SCUDDER PATHWAY SERIES /NEW/
497, 1999-01-11
Previous: TELE COMMUNICATIONS INC /CO/, 10-Q/A, 1999-01-11
Next: REGENCY BANCORP, SC 13D, 1999-01-11




                                                       SCUDDER

Offering a broad range of
investment opportunities by
investing in a select mix of
Scudder mutual funds.

Pure no-load(TM)/No sales charges

                                             Scudder
                                             Pathway Series

                                              o   Conservative Portfolio (080)

                                              o   Balanced Portfolio (081)

                                              o   Growth Portfolio (082)

                                              o   International Portfolio (083)

                                                       Prospectus
Mutual funds:
o   are not FDIC-insured
o   have no bank guarantees
o   may lose value
                                                       January 1, 1999

The Securities and Exchange
Commission has not approved or
disapproved these securities or
passed upon the adequacy of this
prospectus. Any representation to
the contrary is a criminal offense.

<PAGE>

                                    Contents

                                  2      Portfolio Summaries
- --------------------------------------------------------------------------------
An overview of each               2      Investment objectives and principal
portfolio's goal and                     strategies
strategy, main risks,
performance, expenses             2      Principal risks
and financial highlights
                                  3      Conservative portfolio -- Past
                                         performance

                                  4      Balanced portfolio -- Past performance

                                  5      Growth portfolio -- Past performance

                                  7      International portfolio -- Past
                                         performance

                                  8      Fee and expense information for the
                                         portfolios

                                 10      Financial highlights


                                 14      About the Portfolios
- --------------------------------------------------------------------------------
Additional                       14      Principal strategies, investments and
information that                         additional principal risks
you should know
about the portfolios             16      Underlying Scudder funds

                                 23      A message from the President

                                 24      Investment adviser

                                 26      Distributions

                                 27      Taxes


                                 28      About Your Investment
- --------------------------------------------------------------------------------
Information about                28      Transaction information
managing your portfolio
account                          29      Buying and selling shares

                                 30      Purchases

                                 31      Exchanges and redemptions

                                 32      Investment Products and Services
- --------------------------------------------------------------------------------

<PAGE>

Portfolio Summaries

Investment objectives and principal strategies

Scudder Pathway Series consists of four professionally managed portfolios --
Conservative, Balanced, Growth and International -- each with a distinct
investment objective. The investment objectives of the portfolios are as
follows:

o     Pathway Conservative Portfolio seeks current income and, as a secondary
      objective, long-term growth of capital. The portfolio invests
      substantially in bond funds, and, to a lesser extent, equity funds. This
      portfolio may be suitable for investors with an investment time horizon of
      3-5 years or more.

o     Pathway Balanced Portfolio seeks a balance of current income and growth of
      capital. The portfolio invests in a mix of money market, bond and equity
      funds. This portfolio may be suitable for investors with an investment
      time horizon of 5-10 years.

o     Pathway Growth Portfolio seeks long-term growth of capital. The portfolio
      invests predominantly in equity funds that pursue this goal. This
      portfolio may be suitable for investors with an investment time horizon of
      10 years or more.

o     Pathway International Portfolio seeks to maximize total return. The
      portfolio invests in a select mix of international and global funds. This
      portfolio may be appropriate for investors with an investment time horizon
      of 10 years or more who are looking for broad exposure to investment
      opportunities outside the U.S.

Rather than investing in individual securities like a traditional mutual fund,
each portfolio seeks to achieve its particular objective by investing in a
carefully selected combination of underlying Scudder mutual funds that in turn
invest in a wide range of securities. Therefore, an investment in one of the
portfolios may be diversified over hundreds, or even thousands, of individual
securities.

Except as otherwise indicated, each portfolio's investment objective and
policies may be changed without a vote of shareholders.

Principal risks

Each portfolio's ability to achieve its objective depends on the performance of
the underlying Scudder funds in which it invests, as well as the allocation of
the portfolio's assets among these funds. The performance of these underlying
Scudder funds, in turn, depends upon the performance of the securities in which
they invest.


2
<PAGE>

A portfolio's return and net asset value will go up and down, and it is possible
to lose money invested in a portfolio. Movements in either the stock or bond
market will affect a portfolio's share price on a daily basis. Declines are
possible both in the overall market and in the value of the underlying funds
held by a portfolio. The portfolio management team's skill in choosing the
appropriate mix of underlying Scudder funds will determine in large part a
portfolio's ability to achieve its objective.

An investment in a portfolio is subject to varying degrees of potential
investment risk and reward. The more aggressive portfolios are designed for
investors with longer investment time horizons and a high degree of risk
tolerance. In pursuing higher investment returns, these portfolios incur greater
risks and more dramatic fluctuations in value. In contrast, the more
conservative portfolios are designed for investors with shorter investment time
horizons or a lower degree of risk tolerance.

Because the portfolios invest in underlying Scudder funds, each portfolio will
indirectly bear its pro rata share of fees and expenses incurred by the
underlying funds in which it is invested. This may result in total returns that
are lower than if a portfolio had directly invested in the underlying funds'
portfolio securities.

Conservative portfolio

Past performance

The chart and table below provide some indication of the risks of investing in
the portfolio by illustrating how the portfolio has performed, and comparing
this information to a broad measure of market performance. Of course, past
performance is not necessarily an indication of future performance.

Total return for year ended December 31

[GRAPHIC OMITTED]

1997.......... 14.36%


                                                                               3
<PAGE>

For the period included in the bar chart, the fund's highest return for a
calendar quarter was 7.47% (the second quarter of 1997), and its lowest return
for a calendar quarter was 0.70% (the fourth quarter of 1997).

The portfolio's year-to-date total return as of September 30, 1998 was 0.21%.

Average annual total returns
                                               Lehman Brothers Aggregate Bond
                                              (LBAB) Index (60%), S&P 500 Index
For periods ended                           (25%), 3-Month T-Bill (10%) and MSCI
December 31, 1997             Portfolio       All Country (ex U.S.) Index (5%)
- --------------------------------------------------------------------------------
One Year                        14.36%                     14.54%

Since Inception (11/15/96)      13.91%                     12.21%*
- --------------------------------------------------------------------------------

*    Index comparisons begin November 30, 1996.

The Lehman Brothers Aggregate Bond (LBAB) Index is a market value-weighted
measure of treasury issues, agency issues, corporate bond issues and
mortgage-backed securities. The S&P 500 Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange and American Stock Exchange and traded in the Nasdaq
Stock Market, Inc. The MSCI All Country (ex U.S.) Index is a market
value-weighted measure of stocks of 46 countries. Index returns assume
reinvestment of dividends and do not reflect any fees or expenses.

Balanced portfolio

Past performance

The chart and table below provide some indication of the risks of investing in
the portfolio by illustrating how the portfolio has performed, and comparing
this information to a broad measure of market performance. Of course, past
performance is not necessarily an indication of future performance.


4
<PAGE>

Total return for year ended December 31

[GRAPHIC OMITTED]

1997.......... 13.33%

For the period included in the bar chart, the fund's highest return for a
calendar quarter was 9.46% (the second quarter of 1997), and its lowest return
for a calendar quarter was -1.65% (the fourth quarter of 1997).

The portfolio's year-to-date total return as of September 30, 1998 was -3.10%.

Average annual total returns

                                                     S&P 500 Index (50%),
                                                Lehman Brothers Aggregate Bond
                                                 (LBAB) Index (35%), MSCI All
For periods ended                                Country (ex U.S.) Index (10%)
December 31, 1997              Portfolio            and 3-Month T-Bill (5%)
- --------------------------------------------------------------------------------
One Year                         13.33%                    20.16%

Since Inception (11/15/96)       12.99%                    16.90%*
- --------------------------------------------------------------------------------

*    Index comparisons begin November 30, 1996.

The S&P 500 Index is an unmanaged capitalization-weighted measure of 500 widely
held common stocks listed on the New York Stock Exchange and American Stock
Exchange and traded on the Nasdaq Stock Market, Inc. The Lehman Brothers
Aggregate Bond (LBAB) Index is a market value-weighted measure of treasury
issues, agency issues, corporate bond issues and mortgage-backed securities. The
MSCI All Country (ex U.S.) Index is a market value-weighted measure of stocks of
46 countries. Index returns assume reinvestment of dividends and do not reflect
any fees or expenses.

Growth portfolio

Past performance

The chart and table below provide some indication of the risks of investing in
the portfolio by illustrating how the portfolio has performed, and comparing
this information to a broad measure of


                                                                               5
<PAGE>

market performance. Of course, past performance is not necessarily an indication
of future performance.

Total return for year ended December 31

[GRAPHIC OMITTED]

1997.......... 14.93%

For the period included in the bar chart, the fund's highest return for a
calendar quarter was 12.92% (the second quarter of 1997), and its lowest return
for a calendar quarter was -3.18% (the fourth quarter of 1997).

The portfolio's year-to-date total return as of September 30, 1998 was -5.82%.

Average annual total returns
                                                S&P 500 Index (60%), MSCI All
                                               Country (ex U.S.) Index (20%),
                                               Lehman Brothers Aggregate Bond
For periods ended                              (LBAB) Index (15%) and 3-Month
December 31, 1997             Portfolio                  T-Bill (5%)
- --------------------------------------------------------------------------------
One Year                        14.93%                     21.60%

Since Inception (11/15/96)      14.91%                     18.05%*
- --------------------------------------------------------------------------------

*    Index comparisons begin November 30, 1996.

The S&P 500 Index is an unmanaged capitalization-weighted measure of 500 widely
held common stocks listed on the New York Stock Exchange and American Stock
Exchange and traded on the Nasdaq Stock Market, Inc. The MSCI All Country (ex
U.S.) Index is a market value-weighted measure of stocks of 46 countries. The
Lehman Brothers Aggregate Bond (LBAB) Index is a market value-weighted measure
of treasury issues, agency issues, corporate bond issues and mortgage-backed
securities. Index returns assume reinvestment of dividends and do not reflect
any fees or expenses.


6
<PAGE>

International portfolio

Past performance

The chart and table below provide some indication of the risks of investing in
the portfolio by illustrating how the portfolio has performed, and comparing
this information to a broad measure of market performance. Of course, past
performance is not necessarily an indication of future performance.

Total return for year ended December 31

[GRAPHIC OMITTED]

1997.......... 6.97%

For the period included in the bar chart, the fund's highest return for a
calendar quarter was 11.21% (the first quarter of 1997), and its lowest return
for a calendar quarter was -6.33% (the fourth quarter of 1997).

The portfolio's year-to-date total return as of September 30, 1998 was -6.71%.

Average annual total returns
                                                      MSCI All Country
                                              (ex U.S.) Index (75%), JP Morgan
For periods ended                              Non-U.S. Global Government Bond
December 31, 1997             Portfolio      Index (20%) and 3-Month T-Bill (5%)
- --------------------------------------------------------------------------------
One Year                        6.97%                      1.02%

Since Inception (11/15/96)      8.13%                      0.02%*
- --------------------------------------------------------------------------------

*    Index comparisons begin November 30, 1996.

The MSCI All Country (ex U.S.) Index is a market value-weighted measure of
stocks of 46 countries. The JP Morgan Non-U.S. Global Government Bond Index is a
market value-weighted measure of bonds excluding U.S. bonds. Index returns
assume reinvestment of dividends and do not reflect any fees or expenses.


                                                                               7
<PAGE>

Fee and expense information for the portfolios

Scudder Family of Funds pure no-load(TM) funds

This information is designed to help you understand the fees and expenses that
you may pay if you buy and hold shares of the portfolios.

- -----------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- -----------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases                  NONE
(as % of offering price)
- -----------------------------------------------------------------------------
Maximum deferred sales charge (load)                              NONE
- -----------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested                 NONE
dividends/distributions
- -----------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable)           NONE*
- -----------------------------------------------------------------------------
Exchange fee                                                      NONE
- -----------------------------------------------------------------------------
Annual portfolio operating expenses (expenses that are deducted from portfolio
assets):
- -----------------------------------------------------------------------------
Management fee                                                    NONE
- -----------------------------------------------------------------------------
Distribution (12b-1) fees                                         NONE
- -----------------------------------------------------------------------------
Other expenses                                                    NONE
- -----------------------------------------------------------------------------
Total annual portfolio operating expenses                         NONE
- -----------------------------------------------------------------------------

*    You may redeem by writing or calling the portfolio. If you wish to receive
     your redemption proceeds via wire, there is a $5 wire service fee. For
     additional information, please refer to "About Your Investment -- Exchanges
     and Redemptions."

Each portfolio expects 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 a portfolio
is invested. Expected expense ratios of the underlying funds are provided as a
range since the average assets of the portfolios invested in each of the
underlying funds will fluctuate.

Example

This example is to help you compare the cost of investing in each portfolio with
the cost of investing in other mutual funds.

This example illustrates the impact of the total pro rata fees and expenses on
an account with an initial investment of $10,000, based on the midpoint of the
range of expenses shown below borne by the underlying funds in each portfolio.
It assumes a 5% annual return, the reinvestment of all dividends and
distributions and "annual portfolio operating expenses" remaining the same each
year. 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. The expenses would be the same whether you sold your shares at the
end of each period or continued to hold them.


8
<PAGE>

Portfolio                 Expense Range    1 year   3 years   5 years   10 years
- --------------------------------------------------------------------------------
Conservative Portfolio    0.15% - 1.75%      $97     $303      $525      $1,166
Balanced Portfolio        0.30% - 1.85%     $110     $343      $595      $1,317
Growth Portfolio          0.71% - 1.95%     $135     $421      $729      $1,601
International Portfolio   1.06% - 2.00%     $156     $483      $834      $1,824
- --------------------------------------------------------------------------------

Expense ratios are stated as of the most current fiscal year end for each of the
underlying funds.

Actual expenses and returns of each underlying Scudder fund vary from year to
year, and may be higher or lower than those shown above.


                                                                               9
<PAGE>

Financial highlights

The financial highlights tables are intended to help you understand each
portfolio's financial performance for the fiscal periods indicated. Certain
information reflects financial results for a single portfolio share outstanding
throughout the period (a). The total return figures represent the rate that an
investor would have earned (or lost) on an investment in each portfolio assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP whose report, along with each portfolio's
financial statements, is included in each portfolio's annual report, which is
available upon request by calling Scudder Investor Relations at 1-800-225-2470
or, for existing investors, call the Scudder Automated Information Line (SAIL)
at 1-800-343-2890.

Conservative portfolio
- --------------------------------------------------------------------------------
                                                                For the Period
                                                              November 15, 1996
                                             For the          (commencement of
                                       Eleven Months Ended      operations) to
                                      August 31, 1998 (a)(d)  September 30, 1997
- --------------------------------------------------------------------------------
Net asset value, beginning              ----------------------------------------
  of period .........................       $ 13.27              $ 12.00
                                        ----------------------------------------
Income from investment operations:
Net investment income ...............           .51                  .39
Net realized and unrealized gain on
  investment transactions ...........          (.63)                1.36
                                        ----------------------------------------
Total from investment operations ....          (.12)                1.75
                                        ----------------------------------------
Less distributions:
From net investment income ..........          (.57)                (.33)
From net realized gain on
  investments .......................          (.30)                (.15)
                                        ----------------------------------------
Total distributions .................          (.87)                (.48)
                                        ----------------------------------------
                                        ----------------------------------------
Net asset value, end of period ......       $ 12.28              $ 13.27
- --------------------------------------------------------------------------------
Total Return (%) (c) ................         (1.10)**             14.99**
Ratios and Supplemental Data
Net assets, end of period
  ($ millions) ......................            29                   17
Ratio of operating expenses to
  average daily net assets (%) (b) ..            --                   --
Ratio of net investment income to
  average daily net assets (%) ......          4.21*                3.67*
Portfolio turnover rate (%) .........          31.5*                42.0*

(a)  Based on monthly average shares outstanding 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.

(c)  Total return would have been lower if the Adviser had not maintained some
     Underlying Funds' expenses.

(d)  On August 12, 1998, the Board of Trustees of the Portfolio changed the
     fiscal year end from September 30 to August 31.

*    Annualized

**   Not annualized
- --------------------------------------------------------------------------------


10
<PAGE>

Financial highlights

Balanced portfolio
- --------------------------------------------------------------------------------
                                                                For the Period
                                                              November 15, 1996
                                             For the          (commencement of
                                       Eleven Months Ended      operations) to
                                      August 31, 1998 (a)(d)  September 30, 1997
- --------------------------------------------------------------------------------
Net asset value, beginning              ----------------------------------------
  of period .........................       $ 13.56              $ 12.00
                                        ----------------------------------------
Income from investment operations:
Net investment income ...............           .39                  .37
Net realized and unrealized gain
  on investment transactions ........         (1.26)                1.59
                                        ----------------------------------------
Total from investment operations ....          (.87)                1.96
                                        ----------------------------------------
Less distributions:
From net investment income ..........          (.42)                (.33)
From net realized gain on
  investments .......................          (.21)                (.07)
                                        ----------------------------------------
Total distributions .................          (.63)                (.40)
                                        ----------------------------------------
                                        ----------------------------------------
Net asset value, end of period ......       $ 12.06              $ 13.56
- --------------------------------------------------------------------------------
Total Return (%) (c) ................         (6.78)**             16.67**
Ratios and Supplemental Data
Net assets, end of period
  ($ millions) ......................           222                  192
Ratio of operating expenses to
  average daily net assets (%) (b) ..            --                   --
Ratio of net investment income to ...          3.15*                2.96*
  average daily net assets (%)
Portfolio turnover rate (%) .........          28.2*                24.3*

(a)  Based on monthly average shares outstanding 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.

(c)  Total return would have been lower if the Adviser had not maintained some
     Underlying Funds' expenses.

(d)  On August 12, 1998, the Board of Trustees of the Portfolio changed the
     fiscal year end from September 30 to August 31.

*    Annualized

**   Not annualized
- --------------------------------------------------------------------------------


                                                                              11
<PAGE>

Financial highlights

Growth portfolio
- --------------------------------------------------------------------------------
                                                                For the Period
                                                              November 15, 1996
                                             For the          (commencement of
                                       Eleven Months Ended      operations) to
                                      August 31, 1998 (a)(d)  September 30, 1997
- --------------------------------------------------------------------------------
Net asset value, beginning            ------------------------------------------
  of period .........................       $ 14.15              $ 12.00
                                      ------------------------------------------
Income from investment operations:
Net investment income ...............           .23                  .29
Net realized and unrealized gain
  on investment transactions ........         (1.74)                2.15
                                      ------------------------------------------
Total from investment operations ....         (1.51)                2.44
                                      ------------------------------------------
Less distributions:
From net investment income ..........          (.21)                (.16)
From net realized gain on
  investments .......................          (.26)                (.13)
                                      ------------------------------------------
Total distributions .................          (.47)                (.29)
                                      ------------------------------------------
                                      ------------------------------------------
Net asset value, end of period ......       $ 12.17              $ 14.15
- --------------------------------------------------------------------------------
Total Return (%) (c) ................        (10.94)**             20.79**
Ratios and Supplemental Data
Net assets, end of period
  ($ millions) ......................            64                   50
Ratio of operating expenses to
  average daily net assets (%) (b) ..            --                   --
Ratio of net investment income to
  average daily net assets (%) ......          1.78*                2.09*
Portfolio turnover rate (%) .........          23.8*                15.1*

(a)  Based on monthly average shares outstanding 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.

(c)  Total return would have been lower if the Adviser had not maintained some
     Underlying Funds' expenses.

(d)  On August 12, 1998, the Board of Trustees of the Portfolio changed the
     fiscal year end from September 30 to August 31.

*    Annualized

**   Not annualized
- --------------------------------------------------------------------------------


12
<PAGE>

Financial highlights

International portfolio
- --------------------------------------------------------------------------------
                                                                For the Period
                                                              November 15, 1996
                                             For the          (commencement of
                                       Eleven Months Ended      operations) to
                                      August 31, 1998 (a)(e)  September 30, 1997
- --------------------------------------------------------------------------------
Net asset value, beginning             -----------------------------------------
  of period .........................       $ 13.59              $ 12.00
                                       -----------------------------------------
Income from investment operations: ..           .17                  .31
Net investment income
Net realized and unrealized gain
  (loss) on investment transactions .         (1.55)                1.63(b)
                                       -----------------------------------------
Total from investment operations ....         (1.38)                1.94
                                       -----------------------------------------
Less distributions: .................          (.16)                (.25)
From net investment income
From net realized gain (loss) on
  investments .......................          (.35)                (.10)
                                       -----------------------------------------
Total distributions .................          (.51)                (.35)
                                       -----------------------------------------
                                       -----------------------------------------
Net asset value, end of period ......       $ 11.70              $ 13.59
- --------------------------------------------------------------------------------
Total Return (%) (d) ................        (10.31)**             16.58**
Ratios and Supplemental Data     
Net assets, end of period 
  ($ millions) ......................             9                   12
Ratio of operating expenses to
  average daily net assets (%) (c) ..            --                   --
Ratio of net investment income to
  average daily net assets (%) ......          1.42*                1.23*
Portfolio turnover rate (%) .........          52.0*                35.1*

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

(b)  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.

(c)  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.

(d)  Total return would have been lower if the Adviser had not maintained some
     of the Underlying Funds' expenses.

(e)  On August 12, 1998, the Board of Trustees of the Portfolio changed the
     fiscal year end from September 30 to August 31.

*    Annualized

**   Not annualized
- --------------------------------------------------------------------------------


                                                                              13
<PAGE>

About The Portfolios

Principal strategies, investments and additional principal risks

Principal strategies and investments

Each portfolio allocates its assets among a diverse group of underlying Scudder
funds. These underlying funds fall within three broad categories: equity funds
(domestic and international), bond funds (domestic and international) and money
market funds. (See "Underlying Scudder Funds" for a brief description of these
funds.) The primary difference among the portfolios is their asset allocations
among these underlying funds. The portfolios invest within the following
investment ranges (ranges are expressed in terms of total assets): 

o     Pathway Conservative Portfolio invests 40-80% in bond funds, 20-50% in
      equity funds and 0-15% in a money market fund, cash or cash equivalents.
      This portfolio invests primarily in Scudder domestic and global bond funds
      and, to a lesser extent, equity funds. Through this combination of
      investments, the portfolio attempts to provide current income and,
      secondarily, long-term growth of capital.

o     Pathway Balanced Portfolio invests 40-70% in equity funds, 25-60% in bond
      funds and 0-10% in a money market fund, cash or cash equivalents. This
      portfolio invests primarily in Scudder domestic and global equity and bond
      funds in attempting to provide its shareholders with a balance of current
      income and growth of capital.

o     Pathway Growth Portfolio invests 60-90% in equity funds, 10-40% in bond
      funds and 0-5% in a money market fund, cash or cash equivalents. This
      portfolio pursues long-term growth of capital by investing in Scudder's
      growth-oriented equity funds and, to a lesser extent, bond funds, which
      have the potential for capital appreciation as well as income.

o     Pathway International Portfolio invests 60-100% in equity funds, 10-40% in
      bond funds and 0-20% in a money market fund, cash or cash equivalents. In
      seeking to maximize total return (i.e., capital growth and income), this
      portfolio invests in a select mix of Scudder's international and global
      funds. At least 65% of this portfolio's total assets will be invested in
      underlying funds investing primarily in non-domestic securities.


14
<PAGE>

The portfolio management team uses fundamental and quantitative research to
determine the appropriate underlying funds in which to invest and the percentage
of the portfolio's assets to commit to each of these underlying funds. This
analysis looks at business and financial data of global economies and capital
markets, as well as companies, industries and regions throughout the world in
order to determine the appropriate investment mix for each portfolio. A
portfolio may modify its investment allocation in the underlying funds in
response to changing market conditions, to maintain or change the percentages of
its investment mix, or to accommodate purchases and sales of its shares.

From time to time, each portfolio may invest, without limit, in cash and cash
equivalents for temporary defensive purposes. Because this defensive policy
differs from each portfolio's investment objective, a portfolio may not achieve
its goals during a defensive period.

More information about investments and strategies of the portfolios, as well as
a detailed description of the expense ratios for the underlying funds, is
provided in the Statement of Additional Information. Of course, there can be no
guarantee that by following its particular investment strategies, a portfolio
will achieve its objective.

Additional principal risks

Each portfolio's risks are directly related to the risks of the securities held
by the underlying Scudder funds, as well as the proportion of the portfolio's
assets invested in each of these underlying funds. The principal risks of the
securities held by underlying Scudder funds include the following:

Equity investing risk. An investment in the common stock of a company represents
a proportionate ownership interest in that company. Therefore, a fund
participates in the success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered a greater potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.


                                                                              15
<PAGE>

Income investing risk. The principal risks involved with investments in bonds
include interest rate risk, credit risk and pre-payment risk. Interest rate risk
refers to the likely decline in the value of bonds as interest rates rise.
Generally, longer-term securities are more susceptible to changes in value as a
result of interest-rate changes than are shorter-term securities. Credit risk
refers to the risk that an issuer of a bond may default with respect to the
payment of principal and interest. The lower a bond is rated, the more it is
considered to be a speculative or risky investment. Pre-payment risk is commonly
associated with pooled debt securities, such as mortgage-backed securities and
asset-backed securities, but may affect other debt securities as well. When the
underlying debt obligations are prepaid ahead of schedule, the return on the
security will be lower than expected. Pre-payment rates usually increase when
interest rates are falling.

Foreign investing risk. Investing in foreign securities, and to a greater extent
emerging markets, involves risks in addition to those associated with investing
in securities in the U.S. To the extent that investments are denominated in
foreign currencies, adverse changes in the values of foreign currencies may have
a significant negative effect on any returns from these investments. Investing
in foreign securities exposes a fund to an increased risk of political and
economic instability.

Other risks of investing in foreign securities include limited information,
higher brokerage costs, different accounting standards and thinner trading
markets as compared to U.S. markets.

Inflation risk. There is a possibility that the rising prices of goods and
services may have the effect of offsetting a fund's real return. This is likely
to have a greater impact on the returns of bond funds and money market funds,
which historically have had more modest returns in comparison to equity funds.

Manager's risk. There is a risk that a portfolio or underlying fund may not
achieve its objective because its portfolio management team may not effectively
execute its investment strategies.

Underlying Scudder funds

The portfolios may invest in the following Scudder funds:

Equity Funds

Classic Growth Fund (Scudder Shares) (not available for the International
portfolio) seeks to provide long-term growth of capital with reduced share price
volatility compared to other growth mutual funds. Under normal market
conditions, the fund invests primarily in a diversified portfolio of common
stocks. The fund focuses on high quality, medium- to large- sized U.S. companies
with leading 


16
<PAGE>

competitive positions. In addition, the fund looks for companies with strong and
sustainable earnings growth, solid management with a proven ability to add value
over time, and reasonable stock market valuations.

Scudder Development Fund (not available for the International portfolio) seeks
long-term growth of capital by investing primarily in securities of medium-size
companies with the potential for sustainable above-average earnings growth. The
fund generally invests in equity securities, including common stocks and
convertible securities, of medium-size or mid-capitalization companies, that
appear to have above-average earnings growth potential and/or may receive
greater market recognition. Medium-sized companies are those companies with
market capitalizations similar to those of companies included in the Standard &
Poor's Corporation Mid-Cap 400 Index.

Scudder Emerging Markets Growth Fund 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 on investments in countries and
regions where there appears 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.

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. The fund generally invests in small, rapidly
growing companies that offer the potential for above-average returns relative to
larger companies, yet are frequently overlooked and thus undervalued by the
market.

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 in equity securities of companies that appear to have
the potential to benefit from global economic trends, promising technologies or
products and specific country opportunities resulting from changing
geopolitical, currency or economic relationships. It is expected that
investments will be spread broadly around the world.

Scudder Gold Fund seeks maximum return (principal change and income) consistent
with investing in a portfolio of gold-related equity securities and gold. When
making portfolio investments, the fund emphasizes the potential for growth of
the proposed investment, although it may also consider the income generating
capacity of a stock 


                                                                              17
<PAGE>

as one factor among others in evaluating investment opportunities. Under normal
market conditions, the fund invests at least 65% of its total assets in the
following: equity securities of U.S. and foreign companies primarily engaged in
the exploration, mining, fabrication, processing or distribution of gold; gold
bullion; and gold coins.

Scudder Greater Europe Growth Fund 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 invests,
under normal market conditions, at least 80% of its total assets in the equity
securities of European companies.

Scudder Growth and Income Fund (not available for the International portfolio)
seeks long-term growth of capital, current income and growth of income. The fund
invests primarily in common stocks, preferred stocks and securities convertible
into common stocks of companies which offer the prospect for growth of earnings
while paying current dividends. Many of these companies are mainstays of the
U.S. economy.

Scudder International Fund seeks long-term growth of capital primarily from
foreign equity securities. The fund generally invests in equity securities of
established companies, listed on foreign exchanges. 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 other than the U.S.

Scudder International Growth and Income Fund 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 intends to diversify investments among several
countries and normally to have investments in securities of at least three
different countries other than the U.S.

Scudder Large Company Growth Fund (not available for the International
portfolio) 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 invests primarily in the equity securities issued by
large-sized domestic companies that offer above-average appreciation potential.
The fund utilizes a combination of qualitative and quantitative research
techniques to identify companies that have above-average quality and growth
characteristics and that are deemed to be selling at attractive market
valuations.


18
<PAGE>

Scudder Large Company Value Fund (not available for the International portfolio)
seeks to maximize long-term capital appreciation through a value-driven
investment program. The fund normally will 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.

Scudder Latin America Fund seeks to provide long-term capital appreciation
through investment primarily in the securities of Latin American issuers. The
fund attempts to benefit from economic and political trends emerging throughout
Latin America. 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. The fund intends to allocate
investments among at least three countries at all times.

Scudder Micro Cap Fund (not available for the International portfolio) seeks
long-term growth of capital. The fund invests, under normal market conditions,
at least 80% of its assets in common stocks issued by U.S. micro-cap companies.
The fund is actively managed using a quantitative, value-oriented investment
approach. The median market capitalization of the fund's portfolio is not
expected to exceed $125 million.

Scudder Pacific Opportunities Fund seeks long-term growth of capital through
investment primarily in the equity securities of Pacific Basin companies,
excluding Japan. The fund's investment program focuses on the smaller, emerging
markets in this region of the world. The fund seeks to identify companies with
favorable potential for appreciation through growing earnings or market
recognition over time.

Scudder Small Company Value Fund (not available for the International portfolio)
pursues long-term growth of capital by investing primarily in undervalued stocks
of small U.S. companies. The fund is actively managed using a disciplined,
value-oriented investment management approach. In addition, the fund attempts to
manage its risk exposure by, among other things, generally investing in over 150
small companies across a broad range of U.S. industries.

Scudder 21st Century Growth Fund (not available for the International portfolio)
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
normally invests at least 80% of its assets in common stocks. Companies in which
the fund invests generally are similar in size to those included in the Russell
2000 Index. The fund may continue to hold securities of companies that have
grown in 


                                                                              19
<PAGE>

market value above the maximum market value of the companies in the Russell 2000
Index, but will generally not add to these holdings.

Scudder Value Fund (not available for the International portfolio) 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 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 Japan Fund, Inc. seeks long-term capital appreciation by investing primarily
in equity securities (including American Depositary Receipts) of Japanese
companies. Under normal market conditions, the fund invests at least 80% of its
assets in Japanese securities, that is, securities issued by entities that are
organized under the laws of Japan, securities of affiliates of these 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.
The fund currently intends to focus its investments in select Japanese
companies, whether large or small, that have an active market for their shares
and that show a potential for greater-than average growth.

Bond Funds

Scudder Corporate Bond Fund (not available for the International portfolio)
seeks a high level of current income through investment primarily in
investment-grade corporate debt securities. The fund invests, under normal
market conditions, at least 65% of its total assets in investment-grade debt
securities. The fund focuses its investments in securities issued by
investment-grade companies that are established in their industries, have stable
cash flows and strong balance sheets.

Scudder Emerging Markets Income Fund has dual investment objectives. The fund's
primary investment objective is to provide investors with 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 debt
securities issued by governments and corporations in emerging markets.

Scudder Global Bond Fund seeks to provide total return with an emphasis on
current income by investing primarily in high-grade bonds denominated in foreign
currencies and the U.S. dollar. As a secondary objective, the fund seeks capital
appreciation. The fund invests 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. The fund
intends to select its investments from a number of country and market sectors.


20
<PAGE>

Scudder GNMA Fund (not available for the International portfolio) seeks high
current income primarily from U.S. Government guaranteed mortgage-backed
securities. The fund invests primarily in mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association ("GNMA" or "Ginnie
Mae").

Scudder High Yield Bond Fund (not available for the International portfolio)
seeks a high level of current income, and secondarily, capital appreciation
through investment primarily in below investment-grade domestic debt securities.
The fund invests, under normal market conditions, at least 65% of its total
assets in high yield, below investment-grade domestic debt securities. The fund
invests primarily in medium- and long-term fixed-income securities.

Scudder Income Fund (not available for the International portfolio) 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. The majority of the fund's assets are
usually invested in intermediate- and long-term fixed-income securities.

Scudder International Bond Fund 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. The fund invests primarily in a
managed portfolio of high-grade debt securities that are denominated in foreign
currencies, including bonds denominated in the European Currency Unit.

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 fund invests at least 65% of its net assets in a
managed portfolio of bonds consisting of: U.S. Government securities including
bonds, notes and bills issued by the U. S. Treasury, and securities issued by
agencies and instrumentalities of the U.S. Government; corporate debt
securities, such as bonds, notes and debentures; mortgage-backed securities; and
other asset-backed securities.


                                                                              21
<PAGE>

Money Market Fund

Scudder Cash Investment Trust seeks to maintain stability of capital and,
consist therewith, to maintain liquidity of capital and to provide current
income. The fund also seeks to maintain a constant net asset value of $1.00 per
share and declare dividends daily. The fund purchases U.S. dollar-denominated
money market securities with remaining maturities of 397 calendar days or less,
except in the case of U.S. Government securities which may have remaining
maturities of 762 calendar days or less.

Scudder Money Market Series -- Scudder Premium Money Market Shares 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 fund
invests exclusively in a broad range of short-term money market instruments that
have remaining maturities of not more than 397 calendar days and certain
repurchase agreements. 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.

The underlying funds may utilize other investments and investment techniques
which may impact portfolio performance, including options, futures and other
strategic transactions. The underlying funds are limited to 5% of net assets for
initial margin and premium amounts on futures positions considered speculative
by the Commodities Futures Trading Commission. More information about these and
other investments and strategies of the underlying funds is contained in the
Statement of Additional Information.


22
<PAGE>

A message from the President

[PHOTO OMITTED]

Edmond D. Villani, President
and CEO, Scudder Kemper
Investments, Inc.

Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $230 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts.

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

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

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

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


/s/ Edmond D. Villani


                                                                              23
<PAGE>

Investment adviser

Each portfolio retains the investment management firm of Scudder Kemper
Investments, Inc. (the "Adviser"), Two International Place, Boston, MA, to
manage each portfolio's daily investment and business affairs subject to the
policies established by the Board of Trustees. The Adviser actively manages your
investment in the portfolio. Professional management can be an important
advantage for investors who do not have the time or expertise to invest directly
in individual securities.

Portfolio management

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

The following investment professionals are associated with each portfolio as
indicated:

                              Joined the
Name and Title                Portfolio     Background
- --------------------------------------------------------------------------------
Benjamin W. Thorndike            1996       Mr. Thorndike, who joined the
Lead Manager                                Adviser as a portfolio manager in
                                            1983, will develop portfolio
                                            strategy utilizing the research,
                                            analysis and guidance provided by
                                            other members of the investment
                                            team. Since 1986, Mr. Thorndike has
                                            served as a portfolio manager for
                                            Scudder Growth and Income Fund, and
                                            has over 18 years of investment
                                            experience.

Maureen F. Allyn                 1996       Ms. Allyn is the Adviser's Chief
Manager                                     Economist, a position she has held
                                            since 1989, and is responsible for
                                            analyzing both the world and U.S.
                                            economies.
- --------------------------------------------------------------------------------


24
<PAGE>

                              Joined the
Name and Title                Portfolio     Background
- --------------------------------------------------------------------------------
Edward Baldini                   1998       Mr. Baldini joined the Adviser in
Manager                                     1995 as a member of the Growth and
                                            Income Equity Management Group,
                                            focusing on institutional client
                                            management. In addition, Mr. Baldini
                                            is a member of Scudder's
                                            Institutional Asset Allocation
                                            Committee. Prior to joining the
                                            Adviser, he served as an Assistant
                                            Strategist at an unaffiliated
                                            investment management firm.

Philip S. Fortuna                1996       Mr. Fortuna, who joined the Adviser
Manager                                     in 1986 as manager of institutional
                                            equity accounts, has served as
                                            Director of Quantitative Research
                                            and Director of Investment
                                            Operations. Mr. Fortuna is a Lead
                                            Manager for both Scudder Small
                                            Company Value Fund and Scudder Micro
                                            Cap Fund.
- --------------------------------------------------------------------------------

Year 2000 readiness

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


                                                                              25
<PAGE>

Euro conversion

The planned introduction of a new European currency, the Euro, may result in
uncertainties for European securities in the markets in which they trade and
with respect to the operation of those portfolios indirectly investing in these
markets. Currently, the Euro is expected to be introduced on January 1, 1999 by
eleven European countries that are members of the European Economic and Monetary
Union (EMU). The introduction of the Euro will require the redenomination of
European debt and equity securities over a period of time, which may result in
various accounting differences and/or tax treatments that otherwise would not
likely occur. Additional questions are raised by the fact that certain other EMU
members, including the United Kingdom, will not officially be implementing the
Euro on January 1, 1999. If the introduction of the Euro does not take place as
planned, there could be negative effects, such as severe currency fluctuations
and market disruptions. 

The Adviser is working to address Euro-related issues and understands that other
key service providers are taking similar steps. However, at this time no one
knows precisely what the degree of impact will be. To the extent that the market
impact or effect on a portfolio holding is negative, it could hurt the
portfolio's performance.

Distributions

Dividends and capital gains distributions

The Conservative Portfolio and the Balanced Portfolio intend to distribute
dividends from their net investment income quarterly, in March, June, September
and December, while the Growth Portfolio and the International Portfolio intend
to distribute these dividends annually, in November or December. Each portfolio
intends to distribute net realized capital gains after utilization of capital
loss carryforwards, if any, in November or December. An additional distribution
may be made at a later date, if necessary. 

Any dividends or capital gains distributions declared in October, November or
December with a record date in such 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. 

A shareholder may choose to receive distributions in cash or have them
reinvested in additional shares of a portfolio. If an investment is in the form
of a retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholder's account. Distributions are generally taxable,
whether received in cash or reinvested. Exchanges among portfolios are also
taxable events.


26
<PAGE>

Taxes

Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
shareholders as long-term capital gains, regardless of the length of time
shareholders have owned shares. Short-term capital gains and any other taxable
income distributions are taxable as ordinary income. Distributions received by a
portfolio from an underlying fund generally will be ordinary income dividends,
includable in that portfolio's net investment income, if paid from the
underlying fund's net investment income, short-term capital gains or other
taxable income. Distributions paid from an underlying fund's long-term capital
gains, however, generally will be treated by a portfolio as long-term capital
gains. A portion of dividends from ordinary income may qualify for the
dividends-received deduction for corporations. 

Unless your investment is in a tax-deferred account, you may want to avoid
investing a large amount close to the date of a distribution because you may
receive part of your investment back as a taxable distribution. 

A sale or exchange of shares is a taxable event and may result in a capital gain
or loss which may be long-term or short-term, generally depending on how long
you owned the shares. 

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

Each portfolio may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the portfolio with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Any such withheld amounts may be credited against
the shareholder's U.S. federal income tax liability. 

Shareholders may be subject to state, local and foreign taxes on portfolio
distributions and dispositions of portfolio shares. You should consult your tax
advisor regarding the particular consequences of an investment in a portfolio.


                                                                              27
<PAGE>

About Your Investment

Transaction information

Share price

Scudder Fund Accounting Corporation determines the net asset value per share of
a portfolio as of the close of regular trading on the New York Stock Exchange,
normally 4 p.m. eastern time, on each day the New York Stock Exchange is open
for trading. Net asset value per share is calculated by dividing the value of
total portfolio assets, less all liabilities, by the total number of shares
outstanding. The assets of each portfolio consist primarily of the underlying
Scudder funds, which are valued at their respective net asset values at the time
of computation. In general, the underlying Scudder funds value their portfolio
securities using market prices. If market prices are not readily available for a
security or if a security's price is not considered to be market indicative, the
underlying funds may value that security by another method that their Boards or
their delegates believe accurately reflects fair value. In those circumstances
where a security's price is not considered to be market indicative, the
security's valuation may differ from an available market quotation. 

To the extent that the underlying Scudder funds invest in foreign securities,
these securities may be listed on foreign exchanges that trade on days when the
portfolios do not price their shares. As a result, the net asset value of a
portfolio may change at a time when shareholders are not able to purchase or
redeem their shares.

Processing time

All purchase and redemption requests received in good order at the portfolios'
transfer agent 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. All
other requests that are in good order will be executed the following business
day.

Signature guarantees

A signature guarantee is required for redemptions over $100,000. You can obtain
one from most brokerage houses and financial institutions, although not from a
notary public. The portfolios will normally send redemption proceeds within one
business day following the redemption request, but may take up to seven business
days (or longer in the case of shares recently purchased by check). For more
information, please call 1-800-225-5163.


28
<PAGE>

Purchase restrictions

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

Minimum balances

Generally, shareholders who maintain a non-fiduciary account balance of less
than $2,500 in a portfolio and have not established an automatic investment plan
will be assessed an annual $10.00 per portfolio charge; this fee is paid to the
portfolio. Each portfolio reserves the right, following 60 days written notice
to shareholders, to redeem all shares in accounts that have a value below $1,000
where such a reduction has occurred due to a redemption, exchange or transfer
out of the account.

Third party transactions

If you buy and sell shares of a portfolio through a member of the National
Association of Securities Dealers, Inc. (other than Scudder Investor Services,
Inc.), that member may charge a fee for that service.

Buying and selling shares

Please refer to the following charts for information on how to buy and sell
portfolio shares. Additional information, including special investment features,
may be found in the Shareholder Services Guide. For information about No-Fee
IRAs, Roth IRAs and other retirement options, call Scudder Investor Relations at
1-800-225-2470. For information on establishing 401(k) and 403(b) plans, call
Scudder Defined Contribution Services at 1-800-323-6105.


                                                                              29
<PAGE>

Purchases

To open an account

The minimum initial investment is $2,500; $1,000 for IRAs. Group retirement
plans (401(k), 403(b), etc.) have similar or lower minimums -- see appropriate
plan literature. Make checks payable to "The Scudder Funds."

- --------------------------------------------------------------------------------
By Mail             Send your completed and signed application and check

                    by regular mail to:         The Scudder Funds
                                                P.O. Box 2291
                                                Boston, MA 02107-2291

                    or by express, registered,  The Scudder Funds
                    or certified mail to:       66 Brooks Drive
                                                Braintree, MA 02184
- --------------------------------------------------------------------------------
By Wire             Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
In Person           Visit one of our Investor Centers to complete your
                    application with the help of a Scudder representative.
                    Investor Centers are located in Boca Raton, Boston,
                    Chicago, New York and San Francisco.
- --------------------------------------------------------------------------------

To buy additional shares

The minimum additional investment is $100; $50 for IRAs. Group retirement plans
(401(k), 403(b), etc.) have similar or lower minimums -- see appropriate plan
literature. Make checks payable to "The Scudder Funds."

- --------------------------------------------------------------------------------
By Mail             Send a check with a Scudder investment slip, or with a
                    letter of instruction including your account number and the
                    complete fund name, to the appropriate address listed above.
- --------------------------------------------------------------------------------
By Wire             Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
In Person           Visit one of our Investor Centers to make an additional
                    investment in your Scudder fund account. Investor Center
                    locations are listed above.
- --------------------------------------------------------------------------------
By Telephone        Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
By Automatic        You may arrange to make investments of $50 or more on a
Investment Plan     regular basis through automatic deductions from your bank
                    checking account. Please call 1-800-225-5163 for more
                    information and an enrollment form.
- --------------------------------------------------------------------------------


30
<PAGE>

Exchanges and redemptions

To exchange shares

The minimum investments are $2,500 to establish a new account and $100 to
exchange among existing accounts.

- --------------------------------------------------------------------------------
By             To speak with a service representative, call 1-800-225-5163 from
Telephone      8 a.m. to 8 p.m. eastern time. To access SAIL(TM), The Scudder
               Automated Information Line, call 1-800-343-2890 (24 hours a day).
- --------------------------------------------------------------------------------
By Mail        Print or type your instructions and include:
or Fax            - the name of the fund and class 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 and class you are exchanging into;
                  - your signature(s) as it appears on your account; and
                  - a daytime telephone number.

               Send your instructions      The Scudder Funds
               by regular mail to:         P.O. Box 2291
                                           Boston, MA 02107-2291

               or by express, registered,  The Scudder Funds
               or certified mail to:       66 Brooks Drive
                                           Braintree, MA 02184

               or by fax to:               1-800-821-6234
- --------------------------------------------------------------------------------

To sell shares
- --------------------------------------------------------------------------------
By              To speak with a service representative, call 1-800-225-5163 from
Telephone       8 a.m. to 8 p.m. eastern time. To access SAILTM, The Scudder
                Automated Information Line, call 1-800-343-2890 (24 hours a
                day). You may have redemption proceeds sent to your
                predesignated bank account, or redemption proceeds of up to
                $100,000 sent to your address of record.
- --------------------------------------------------------------------------------
By Mail         Send your instructions for redemption to the appropriate address
or Fax          or fax number above and include:
                   - the name of the fund and class 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.
- --------------------------------------------------------------------------------
By Automatic    You may arrange to receive automatic cash payments periodically.
Withdrawal      Call 1-800-225-5163 for more information and an enrollment form.
Plan
- --------------------------------------------------------------------------------


                                                                              31
<PAGE>

Investments products and services

The Scudder Family of Funds[
- --------------------------------------------------------------------------------

Money Market
- ------------
  Scudder U.S. Treasury Money Fund
  Scudder Cash Investment Trust
  Scudder Money Market Series --
    Prime Reserve Shares*
    Premium Shares*
    Managed Shares*
  Scudder Government Money Market Series -- Managed Shares*

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

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

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

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

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

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

U.S. Growth
- -----------
  Value
    Scudder Large Company Value Fund
    Scudder Value Fund***
    Scudder Small Company Value Fund
    Scudder Micro Cap Fund
  Growth
    Scudder Classic Growth Fund***
    Scudder Large Company Growth Fund
    Scudder Development Fund
    Scudder 21st Century Growth Fund

Global Equity
- -------------
  Worldwide
    Scudder Global Fund
    Scudder International Value Fund
    Scudder International Growth and Income Fund
    Scudder International Fund++
    Scudder International Growth Fund
    Scudder Global Discovery Fund***
    Scudder Emerging Markets Growth Fund
    Scudder Gold Fund
  Regional
    Scudder Greater Europe Growth Fund
    Scudder Pacific Opportunities Fund
    Scudder Latin America Fund
    The Japan Fund, Inc.

Industry Sector Funds
- ---------------------
  Choice Series
    Scudder Financial Services Fund
    Scudder Health Care Fund
    Scudder Technology Fund

Preferred Series
- ----------------
  Scudder Tax Managed Growth Fund
  Scudder Tax Managed Small Company Fund


32
<PAGE>

Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------

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

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

Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.

For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.

- -----------
[    Funds within categories are listed in order from expected least risk to
     most risk. Certain Scudder funds or classes thereof may not be available
     for purchase or exchange.

+    A portion of the income from the tax-free funds may be subject to federal,
     state and local taxes.

*    A class of shares of the fund.

**   Not available in all states.

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

++   Only the International Shares of the fund are part of the Scudder Family of
     Funds.

[[   A no-load variable annuity contract provided by Charter National Life
     Insurance Company and its affiliate, offered by Scudder's insurance
     agencies, 1-800-225-2470.

#    These funds, advised by Scudder Kemper Investments, Inc., are traded on the
     New York Stock Exchange and, in some cases, on various foreign stock
     exchanges.


                                                                              33
<PAGE>

Additional information about each portfolio may be found in the Statement of
Additional Information, the Shareholder Services Guide and in shareholder
reports. Shareholder inquiries may be made by calling the toll-free number
listed below. The Statement of Additional Information contains more information
on portfolio investments and operations. The Shareholder Services Guide contains
more information about purchases and sales of portfolio shares. The semiannual
and annual shareholder reports contain a discussion of the market conditions and
the investment strategies that significantly affected each portfolio's
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other portfolio documents may be
obtained without charge from the following sources:

- --------------------------------------------------------------------------------
By Phone          Call Scudder Investor Relations at 1-800-225-2470
                  or
                  For existing Scudder investors, call the Scudder Automated
                  Information Line (SAIL) at 1-800-343-2890 (24 hours a day).
- --------------------------------------------------------------------------------
By Mail           Scudder Investor Services, Inc.
                  Two International Place
                  Boston, MA 02110-4103
                  or
                  Public Reference Section
                  Securities and Exchange Commission
                  Washington, D.C. 20549-6009
                  (a duplication fee is charged)
- --------------------------------------------------------------------------------
In Person         Public Reference Room
                  Securities and Exchange Commission
                  Washington, D.C.
                  (Call 1-800-SEC-0330 for more information.)
- --------------------------------------------------------------------------------
By Internet       http://www.sec.gov
                  http://www.scudder.com
- --------------------------------------------------------------------------------

The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).

Investment Company Act file number: 811-8606

[PRINTED WITH SOY LOGO]  [RECYCLE LOGO] Printed on recycled paper
319-2-19
PRO80199

 <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

                                 January 1, 1999



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



         This combined Statement of Additional  Information is not a prospectus.
The combined  prospectus of Scudder Pathway Series  Portfolios  dated January 1,
1999, as amended from time to time, may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston,  Massachusetts
02110-4103.

         The Annual Report to  Shareholders  of each Portfolio  dated August 31,
1998,  is  incorporated  by reference  and are hereby  deemed to be part of this
Statement of Additional Information.




<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                                    Page

<S>                                                                                                                  <C>
SCUDDER 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....................................................................17
         Investment Restrictions of the Portfolios...................................................................17

PURCHASES............................................................................................................18
         Additional Information About Opening An Account.............................................................18
         Minimum balances............................................................................................18
         Additional Information About Making Subsequent Investments..................................................19
         Additional Information About Making Subsequent Investments by QuickBuy......................................19
         Checks......................................................................................................19
         Wire Transfer of Federal Funds..............................................................................20
         Share Price.................................................................................................20
         Share Certificates..........................................................................................20
         Other Information...........................................................................................20

EXCHANGES AND REDEMPTIONS............................................................................................21
         Exchanges...................................................................................................21
         Redemption By Telephone.....................................................................................21
         Redemption by QuickSell.....................................................................................22
         Redemption by Mail or Fax...................................................................................23
         Redemption-in-Kind..........................................................................................23
         Other Information...........................................................................................23

FEATURES AND SERVICES OFFERED BY THE TRUST...........................................................................24
         The Pure No-Load(TM)Concept.................................................................................24
         Internet access.............................................................................................25
         Dividends and Capital Gains Distribution Options............................................................26
         Scudder Investor Centers....................................................................................26
         Reports to Shareholders.....................................................................................26
         Transaction Summaries.......................................................................................26

THE SCUDDER FAMILY OF FUNDS..........................................................................................26

SPECIAL PLAN ACCOUNTS................................................................................................31
         Scudder Retirement Plans:  Profit-Sharing and Money Purchase Pension Plans for Corporations and 
               Self-Employed Individuals.............................................................................32
         Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........32
         Scudder IRA:  Individual Retirement Account.................................................................32
         Scudder Roth IRA:  Individual Retirement Account............................................................33
         Scudder 403(b) Plan.........................................................................................33
         Automatic Withdrawal Plan...................................................................................33
         Group or Salary Deduction Plan..............................................................................34
         Automatic Investment Plan...................................................................................34
         Uniform Transfers/Gifts to Minors Act.......................................................................34

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................34

PERFORMANCE INFORMATION..............................................................................................35
         Average Annual Total Return.................................................................................35
         Cumulative Total Return.....................................................................................36
         Total Return................................................................................................36
         Comparison of Fund Performance..............................................................................36

TRUST ORGANIZATION...................................................................................................39

                                       ii
<PAGE>

                          TABLE OF CONTENTS (continued)
                                                                                                                    Page

INVESTMENT ADVISER...................................................................................................40
         Personal Investments by Employees of the Adviser............................................................43
         Management Fees of Underlying Scudder Funds.................................................................43

SPECIAL SERVICING AGREEMENT..........................................................................................44

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

REMUNERATION.........................................................................................................47

DISTRIBUTOR..........................................................................................................47

TAXES................................................................................................................48
         Taxation of the Portfolios and Their Shareholders...........................................................48
         Taxation of the Underlying Scudder Funds....................................................................50

PORTFOLIO TRANSACTIONS...............................................................................................50
         Portfolio Turnover..........................................................................................50

NET ASSET VALUE......................................................................................................51

ADDITIONAL INFORMATION...............................................................................................52
         Experts.....................................................................................................52
         Shareholder Indemnification.................................................................................52
         Other Information...........................................................................................52

FINANCIAL STATEMENTS.................................................................................................53

GLOSSARY.............................................................................................................54
</TABLE>

                                       ii

<PAGE>

           SCUDDER PATHWAY SERIES' INVESTMENT OBJECTIVES AND POLICIES

    (See "PORTFOLIO SUMMARIES -- Investment Objectives and Strategies of the
  Portfolios" and "ABOUT THE PORTFOLIOS Principal Strategies, Investments and
             Related Risks" in the Portfolios' combined prospectus.)

General Investment Objectives and Policies

         Scudder  Pathway  Series  (the  "Trust")  is  an  open-end   management
investment  company  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  and for  temporary or
defensive  purposes.  It is  impossible  to  accurately  predict  how long  such
alternate  strategies may be utilized.  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.  (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
Investment Company Act of 1940 (the "1940 Act") requires borrowings to have 300%
asset  coverage.  The  Portfolios  may each also enter into  reverse  repurchase
agreements.

         The investment objectives of the four Portfolios are as follows:

Conservative Portfolio

         The  Conservative  Portfolio  seeks current  income and, as a secondary
objective,  long-term growth of capital. The Portfolio invests  substantially in
bond  funds,  and, to a lesser  extent,  equity  funds.  This  portfolio  may be
suitable for investors with an investment time horizon of 3-5 years or more.

Balanced Portfolio

         The Balanced  Portfolio seeks a balance of current income and growth of
capital.  The portfolio invests in a mix of money market, bond and equity funds.
This portfolio may be suitable for investors with an investment  time horizon of
5-10 years.

Growth Portfolio

         The Growth Portfolio seeks long-term  growth of capital.  The portfolio
invests  predominantly in equity funds that pursue this goal. This portfolio may
be suitable for investors with an investment time horizon of 10 years or more.

<PAGE>

International Portfolio

         The  International  Portfolio  seeks  to  maximize  total  return.  The
portfolio  invests  in a select mix of  international  and  global  funds.  This
portfolio may be appropriate for investors with an investment time horizon of 10
years or more who are looking for broad  exposure  to  investment  opportunities
outside the U.S.

Master/feeder Fund Structure

         At a special meeting of shareholders, a majority of the shareholders of
each  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.

                                       2
<PAGE>

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

         The  following  Underlying  Scudder Funds are the money market funds in
which the  Portfolios  may  invest and will  likely  serve as the  primary  cash
reserve portion of each Portfolio.

         Scudder Cash  Investment  Trust  (SCIT) seeks to maintain  stability of
capital  and,  consistent  therewith,  to maintain  liquidity  of capital and to
provide current income. The Fund seeks to achieve its objectives by investing in
money market  securities.  The Fund seeks to maintain a constant net asset value
of $1.00 per share and declares  dividends daily. 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
Service,  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 or less.  The
dollar-weighted average maturity of the 


                                       3
<PAGE>

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.

         SCIT may invest in short-term  securities  consisting  of:  obligations
issued or guaranteed by the U.S. Government,  its agencies or instrumentalities;
obligations of supranational  organizations  such as the International  Bank for
Reconstruction  and Development (the World Bank);  obligations of domestic banks
and  foreign  branches  of  domestic  banks,   including  bankers'  acceptances,
certificates  of deposit,  deposit notes and time deposits;  and  obligations of
savings and loan institutions.

         SCIT may also invest in:  instruments whose credit has been enhanced by
banks (letters of credit), insurance companies (surety bonds) or other corporate
entities (corporate  guarantees);  corporate  obligations,  including commercial
paper, notes, bonds, loans and loan participations;  securities with variable or
floating  interest  rates;  when-issued  securities,   asset-backed  securities,
including   certificates,   participations  and  notes;   municipal  securities,
including notes, bonds and participation interests,  either taxable or tax free;
and illiquid  securities.  SCIT has adopted 144a procedures for the valuation of
illiquid securities.

         In addition,  SCIT may invest in repurchase  agreement  and  securities
with put  features.  The Fund has adopted 144a  procedures  for the valuation of
illiquid securities.

Scudder  Money Market  Series - Scudder  Premium  Money  Market  Shares 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 Fund
invests exclusively in a broad range of short-term money market instruments that
have  remaining  maturities  of not more  than  397  calendar  days and  certain
repurchase  agreements.  These money market  securities  consist of  obligations
issued   or   guaranteed   by  the   U.S.   Government   or  its   agencies   or
instrumentalities,  taxable and tax-exempt municipal obligations,  corporate and
bank  obligations,  certificates of deposit ("CD's"),  bankers'  acceptances and
variable  amount master demand notes.  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.

         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.  In  addition,  the Fund may  invest in  obligations  of
savings banks and savings and loan  associations  insured by the Federal Deposit
Insurance Corporation that have total assets in excess of $1 billion at the time
of the investment. The Fund may invest in U.S. dollar-denominated obligations of
foreign banks subject to the following conditions: the foreign banks (based upon
their most recent annual  financial  statements)  at the time of investment  (i)
have more than U.S. $10 billion, or the equivalent in other currencies, in total
assets;  (ii) are among the 100 largest  banks in the world as determined on the
basis of assets;  and (iii) have branches or agencies in the U.S.;  and (iv) are
obligations  which, in the opinion of the Adviser,  are of an investment quality
comparable  to  obligations  of U.S.  banks in which the Fund may  invest.  Such
investments may involve greater risks than those affecting U.S. bank or Canadian
affiliates  of U.S.  banks.  In  addition,  foreign  banks  are not  subject  to
examination by any U.S. government agency or instrumentality.

         The Fund may invest in U.S. dollar-denominated  certificates of deposit
and  promissory  notes  issued  by  Canadian  affiliates  of  U.S.  banks  under
circumstances  where the instruments are guaranteed as to principal and interest
by the U.S. bank. While foreign obligations generally involve greater risks than
those  of  domestic   obligations,   such  as  risks   relating  to   liquidity,
marketability,   foreign  taxation,   nationalization   and  exchange  controls,
generally the Adviser  believes that these risks are  substantially  less in the
case of instruments  issued by Canadian  affiliates  that are guaranteed by U.S.
banks than in the case of other foreign money market instruments.

         There is no  limitation  on the amount of the Fund's assets that may be
invested in  obligations  of foreign  banks that meet the  conditions  set forth
above.  Such  investments  may involve  greater risks than those  affecting U.S.
banks or Canadian  affiliates of U.S. banks. In addition,  foreign banks are not
subject to examination by any U.S. Governmental agency or instrumentality.



                                       4
<PAGE>

         Except for  obligations  of foreign banks and foreign  branches of U.S.
banks, the Fund will not invest in the securities of foreign issuers. 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).

         Generally,  the  commercial  paper  purchased by the Fund is limited to
direct  obligations  of  domestic  corporate  issuers,  including  bank  holding
companies, which obligations,  at the time of investment, are (i) rated "P-1" by
Moody's  Investors  Service,  Inc.  ("Moody's"),  "A-1" or better by  Standard &
Poor's Corporation ("S&P") or "F-1" by Fitch Investors Service,  Inc. ("Fitch"),
(ii) issued or  guaranteed  as to principal  and  interest by issuers  having an
existing debt security  rating of "Aa" or better by Moody's or "AA" or better by
S&P or  Fitch,  or  (iii)  securities  that,  if not  rated,  are of  comparable
investment  quality as determined by the Adviser in accordance  with  procedures
adopted by the Corporation's Board of Directors.

         All of the  securities  in which the Fund will  invest must meet credit
standards applied by the Adviser pursuant to procedures established by the Board
of Directors.  Should an issue of securities  cease to be rated or if its rating
is reduced below the minimum required for purchase by the Fund, the Adviser will
dispose of any such security,  as soon as  practicable,  unless the Directors of
the Corporation  determine that such disposal would not be in the best interests
of the Fund.

         In  addition,  the  Fund  may  invest  in  variable  or  floating  rate
obligations,   obligations  backed  by  bank  letters  of  credit,   when-issued
securities  and  securities  with  put  features.  The  Fund  has  adopted  144a
procedures for the valuation of illiquid securities.

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

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

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

         Scudder  Corporate  Bond Fund invests  primarily  in  intermediate-term
corporate  bonds,  but can  also  hold  short-term  and  long-term  issues.  The
dollar-weighted  average  maturity of the Fund's  portfolio is expected to range
from five to ten years. Longer-term bonds generally are more volatile than bonds
with shorter maturities. While the Fund emphasizes corporate bonds and notes, it
can  also  invest  in U.S.  Treasury  and  Agency  securities,  convertible  and
preferred  securities,  debt securities  issued by real estate investment trusts
("REITs"),  dollar rolls, trust preferred securities,  mortgage-backed and other
asset-backed  securities,  zero coupon  securities,  dollar-denominated  debt of
international  agencies  or  investment-grade  foreign  institutions,   American
Depositary Receipts and other depositary receipts,  and money market instruments
such as commercial  paper,  bankers  acceptances,  and  certificates  of deposit
issued by domestic and foreign branches of U.S. banks. The Fund may invest up to
20% of total assets in foreign debt securities  denominated in currencies  other
than the U.S.  dollar.  While it is anticipated  that the majority of the Fund's
foreign investments will be denominated in the U.S. dollar, the Fund may invest,
within  the  aforementioned   limit,  in  foreign  bonds  denominated  in  local
currencies,  including  those  issued in emerging  markets.  The Fund  considers
"emerging  markets"  to include  any  country  that is defined as an emerging or
developing  economy by any one of the International  Bank for Reconstruction and
Development (i.e., the World Bank), the International Finance Corporation or the
United  Nations  or its  authorities.  The Fund may also  invest in  when-issued
securities,  indexed  securities,   repurchase  agreements,  reverse  repurchase
agreements,  illiquid securities, and may engage in strategic transactions.  The
value of fixed income  investments will fluctuate with changes in interest rates
and bond  market  conditions,  tending to rise as  interest  rates  decline  and
decline as interest rates rise.



                                       5
<PAGE>

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

         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  at least  50% of its  total  assets 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.

         In addition, Scudder Emerging Markets Income Fund, may invest up to 35%
of its total assets in securities other than debt obligations issued in emerging
markets.  These holdings  include debt  securities and money market  instruments
issued by corporations and governments based in developed markets,  including up
to 20% of total assets in U.S.  fixed  income-instruments.  The Fund has adopted
144a procedures for the valuation of illiquid securities.

         The Fund may for  temporary,  defensive  or emergency  purposes  invest
without  limit  in  U.S.  debt  securities  including  short-term  money  market
securities.  It is impossible to  accurately  predict how long such  alternative
strategies may be utilized. In addition, the Fund may invest in shares of closed
end investment companies, warrants, reverse repurchase agreements and may engage
in securities lending and strategic transactions including derivatives.

         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 value 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 GNMA Fund may for temporary  defensive  purposes invest without
limit in short-term U.S. Government obligations.  It is impossible to accurately
predict how long such alternative  strategies may be utilized. In addition,  the
Fund may invest in warrants,  when-issued securities, zero coupon securities and
illiquid  securities  and may enter into  dollar roll  transactions  and reverse
repurchase  agreements and repurchase  agreements,  and may engage in securities
lending and strategic transactions including derivatives.

         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 


                                       6
<PAGE>

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 Global Bond Fund may for temporary  defensive  purposes  invest
without limit in U.S.  Government debt  securities  including  short-term  money
market  securities.  It is  impossible  to  accurately  predict  how  long  such
alternative  strategies  may be utilized.  In  addition,  the Fund may invest in
warrants, zero coupon securities mortgage and asset-backed securities,  illiquid
securities, reverse repurchase agreements,  repurchase agreements and may engage
in securities lending, strategic transactions including derivatives.

         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,  trust
preferred  securities,  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  High  Yield  Bond Fund may for  temporary  defensive  purposes
invest  without  limit  in cash or  money  market  instruments  or high  quality
domestic debt securities.  It is impossible to accurately  predict how long such
alternative  strategies  may be utilized.  In  addition,  the Fund may invest in
warrants,   securities   lending,   illiquid   securities,   reverse  repurchase
agreements,  repurchase agreements,  may purchase securities on a when-issued or
forward  delivery  basis and may  engage  in  strategic  transactions  including
derivatives.

         The Fund has adopted  144a  procedures  for the  valuation  of illiquid
securities.

         Scudder Income Fund seeks a high level of income,  consistent  with the
prudent investment of capital, through a flexible investment program emphasizing
high-grade  bonds.  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 (Aaa,  Aa and A) or S&P (AAA, AA and A), or if unrated,  in bonds judged
by 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 3 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 Income Fund may invest in bonds, notes, zero coupon securities,
adjustable rate bonds,  convertible bonds,  preferred and convertible  preferred
securities, U.S. Government securities, commercial paper, debt securities issued
by real estate investment trusts ("REITs"), mortgage and asset-backed securities
and other money  market  instruments  and  illiquid  securities  such as certain
securities issued in private placements,  foreign securities and certificates of
deposit  issued by foreign  and  domestic  branches of U.S.  banks.  It may also
invest  in  warrants,   when-issued  or  forward  delivery  securities,  indexed
securities, repurchase agreements, reverse repurchase agreements, and may engage
in  dollar-roll  transactions,  securities  lending and  strategic  transactions
including derivatives.

         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  


                                       7
<PAGE>

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  International  Bond Fund may for temporary  defensive purposes
invest  without  limit  in  U.S.  Government  debt  securities,  cash  and  cash
equivalents.  It is impossible to accurately  predict how long such  alternative
strategies  may be  utilized.  In  addition,  the Fund may  invest in  warrants,
illiquid  securities,  reverse  repurchase  agreements,  repurchase  agreements,
dollar roll  transactions,  may purchase  securities on a when-issued or forward
delivery basis and may engage in securities  lending and strategic  transactions
including derivatives.

         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. Within this limitation,  the
Fund may purchase  individual  securities  with remaining  stated  maturities of
greater  than  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.

         Scudder  Short  Term Bond  Fund may for  temporary  defensive  purposes
invest  without  limit in money market  assets.  It is  impossible to accurately
predict how long such alternative  strategies may be utilized. In addition,  the
Fund may invest in warrants, indexed securities,  zero coupon securities,  trust
preferred  securities,   illiquid  securities,  reverse  repurchase  agreements,
repurchase  agreements,  dollar roll transactions,  may purchase securities on a
when-issued or forward  delivery basis and may engage in securities  lending and
strategic transactions including derivatives.

         The  following  Underlying  Scudder Funds are equity mutual funds which
seek 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  Growth and Income Fund may for  temporary  defensive  purposes
invest  without  limit  in  cash  and  cash  equivalents.  It is  impossible  to
accurately  predict how long such  alternative  strategies  may be utilized.  In
addition,  the Fund may invest in  warrants,  foreign  securities,  real  estate
investment  trusts,   illiquid   securities,   reverse  repurchase   agreements,
repurchase  agreements  and may  engage  in  securities  lending  and  strategic
transactions including derivatives.

         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.



                                       8
<PAGE>

         Scudder   International  Growth  and  Income  Fund  may  for  temporary
defensive  purposes  hold up to 20% of its net assets in U.S. and foreign  fixed
income  securities  and may  invest  without  limit in cash or cash  equivalents
including domestic and foreign money market instruments,  short-term  government
and  corporate  obligations  and  repurchase  agreements.  It is  impossible  to
accurately  predict how long such  alternative  strategies  may be utilized.  In
addition,  the  Fund  may  invest  in  warrants,  illiquid  securities,  reverse
repurchase  agreements,  repurchase  agreements  and may  engage  in  securities
lending and strategic transactions including derivatives.

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

         Classic Growth Fund -- Scudder Shares 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 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 the Fund's 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.

         Classic  Growth  Fund --  Scudder  Shares may for  temporary  defensive
purposes invest without limit in high quality money market securities, including
U.S. Treasury bill,  repurchase  agreements,  commercial paper,  certificates of
deposit  issued  by  domestic  and  foreign  branches  of U.S.  banks,  bankers'
acceptances,  and other debt securities, such as U.S. Government obligations and
corporate debt instruments. It is impossible to accurately predict how long such
alternative  strategies  may be utilized.  In  addition,  the Fund may invest in
illiquid securities,  reverse repurchase  agreements,  repurchase agreements and
may  engage  in  securities   lending  and  strategic   transactions   including
derivatives.

         Scudder Development Fund seeks long-term growth of capital by investing
primarily  in  medium-size   companies   with  the  potential  for   sustainable
above-average  earnings growth. The Fund generally invests in equity securities,
including  common  stocks and  convertible  securities,  of  companies  that the
Adviser  believes have potential for sustainable  above-average  earnings growth
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  Development Fund may for temporary  defensive  purposes invest
without  limit in cash and may invest in high  quality debt  securities  without
equity features,  U.S. Government  securities and money market instruments which
are rated in the two highest  categories by Moody's Investor  Services,  Inc. or
Standard and Poor's  Corporations,  or, if unrated, are deemed by the Adviser to
be of equivalent  quality.  It is impossible to accurately predict how long such
alternative  strategies  may be utilized.  In  addition,  the Fund may invest in
warrants,  convertible bonds,  preferred stocks,  illiquid  securities,  reverse
repurchase  agreements,  repurchase  agreements  and may  engage  in  securities
lending and strategic transactions including derivatives.

         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 


                                       9
<PAGE>

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 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  Emerging  Markets  Growth  Fund  may for  temporary  defensive
purposes invest without limit in debt  instruments,  cash and cash  equivalents,
including foreign and domestic money market instruments,  short-term  government
and  corporate  obligations,  and  repurchase  agreements.  It is  impossible to
accurately  predict how long such  alternative  strategies  may be utilized.  In
addition,  the Fund may  invest in debt  instruments  such as  warrants,  bonds,
notes, bills, debentures,  convertible securities, bank obligations,  short-term
paper, loan participations,  loan assignments and trust interests.  The Fund may
also invest in closed end investment  companies,  illiquid securities,  purchase
securities  on a  when-issued  or forward  delivery  basis,  enter into  reverse
repurchase  agreements,  repurchase  agreements  and may  engage  in  securities
lending and strategic transactions including derivatives.

         The Fund has adopted  144a  procedures  for the  valuation  of illiquid
securities.

         Global  Discovery  Fund -- Scudder Shares 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.

         Global  Discovery  Fund -- Scudder  Shares may for temporary  defensive
purposes invest without limit in cash and cash equivalents.  It is impossible to
accurately  predict how long such  alternative  strategies  may be utilized.  In
addition,  the Fund may  invest  in  common  stocks,  preferred  stocks  (either
convertible  or  non-convertible),  rights and warrants,  closed end  investment
companies,  bonds, notes, debentures,  government securities,  zero coupon bonds
(any  of  which  may be  convertible  or  nonconvertible),  foreign  securities,
American  Depositary  Receipts,  purchase securities on a when-issued or forward
delivery  basis,  and  enter  into  reverse  repurchase  agreements,  repurchase
agreements  and may engage in  securities  lending  and  strategic  transactions
including derivatives.

                                       10
<PAGE>

         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 Global Fund may for temporary defensive purposes invest without
limit in cash and cash equivalents.  It is impossible to accurately  predict how
long such  alternative  strategies  may be utilized.  In addition,  the Fund may
invest  in  warrants,  zero-coupon  securities,   illiquid  securities,  reverse
repurchase  agreements,  repurchase  agreements  and may  engage  in  securities
lending and strategic transactions including derivatives.

         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.

         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.

         Scudder  Greater  Europe  Growth  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.  It is impossible to accurately predict how long such
alternative  strategies  may be utilized.  In  addition,  the Fund may invest in
closed end investment  companies,  warrants,  when-issued  securities,  illiquid
securities, reverse repurchase agreements,  repurchase agreements and may engage
in securities lending and strategic transactions including derivatives.

         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  warrants,  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  


                                       11
<PAGE>

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
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  Gold  Fund  may  hold  cash,  high  quality  cash  equivalents
(including  foreign  money  market  instruments  such as  bankers'  acceptances,
certificates of deposit,  commercial paper,  short-term government and corporate
obligations, and repurchase agreements,  obligations issued or guaranteed by the
U.S. government,  its agencies or instrumentalities  without limit for temporary
defensive purposes and up to 30% to maintain  liquidity.  In addition,  the Fund
may invest in warrants,  foreign currencies in the form of bank deposits,  short
sales  against the box,  illiquid  securities,  reverse  repurchase  agreements,
repurchase  agreements  and may  engage  in  securities  lending  and  strategic
transactions including derivatives.

         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
other than the U.S. 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  International Fund may for temporary defensive purposes invest
without limits in Canadian or U.S.  Government  obligations  or  currencies,  or
securities of companies incorporated in and having their principal activities in
Canada  or the U.S.  It is  impossible  to  accurately  predict  how  long  such
alternative  strategies  may be utilized.  In  addition,  the Fund may invest in
warrants,  trust  preferred  securities,   fixed-income   securities,   illiquid
securities, reverse repurchase agreements,  repurchase agreements and may engage
in securities lending and strategic transactions including derivatives.

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

         Scudder Large Company Growth Fund may for temporary  defensive purposes
invest  without  limit  in  cash  and  cash  equivalents.  It is  impossible  to
accurately  predict how long such  alternative  strategies  may be utilized.  In
addition,  the  Fund  may  invest  in  warrants,  foreign  securities,  illiquid
securities, reverse repurchase agreements,  repurchase agreements and may engage
in securities lending and strategic transactions including derivatives.

         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 will normally invest
at least 65% of its assets in the equity securities of large U.S. companies. 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 


                                       12
<PAGE>

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 Large Company Value Fund may for temporary  defensive  purposes
invest without limit in debt securities,  short-term indebtedness, cash and cash
equivalents.  It is impossible to accurately  predict how long such  alternative
strategies  may be  utilized.  In  addition,  the Fund  may  invest  in  rights,
warrants,  convertible  securities,   illiquid  securities,  reverse  repurchase
agreements,  repurchase  agreements  and may engage in  securities  lending  and
strategic transactions including derivatives.

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

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

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

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

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

         The Fund may invest in debt securities 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
or S&P and may invest in securities rated C by Moody's or D by S&P.

         Scudder Latin America Fund may for temporary  defensive purposes invest
without limit in cash and cash equivalents and money market  instruments,  or in
securities  of U.S. or other  non-Latin  American  issuers.  It is impossible to
accurately  predict how long such  alternative  strategies  may be utilized.  In
addition,  the Fund may invest in closed end investment  companies  primarily in
Latin  America,  warrants,  loan  participations  and  assignments,  when-issued
securities,  convertible  securities,  illiquid  securities,  reverse repurchase
agreements,  repurchase  agreements  and may engage in  securities  lending  and
strategic transactions including derivatives.

         Scudder Micro Cap Fund seeks  long-term  growth of capital by investing
primarily in micro-cap common stocks. The micro-cap sector represents the stocks
of America's  smallest  public  companies -- companies with a stock market value
(or  "market  capitalization")  of  approximately  $200  million  or  less.  The
companies that normally  comprise this sector  include  companies that may be in
the earliest  stages of  development,  that offer unique  products,  services or
technologies,  or that  serve  special  or rapidly  expanding  niches.  The fund
normally  invests at least 80% of its assets in U.S.  micro-cap  common  stocks.
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.



                                       13
<PAGE>

         Scudder  Micro Cap Fund may for  temporary  defensive  purposes  invest
without  limit in cash and cash  equivalents.  It is  impossible  to  accurately
predict how long such alternative  strategies may be utilized. In addition,  the
Fund  may  invest  in  illiquid  securities,   reverse  repurchase   agreements,
repurchase  agreements  and may  engage  in  securities  lending  and  strategic
transactions including derivatives.

         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 Pacific Opportunities Fund may for temporary defensive purposes
invest without limit in debt  instruments as well as cash and cash  equivalents,
including foreign and domestic money market instruments,  short-term  government
and  corporate  obligations,  and  repurchase  agreements.  It is  impossible to
accurately  predict how long such  alternative  strategies  may be utilized.  In
addition,  the  Fund  may  invest  in  common  stock,  preferred  stock  (either
convertible or non-convertible), depository receipts, rights, warrants, illiquid
securities,  when-issued securities,  reverse repurchase agreements,  repurchase
agreements  and may engage in  securities  lending  and  strategic  transactions
including derivatives.

         Scudder Small Company Value Fund pursues long-term growth of capital by
investing  in  undervalued  stocks of small U.S.  companies.  The fund  normally
invests  at least  90% of its  assets in common  stocks  of  companies  that are
similar in size to those  included  in the  Russell  2000  index--a  widely used
benchmark of small stock  performance.  Typically,  these companies have a stock
market value of less than $1.5 billion.  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  predominately in common stocks, it can purchase
other  types  of  equity  securities  including  preferred  stocks  (convertible
securities), rights, warrants and illiquid securities. 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 Small Company Value Fund may for temporary  defensive  purposes
invest  without  limit  in  cash  and  cash  equivalents.  It is  impossible  to
accurately predict how long such alternative strategies may be utilized.

   
         Scudder 21st Century Growth Fund pursues long-term growth of capital by
investing in emerging growth  companies that have the potential to be leaders in
the next century.  Emerging  growth  companies tend to be small or  little-


                                       14
<PAGE>

known  companies  that have strong  prospects for growth  because they may offer
such things as cutting edge products,  unique services,  innovative distribution
channels or  technological  advances.  The fund normally invests at least 80% of
its  assets in common  stocks of  companies  that are  similar  in size to those
included in the Russell  2000 index -- a widely  used  benchmark  of small stock
performance.  Typically,  these companies have a stock market value of less than
$1.5 billion.  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.
    

         The Fund may for  temporary,  defensive  or emergency  purposes  invest
without limit in cash and high quality debt securities  without equity features,
which are rated Aaa, Aa or A by Moody's or AAA, AA or A by S&P, or , if unrated,
are  deemed  by  the  Adviser  to  be of  equivalent  quality,  U.S.  Government
securities  and invest in money  market  instruments  which are rated in the two
highest  categories by Moody's or S&P or, if unrated,  are deemed by the Adviser
to be of equivalent  quality.  It is  impossible to accurately  predict how long
such alternative strategies may be utilized. In addition, the Fund may invest in
shares of preferred stocks,  convertible securities,  rights, warrants,  reverse
repurchase  agreements  and may  engage  in  securities  lending  and  strategic
transactions including derivatives.

         The Fund has adopted  144a  procedures  for the  valuation  of illiquid
securities.

         Value Fund -- Scudder Shares seeks long-term  growth of capital through
investment in undervalued equity  securities.  The Fund invests primarily in the
equity  securities  of medium- to  large-sized  domestic  companies  with annual
revenues or market  capitalization of at least $600 million. The Fund invests in
the securities of companies that, in the opinion of its Adviser, are undervalued
in the  marketplace  in relation to current and  estimated  future  earnings and
dividends.  These companies  generally sell at  price-earnings  ratios below the
market average,  as defined by the S&P 500. The Fund invests at least 80% of its
assets in equity securities,  which consist of common stocks,  preferred stocks,
securities  convertible into common stocks, rights and warrants.  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, reverse repurchase
agreements and may also engage in strategic  transactions  including derivatives
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.

         Value  Fund --  Scudder  Shares may for  temporary  defensive  purposes
invest  without  limit  in  cash  and  cash  equivalents.  It is  impossible  to
accurately  predict how long such  alternative  strategies  may be utilized.  In
addition,  the  Fund  may  invest  in  illiquid  securities  and may  engage  in
securities lending.

         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.  It is impossible to predict for how long


                                       15
<PAGE>

such alternate strategies may be utilized.  In addition,  the Fund may invest in
illiquid securities,  options, futures contracts,  warrants,  reverse repurchase
agreements and may engage in securities lending and strategic transactions.

         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 periods
or the life of fund if shorter.
<TABLE>
<CAPTION>

                                                             Assets
                                                              as of                    Average Annual Total Returns(1)
                                                             11/5/98
                                               Inception       (in           One             Five              Ten       Life of 
                                                 Date       millions)       Year             Years            Years        Fund
                                                 ----       ---------       ----             -----            -----        ----
<S>                                            <C>          <C>             <C>             <C>              <C>               

Money Market Fund
   
Scudder Cash Investment Trust                  7/23/76      1,201.8         4.92%           4.44%            5.34%           --
    

Bond Mutual Funds
   
Scudder Corporate Bond Fund*                   8/31/98         30.1         -                  -                -             -
Scudder Emerging Markets Income Fund           12/31/93       226.2       12.34%             --               --            56.72%
Scudder Global Bond Fund                       3/1/91         106.9        0.66%           17.92%             --            35.60%
Scudder GNMA Fund                              7/5/85         393.2         8.78%            6.34%            8.20%           --
Scudder High Yield Bond Fund                   6/28/96        190.7         3.94%             --               --            10.73%
Scudder Income Fund                            5/10/28        789.2         9.00%            6.45%            8.93%           --
Scudder International Bond Fund                7/1/88         148.9         0.10%            0.92%            7.61%           --
Scudder Short Term Bond Fund                   4/2/84       1,027.5         5.52%            4.44%            7.19%           --
    

Equity Mutual Funds
   
Scudder Classic Growth Fund                    9/9/96         120.4        -2.72%             --               --            19.11%
Scudder Development Fund                       1/18/71        694.0        17.86%           19.93%           14.66%           --
Scudder Emerging Markets Growth Fund           5/8/96         129.9       -28.54%             --               --            -5.52%
Scudder Global Discovery Fund                  9/10/91        325.1        11.14%          103.67%             --           104.87%
Scudder Global Fund                            7/23/86      1,601.8        14.93%           15.60%           14.18%           --
Scudder Gold Fund                              8/22/88        145.9       -35.45%           -3.63%           -1.67%           --
Scudder Greater Europe Growth Fund             10/10/94     1,176.3        24.68%             --               --            22.35%
Scudder Growth and Income Fund                 3/15/29        177.1        20.66%           20.53%           17.24%           --
Scudder International Fund                     6/15/54      2,854.6        -3.10%            8.64%           10.30%           --
Scudder International Growth and Income        6/5/97          52.2         1.70%             --               --            -1.08%
    
   Fund
Scudder Large Company Growth Fund              5/15/91        528.7        18.86%           17.85%             --           16.50%
Scudder Large Company Value Fund               6/6/56       2,237.4        -4.54%           12.97%            14.21           --
Scudder Latin America Fund                     12/08/92       545.1       -20.23%            3.05%             --            10.30%
Scudder Micro Cap Fund                         8/12/96        102.4       -13.96%             --               --             9.46%
Scudder Pacific Opportunities Fund             12/08/92       113.2       -24.16%          -11.53%             --            -5.15%
Scudder Small Company Value Fund               10/6/95        276.7        -8.45%             --               --            15.08%
Scudder 21st Century Growth Fund               9/9/96          34.9       -22.5 %             --               --            -8.31%
Scudder Value Fund                             12/31/92       526.2        -2.09%             16.08%           --            16.01%
The Japan Fund                                 4/19/62**      363.3       -22.09%             -5.01%         -0.97%           --

</TABLE>
(1) As of each Underlying Scudder Fund's most recent fiscal reporting period.
* Financial  information  will be available after the fund's initial fiscal year
ending on January 31, 1999.  
** From April 19, 1962 until August 14, 1987,  the Fund operated as a closed-end
diversified management investment company.

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.



                                       16
<PAGE>

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 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 Portfolio's  outstanding  shares. As used in this
combined  Statement of Additional  Information,  a "majority of the  outstanding
voting  securities  of a  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 has elected to be classified as a diversified  series of
an open-end investment company. In addition,  as a matter of fundamental policy,
each  Portfolio  will 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  each
                  Portfolio may concentrate in an underlying Fund. However, each
                  Underlying  Scudder Fund in which each  Portfolio  will invest
                  may concentrate its investments in a particular industry;

         (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 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.

         Nonfundamental  policies  may be changed by the  Trustees  of the Trust
without  shareholder  approval.  As a  matter  of  nonfundamental  policy,  each
Portfolio does not currently intend to:

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

         (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 engaging in other
                  transactions  which  may be deemed  to be  borrowings  but are
                  consistent with each Portfolio's investment objective.

                                       17
<PAGE>

         Any investment  restrictions  herein which involve a maximum percentage
of securities or assets shall not be considered to be violated  unless an excess
over the percentage occurs  immediately  after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Portfolios.

                                    PURCHASES

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

Additional Information About Opening An Account

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

         Shareholders  of other  Scudder  funds who have  submitted  an  account
application  and have a certified 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 taxpayer  identification or Social Security number, address and
telephone  number.  The  investor  must  then  call the bank to  arrange  a wire
transfer to The Scudder Funds,  State Street Bank and Trust Company,  Boston, MA
02110, ABA Number 011000028,  DDA Account Number:  9903-5552.  The investor must
give the Scudder fund name,  account name and the new account  number.  Finally,
the investor  must send the completed  and signed  application  to the Portfolio
promptly.

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

Minimum balances

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

         Each Portfolio reserves the right, following 60 days' written notice to
applicable shareholders, to:

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

o        redeem all shares in Portfolio  accounts below $1,000 where a reduction
         in value has occurred due to a redemption,  exchange or transfer out of
         the  account.  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.  Shareholders  with a  combined  household
account  balance in any of the Scudder  Funds of  $100,000  or more,  as well as
group  retirement  and certain  other  accounts  will not be subject to a fee or
automatic redemption.

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



                                       18
<PAGE>

Additional Information About Making Subsequent Investments

         Subsequent  purchase  orders for  $10,000 or more and for an amount not
greater than four times the value of the shareholder's  account may be placed by
telephone,  fax, etc. by established  shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD,  and banks.  Orders  placed in this  manner may be  directed to any
office of the  Distributor  listed in the  Portfolio's  combined  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 the Portfolio or the principal underwriter by reason of such cancellation. If
the purchaser is a shareholder,  the Trust 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 QuickBuy

         Shareholders, whose predesignated bank account of record is a member of
the Automated  Clearing  House Network (ACH) and who have elected to participate
in the QuickBuy  program,  may purchase  shares of the  Portfolio by  telephone.
Through this  service  shareholders  may  purchase up to  $250,000.  To purchase
shares by QuickBuy, shareholders should call before the close of regular trading
on the New York Stock Exchange,  Inc. (the "Exchange"),  normally 4 p.m. eastern
time. Proceeds in the amount of your purchase will be transferred from your bank
checking  account two or three  business days  following your call. For requests
received  by the  close of  regular  trading  on the  Exchange,  shares  will be
purchased at the net asset value per share calculated at the close of trading on
the day of your  call.  QuickBuy  requests  received  after the close of regular
trading on the Exchange will begin their  processing and be purchased at the net
asset value  calculated  the following  business day. If you purchase  shares by
QuickBuy and redeem them within seven days of the  purchase,  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 most retirement
plan  accounts.  However,  QuickBuy  transactions  are available for Scudder IRA
accounts.

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

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

Checks

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

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

                                       19
<PAGE>

Wire Transfer of Federal Funds

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

         The bank sending an  investor's  federal  funds by bank wire may charge
for the  service.  Presently,  the  Distributor  pays a fee for receipt by State
Street Bank and Trust Company (the  "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.

         Boston banks are closed on certain  holidays  although the Exchange may
be open.  These  holidays  include  Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11).  Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of 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
normally will be computed as of the close of regular  trading on each day during
which the  Exchange  is open for  trading.  Orders  received  after the close of
regular  trading on the Exchange will receive 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 Scudder  Service  Corporation  (the
"Transfer Agent") by the close of regular trading on the Exchange.

Share Certificates

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

Other Information

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

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

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



                                       20
<PAGE>

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

                            EXCHANGES AND REDEMPTIONS

         (See "Exchanges and Redemptions" and "Transaction Information"
                    in the Portfolios' combined prospectus.)

Exchanges

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

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

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

Redemption By Telephone

         Shareholders currently receive the right,  automatically without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds  


                                       21
<PAGE>

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.

Redemption by QuickSell

         Shareholders, whose predesignated bank account of record is a member of
the Automated  Clearing  House Network (ACH) and who have elected to participate
in  the  QuickSell  program  may  sell  shares  of  a  Portfolio  by  telephone.
Redemptions must be for at least $250. Proceeds in the amount of your redemption
will be  transferred  to your bank checking  account two or three  business days
following  your call. For requests  received by the close of regular  trading on
the Exchange,  normally 4:00 p.m.  eastern time,  shares will be redeemed at the
net asset value per share  calculated at the close of trading on the day of your
call.  QuickSell  requests  received  after the close of regular  trading on the
Exchange  will begin  their  processing  and be  redeemed at the net asset value
calculated the following business day. QuickSell  transactions are not available
for Scudder IRA accounts and most other retirement plan accounts.

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

         Each Portfolio 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 


                                       22
<PAGE>

telephone are genuine,  and to discourage  fraud. To the extent that a Portfolio
does not follow such procedures, it may be liable for losses due to unauthorized
or fraudulent telephone instructions.  A Portfolio will not be liable for acting
upon  instructions  communicated by telephone that it reasonably  believes to be
genuine.

Redemption by Mail or Fax

         In order to ensure proper  authorization  before redeeming shares,  the
Transfer Agent may request additional  documents such as, but not restricted to,
stock  powers,  trust  instruments,   certificates  of  death,  appointments  as
executor/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 a  Portfolios'  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 each Portfolio 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 Portfolios' combined
prospectus under  "Transaction  information - Signature  guarantees",  should be
sent  with a copy  of the  invoice  to  Scudder  Funds,  c/o  Scudder  Confirmed
Processing, Two International Place, Boston,  Massachusetts 02110-4103.  Failure
to deliver shares or required  documents (see above) by the settlement  date may
result in cancellation of the trade and the shareholder  will be responsible for
any loss incurred by a Portfolio or the principal  underwriter by reason of such
cancellation.  Net losses on such transactions  which are not recovered from the
shareholder  will be absorbed  by the  principal  underwriter.  Any net gains so
resulting  will accrue to the  Portfolio.  For this group,  repurchases  will be
carried out at the net asset value next computed after such repurchase  requests
have  been  received.   The   arrangements   described  in  this  paragraph  for
repurchasing shares are discretionary and may be discontinued at any time.

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

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



                                       23
<PAGE>

         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  Portfolio  of
securities  owned by it is not  reasonably  practicable  or it is not reasonably
practicable  for the Portfolio  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.

                   FEATURES AND SERVICES OFFERED BY THE TRUST

                 (See "Investment Products and Services" in the
                       Portfolios' combined prospectus.)

The Pure No-Load(TM) Concept

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

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

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

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

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

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



                                       24
<PAGE>
<TABLE>
<CAPTION>

====================================================================================================================
                                Scudder                                                         No-Load Fund with
         Years            Pure No-Load(TM)Fund       8.50% Load Fund     Load Fund with 0.75%      0.25% 12b-1 Fee
                                                                             12b-1 Fee
- --------------------------------------------------------------------------------------------------------------------

<S>       <C>                  <C>                    <C>                    <C>                    <C>     
          10                   $ 25,937               $ 23,733               $ 24,222               $ 25,354
- --------------------------------------------------------------------------------------------------------------------

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

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

         Investors  are  encouraged  to review  the fee  tables on page 8 of the
Portfolios' combined prospectus for more specific information about the rates at
which management fees and other expenses are assessed.

Internet access

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

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

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

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

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

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

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

                                       25
<PAGE>

Dividends and Capital Gains Distribution Options

         Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions  from realized capital
gains in  additional  shares of a 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  also may change their  dividend
option either by calling  1-800-225-5163  or by sending written  instructions to
the  Transfer  Agent.  Please  include  your  account  number with your  written
request. See "Investment Products and Services" in the Portfolios'  prospectuses
for the address.

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

         Investors  may also  have  dividends  and  distributions  automatically
deposited   in   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.  Confirmation  statements  will be  mailed  to  shareholders  as
notification that distributions have been deposited.

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

Scudder Investor Centers

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

Reports to Shareholders

         The Trust issues 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.  The Trust presently intends to
distribute to  shareholders  informal  quarterly  reports during the intervening
quarters, containing a statement of the investments of the Portfolios.

Transaction Summaries

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

                           THE SCUDDER FAMILY OF FUNDS

                 (See "Investment Products and Services" in the
                       Portfolios' combined prospectus.)

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

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.

                                       26
<PAGE>

         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.

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.

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

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

                                       27
<PAGE>

         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.

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

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

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

GLOBAL INCOME

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

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


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

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


                                       28
<PAGE>

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

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

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

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

U.S. GROWTH

     Value

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

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

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

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

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

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


                                       29
<PAGE>

     Growth

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

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

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

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

GLOBAL EQUITY

     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 Value Fund seeks long-term capital  appreciation
         through investment primarily in undervalued foreign equity securities.

         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  International Growth Fund seeks long-term capital appreciation
         through  investment  primarily  in the  equity  securities  of  foreign
         companies with high growth potential.

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

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

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

     Regional

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

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

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

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

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


                                       30
<PAGE>

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

INDUSTRY SECTOR FUNDS

     Choice Series

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

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

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

SCUDDER PREFERRED SERIES

         Scudder Tax Managed Growth Fund seeks long-term growth of capital on an
         after-tax  basis by  investing  primarily  in  established,  medium- to
         large-sized U.S. companies with leading competitive positions.

         Scudder  Tax  Managed  Small  Company  Fund seeks  long-term  growth of
         capital  on  an  after-tax  basis  through   investment   primarily  in
         undervalued stocks of small U.S. companies.

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

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

                              SPECIAL PLAN ACCOUNTS

         (See "Transaction Information", "Purchases", and "Exchanges and
              Redemptions" in the Portfolios' combined prospectus.)

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

         Shares  of each  Portfolio  may also be a  permitted  investment  under
profit  sharing  and  pension  plans and IRAs other  than  those  offered by the
Portfolios' 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.

                                       31
<PAGE>

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

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

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

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

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

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

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

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

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

         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.)

                                       32
<PAGE>

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

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

Scudder Roth IRA:  Individual Retirement Account

         Shares of each Portfolio may be purchased as the underlying  investment
for a Roth Individual Retirement Account which meets the requirements of Section
408A of the Internal Revenue Code.

         A single  individual  earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000.  Married  couples earning less than $150,000  combined,  and filing
jointly,  can  contribute a full $4,000 per year  ($2,000 per IRA).  The maximum
contribution  amount for married couples filing jointly phases out from $150,000
to $160,000.

         An eligible  individual can contribute money to a traditional IRA and a
Roth IRA as long as the total  contribution  to all IRAs does not exceed $2,000.
No tax deduction is allowed  under Section 219 of the Internal  Revenue Code for
contributions to a Roth IRA.  Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.

         All income and capital  gains  derived  from Roth IRA  investments  are
reinvested  and  compounded  tax-free.  Such  tax-free  compounding  can lead to
substantial  retirement savings. No distributions are required to be taken prior
to the death of the original account holder.  If a Roth IRA has been established
for a minimum of five years,  distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase  ($10,000  maximum,  one-time use) or
upon death or disability.  All other  distributions  of earnings from a Roth IRA
are  taxable  and  subject to a 10% tax  penalty  unless an  exception  applies.
Exceptions to the 10% penalty include: disability,  excess medical expenses, the
purchase  of  health  insurance  for  an  unemployed  individual  and  education
expenses.

         An individual  with an income of less than $100,000 (who is not married
filing  separately)  can roll his or her existing IRA into a Roth IRA.  However,
the individual  must pay taxes on the taxable  amount in his or her  traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year  period.  After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.

Scudder 403(b) Plan

         Shares  of each  Portfolio  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 


                                       33
<PAGE>

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 -- Signature guarantees" in the Portfolios' combined prospectus. Any
such requests must be received by the applicable  Portfolio's transfer agent ten
days  prior  to the  date  of  the  first  automatic  withdrawal.  An  Automatic
Withdrawal Plan may be terminated at any time by the  shareholder,  the Trust or
its agent on  written  notice,  and will be  terminated  when all  shares of the
Portfolio  under the Plan have been  liquidated  or upon receipt by the Trust of
notice of death of the shareholder.

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

Group or Salary Deduction Plan

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

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

Automatic Investment Plan

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

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

Uniform Transfers/Gifts to Minors Act

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

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

                    DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

      (See "DISTRIBUTIONS -- Dividends and capital gains distributions" and
                "Taxes" in the Portfolios' combined prospectus.)

         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


                                       34
<PAGE>

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, a 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 a Portfolio,  to the extent permissible,  as
part of the Portfolios' 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.

         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 "PORTFOLIO SUMMARIES -- Past Performance" in the
                       Portfolios' combined prospectus.)

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

Average Annual Total Return

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

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

Where:

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


                                       35
<PAGE>

        Average Annual Total Return for the periods ended August 31, 1998

                                     One Year            Life of Portfolio^(1)
                                     --------            ---------------------

        Conservative Portfolio         2.05%                    7.44%
        Balanced Portfolio            -2.84%                    4.80%
        Growth Portfolio              -6.23%                    4.16%
        International Portfolio       -5.22%                    2.52%

^(1)     For the period November 15, 1996 (commencement of operations) to August
         31, 1998.

Cumulative Total Return

         Cumulative   Total  Return  is  the  compound   rate  of  return  on  a
hypothetical  initial  investment of $1,000 for a specified  period.  Cumulative
Total Return quotations reflect changes in the price of 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.

          Cumulative Total Return for the periods ended August 31, 1998

                                     One Year            Life of Portfolio^(1)
                                     --------            ---------------------

          Conservative Portfolio      2.05%                     13.73%
          Balanced Portfolio         -2.84%                     8.76%
          Growth Portfolio           -6.23%                     7.57%
          International Portfolio    -5.22%                     4.56%

(1)      For the period November 15, 1996 (commencement of operations) to August
         31, 1998.

         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.  There may be quarterly periods following the
periods  reflected in the performance  bar chart in the  Portfolio's  prospectus
which may be higher or lower than those included in the bar chart.

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
Comparison of Fund Performance.
    

         A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there  are  different  methods  of  calculating  performance,  investors  should
consider the effects of the methods used to calculate performance when comparing
performance  of a  Portfolio  with  performance  quoted  with  respect  to other
investment companies or types of investments.

                                       36
<PAGE>

         In  connection  with   communicating  its  performance  to  current  or
prospective  shareholders,  a Portfolio  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, the Wilshire Real Estate  Securities
Index and statistics published by the Small Business Administration.

         From  time  to  time,  in  advertising  and  marketing  literature,   a
Portfolio'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 Portfolio
will be compared to the  appropriate  fund category,  that is, by fund objective
and  portfolio  holdings,  or to  the  appropriate  volatility  grouping,  where
volatility is a measure of a fund's risk.  For instance,  a Scudder  growth fund
will be  compared to funds in the growth fund  category;  a Scudder  income fund
will be compared to funds in the income fund category;  and so on. Scudder funds
(except  for money  market  funds) may also be  compared  to funds with  similar
volatility, as measured statistically by independent organizations.

         From  time to  time,  in  marketing  and  other  Portfolio  literature,
Trustees  and  officers of the Trust,  the  Portfolios'  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 Portfolios.  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 Portfolios  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  Portfolio  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 Portfolios
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.



                                       37
<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  Portfolio  performance  or other  relevant  statistical
information  made by  independent  sources  may  also be used in  advertisements
concerning the Portfolios, including reprints of, or selections from, editorials
or articles  about these Funds.  Sources for Fund  performance  information  and
articles about the Portfolios 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.

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



                                       38
<PAGE>

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.

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

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

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

USA Today, a leading national daily newspaper.

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

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

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

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

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

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

                               TRUST ORGANIZATION

       (See "Investment Adviser" in the Portfolios' combined prospectus.)

         The Portfolios are portfolios of Scudder  Pathway Series (the "Trust"),
a Massachusetts  business trust  established  under a Declaration of Trust dated
July 1, 1994. The Trust's  authorized capital consists of an unlimited 


                                       39
<PAGE>

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  currently  offers  four  portfolios:   Conservative  Portfolio,  Balanced
Portfolio, Growth Portfolio and International Portfolio. Each portfolio 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 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 "Investment Adviser" in the Portfolios' prospectuses.)

         Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm,  acts as investment  adviser to the  Portfolios.  This  organization,  the
predecessor  of which is  Scudder,  Stevens  & Clark,  Inc.,  is one of the most
experienced  investment  counsel  firms  in the U.  S. It was  established  as a
partnership in 1919 and pioneered the practice of providing  investment  counsel
to individual  clients on a fee basis.  In 1928 it introduced  the first no-load
mutual fund to the public. In 1953 the Adviser introduced Scudder  International
Fund,   Inc.,   the  first  mutual  fund   available   in  the  U.S.   investing
internationally  in  securities  of issuers in several  foreign  countries.  The
predecessor  firm  reorganized  from a partnership  to a corporation on June 28,
1985. On June 26, 1997, Scudder,  Stevens & Clark, Inc. ("Scudder") entered into
an agreement with Zurich Insurance Company ("Zurich")  pursuant to which Scudder
and Zurich agreed to form an alliance.  On December 31, 1997,  Zurich acquired a
majority  interest in Scudder,  and Zurich  Kemper  Investments,  Inc., a Zurich
subsidiary,  became part of Scudder.  Scudder's name has been changed to Scudder
Kemper Investments, Inc.

         Founded  in  1872,  Zurich  is  a  multinational,   public  corporation
organized  under  the  laws of  Switzerland.  Its  home  office  is  located  at
Mythenquai 2, 8002 Zurich,  Switzerland.  Historically,  Zurich's  earnings have
resulted from its  operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance  products and
services  and have branch  offices and  subsidiaries  in more than 40  countries
throughout the world.

         The  principal  source of the  Adviser's  income is  professional  fees
received from providing  continuous  investment  advice, and the firm derives no
income  from  brokerage  or  underwriting  of  securities.  Today,  it  provides
investment  counsel for many individuals and institutions,  including  insurance
companies,   colleges,  industrial  corporations,   and  financial  and  banking
organizations.  In addition,  it manages  Montgomery  Street Income  Securities,
Inc.,  Scudder  California Tax Free Trust,  Scudder Cash Investment Trust, Value
Equity Trust,  Scudder  Fund,  Inc.,  Scudder Funds Trust,  Global/International
Fund, Inc.,  Scudder Global High Income Fund, Inc.,  Scudder GNMA Fund,  Scudder
Portfolio Trust, Scudder  Institutional Fund, Inc., Scudder  International Fund,
Inc.,  Investment Trust,  Scudder Municipal Trust,  Scudder Mutual Funds,  Inc.,
Scudder New Asia Fund,  Inc.,  Scudder New Europe Fund,  Inc.,  Scudder  Pathway
Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free
Money Fund,  Scudder Tax Free Trust,  Scudder U.S. Treasury Money Fund,  Scudder
Variable Life Investment  Fund, The Argentina Fund, Inc., The Brazil Fund, Inc.,
The Korea Fund,  Inc., The Japan Fund, Inc. and Scudder Spain and Portugal Fund,
Inc. Some of the foregoing companies or trusts have two or more series.

         The Adviser also provides  investment  advisory  services to the mutual
funds  which  comprise  the  AARP  Investment  Program  from  Scudder.  The AARP
Investment  Program  from  Scudder has assets over $13 billion and  


                                       40
<PAGE>

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

         The  Adviser  maintains a large  research  department,  which  conducts
continuous   studies  of  the  factors  that  affect  the  position  of  various
industries,  companies and individual securities. The Adviser receives published
reports and statistical  compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities.  Scudder's  international  investment
management  team  travels  the world,  researching  hundreds  of  companies.  In
selecting the securities in which 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  transaction  between Scudder and Zurich resulted in the assignment
of  the  Portfolios'   investment  management  agreements  with  Scudder,  those
agreements were deemed to be automatically terminated at the consummation of the
transaction.  In  anticipation  of  the  transaction,  however,  new  investment
management  agreements  between  each of the  Portfolios'  and the Adviser  were
approved by the Trust's  Trustees on October 17, 1997. At the special meeting of
the Portfolios'  shareholders  held on October 23, 1997, the  shareholders  also
approved  the  investment  management  agreements.   The  investment  management
agreements became effective as of December 31, 1997.

         On September 7, 1998, the businesses of Zurich (including  Zurich's 70%
interest  in Scudder  Kemper) and the  financial  services  businesses  of B.A.T
Industries  p.l.c.  ("B.A.T")  were combined to form a new global  insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding  company  structure,  former Zurich  shareholders  initially  owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.

         Upon  consummation  of  this  transaction,   the  Portfolios'  existing
investment  management  agreements  with Scudder Kemper were deemed to have been
assigned  and,  therefore,   terminated.   The  Board  approved  new  investment
management   agreements  (the  "Agreements")  with  Scudder  Kemper,  which  are
substantially identical to the current investment management agreements,  except
for the dates of execution and termination.  These  agreements  became effective
upon the termination of the then current  investment  management  agreements and
were approved at a shareholder meeting held in December 1998.

         The Agreements  dated  September 7, 1998, were approved by the Trustees
of each  Portfolio on August 12, 1998.  The  Agreements  will continue in effect
until  September  30,  1999  and  from  year to year  thereafter  only if  their
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to such  Agreements or interested  persons of the Adviser or the
Trust,  cast in person at a meeting  called  for the  purpose  of voting on such



                                       41
<PAGE>

approval,  and  either  by a  vote  of  the  Trustees  or of a  majority  of the
outstanding  voting securities of the Trust. The Agreements may be terminated at
any time  without  payment  of penalty by either  party on sixty  days'  written
notice and automatically terminates in the event of its assignment.

         The Adviser  regularly  provides the Trust with  continuing  investment
management  for  the  Portfolios  consistent  with  the  Portfolios'  investment
objectives,  policies and  restrictions  and determines what Underlying  Scudder
Funds  shall be  purchased,  held or sold and what  portion of each  Portfolio's
assets shall be held  uninvested,  subject to the Declaration of Trust, the 1940
Act, the Code, the Order and to the Portfolios' investment objectives,  policies
and restrictions, and subject, further, to such policies and instructions as the
Board of Trustees may from time to time establish.

         The Adviser  provides  each  Portfolio  with  discretionary  investment
services. Specifically, the Adviser is responsible for supervising and directing
the investments of each Portfolio in accordance with each Portfolio's investment
objectives,  program,  and  restrictions  as provided in the prospectus and this
Statement  of  Additional  Information.  The  Adviser  is also  responsible  for
effecting all security  transactions on behalf of each Portfolio,  including the
negotiation  of  commissions  and  the  allocation  of  principal  business  and
portfolio  brokerage.  However, it should be understood that each Portfolio will
invest their assets almost  exclusively in the shares of the Underlying  Scudder
Funds and such investments will be made without the payment of any commission or
other sales charges.  In addition to these  services,  the Adviser  provides the
Trust with certain corporate administrative services, including: maintaining the
corporate existence, corporate records, and registering and qualifying Portfolio
shares under federal and state laws;  monitoring the financial  accounting,  and
administrative functions of each Portfolio;  maintaining liaison with the agents
employed by the Trust such as the  custodian and transfer  agent;  assisting the
Trust  in the  coordination  of such  agents'  activities;  and  permitting  the
Adviser's employees to serve as officers, trustees, and committee members of the
Trust without cost to the Trust.

         The Adviser  also  renders  significant  administrative  services  (not
otherwise  provided by third parties) necessary for the Trust's operations as an
open-end investment company including, but not limited to, preparing reports and
notices to the Trustees and shareholders;  supervising,  negotiating contractual
arrangements with, and monitoring various  third-party  service providers to the
Trust (such as the Trust's  transfer  agent,  pricing  agents,  custodian,  fund
accounting  agent and  others);  preparing  and making  filings with the SEC and
other  regulatory  agencies;  assisting  in the  preparation  and  filing of the
Trust's federal,  state and local tax returns;  preparing and filing the Trust's
federal  excise tax  returns;  assisting  with  investor  and  public  relations
matters; monitoring the valuation of securities and the calculation of net asset
value;  monitoring the registration of shares of each Portfolio under applicable
federal and state securities laws;  maintaining the Trust's books and records to
the extent not otherwise maintained by a third party;  assisting in establishing
accounting policies of the Trust;  assisting in the resolution of accounting and
legal  issues;   establishing  and  monitoring  the  Trust's  operating  budget;
processing  the payment of the Trust's  bills;  assisting each Portfolio in, and
otherwise  arranging  for,  the  payment  of  distributions  and  dividends  and
otherwise  assisting  the Trust in the conduct of its  business,  subject to the
direction and control of the Trustees.

         The  Adviser  pays  the  compensation  and  expenses  (except  those of
attending  Board and committee  meetings  outside New York,  New York or Boston,
Massachusetts)  of all Trustees,  officers and executive  employees of the Trust
affiliated with the Adviser and makes  available,  without expense to the Trust,
the services of such Trustees, officers and employees of the Adviser as may duly
be elected officers of the Trust,  subject to their individual  consent to serve
and to any limitations imposed by law, and provides the Trust's office space and
facilities.

         In reviewing  the terms of the Agreement  and in  discussions  with the
Adviser  concerning  such  Agreement,  the  Trustees  of the  Fund  who  are not
"interested  persons" of the Adviser are  represented  by  independent  counsel.
Dechert Price & Rhoads acts as general counsel for the Trust.

         The  Agreement  provides  that the Adviser  shall not be liable for any
error of  judgment  or mistake of law or for any loss  suffered  by the Trust in
connection with matters to which the Agreement relates,  except a loss resulting
from  willful  misfeasance,  bad  faith or gross  negligence  on the part of the
Adviser in the  performance  of its  duties or from  reckless  disregard  by the
Adviser of its obligations and duties under the Agreement.

         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  


                                       42
<PAGE>

Underlying Scudder Funds. The Trust, as a shareholder of the selected Underlying
Scudder Funds, will benefit only from  cost-sharing  reductions in proportion to
its interest in such Underlying Scudder Funds.

         The range of the average  weighted pro rata share of expenses  borne by
each Portfolio is expected to be as follows:  Conservative  Portfolio,  0.15% to
1.75%, Balanced Portfolio,  0.30% to 1.85%, Growth Portfolio, 0.71% to 1.95% and
International Portfolio, 1.06% 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 Adviser charges nonadvisory fees under the Agreement.

Personal Investments by Employees of the Adviser

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

Management Fees of Underlying Scudder Funds

         The Adviser has agreed not to be paid a management  fee for  performing
its services.  However,  the Adviser will receive  management fees from managing
the Underlying Scudder Funds in which each Portfolio invests.

         Each  Underlying  Scudder  Fund pays the  Adviser a  management  fee as
determined  by the  Investment  Management  Agreement  between  each  Underlying
Scudder  Fund and the  Adviser.  As  manager  of the  assets of each  Underlying
Scudder Fund, the Adviser directs the investments of an Underlying  Scudder Fund
in accordance with each Underlying Scudder Fund's investment objective, policies
and restrictions.  The Adviser determines the securities,  instruments and other
contracts  relating to investments  to be purchased,  sold or entered into by an
Underlying Scudder Fund. If an Underlying Scudder Fund's expenses,  exclusive of
taxes, interest and extraordinary expenses, exceed specified limits, such excess
up to the amount of the management fee, will be paid by the Adviser.

         The  management  fees and total  operating  expenses of the  Underlying
Scudder Funds are as follows:
<TABLE>
<CAPTION>

                                                      Fiscal Year       Total        Management          Total           Management
Name of Fund                                               End         Expenses       Fee (%)       Expenses (%)          Fee (%)
- ------------                                               ---         --------       -------       ------------          -------
                                                                                                        after          after waiver
                                                                                                        -----          ------------
                                                                                                   reimbursement
                                                                                                   -------------
                                                                                                   and/or waiver
                                                                                                   -------------

<S>                                                       <C>  <C>       <C>              <C>             <C>                 <C> 
Scudder Cash Investment Trust                             6/30/98        0.95             0.42            0.85                0.32
Scudder Corporate Bond Fund                               1/31/99        0.0              0.65*           0.0*                0.0*
Scudder Emerging Markets Income Fund                      10/31/97       1.49             1.00            -                   -
Scudder Global Bond Fund                                  10/31/97       1.39             0.75            1.00                0.36
Scudder GNMA Fund                                         3/31/98        1.02             0.63            -                   -
Scudder High Yield Bond Fund                              2/28/98        1.23             0.70            0.03                0.0
Scudder Income Fund                                       12/31/97       1.18             0.61            0.95                0.38
Scudder International Bond Fund                           6/30/98        1.62             0.85            1.56                0.79
Scudder Short Term Bond Fund                              12/31/97       0.86             0.53            -                   -
Scudder Classic Growth Fund                               8/31/98        1.61             0.70            1.30                0.39
Scudder Development Fund                                  6/30/98        1.41             0.98            -                   -


                                       43
<PAGE>


                                                      Fiscal Year       Total        Management          Total           Management
Name of Fund                                               End         Expenses       Fee (%)       Expenses (%)          Fee (%)
- ------------                                               ---         --------       -------       ------------          -------
                                                                                                        after          after waiver
                                                                                                        -----          ------------
                                                                                                   reimbursement
                                                                                                   -------------
                                                                                                   and/or waiver
                                                                                                   -------------

Scudder Emerging Markets Growth Fund                      10/31/97       2.33             1.25            2.00                0.92
Scudder Global Fund                                       6/30/98        1.34             0.94            -                   -
Scudder Global Discovery Fund                             10/31/97       1.63             1.10            -                   -
Scudder Gold Fund                                         6/30/98        1.82             1.00            -                   -
Scudder Greater Europe Growth Fund                        10/31/97       1.72             1.00            1.66                0.94
Scudder Growth and Income Fund                            12/31/97       0.76             0.46            -                   -
Scudder International Fund                                3/31/98        1.18             0.81            -                   -
Scudder International Growth and Income Fund              2/28/98        2.65             1.00            1.75                0.10
Scudder Large Company Growth Fund                         10/31/97       1.21             0.70            -                   -
Scudder Large Company Value Fund                          9/30/98        0.88             0.63            -                   -
Scudder Latin America Fund                                10/31/97       1.89             1.25            -                   -
Scudder Micro Cap Fund                                    8/31/98        1.39             0.75
Scudder Pacific Opportunities Fund                        10/31/97       1.94             1.10            -                   -
Scudder Small Company Value Fund                          8/31/98        1.39             0.75            -                   -
Scudder 21st Century Growth Fund                          8/31/98        2.17             1.00            1.75                0.58
Scudder Value Fund                                        9/30/98        1.23             0.70
The Japan Fund, Inc.                                      12/31/97       1.21             0.77            -                   -
</TABLE>

         *Estimates for the fiscal year ending January 31, 1999.

         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.

         The  Adviser  may  serve as  adviser  to other  funds  with  investment
objectives  and  policies  similar  to  those  of the  Portfolios  that may have
different distribution arrangements or expenses, which may affect performance.

         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") was 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  arranges  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
provides 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 


                                       44
<PAGE>

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 Trust 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 Trusts'  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;  the 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 the fees for  registering  or
qualifying securities for sale; the fees and expenses of Trustees,  officers and
employees of a Portfolio who are not  affiliated  with the Adviser;  the cost of
printing  and  distributing  reports  and notices to  shareholders;  and fees of
disbursements  of custodians.  Under unusual  circumstances,  the parties to the
Service Agreement may agree to exclude certain other expenses.

         Certain  Underlying  Scudder Funds impose a fee upon the  redemption or
exchange of shares held for 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. Each
such 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,  the Portfolios 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.

                              TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
                                                                                                     Position with
                                                                                                     Underwriter, Scudder
                                           Position                                                  Investor 
Name, Age and Address                      with Trust             Principal Occupation**             Services, Inc.
- ---------------------                      ----------             ----------------------             --------------

   
<S>            <C>                         <C>                    <C>                                <C>         
Daniel Pierce+ (64)                        President              Managing Director of Scudder       Director, Vice
                                                                  Kemper Investments, Inc.           President and
                                                                                                     Assistant Treasurer
    

Dr. Rosita P. Chang (44)                   Trustee                Professor of Finance, University  --
PACAP Research Center                                             of Rhode Island
College of Business Administration
University of Rhode Island
7 Lippitt Rd.
Kingston, RI 02881-0802

   
Edgar R. Fiedler*@ (69)                    Trustee                Senior Fellow and Economic       --
50023 Brogden                                                     Counsellor, The Conference
Chapel Hill, NC 27514                                             Board, Inc.
    

                                       45
<PAGE>
                                                                                                     Position with
                                                                                                     Underwriter, Scudder
                                           Position                                                  Investor 
Name, Age and Address                      with Trust             Principal Occupation**             Services, Inc.
- ---------------------                      ----------             ----------------------             --------------

Peter B. Freeman@ (66)                     Trustee                Corporate Director and Trustee    --
100 Alumni Avenue
Providence, RI 02906

Dr. J. D. Hammond@ (65)                    Trustee                Dean, Smeal College of Business    --
801 Business Administration Building                              Administration, Pennsylvania
Pennsylvania State University                                     State University
University Park, PA 16801

Richard M. Hunt (72)                       Trustee                University Marshal and Senior     --
University Marshal's Office                                       Lecturer, Harvard University
Wadsworth House
1341 Massachusetts Avenue
Harvard University
Cambridge, MA 02138

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

Ann M. McCreary# (48)                      Vice President         Managing Director of Scudder      --
                                                                  Kemper Investments, Inc.

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

Kathryn L. Quirk# (46)                     Vice President and     Managing Director of Scudder       Director, Senior
                                           Assistant Secretary    Kemper Investments, Inc.           Vice President and
                                                                                                     Assistant Clerk

   
Benjamin W. Thorndike+(42)                 Vice President         Managing Director of Scudder       Vice President
                                                                  Kemper Investments, Inc.
    

John R. Hebble+ (40)                       Treasurer              Senior Vice President of Scudder  --
                                                                  Kemper Investments, Inc.

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

*    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 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.
**   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.


                                       46
<PAGE>

@    Messrs. Fiedler, Freeman and Hammond 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

         As of November 30, 1998,  1,454,659  shares in the aggregate,  7.82% of
the outstanding  shares of Scudder Pathway  Balanced  Portfolio were held in the
name of Scudder Kemper Investments,  Inc Trustee, Scudder Defined Benefit Plan &
Trust,  345 Park  Avenue,  New  York,  NY  10154,  who may be  deemed  to be the
beneficial  owner of certain  of these  shares,  but  disclaims  any  beneficial
ownership therein.

         As of November 30, 1998, 310,311 shares in the aggregate, 12.98% of the
outstanding shares of Scudder Pathway Conservative  Portfolio,  were held in the
name of Trustees of the ACR Defined  Contribution  Retirement Plan & Trust,  747
Locus Street,  Pasadena,  CA 91101, who may be deemed to be the beneficial owner
of certain of these shares, but disclaims any beneficial ownership therein.

         As of November 30, 1998, 245,338 shares in the aggregate, 10.26% of the
outstanding shares of Scudder Pathway Conservative  Portfolio,  were held in the
name  of  Scudder  Trust  Company  Trustee,  Ithaca  Industries  Inc.,  Employee
Retirement Savings Plan Trust, Attn. Steve Propst,  Hwy. 268 West, P.O. Box 620,
Wilkeboro,  NC 28697, who may be deemed to be the beneficial owner of certain of
these shares, but disclaims any beneficial ownership therein.

         To the best of the Trust's  knowledge,  as of  November  30,  1998,  no
person owned  beneficially more than 5% of any Portfolios'  outstanding  shares,
except as stated above.

         All  Trustees  and  officers  as a group on  November  30,  1998  owned
beneficially  (as that term is defined  under  Section  13(d) of the  Securities
Exchange Act) 56,954 shares or 1.03% of the shares of Growth  Portfolio,  13,897
shares or 2.00% of the shares of  International  Portfolio,  and less than 1% of
the shares of Balanced Portfolio and Conservative  Portfolio outstanding on such
date.

                                  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.,  Two  International  Place,  Boston,  MA  02110  (the  "Distributor"),   a
Massachusetts  corporation,  which is a subsidiary  of the  Adviser,  a Delaware
corporation.  The Trust's  underwriting  agreement  dated September 7, 1998 will
remain in effect until  September 30, 1999 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 August 12, 1998.

         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.

                                       47
<PAGE>

         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 a Portfolio shall bear some or all of such expenses.

         Note:    Although the  Portfolios do not currently have a 12b-1 Plan, 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 "DISTRIBUTIONS -- Dividends and Capital Gains Distributions" and
               "Taxes" in the Portfolios' combined 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.

         If for any taxable  year a  Portfolio  does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular  corporate rates
(without any deduction for  distributions to its  shareholders).  In such event,
dividend  distributions,  would be  taxable  to  shareholders  to the  extent of
current  accumulated  earnings  and  profits,  and  would  be  eligible  for the
dividends   received  deduction  for  corporations  in  the  case  of  corporate
shareholders.

         Each Portfolio is subject to a 4%  nondeductible  excise tax on amounts
required  to be but not  distributed  under a  prescribed  formula.  The formula
requires  payment  to  shareholders  during  a  calendar  year of  distributions
representing at least 98% of each  Portfolio's  ordinary income for the calendar
year,  at least 98% of the  excess of its  capital  gains  over  capital  losses
(adjusted  for certain  ordinary  losses)  realized  during the one-year  period
ending  October 31 during such year,  and all ordinary  income and capital gains
for prior years that were not previously distributed.

         Investment  company  taxable income  generally is made up of dividends,
interest and net  short-term  capital gains in excess of net  long-term  capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of a Portfolio.  Presently,
each Portfolio has no capital loss carryforwards.

         If any net realized  long-term  capital gains in excess of net realized
short-term  capital  losses  are  retained  by  a  Portfolio  for  reinvestment,
requiring  federal  income  taxes  to be  paid  thereon  by the  Portfolio,  the
Portfolio  intends  to  elect  to  treat  such  capital  gains  as  having  been
distributed to  shareholders.  As a result,  each  shareholder  will report such
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.



                                       48
<PAGE>

         To the extent that 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  during the  90-day  period  beginning  45 days  before  the shares  become
ex-dividend.

         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 such
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 and to deduct such  amount 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.

         Properly  designated  distributions  of the  excess  of  net  long-term
capital gain over net  short-term  capital loss are taxable to  shareholders  as
long-term  capital  gains,  regardless  of the  length  of time the  shares of a
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.

         A qualifying 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.



                                       49
<PAGE>

         Each  Portfolio  will be  required  to report to the  Internal  Revenue
Service  ("IRS") all  distributions  of investment  company  taxable  income and
capital  gains as well as gross  proceeds  from the  redemption  or  exchange of
Portfolio shares,  except in the case of certain exempt shareholders.  Under the
backup  withholding  provisions  of Section 3406 of the Code,  distributions  of
investment  company  taxable  income and  capital  gains and  proceeds  from the
redemption  or exchange of the shares of a regulated  investment  company may be
subject to  withholding  of federal income tax at the rate of 31% in the case of
non-exempt  shareholders  who fail to furnish the investment  company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law.  Withholding  may also be required if a
Portfolio  is notified by the IRS or a broker that the  taxpayer  identification
number  furnished by the  shareholder is incorrect or that the  shareholder  has
previously  failed to report  interest or dividend  income.  If the  withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld.

         Shareholders  of a Portfolio may be subject to state and local taxes on
distributions  received from the Portfolio and on redemptions of the Portfolio's
shares.

         The foregoing  discussion of U.S. federal income tax law relates solely
to the  application  of that  law to  U.S.  persons,  i.e.,  U.S.  citizens  and
residents  and  U.S.  corporations,   partnerships,  trusts  and  estates.  Each
shareholder  who is not a U.S.  person should  consider the U.S. and foreign tax
consequences  of ownership of shares of a Portfolio,  including the  possibility
that such a shareholder  may be subject to a U.S.  withholding  tax at a rate of
30% (or at a lower  rate  under an  applicable  income  tax  treaty)  on amounts
constituting  ordinary  income  received by him or her,  where such  amounts are
treated as income from U.S. sources under the Code.

Taxation of the Underlying Scudder Funds

         Each Underlying  Scudder Fund intends to qualify annually and elects to
be treated as a regulated  investment company under Subchapter M of the Code. In
any year in which an Underlying Scudder Fund qualifies as a regulated investment
company and timely  distributes  all of its taxable  income,  the Fund generally
will not pay any federal income or excise tax.

         Distributions  of  an  Underlying  Scudder  Fund's  investment  company
taxable  income are taxable as ordinary  income to a Portfolio  which invests in
the Fund.  Distributions  of the  excess of an  Underlying  Scudder  Fund's  net
long-term capital gain over its net short-term  capital loss, which are properly
designated as "capital gain dividends," are taxable as long-term capital gain to
a Portfolio which invests in the Fund, regardless of how long the Portfolio held
the Fund's  shares,  and are not eligible for the  corporate  dividends-received
deduction.  Upon the sale or other  disposition  by a Portfolio  of shares of an
Underlying Scudder Fund, the Portfolio  generally will realize a capital gain or
loss  which  will be  long-term  or  short-term,  generally  depending  upon the
Portfolio's holding period for the shares.

         Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of addition al information
in light of their particular tax situations.

                             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  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.



                                       50
<PAGE>

Underlying Scudder Fund                           Portfolio Turnover Rate (%)(1)
- -----------------------                           ------------------------------

   
Scudder Cash Investment Trust(2)                                 n/a
Scudder Corporate Bond Fund(3)                                   -
Scudder Emerging Markets Income Fund                             239.7
Scudder Global Bond Fund                                         218.3
Scudder GNMA Fund                                                316.5*
Scudder High Yield Bond Fund                                     123.93*
Scudder Income Fund                                              138.2*
Scudder International Bond Fund                                    303.5
Scudder Short Term Bond Fund                                     152.2*
Scudder Classic Growth Fund                                      48.5
Scudder Development Fund                                         52.4
Scudder Emerging Markets Growth Fund                              44.8
Scudder Global Fund                                              51.3
Scudder Global Discovery Fund                                    40.6
Scudder Gold Fund                                                  153.6
Scudder Greater Europe Growth Fund                                92.7
Scudder Growth and Income Fund                                   40.6*
Scudder International Fund                                        64.0*
Scudder International Growth and Income Fund                      74.2*
Scudder Large Company Growth Fund                                 54.1
Scudder Large Company Value Fund                                  39.5
Scudder Latin America Fund                                        43.6
Scudder Micro Cap Fund                                            33.5
Scudder Pacific Opportunities Fund                                140.9
Scudder Small Company Value Fund                                  22.6
Scudder 21st Century Growth Fund                                  119.8
Scudder Value Fund                                                47.0
The Japan Fund                                                    89.2*
    
- ------------------------------
(1) As of each Underlying  Scudder Fund's most recent fiscal  reporting  period.
(2) Scudder Cash Investment Trust is a money market fund.
(3) Financial information will be available after the fund's initial fiscal year
ending on January 31, 1999. 
* Annualized

                                 NET ASSET VALUE

         The net asset value of Portfolio  shares is computed as of the close of
regular  trading on the  Exchange on each day the  Exchange is open for trading.
The  Exchange is scheduled to be closed on the  following  holidays:  New Year's
Day, Dr. Martin Luther King,  Jr. Day,  Presidents'  Day, Good Friday,  Memorial
Day,  Independence Day, Labor Day,  Thanksgiving and Christmas.  Net asset value
per  share is  determined  by  dividing  the  value  of the  total  assets  of a
Portfolio, 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  is
determined in a manner 


                                       51
<PAGE>

which, in the discretion of the Valuation  Committee,  most fairly reflects fair
market value of the property on the valuation date.

                             ADDITIONAL INFORMATION

Experts

         The Financial  Highlights of each Portfolio  included in the prospectus
and the  Financial  Statements  incorporated  by reference in this  Statement of
Additional  Information  have been so included or  incorporated  by reference in
reliance on the report of  PricewaterhouseCoopers  LLP, One Post Office  Square,
Boston, Massachusetts 02109, independent accountants, and given on the authority
of that firm as experts in accounting and auditing. PricewaterhouseCoopers,  LLP
is  responsible  for  performing  annual audits of the financial  statements and
financial  highlights of each Portfolio in accordance  with  generally  accepted
auditing standards, and the preparation of federal tax returns.

Shareholder Indemnification

         The  Trust  is  an  organization  of  the  type  commonly  known  as  a
Massachusetts  business trust. Under  Massachusetts law,  shareholders of such a
trust may, under certain  circumstances,  be held personally  liable as partners
for the  obligations of the Trust.  The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with each Portfolio's property
or the acts,  obligations or affairs of the Trust. The Declaration of Trust also
provides for  indemnification  out of a Portfolio's  property of any shareholder
held personally  liable for the claims and  liabilities  which a shareholder may
become subject by reason of being or having been a  shareholder.  Thus, the risk
of a shareholders  incurring financial loss on account of shareholder  liability
is limited to  circumstances in which a Portfolio itself would be unable to meet
its obligations.

Other Information

         Many of the  investment  changes in a Portfolio  will be made at prices
different  from those  prevailing at the time they may be reflected in a regular
report  to  shareholders  of the  Portfolio.  These  transactions  will  reflect
investment  decisions made by the Adviser in light of the objective and policies
of the  particular  Portfolio,  and other  factors  such as its other  portfolio
holdings and tax considerations,  and should not be construed as recommendations
for similar action by other investors.

         The name "Scudder  Pathway  Series" is the  designation of the Trustees
for the time being under a  Declaration  of Trust dated July 1, 1994, as amended
from time to time, and all persons  dealing with a Portfolio must look solely to
the property of the  Portfolio  for the  enforcement  of any claims  against the
Portfolio as neither the Trustees,  officers,  agents or shareholders assume any
personal liability for obligations  entered into on behalf of the Portfolio.  No
series of the Trust  shall be liable for the  obligations  of any other  series.
Upon the initial purchase of shares,  the shareholder  agrees to be bound by the
Trust's  Declaration of Trust,  as amended from time to time. The Declaration of
Trust is on file at the  Massachusetts  Secretary  of State's  Office in Boston,
Massachusetts.

         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 August 31.

         The  prospectuses  of  each  of the  Portfolios  are  combined  in this
prospectus and Statement of Additional  Information.  Each Portfolio offers only
its own shares,  yet it is possible  that a Portfolio  might become liable for a
misstatement or omission regarding another Portfolio.  The Trustees of the Trust
have considered this and approved the use of a combined prospectus and Statement
of Additional Information.



                                       52
<PAGE>

         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 Trust.

         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,  or  the  Adviser  (including  any  affiliate  of  the
Adviser),   or  both,   may  pay   unaffiliated   third  parties  for  providing
recordkeeping  and other  administrative  services  with  respect to accounts of
participants in retirement plans or other beneficial  owners of Portfolio shares
whose interests are held in an omnibus account.

         The  Portfolios'  combined  prospectus  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 Report of Independent  Accountants,
Financial  Highlights and notes to financial  statements are incorporated herein
by reference  and are hereby  deemed to be part of this  Statement of Additional
Information.

                                       53
<PAGE>




                                    GLOSSARY

         Prospective  investors should consider certain Underlying Scudder Funds
may engage in the following investment practices.

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

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.

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.

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.

                                       54
<PAGE>

         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.

Investments  Involving  Above-Average Risk. Certain Underlying Scudder Funds may
purchase  securities  involving  above-average  risk. For example, an Underlying
Scudder Fund has invested from time to time in  relatively  new companies but is
limited by a  non-fundamental  policy that it may not invest more than 5% of its
total assets in companies that, with their predecessors, have been in continuous
operation for less than three years. The Underlying Scudder Fund's portfolio may
also  include  the  securities  of small  or  little-known  companies,  commonly
referred  to as  emerging  growth  companies,  that the  Adviser  believes  have
above-average  earnings  growth  potential  and/or may  receive  greater  market
recognition.  Both factors are  believed to offer  significant  opportunity  for
capital  appreciation.  Investment risk is higher than that normally  associated
with larger,  older companies due to the higher  business risks  associated with
small size,  frequently  narrow product lines and relative  immaturity.  To help
reduce risk, the Underlying  Scudder Fund allocates its  investments  among many
companies and different industries.

         The securities of such companies are often traded only over-the-counter
and may not be traded in the volume typical of trading on a national  securities
exchange.  As a  result,  the  disposition  by the  Underlying  Scudder  Fund of
holdings of such  securities may require the Underlying  Scudder Fund to offer a
discount from recent prices or to make many small sales over a lengthy period of
time. Such securities may be subject to more abrupt or erratic market  movements
than those typically encountered on national securities exchanges.

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.  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 Ratings  Appendix to this Statement of Additional
Information.

         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.

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.



                                       55
<PAGE>

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.")

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  


                                       56
<PAGE>

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.

High Yield,  High Risk Securities.  Below investment grade securities  (rated Ba
and  lower  by  Moody's  and BB and  lower  by S&P)  or  unrated  securities  of
equivalent quality, in which certain Underlying Scudder Funds may invest,  carry
a high degree of risk (including the possibility of default or bankruptcy of the
issuers of such securities),  generally involve greater  volatility of price and
risk of principal  and income,  and may be less liquid,  than  securities in the
higher rating categories and are considered  speculative.  The lower the ratings
of such debt  securities,  the  greater  their  risks  render  them like  equity
securities.   See  the  Appendix  to  this  combined   Statement  of  Additional
Information for a more complete  description of the ratings  assigned by ratings
organizations and their respective characteristics.

         Economic downturns have in the past, and could in the future, disrupted
the high yield market and impaired the ability of issuers to repay principal and
interest.  Also,  an  increase in  interest  rates  would  likely have a greater
adverse  impact  on the  value of such  obligations  than on  comparable  higher
quality  debt  securities.  During  an  economic  downturn  or  period of rising
interest rates,  highly leveraged  issues may experience  financial stress which
would  adversely  affect their ability to service  their  principal and interest
payment  obligations.  Prices and yields of high yield securities will fluctuate
over time and, during periods of economic uncertainty,  volatility of high yield
securities may adversely affect an Underlying Scudder Fund's net asset value. In
addition,  investments  in high yield zero coupon or pay-in-kind  bonds,  rather
than  income-bearing  high yield securities,  may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.

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

         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.

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


                                       57
<PAGE>

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.

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

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


                                       58
<PAGE>

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

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

         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-


                                       59
<PAGE>

related securities  offering mortgage  pass-through and  mortgage-collateralized
investments in addition to those described above. The mortgages underlying these
securities  may include  alternative  mortgage  instruments,  that is,  mortgage
instruments  whose  principal  or interest  payments  may vary or whose terms to
maturity may differ from customary long-term fixed rate mortgages. An Underlying
Scudder Fund will not purchase  mortgage-backed  securities  or any other assets
which,  in the opinion of the Adviser,  are illiquid if, as a result,  more than
10% of the value of the Underlying Scudder Fund's total assets will be illiquid.
As new  types of  mortgage-related  securities  are  developed  and  offered  to
investors,  the Adviser will,  consistent  with the  Underlying  Scudder  Fund's
investment  objective,   policies,   and  quality  standards,   consider  making
investments in such new types of mortgage-related securities.

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

         Several types of  asset-backed  securities have already been offered to
investors,  including  Certificates for Automobile  Receivables(SM)  ("CARSSM").
CARS(SM)  represent  undivided  fractional  interests in a trust ("Trust") whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARS(SM) are passed through monthly to certificate  holders, and
are  guaranteed up to certain  amounts and for a certain time period by a letter
of credit  issued by a financial  institution  unaffiliated  with the trustee or
originator  of the Trust.  An  investor's  return on CARS(SM) may be affected by
early prepayment of principal on the underlying vehicle sales contracts.  If the
letter of credit is  exhausted,  the trust may be prevented  from  realizing the
full  amount  due on a sales  contract  because  of state law  requirements  and
restrictions  relating to  foreclosure  sales of vehicles  and the  obtaining of
deficiency judgments following such sales or because of depreciation,  damage to
or loss of a vehicle,  the  application  of  federal  and state  bankruptcy  and
insolvency  laws,  or  other  factors.  As a  result,  certificate  holders  may
experience delays in payments or losses if the letter of credit is exhausted.

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

         Asset-backed   securities   are  often  backed  by  a  pool  of  assets
representing  the  obligations of a number of different  parties.  To lessen the
effect of  failures  by  obligors on  underlying  assets to make  payments,  the
securities  may  contain   elements  of  credit  support  which  fall  into  two
categories:  (i)  liquidity  protection,  and  (ii)  protection  against  losses
resulting  from  ultimate  default  by an  obligor  on  the  underlying  assets.
Liquidity  protection  refers to the  provision  of  advances,  generally by the
entity  administering the pool of assets, to ensure that the receipt of payments
on the underlying  pool occurs in a timely  fashion.  Protection  against losses
results from payment of the insurance  obligations  on at least a portion of the
assets in the pool. This protection may be provided through guarantees, policies
or letters of credit  obtained  by the  issuer or  sponsor  from third  parties,
through various means of structuring the transaction or through a combination of
such  approaches.  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 


                                       60
<PAGE>

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.

Illiquid Securities.  Underlying Funds may 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, as amended (the "1933 Act"),  or the  availability of an
exemption from  registration  (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. The absence of a
trading  market can make it  difficult  to  ascertain  a market  value for these
investments  and  there  is a risk  that an  Underlying  Fund may not be able to
dispose of them at an  advantageous  time or price.  This  investment  practice,
therefore,  could have the effect of increasing  the level of  illiquidity  of a
Fund.  It is a Fund's  policy that  illiquid  securities  (including  repurchase
agreements of more than seven days duration,  certain restricted securities, and
other  securities which are not readily  marketable) may not constitute,  at the
time of  purchase,  more than 15% of the value of the  Fund's net  assets.  Each
Corporation/Trust's  Board of Directors/Trustees has approved guidelines for use
by the Adviser in determining whether a security is illiquid.

         Generally  speaking,  restricted  securities  may be sold  (i)  only to
qualified  institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers;  (iii) in limited  quantities after they have been
held for a specified  period of time and other conditions are met pursuant to an
exemption  from  registration;  or  (iv)  in  a  public  offering  for  which  a
registration  statement is in effect under the 1933 Act.  Issuers of  restricted
securities may not be subject to the  disclosure  and other investor  protection
requirements  that would be applicable if their securities were publicly traded.
If adverse market  conditions were to develop during the period between a Fund's
decision to sell a  restricted  or illiquid  security and the point at which the
Fund is permitted or able to sell such  security,  the Fund might obtain a price
less favorable  than the price that  prevailed when it decided to sell.  Where a
registration  statement is required for the resale of restricted  securities,  a
Fund may be required to bear all or part of the  registration  expenses.  A Fund
may be deemed to be an  "underwriter"  for purposes of the 1933 Act when selling
restricted  securities to the public and, in such event,  the Fund may be liable
to purchasers of such securities if the registration  statement  prepared by the
issuer is materially inaccurate or misleading.

         Since it is not possible to predict with  assurance that the market for
securities  eligible for resale under Rule 144A will continue to be liquid,  the
Adviser will monitor such  restricted  securities  subject to the supervision of
the Board of  Trustees.  Among the factors the Adviser may  consider in reaching
liquidity  decisions  relating to Rule 144A securities are: (1) the frequency of
trades  and  quotes  for the  security;  (2) the  number of  dealers  wishing to
purchase or sell the security and the number of other potential purchasers;  (3)
dealer undertakings to make a market in the security;  and (4) the nature of the
security and the nature of the market for the security (i.e., the time needed to
dispose of the security,  the method of soliciting  offers, and the mechanics of
the transfer).

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.



                                       61
<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.

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.

Reverse  Repurchase  Agreements.  The Fund may enter  into  "reverse  repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities,  agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will enter into reverse repurchase agreements only when the
Adviser  believes that the interest  income to be earned from the  investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.
    

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 


                                       62
<PAGE>

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 to create leveraged exposure in the Fund.

         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.

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  


                                       63
<PAGE>

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.

         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 15% 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


                                       64
<PAGE>

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
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.

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

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.



                                       65
<PAGE>

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.

         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.

                                       66
<PAGE>

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 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.



                                       67
<PAGE>

Use of Segregated and Other Special Accounts.  Many Strategic  Transactions,  in
addition  to  other  requirements,  require  that  an  Underlying  Scudder  Fund
segregate  liquid assets with its custodian to the extent an Underlying  Scudder
Fund's  obligations  are  not  otherwise  "covered"  through  ownership  of  the
underlying security,  financial instrument or currency.  In general,  either the
full amount of any  obligation by an  Underlying  Scudder Fund to pay or deliver
securities or assets must be covered at all times by the securities, instruments
or  currency   required  to  be  delivered,   or,   subject  to  any  regulatory
restrictions,  an  amount  of cash or liquid  securities  at least  equal to the
current amount of the  obligation  must be segregated  with the  custodian.  The
segregated  assets cannot be sold or transferred  unless  equivalent  assets are
substituted in their place or it is no longer  necessary to segregate  them. For
example,  a call option  written by an  Underlying  Scudder Fund will require an
Underlying  Scudder  Fund  to  hold  the  securities  subject  to the  call  (or
securities   convertible   into  the  needed   securities   without   additional
consideration)  or to segregate  liquid  securities  sufficient  to purchase and
deliver  the  securities  if the call is  exercised.  A call  option  sold by an
Underlying  Scudder Fund on an index will require an Underlying  Scudder Fund to
own portfolio  securities  which correlate with the index or to segregate liquid
assets  equal to the  excess of the index  value  over the  exercise  price on a
current basis.  A put option  written by an Underlying  Scudder Fund requires an
Underlying Scudder Fund to segregate liquid assets equal to the exercise price.

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

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

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

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

         Strategic  Transactions  may be covered by other means when  consistent
with applicable  regulatory policies.  An Underlying Scudder Fund may also enter
into  offsetting  transactions so that its combined  position,  coupled with any
segregated assets, equals its net outstanding  obligation in related options and
Strategic Transactions. For example, an Underlying Scudder Fund could purchase a
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.

   
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


                                       68
<PAGE>

other mortgage-backed securities together with a commitment to purchase from the
counterparty  similar,  but not  identical,  securities at a future date, at the
same price.  The  counterparty  receives all  principal  and interest  payments,
including  prepayments,  made  on  the  security  while  it is the  holder.  The
Underlying  Scudder Fund receives a fee from the  counterparty as  consideration
for entering into the commitment to purchase. Dollar rolls may be renewed over a
period of several months with a different  purchase and  repurchase  price fixed
and a cash  settlement  made  at  each  renewal  without  physical  delivery  of
securities.  Moreover,  the  transaction  may be preceded  by a firm  commitment
agreement pursuant to which the Underlying Scudder Fund agrees to buy a security
on a future date.
    

         An  Underlying   Scudder  Fund  will  not  use  such  transactions  for
leveraging  purposes and,  accordingly,  will segregate  cash,  U.S.  Government
securities or other high grade debt obligations in an amount  sufficient to meet
its purchase obligations under the transactions. An Underlying Scudder Fund will
also  maintain  asset  coverage  of at  least  300%  for  all  outstanding  firm
commitments, dollar rolls and other borrowings.

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

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

         The  Directors/Trustees  of the  Underlying  Scudder Funds have adopted
guidelines to ensure that those securities received are substantially  identical
to those sold. To reduce the risk of default,  an  Underlying  Scudder Fund will
engage in such transactions only with  counterparties  selected pursuant to such
guidelines.

   
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.



                                       69
<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.

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.

Foreign  Securities.  Certain  Underlying  Scudder  Funds may  invest in foreign
securities.   The  Adviser  believes  that   diversification  of  assets  on  an
international  basis  decreases  the degree to which  events in any one country,
including the U.S., will affect an investor's  entire  investment  holdings.  In
certain periods since World War II, many leading  foreign  economies and foreign
stock market  indices have grown more rapidly than the U.S.  economy and leading
U.S. stock market indices,  although there can be no assurance that this will be
true in the  future.  Investors  should  recognize  that  investing  in  foreign
securities  involves certain special  considerations,  including those set forth
below, which are not typically  associated with investing in U.S. securities and
which  may  favorably  or  unfavorably   affect  an  Underlying  Scudder  Fund's
performance.   As  foreign  companies  are  not  generally  subject  to  uniform
accounting,   auditing  and  financial   reporting   standards,   practices  and
requirements comparable to those applicable to domestic companies,  there may be
less  publicly  available  information  about a  foreign  company  than  about a
domestic company.  Many foreign securities  markets,  while growing in volume of
trading  activity,  have  substantially  less volume than the U.S.  market,  and
securities  of some  foreign  issuers  are less  liquid and more  volatile  than
securities of domestic issuers.  Similarly, volume and liquidity in most foreign
bond markets is less than in the U.S. and, at times,  volatility of price can be
greater than in the U.S. Fixed commissions on some foreign securities  exchanges
and bid to asked  spreads in foreign  bond  markets  are  generally  higher than
commissions  or bid to asked  spreads on U.S.  markets,  although an  Underlying
Scudder  Fund will  endeavor  to achieve the most  favorable  net results on its
portfolio  transactions.  There is generally  less  government  supervision  and
regulation of securities  exchanges,  brokers and listed  companies  than in the
U.S. It may be more  difficult for an Underlying  Scudder  Fund's agents to keep
currently  informed  about  corporate  actions  which may  affect  the prices of
portfolio securities.  Communications between the U.S. and foreign countries may
be less  reliable  than  within the U.S.,  thus  increasing  the risk of delayed
settlements  of portfolio  transactions  or loss of  certificates  for portfolio
securities.  Payment for securities  without delivery may be required in certain
foreign markets. In addition,  with respect to certain foreign countries,  there
is the  possibility of  expropriation  or  confiscatory  taxation,  political or
social  instability,   or  diplomatic   developments  which  could  affect  U.S.
investments  in those  countries.  Moreover,  individual  foreign  economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product,  rate of inflation,  capital  reinvestment,  resource
self-sufficiency  and  balance  of  payments  position.  The  management  of  an
Underlying  Scudder  Fund  seeks  to  mitigate  the  risks  associated  with the
foregoing considerations through continuous professional management.

Foreign  Currencies.  Because  investments  in foreign  securities  usually will
involve currencies of foreign countries,  and because certain Underlying Scudder
Funds may hold foreign currencies and forward  contracts,  futures contracts and
options on foreign currencies and foreign currency futures contracts,  the value
of the assets of such Underlying Scudder Fund as measured in U.S. dollars may be
affected  favorably or unfavorably by changes in foreign currency exchange rates
and exchange  control  regulations,  and the  Underlying  Scudder Fund may incur
costs in connection with  conversions  between various  currencies.  Although an
Underlying  Scudder  Fund values its assets daily in terms of U.S.  dollars,  it
does not intend to convert its holdings of foreign  currencies into U.S. 


                                       70
<PAGE>

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.
    

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, 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 


                                       71
<PAGE>

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 1/15/98
        (Source: J.P. Morgan Securities, Inc., Emerging Markets Research)

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

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



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

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

                                       72
<PAGE>

         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.

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,


                                       73
<PAGE>

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

         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 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.

         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.

         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  


                                       74
<PAGE>

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.

         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.

Special  Considerations  Affecting 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.

         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.

Investing in Africa.  Many of the countries in which certain  Underlying Scudder
Funds may invest are fraught with political instability. However, there has been
a trend over the past five years  toward  democratization.  Many  countries  are
moving  from  a  military  style,  Marxist,  or  single  party  government  to a
multi-party system. Still, there remain many countries that do not have a stable
political  process.  Other countries have been enmeshed in civil wars and border
clashes.

         Africa is a continent of roughly 50 countries  with a total  population
of  approximately  840 million people.  Literacy rates (the percentage of people
who are over 15 years of age and who can read and  write)  are  relatively  low,


                                       75
<PAGE>

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.

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.

Investing in Europe. An Underlying Scudder Fund's performance may be susceptible
to  political,  social  and  economic  factors  affecting  issuers  in  European
countries.  Such factors may include,  but are not limited to:  growth of GDP or
GNP, rate of inflation,  capital  reinvestment,  resource  self-sufficiency  and
balance of payments  position,  as well as interest and monetary  exchange rates
among European countries.

         Eastern European  countries and certain Southern European countries are
considered  to be  emerging  markets.  Securities  traded  in  certain  emerging
European  markets  may be  subject  to  additional  risks due to  political  and
economic reforms including efforts to decentralize the economic  decision-making
process  and  move  toward  a   market-oriented   economy.   Additionally,   the
inexperience  of financial  intermediaries,  lack of modern  technology  and the
possibility  of permanent or temporary  termination of trading of securities may
affect  an  Underlying  Scudder  Fund's  performance.  To  the  extent  that  an
Underlying Scudder Fund purchases equity securities of smaller  companies,  such
securities may experience greater volatility and have limited liquidity.

         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 opportunity.

         Although  the  governments  of  certain  Eastern   European   countries
currently are  implementing  or  considering  reforms  directed at political and
economic  liberalization,  there can be no  assurance  that these  reforms  will
continue or achieve their goals.



                                       76
<PAGE>

         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.

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  


                                       77
<PAGE>

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 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.

   
Real Estate Investment Trusts. Certain Underlying Scudder Funds invest in REITs.
REITs are sometimes informally characterized as equity REITs, mortgage REITs and
hybrid REITs.  REITs, which invest the majority of their assets directly in real
property,  derive  their  income  primarily  from rents.  Equity  REITs can also
realize  capital gains by selling  properties  that have  appreciated  in value.
Mortgage  REITs,  which  invest  the  majority  of their  assets in real  estate
mortgages,  derive their income primarily from interest  payments on real estate
mortgages in which they are invested.  Hybrid REITs combine the  characteristics
of both equity  REITs and  mortgage  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 


                                       78
<PAGE>

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.

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.

         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.

Investment company securities.  Securities of other investment  companies may be
acquired by certain  Underlying  Scudder Funds to the extent permitted under the
1940 Act.  Investment  companies  incur  certain  expenses  such as  management,
custodian,  and transfer  agency fees,  and,  therefore,  any  investment  by an
Underlying  Scudder Fund in shares of other investment  companies may be subject
to such duplicate expenses.

Non-diversified   investment  company.  Certain  Underlying  Scudder  Funds  are
classified as  non-diversified  investment  companies  under 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.
    

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.

Mining and exploration risks. The business of gold mining by its nature involves
significant  risks and  hazards,  including  environmental  hazards,  industrial
accidents, labor disputes, discharge of toxic chemicals, fire, drought, flooding
and natural acts. The  occurrence of any of these hazards can delay  production,
increase  production costs and result in liability to the operator of the mines.
A mining  operation  may become  subject to  liability  for  pollution  or other
hazards  against which it has not insured or cannot insure,  including  those in
respect of past mining activities for which it was not responsible.



                                       79
<PAGE>

         Exploration  for gold and  other  precious  metals  is  speculative  in
nature,  involves  many risks and  frequently is  unsuccessful.  There can be no
assurance that any  mineralisation  discovered will result in an increase in the
proven and probable reserves of a mining  operation.  If reserves are developed,
it can  take a  number  of  years  from  the  initial  phases  of  drilling  and
identification of mineralisation until production is possible, during which time
the economic feasibility of production may change.  Substantial expenditures are
required to  establish  ore  reserves  properties  and to  construct  mining and
processing facilities.  As a result of these uncertainties,  no assurance can be
given that the exploration  programs undertaken by a particular mining operation
will actually result in any new commercial mining.

   
Asset-Indexed   Securities.   Certain  Underlying  Scudder  Funds  may  purchase
asset-indexed  securities which are debt securities  usually issued by companies
in precious  metals related  businesses  such as mining,  the principal  amount,
redemption  terms, or interest rates of which are related to the market price of
a specified  precious  metal.  An  Underlying  Scudder Fund will only enter into
transactions  in publicly  traded  asset-indexed  securities.  Market  prices of
asset-indexed  securities will relate  primarily to changes in the market prices
of the  precious  metals to which the  securities  are  indexed  rather  than to
changes  in  market  rates of  interest.  However,  there  may not be a  perfect
correlation between the price movements of the asset-indexed  securities and the
underlying precious metals.  Asset-indexed securities typically bear interest or
pay dividends at below market rates (and in certain cases at nominal rates). The
Underlying  Scudder Fund will  purchase  asset-indexed  securities to the extent
permitted by law.
    

Special situation securities.  From time to time, an Underlying Scudder Fund may
invest in equity or debt  securities  issued by companies that are determined by
the  Adviser to possess  "special  situation"  characteristics.  In  general,  a
special situation company is a company whose securities are expected to increase
in value solely by reason of a development  particularly or uniquely  applicable
to the company.  Developments that may create special situations include,  among
others,  a liquidation,  reorganization,  recapitalization  or merger,  material
litigation,   technological   breakthrough  and  new  management  or  management
policies.  The principal risk with investments in special situation companies is
that the anticipated development thought to create the special situation may not
occur and the  investments  therefore may not appreciate in value or may decline
in value.

   
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.

         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.

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  and  will not be made  unless,  in the
judgment of the Adviser,  the  consideration  to be earned from such loans would
justify the risk.
    

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.



                                       80
<PAGE>

S&P.  Debt rated AAA has the highest  rating  assigned  by S&P.  Capacity to pay
interest  and repay  principal  is  extremely  strong.  Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated  issues only in small  degree.  Debt rated A has a strong  capacity to pay
interest and repay  principal  although it is somewhat more  susceptible  to the
adverse effects of changes in circumstances and economic conditions than debt in
higher  rated  categories.  Debt  rated BBB is  regarded  as having an  adequate
capacity to pay  interest  and repay  principal.  Whereas it  normally  exhibits
adequate  protection   parameters,   adverse  economic  conditions  or  changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.

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

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

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

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

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


                                       81
<PAGE>

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.



                                       82



© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission