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           Accordingly, our major assumption is that the
physical volume of trade will continue in a high area but
that dollar volume and profits will decline somewhat as
prices are under pressure from increasing foreign and
domestic competition. A minor possibility is that, either
through an unexpectedly vigorous expansion of world trade
and investment or through increased concern over
inflationary developments, boom conditions may recur.  
 
            In formulating investment policy, to the above
assumptions of good business conditions must be added the
possibility of advantageous tax revisions, especially
reduction of levies on dividends. We think this possible
even though other taxes may be raised.
 
            It is only realistic to recognize that the
longer a period of high capital expenditures and debt
expansion persists, the more vulnerable our economy is
likely to be deflationary forces. Investors have 
recognized this risk by holding down the prices for 
common stocks to a level which reflects in very 
limited degree the excellent recent earnings. For 
this reason we believe an investor is warranted 
in continuing to hold a substantial position in
equities. This conclusion is open to increasing question,
however, with much further increase in stock prices.
 
             The impact of the piecemeal readjustments going
on in domestic business, as well as the dramatic changes
within foreign trade, varies greatly among industries.
Accordingly, as usual the selection of specific investments
is of dominating importance.
 
              On our assumption that business, local
Governments and the Federal Government will require
substantial additional new capital, we believe it will pay
to defer purchase of bonds of long maturity until better
yields are available. Accordingly, we continue to recommend
that any long-term high-grade bond holdings be balanced
with a substantial amount of shorter maturities, the
proportion to be governed by the importance of income. 
 
                             SCUDDER,STEVENS & CLARK