. 12

5.    Actions Permitted Without Express Authority .......................... 12

6.    Evidence of Authority ................................................ 13

7.    Duties of Custodian With Respect to the Books of Account and Calculation
      of Net Asset Value and Net Income .................................... 13

8.    Records .............................................................. 13
<PAGE>

9.    Opinion of Fund's Independent Accountants ............................ 14

10.   Reports to Fund by Independent Public Accountants .................... 14

11.   Compensation of Custodian ............................................ 14

12.   Responsibility of Custodian .......................................... 14

13.   Effective Period, Termination and Amendment .......................... 15

14.   Successor Custodian .................................................. 16

15.   Interpretive and Additional Provisions ............................... 16

16.   Additional Funds ..................................................... 17

17.   Massachusetts Law to Apply ........................................... 17

18.   Prior Contracts ...................................................... 17

19.   Shareholder Communications Election .................................. 17

20.   Limitation of Liability .............................................. 18


<PAGE>

                               CUSTODIAN CONTRACT

      This Contract between Scudder Pathway Series, a business trust organized
and existing under the laws of The Commonwealth of Massachusetts, having its
principal place of business at Two International Place, Boston, Massachusetts
02110 hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",

                                   WITNESSETH:

      WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and

      WHEREAS, the Fund intends to initially offer shares in four series, the
Conservative Portfolio, Balanced Portfolio, Growth Portfolio and International
Portfolio (such series together with all other series subsequently established
by the Fund and made subject to this Contract in accordance with paragraph 17,
being herein referred to as the "Portfolio(s)");

      NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:

1 . Employment of Custodian and Property to be Held by It

      The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian. With respect to uncertificated shares of the Scudder group of
mutual funds as defined in Rule 11a-3 of the Investment Company Act of 1940, as
amended, (the "Scudder Mutual Funds") the holding of confirmation statements
that identify the shares as being recorded in the Custodian's name on behalf of
the Portfolios will be deemed custody for purposes hereof.

      Upon receipt of "Proper Instructions" (within the meaning of Article 4),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, but only in accordance with an applicable
vote by the Board of Trustees of the Fund on behalf of the applicable
Portfolio(s), and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian.


<PAGE>




2.    Duties of the Custodian with Respect to Property of the Fund Held By the
      Custodian

2.1   Holding Securities. The Custodian shall hold and physically segregate for
      the account of each Portfolio all non-cash property, including all
      securities owned by such Portfolio, other than (a) securities which are
      maintained pursuant to Section 2.10 in a clearing agency which acts as a
      securities depository or in a book-entry system authorized by the U.S.
      Department of the Treasury, collectively referred to herein as "Securities
      System"; (b) commercial paper of an issuer for which State Street Bank and
      Trust Company acts as issuing and paying agent ("Direct Paper") which is
      deposited and/or maintained in the Direct Paper System of the Custodian
      pursuant to Section 2.11; and (c) uncertificated shares of the Scudder
      family of mutual funds owned by the Fund which are maintained pursuant to
      Section 2.10A in an account with Scudder Service Corporation ("SSC") as
      transfer agent for the Scudder funds.

2.2   Delivery of Securities. The Custodian shall release and deliver securities
      owned by a Portfolio held by the Custodian, in a Securities System account
      of the Custodian, in the Custodian's Direct Paper book entry system
      account ("Direct Paper System Account") or in an account at SSC only upon
      receipt of Proper Instructions from the Fund on behalf of the applicable
      Portfolio, which may be continuing instructions when deemed appropriate by
      the parties, and only in the following cases:

      1)    Upon sale of such securities for the account of the Portfolio and
            receipt of payment therefor;

      2)    Upon the receipt of payment in connection with any repurchase
            agreement related to such securities entered into by the Portfolio;

      3)    In the case of a sale effected through a Securities System, in
            accordance with the provisions of Section 2.10 hereof;

      4)    To the depository agent in connection with tender or other similar
            offers for securities of the Portfolio;

      5)    To the issuer thereof or its agent when such securities are called,
            redeemed, retired or otherwise become payable; provided that, in any
            such case, the cash or other consideration is to be delivered to the
            Custodian;

      6)    To the issuer thereof, or its agent, for transfer into the name of
            the Portfolio or into the name of any nominee or nominees of the
            Custodian or into the name or nominee name of any agent appointed
            pursuant to Section 2.9 or into the name or nominee name of any
            sub-custodian appointed pursuant to Article 1; or for exchange for a
            different number of bonds, certificates or other evidence
            representing the same


                                        2
<PAGE>

            aggregate face amount or number of units; provided that, in any such
            case, the new securities are to be delivered to the Custodian;

      7)    Upon the sale of such securities for the account of the Portfolio,
            to the broker or its clearing agent, against a receipt, for
            examination in accordance with "street delivery" custom; provided
            that in any such case, the Custodian shall have no responsibility or
            liability for any loss arising from the delivery of such securities
            prior to receiving payment for such securities except as may arise
            from the Custodian's own negligence or willful misconduct;

      8)    For exchange or conversion pursuant to any plan of merger,
            consolidation, recapitalization, reorganization or readjustment of
            the securities of the issuer of such securities, or pursuant to
            provisions for conversion contained in such securities, or pursuant
            to any deposit agreement; provided that, in any such case, the new
            securities and cash, if any, are to be delivered to the Custodian;

      9)    In the case of warrants, rights or similar securities, the surrender
            thereof in the exercise of such warrants, rights or similar
            securities or the surrender of interim receipts or temporary
            securities for definitive securities; provided that, in any such
            case, the new securities and cash, if any, are to be delivered to
            the Custodian;

      10)   For delivery in connection with any loans of securities made by the
            Portfolio, but only against receipt of adequate collateral as agreed
            upon from time to time by the Custodian and the Fund on behalf of
            the Portfolio, which may be in the form of cash or obligations
            issued by the United States government, its agencies or
            instrumentalities, except that in connection with any loans for
            which collateral is to be credited to the Custodian's account in the
            book-entry system authorized by the U.S. Department of the Treasury,
            the Custodian will not be held liable or responsible for the
            delivery of securities owned by the Portfolio prior to the receipt
            of such collateral;

      11)   For delivery as security in connection with any borrowings by the
            Fund on behalf of the Portfolio requiring a pledge of assets by the
            Fund on behalf of the Portfolio, but only against receipt of amounts
            borrowed;

      12)   For delivery in accordance with the provisions of any agreement
            among the Fund on behalf of the Portfolio, the Custodian and a
            broker-dealer registered under the Securities Exchange Act of 1934
            (the "Exchange Act") and a member of The National Association of
            Securities Dealers, Inc. ("NASD"), relating to compliance with the
            rules of The Options Clearing Corporation and of any registered
            national securities exchange, or of any similar organization or
            organizations, regarding escrow or other arrangements in connection
            with transactions by the Portfolio of the Fund;


                                        3
<PAGE>

      13)   For delivery in accordance with the provisions of any agreement
            among the Fund on behalf of the Portfolio, the Custodian, and a
            Futures Commission Merchant registered under the Commodity Exchange
            Act, relating to compliance with the rules of the Commodity Futures
            Trading Commission and/or any Contract Market, or any similar
            organization or organizations, regarding account deposits in
            connection with transactions by the Portfolio of the Fund;

      14)   Upon receipt of instructions from the transfer agent ("Transfer
            Agent") for the Fund, for delivery to such Transfer Agent or to the
            holders of shares in connection with distributions in kind, as may
            be described from time to time in the currently effective prospectus
            and statement of additional information of the Fund, related to the
            Portfolio ("Prospectus"), in satisfaction of requests by holders of
            Shares for repurchase or redemption; and

      15)   For any other proper corporate purpose, but only upon receipt of, in
            addition to Proper Instructions from the Fund on behalf of the
            applicable Portfolio, a certified copy of a resolution of the Board
            of Trustees or of the Executive Committee signed by an officer of
            the Fund and certified by the Secretary or an Assistant Secretary,
            specifying the securities of the Portfolio to be delivered, setting
            forth the purpose for which such delivery is to be made, declaring
            such purpose to be a proper corporate purpose, and naming the person
            or persons to whom delivery of such securities shall be made.

      16)   In the case of a sale processed through Scudder Service Corporation
            for shares of the Scudder Mutual Funds ("Scudder Fund Shares"), in
            accordance with Section 2.10A hereof;

2.3   Registration of Securities. Securities held by the Custodian (other than
      bearer securities) shall be registered in the name of the Portfolio or in
      the name of any nominee of the Fund on behalf of the Portfolio or of any
      nominee of the Custodian which nominee shall be assigned exclusively to
      the Portfolio, unless the Fund has authorized in writing the appointment
      of a nominee to be used in common with other registered investment
      companies having the same investment adviser as the Portfolio, or in the
      name or nominee name of any agent appointed pursuant to Section 2.9 or in
      the name or nominee name of any sub-custodian appointed pursuant to
      Article 1. All securities accepted by the Custodian on behalf of the
      Portfolio under the terms of this Contract shall be in "street name" or
      other good delivery form. If, however, the Fund directs the Custodian to
      maintain securities in "street name", the Custodian shall utilize its
      best efforts only to timely collect income due the Fund on such securities
      and to notify the Fund on a best efforts basis only of relevant corporate
      actions including, without limitation, pendency of calls, maturities,
      tender or exchange offers.


                                        4
<PAGE>

2.4   Bank Accounts. The Custodian shall open and maintain a separate bank
      account or accounts in the name of each Portfolio of the Fund, subject
      only to draft or order by the Custodian acting pursuant to the terms of
      this Contract, and shall hold in such account or accounts, subject to the
      provisions hereof, all cash received by it from or for the account of the
      Portfolio, other than cash maintained by the Portf6lio in a bank account
      established and used in accordance with Rule 17f-3 under the Investment
      Company Act of 1940. Funds held by the Custodian for a Portfolio may be
      deposited by it to its credit as Custodian in the Banking Department of
      the Custodian or in such other banks or trust companies as it may in its
      discretion deem necessary or desirable; provided, however, that every such
      bank or trust company shall be qualified to act as a custodian under the
      Investment Company Act of 1940 and that each such bank or trust company
      and the funds to be deposited with each such bank or trust company shall
      on behalf of each applicable Portfolio be approved by vote of a majority
      of the Board of Trustees of the Fund. Such funds shall be deposited by the
      Custodian in its capacity as Custodian and shall be withdrawable by the
      Custodian only in that capacity.

2.5   Availability of Federal Funds. Upon mutual agreement between the Fund on
      behalf of each applicable Portfolio and the Custodian, the Custodian
      shall, upon the receipt of Proper Instructions from the Fund on behalf of
      a Portfolio, make federal funds available to such Portfolio as of
      specified times agreed upon from time to time by the Fund and the
      Custodian in the amount of checks received in payment for Shares of such
      Portfolio which are deposited into the Portfolio's account.

2.6   Collection of Income. Subject to the provisions of Section 2.3, the
      Custodian shall collect on a timely basis all income and other payments
      with respect to registered securities held hereunder to which each
      Portfolio shall be entitled either by law or pursuant to custom in the
      securities business, and shall collect on a timely basis all income and
      other payments with respect to bearer securities if, on the date of
      payment by the issuer, such securities are held by the Custodian or its
      agent thereof and shall credit such income, as collected, to such
      Portfolio's custodian account. Without limiting the generality of the
      foregoing, the Custodian shall detach and present for payment all coupons
      and other income items requiring presentation as and when they become due
      and shall collect interest when due on securities held hereunder. Income
      due each Portfolio on securities loaned pursuant to the provisions of
      Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
      will have no duty or responsibility in connection therewith, other than to
      provide the Fund with such information or data as may be necessary to
      assist the Fund in arranging for the timely delivery to the Custodian of
      the income to which the Portfolio is properly entitled.

2.7   Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
      on behalf of the applicable Portfolio, which may be continuing
      instructions when deemed appropriate by the parties, the Custodian shall
      pay out monies of a Portfolio in the following cases only:


                                        5
<PAGE>

      1)    Upon the purchase of domestic securities, options, futures contracts
            or options on futures contracts for the account of the Portfolio but
            only (a) against the delivery of such securities or evidence of
            title to such options, futures contracts or options on futures
            contracts to the Custodian (or any bank, banking firm or trust
            company doing business in the United States or abroad which is
            qualified under the Investment Company Act of 1940, as amended, to
            act as a custodian and has been designated by the Custodian as its
            agent for this purpose) registered in the name of the Portfolio or
            in the name of a nominee of the Custodian referred to in Section 2.3
            hereof or in proper form for transfer; (b) in the case of a purchase
            effected through a Securities System, in accordance with the
            conditions set forth in Section 2.10 hereof; (c) in the case of a
            purchase of Scudder Fund Shares, in accordance with the conditions
            set forth in Section 2.10A hereof; (d) in the case of a purchase
            involving the Direct Paper System, in accordance with the conditions
            set forth in Section 2.11; (e) in the case of repurchase agreements
            entered into between the Fund on behalf of the Portfolio and the
            Custodian, or another bank, or a broker-dealer which is a member of
            NASD, (i) against delivery of the securities either in certificate
            form or through an entry crediting the Custodian's account at the
            Federal Reserve Bank with such securities or (ii) against delivery
            of the receipt evidencing purchase by the Portfolio of securities
            owned by the Custodian along with written evidence of the agreement
            by the Custodian to repurchase such securities from the Portfolio or
            (f) for transfer to a time deposit account of the Fund in any bank,
            whether domestic or foreign; such transfer may be effected prior to
            receipt of a confirmation from a broker and/or the applicable bank
            pursuant to Proper Instructions from the Fund as defined in Article
            5;

      2)    In connection with conversion, exchange or surrender of securities
            owned by the Portfolio as set forth in Section 2.2 hereof;

      3)    For the redemption or repurchase of Shares issued by the Portfolio
            as set forth in Article 4 hereof;

      4)    For the payment of any expense or liability incurred by the
            Portfolio, including but not limited to the following payments for
            the account of the Portfolio: interest, taxes, management,
            accounting, transfer agent and legal fees, and operating expenses of
            the Fund whether or not such expenses are to be in whole or part
            capitalized or treated as deferred expenses;

      5)    For the payment of any dividends on Shares of the Portfolio declared
            pursuant to the governing documents of the Fund;

      6)    For payment of the amount of dividends received in respect of
            securities sold short;


                                        6
<PAGE>

      7)    For any other proper purpose, but only upon receipt of, in addition
            to Proper Instructions from the Fund on behalf of the Portfolio, a
            certified copy of a resolution of the Board of Trustees or of the
            Executive Committee of the Fund signed by an officer of the Fund and
            certified by its Secretary or an Assistant Secretary, specifying the
            amount of such payment, setting forth the purpose for which such
            payment is to be made, declaring such purpose to be a proper
            purpose, and naming the person or persons to whom such payment is to
            be made.

2.8   Liability for Payment in Advance of Receipt of Securities Purchased.
      Except as specifically stated otherwise in this Contract, in any and every
      case where payment for purchase of securities for the account of a
      Portfolio is made by the Custodian in advance of receipt of the securities
      purchased in the absence of specific written instructions from the Fund on
      behalf of such Portfolio to so pay in advance, the Custodian shall be
      absolutely liable to the Fund for such securities to the same extent as if
      the securities had been received by the Custodian.

2.9   Appointment of Agents. The Custodian may at any time or times in its
      discretion appoint (and may at any time remove) any other bank or trust
      company which is itself qualified under the Investment Company Act of
      1940, as amended, to act as a custodian, as its agent to carry out such of
      the provisions of this Article 2 as the Custodian may from time to time
      direct; provided, however, that the appointment of any agent shall not
      relieve the Custodian of its responsibilities or liabilities hereunder.
      SSC shall not be deemed an agent or subcustodian of the Custodian for
      purposes of this Section 2.9 or any other provision of this Agreement.

2.10  Deposit of Fund Assets in Securities Systems. The Custodian may deposit
      and/or maintain securities owned by a Portfolio in a clearing agency
      registered with the Securities and Exchange Commission under Section 17A
      of the Securities Exchange Act of 1934, which acts as a securities
      depository, or in the book-entry system authorized by the U.S. Department
      of the Treasury and certain federal agencies, collectively referred to
      herein as "Securities System" in accordance with applicable Federal
      Reserve Board and Securities and Exchange Commission rules and
      regulations, if any, and subject to the following provisions:

      1)    The Custodian may keep securities of the Portfolio in a Securities
            System provided that such securities are represented in an account
            ("Account") of the Custodian in the Securities System which shall
            not include any assets of the Custodian other than assets held as a
            fiduciary, custodian or otherwise for customers;

      2)    The records of the Custodian with respect to securities of the
            Portfolio which are maintained in a Securities System shall identify
            by book-entry those securities belonging to the Portfolio;


                                       7
<PAGE>

      3)    The Custodian shall pay for securities purchased for the account of
            the Portfolio upon (i) receipt of advice from the Securities System
            that such securities have been transferred to the Account, and (ii)
            the making of an entry on the records of the Custodian to reflect
            such payment and transfer for the account of the Portfolio. The
            Custodian shall transfer securities sold for the account of the
            Portfolio upon (i) receipt of advice from the Securities System that
            payment for such securities has been transferred to the Account, and
            (ii) the making of an entry on the records of the Custodian to
            reflect such transfer and payment for the account of the Portfolio.
            Copies of all advices from the Securities System of transfers of
            securities for the account of the Portfolio shall identify the
            Portfolio, be maintained for the Portfolio by the Custodian and be
            provided to the Fund at its request. Upon request, the Custodian
            shall furnish the Fund on behalf of the Portfolio confirmation of
            each transfer to or from the account of the Portfolio in the form of
            a written advice or notice and shall furnish to the Fund on behalf
            of the Portfolio copies of daily transaction sheets reflecting each
            day's transactions in the Securities System for the account of the
            Portfolio;

      4)    The Custodian shall provide the Fund for the Portfolio with any
            report obtained by the Custodian on the Securities System's
            accounting system, internal accounting control and procedures for
            safeguarding securities deposited in the Securities System;

      5)    The Custodian shall have received from the Fund on behalf of the
            Portfolio the initial or annual certificate, as the case may be,
            required by Article 14 hereof;

      6)    Anything to the contrary in this Contract notwithstanding, the
            Custodian shall be liable to the Fund for the benefit of the
            Portfolio for any loss or damage to the Portfolio resulting from use
            of the Securities System by reason of any negligence, misfeasance or
            misconduct of the Custodian or any of its agents or of any of its or
            their employees or from failure of the Custodian or any such agent
            to enforce effectively such rights as it may have against the
            Securities System; at the election of the Fund, it shall be entitled
            to be subrogated to the rights of the Custodian with respect to any
            claim against the Securities System or any other person which the
            Custodian may have as a consequence of any such loss or damage if
            and to the extent that the Portfolio has not been made whole for any
            such loss or damage.

2.10A Deposit of Fund Assets with Scudder Service Corporation. Scudder Fund
      Shares shall be deposited and/or maintained in an account maintained with
      SSC as transfer agent for the funds. SSC shall be deemed to be acting as
      if it is a "depositary" for purposes of Rule 17f-4 of the Investment
      Company Act of 1940. The Fund hereby directs the Custodian to deposit
      and/or maintain such securities with SSC, subject to the following
      provisions:


                                        8
<PAGE>

      1)    The Custodian shall keep Scudder Fund Shares owned by a Portfolio
            with SSC provided that such securities are maintained in an account
            in the books and records of SSC in the name of the Custodian as
            custodian for the Portfolio.

      2)    The records of the Custodian with respect to Scudder Fund Shares
            which are maintained with SSC shall identify by book-entry those
            Scudder Fund Shares belonging to the Portfolio;

      3)    The Custodian shall pay for Scudder Fund Shares purchased for the
            account of the Portfolio upon (i) receipt of advice from the
            Portfolio's investment adviser that such securities have been
            purchased and will be transferred to the account of the Custodian,
            on behalf of the Portfolio, on the books and records of SSC, and
            (ii) the making of an entry on the records of the Custodian to
            reflect such payment and transfer for the account of the Portfolio.
            The Custodian shall receive confirmation from SSC of the purchase of
            such securities and the transfer of such securities to the
            Custodian's account with SSC only after such payment is made. The
            Custodian shall transfer Scudder Fund Shares redeemed for the
            account of a Portfolio (i) upon receipt of an advice from the
            Portfolio's investment adviser that such securities have been
            redeemed and that payment for such securities will be transferred to
            the Custodian and (ii) the making of an entry on the records of the
            Custodian to reflect such transfer and payment for the account of
            the Portfolio. The Custodian will receive confirmation from SSC of
            the redemption of such securities and payment therefor only after
            such securities are redeemed. Copies of all advices from the
            Portfolio's investment adviser of purchases and sales of Scudder
            Fund Shares for the account of the Portfolio shall identify the
            Portfolio, be maintained for the Portfolio by the Custodian, and be
            provided to the investment adviser at its request;

      4)    The Custodian shall be not be liable to the Fund or any Portfolio
            for any loss or damage to the Fund or any Portfolio resulting from
            maintenance of Scudder Fund Shares with SSC except for losses
            resulting directly from the negligence, misfeasance or misconduct of
            the Custodian or any of its agents or of any of its or their
            employees.

2.11  Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
      deposit and/or maintain securities owned by a Portfolio in the Direct
      Paper System of the Custodian subject to the following provisions:

      1)    No transaction relating to securities in the Direct Paper System
            will be effected in the absence of Proper Instructions from the Fund
            on behalf of the Portfolio;

      2)    The Custodian may keep securities of the Portfolio in the Direct
            Paper System only if such securities are represented in an account
            ("Account") of the Custodian in the


                                        9
<PAGE>

            Direct Paper System which shall not include any assets of the
            Custodian other than assets held as a fiduciary, custodian or
            otherwise for customers;

      3)    The records of the Custodian with respect to securities of the
            Portfolio which are maintained in the Direct Paper System shall
            identify by book-entry those securities belonging to the Portfolio;

      4)    The Custodian shall pay for securities purchased for the account of
            the Portfolio upon the making of an entry on the records of the
            Custodian to reflect such payment and transfer of securities to the
            account of the Portfolio. The Custodian shall transfer securities
            sold for the account of the Portfolio upon the making of an entry on
            the records of the Custodian to reflect such transfer and receipt of
            payment for the account of the Portfolio;

      5)    The Custodian shall furnish the Fund on behalf of the Portfolio
            confirmation of each transfer to or from the account of the
            Portfolio, in the form of a written advice or notice, of Direct
            Paper on the next business day following such transfer and shall
            furnish to the Fund on behalf of the Portfolio copies of daily
            transaction sheets reflecting each day's transaction in the
            Securities System for the account of the Portfolio;

      6)    The Custodian shall provide the Fund on behalf of the Portfolio with
            any report on its system of internal accounting control as the Fund
            may reasonably request from time to time.

2.12  Segregated Account. The Custodian shall upon receipt of Proper
      Instructions from the Fund on behalf of each applicable Portfolio
      establish and maintain a segregated account or accounts for and on behalf
      of each such Portfolio, into which account or accounts may be transferred
      cash and/or securities, including securities maintained in an account by
      the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
      provisions of any agreement among the Fund on behalf of the Portfolio, the
      Custodian and a broker-dealer registered under the Exchange Act and a
      member of the NASD (or any futures commission merchant registered under
      the Commodity Exchange Act), relating to compliance with the rules of The
      Options Clearing Corporation and of any registered national securities
      exchange (or the Commodity Futures Trading Commission or any registered
      contract market), or of any similar organization or organizations,
      regarding escrow or other arrangements in connection with transactions by
      the Portfolio, (ii) for purposes of segregating cash or government
      securities in connection with options purchased, sold or written by the
      Portfolio or commodity futures contracts or options thereon purchased or
      sold by the Portfolio, (iii) for the purposes of compliance by the
      Portfolio with the procedures required by Investment Company Act Release
      No. 10666, or any subsequent release or releases of the Securities and
      Exchange Commission relating to the maintenance of segregated accounts by
      registered investment companies and (iv) for other proper


                                       10
<PAGE>

      corporate purposes, but only, in the case of clause (iv), upon receipt of,
      in addition to Proper Instructions from the Fund on behalf of the
      applicable Portfolio, a certified copy of a resolution of the Board of
      Trustees or of the Executive Committee signed by an officer of the Fund
      and certified by the Secretary or an Assistant Secretary, setting forth
      the purpose or purposes of such segregated account and declaring such
      purposes to be proper corporate purposes.

2.13  Ownership Certificates for Tax Purposes. The Custodian shall execute
      ownership and other certificates and affidavits for all federal and state
      tax purposes in connection with receipt of income or other payments with
      respect to securities of each Portfolio held by it and in connection with
      transfers of securities.

2.14  Proxies. The Custodian shall, with respect to the securities held
      hereunder, cause to be promptly executed by the registered holder of such
      securities, if the securities are registered otherwise than in the name of
      the Portfolio or a nominee of the Portfolio, all proxies, without
      indication of the manner in which such proxies are to be voted, and shall
      promptly deliver to the Portfolio such proxies, all proxy soliciting
      materials and all notices relating to such securities.

2.15  Communications Relating to Portfolio Securities. Subject to the provisions
      of Section 2.3, the Custodian shall transmit promptly to the Fund for each
      Portfolio all written information (including, without limitation, pendency
      of calls and maturities of securities and expirations of rights in
      connection therewith and notices of exercise of call and put options
      written by the Fund on behalf of the Portfolio and the maturity of futures
      contracts purchased or sold by the Portfolio) received by the Custodian
      from issuers of the securities being held for the Portfolio. With respect
      to tender or exchange offers, the Custodian shall transmit promptly to the
      Portfolio all written information received by the Custodian from issuers
      of the securities whose tender or exchange is sought and from the party
      (or his agents) making the tender or exchange offer. If the Portfolio
      desires to take action with respect to any tender offer, exchange offer or
      any other similar transaction, the Portfolio shall notify the Custodian at
      least three business days prior to the date on which the Custodian is to
      take such action.

3.    Payments for Repurchases or Redemptions and Sales of Shares of the Fund

      From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn


                                       11
<PAGE>

on the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.

      The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.

4.    Proper Instructions

      Proper Instructions as used herein means a writing signed or initialed by
one or more person or persons as the Board of Trustees shall have from time to
time authorized. Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board of Trustees of the Fund accompanied by a detailed
description of procedures approved by the Board of Trustees, Proper Instructions
may include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Trustees and the Custodian are
satisfied that such procedures afford adequate safeguards for the Portfolios'
assets. For purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any three-party agreement
which requires a segregated asset account in accordance with Section 2.12.

5.    Actions Permitted without Express Authority

      The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:

      1)    make payments to itself or others for minor expenses of handling
            securities or other similar items relating to its duties under this
            Contract, provided that all such payments shall be accounted for to
            the Fund on behalf of the Portfolio;

      2)    surrender securities in temporary form for securities in definitive
            form;

      3)    endorse for collection, in the name of the Portfolio, checks, drafts
            and other negotiable instruments; and

      4)    in general, attend to all non-discretionary details in connection
            with the sale, exchange, substitution, purchase, transfer and other
            dealings with the securities and


                                       12
<PAGE>

            property of the Portfolio except as otherwise directed by the Board
            of Trustees of the Fund.

6.    Evidence of Authority

      The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.

7.    Duties of Custodian with Respect to the Books of Account and Calculation
      of Net Asset Value and Net Income

      The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The Fund acknowledges and agrees that, with respect to
investments maintained with SSC, SSC is the sole source of information on the
number of shares of a fund held by it on behalf of a Portfolio and that the
Custodian has the right to rely on holdings information furnished by SSC to the
Custodian in performing its duties under this Contract, including without
limitation, the duties set forth in this Section 7 and in Section 8 hereof;
provided, however, that the Custodian shall be obligated to reconcile
information as to purchases and sales of Scudder Fund Shares contained in trade
instructions and confirmations received by the Custodian and to report promptly
any discrepancies to SSC. The calculations of the net asset value per share and
the daily income of each Portfolio shall be made at the time or times described
from time to time in the Fund's currently effective prospectus related to such
Portfolio.

8.    Records

      The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31 a-1 and 31
a-2 thereunder. All such records shall be the property of the Fund and shall at
all times during the regular business hours of the Custodian be open for
inspection by duly


                                       13
<PAGE>

authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by each Portfolio
and held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.

9.    Opinion of Fund's Independent Accountant

      The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.

10.   Reports to Fund by Independent Public Accountants

      The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.

11.   Compensation of Custodian

      The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.

12.   Responsibility of Custodian

      So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in


                                       14
<PAGE>

good faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.

      If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.

      If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except such as
may arise from its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the account of the
applicable Portfolio shall be security therefor and should the Fund fail to
repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent necessary
to obtain reimbursement.

13.   Effective Period. Termination and Amendment

      This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Trustees has approved the initial use
of the Direct Paper System by such Portfolio; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.


                                       15
<PAGE>

      Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.

14.   Successor Custodian

      If a successor custodian for the Fund or one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System or at SSC.

      If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.

      In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System or at SSC. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.

      In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.

15.   Interpretive and Additional Provisions

      In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust


                                       16
<PAGE>

of the Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.

16.   Additional Funds

      In the event that the Fund establishes one or more series of Shares in
addition to the Conservative Portfolio, Balanced Portfolio, Growth Portfolio and
International Portfolio with respect to which it desires to have the Custodian
render services as custodian under the terms hereof, it shall so notify the
Custodian in writing, and if the Custodian agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.

17.   Massachusetts Law to Apply

      This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.

18.   Prior Contracts

      This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.

19.   Shareholder Communications Election

      Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the hank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.


      YES   |_| The Custodian is authorized to release the Fund's name,
                address, and share positions.


                                       17
<PAGE>

       NO   |_| The Custodian is not authorized to release the Fund's name, 
                address, and share positions.

20.   Limitation of Liability

      The Fund is organized as a Massachusetts business trust, and references in
this Contract to the Fund mean and refer to the Trustees from time to time
serving under its Declaration of Trust on file with the Secretary of State of
the Commonwealth of Massachusetts, as the same may be amended from time to time,
pursuant to which the Fund conducts its business. It is expressly agreed that
the obligations of the Fund hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Fund, as
provided in said Declaration of Trust. Moreover, if the Fund has more than one
series or Portfolio, no series or Portfolio of the Fund other than the series or
Portfolio on whose behalf a specified transaction shall have been undertaken
shall be responsible for the obligations of the Fund, and persons engaging in
transactions with the Fund shall look only to the assets of that series or
Portfolio to satisfy those obligations. The execution and delivery of this
Contract has been authorized by the Trustees and signed by an authorized officer
of the Fund, acting as such, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been made by
any of them but shall bind only the trust property of the Fund as provided in
such Declaration of Trust.


                                       18
<PAGE>

      IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 15th day of November,1996.


ATTEST                                    SCUDDER PATHWAY SERIES
                                          

/s/ [Illegible]                           By /s/ Daniel Pierce
- ----------------------                       ---------------------------


ATTEST                                    STATE STREET BANK AND TRUST COMPANY


/s/ [Illegible]                           By /s/ [Illegible]
- ----------------------                       ---------------------------
                                             Executive Vice President



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