SCUDDER INVESTMENT TRUST, 497, 1996-03-15

SCUDDER INVESTMENT TRUST
497, 1996-03-15

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This prospectus sets forth concisely the information about Scudder Quality
Growth Fund, a series of Scudder Investment Trust, an open-end management
investment company, that a prospective investor should know before investing.
Please retain it for future reference.

If you require more detailed information, a Statement of Additional Information
dated March 1, 1996, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission.

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

Contents--see page 4.

Scudder
Quality Growth Fund

Prospectus
March 1, 1996

A pure no-load(TM) (no sales charges) mutual fund which seeks long-term growth
of capital through investment primarily in the equity securities of seasoned,
financially strong U.S. growth companies.
<PAGE>

Expense information

How to compare a Scudder pure no-load(TM) fund

This information is designed to help you understand the various costs and
expenses of investing in Scudder Quality Growth Fund (the "Fund"). By reviewing
this table and those in other mutual funds' prospectuses, you can compare the
Fund's fees and expenses with those of other funds. With Scudder's pure
no-load?(TM) funds, you pay no commissions to purchase or redeem shares, or to
exchange from one fund to another. As a result, all of your investment goes to
work for you.

1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.

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

2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended October 31, 1995.

Investment management fee 0.70%
12b-1 fees NONE
Other expenses 0.47%
-----
Total Fund operating expenses 1.17%
=====

Example

Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$12 $37 $64 $142

See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.

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

2
<PAGE>

Financial highlights

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

If you would like more detailed information concerning the Fund's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated October 31, 1995 and may be obtained
without charge by writing or calling Scudder Investor Services, Inc.

For the Period
May 15, 1991
(commencement
Years Ended October 31, of operations)
----------------------------------- to October 31,
1995 1994 1993 1992 1991
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period. . . . . . . . . $16.17 $16.42 $15.30 $13.65 $12.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (a). . . . . . . . . . . . . . .11 .16 .06 .02 .03
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . . . 3.40 (.09) 1.09 1.68 1.62
------ ------ ------ ------ ------
Total from investment operations. . . . . . . . . . . 3.51 .07 1.15 1.70 1.65
------ ------ ------ ------ ------
Less distributions from:
Net investment income. . . . . . . . . . . . . . . . (.15) (.08) (.03) (.03) --
Net realized gains on investment transactions. . . . (1.09) (.24) -- (.02) --
------ ------ ------ ------ ------
Total distributions . . . . . . . . . . . . . . . . . (1.24) (.32) (.03) (.05) --
------ ------ ------ ------ ------
Net asset value, end of period. . . . . . . . . . . . $18.44 $16.17 $16.42 $15.30 $13.65
====== ====== ====== ====== ======
Total Return (%). . . . . . . . . . . . . . . . . . . 23.78 .39 7.49 12.47 13.75*
Ratios and Supplemental Data
Net assets, end of period ($ millions). . . . . . . . 173 113 126 101 30
Ratio of operating expenses net, to average daily
net assets (%) (a) . . . . . . . . . . . . . . . . . 1.17 1.25 1.20 1.25 1.25*
Ratio of net investment income to average daily
net assets (%) . . . . . . . . . . . . . . . . . . . .71 .96 .39 .24 .83*
Portfolio turnover rate (%) . . . . . . . . . . . . . 91.6 119.7 111.4 27.4 11.5*
(a) Reflects a per share amount of expenses,
exclusive of management fees, reimbursed
by the Adviser of . . . . . . . . . . . . . . . $ -- $ -- $ -- $ -- $ .01
Reflects a per share amount of management
fee not imposed by the Adviser of . . . . . . . $ -- $ -- $ -- $ .01 $ .02
Operating expense ratio including expenses
reimbursed, management fee and other
expenses not imposed (%). . . . . . . . . . . . -- -- -- 1.40 2.67*

</TABLE>

* Annualized
** Not annualized

3
<PAGE>

A message from Scudder's chairman

Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $100 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.

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

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

All Scudder mutual funds are pure no-load(TM). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.

/s/Daniel Pierce

Scudder Quality Growth Fund

Investment objective

o long-term growth of capital through investment primarily in the equity
securities of seasoned, financially strong U.S. growth companies

Investment characteristics

o emphasis on medium- to large-sized domestic companies with prospects for
maintaining greater than average growth in earnings, cash flow or assets
over time

o focus on companies in strong financial positions

o opportunity to share in the long-term growth of the stock market

o daily liquidity at current net asset value

Contents

Investment objective and policies 5
Why invest in the Fund? 6
Additional information about policies
and investments 7
Distribution and performance information 10
Fund organization 10
Transaction information 11
Purchases 12
Exchanges and redemptions 13
Shareholder benefits 17
Trustees and Officers 20
Investment products and services 21
How to contact Scudder 22

4
<PAGE>

Investment objective and policies

Scudder Quality Growth Fund (the "Fund"), a diversified series of Scudder
Investment Trust, seeks to provide long-term growth of capital through
investment primarily in the equity securities of seasoned, financially strong
U.S. growth companies. Although current income is an incidental consideration,
many of the Fund's securities should provide regular dividends which are
expected to grow over time.

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

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.

Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. Shareholders
will receive written notice of any changes in the Fund's objective. If there is
a change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.

Investments

The Fund invests primarily in the equity securities issued by medium- to
large-sized domestic companies that offer above-average appreciation potential.
In seeking such investments, the Fund's investment adviser, Scudder, Stevens &
Clark, Inc. (the "Adviser"), invests in companies with the following
characteristics:

o companies that have exhibited above-average growth rates over an extended
period with prospects for maintaining greater than average rates of growth
in earnings, cash flow or assets in the future;

o companies that are in a strong financial position with high credit
standings and profitability;

o companies with important business franchises, leading products or dominant
marketing and distribution systems;

o companies guided by experienced, motivated management;

o companies with at least five years' operating history and annual revenues
of $200 million or more and market capitalization of at least $300 million;
and

o companies selling at attractive prices relative to potential growth in
earnings, cash flow or assets.

The Adviser 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. In-depth fundamental research is used to evaluate various aspects of
corporate performance, with a particular focus on consistency of results,
long-term growth prospects and financial strength. Quantitative valuation models
are designed to help determine which growth companies offer the best values at a
given point in time. From time to time, for temporary defensive or emergency
purposes, the Fund may invest a portion of its assets in cash and cash

5
<PAGE>

Investment objective and policies (cont'd)

equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. The Fund also may invest in convertible
securities, foreign securities, repurchase agreements, and may engage in
strategic transactions.

Quality

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 Standard & Poor's ("S&P") or, if not ranked by S&P,
are judged to be of comparable quality by the Adviser. S&P assigns earnings and
dividends rankings to corporations based on a number of factors, including
stability and growth of earnings and dividends. 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.

When assessing financial quality, the Adviser weighs four elements of business
risk. These factors are the Adviser's assessment of the strength of a company's
balance sheet, the accounting practices a company follows, the volatility of a
company's earnings over time and the vulnerability of earnings to changes in
external factors, such as the general economy, the competitive environment,
governmental action and technological change.

More information about investment techniques is provided under "Additional
information about policies and investments."

Why invest in the Fund?

The Fund provides investors with convenient and low-cost access to a diversified
equity portfolio involving seasoned, financially-strong U.S. growth companies.
The Fund's investment strategy is to acquire the equity securities of
well-managed large- and medium-sized companies, primarily located in the U.S.,
which have established records of above-average earnings growth and are judged
to have potential for the future. The Adviser believes that companies with
relatively consistent and above-average rates of growth will be rewarded by the
market with higher stock prices over time and investment returns in excess of
the market as a whole. Also, while the business results of such companies will
be affected by slowdowns in economic growth, they should be less affected by
adverse business conditions than more leveraged or cyclical companies.

The Fund is only appropriate for those investors who understand and can accept
the risks of stock market investing. While the Fund emphasizes the securities of
companies with above-average growth and quality characteristics, movements in
the overall stock market will affect the Fund's price. The Adviser, however,
attempts to lessen the effects of stock market fluctuation through portfolio
diversification and disciplined security selection. The Adviser has been
involved in quality growth investing for over 20 years.

While the Fund is broadly diversified, it does not, in itself, represent a
complete investment program. Nonetheless, because of its emphasis on quality
growth companies, the Fund may be appropriate as a core equity component of an
investment portfolio containing money market, bond and more specialized equity
investments.

6
<PAGE>

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

Additional information about policies and investments

Investment restrictions

The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk. The Fund may not make loans except through the lending of
portfolio securities, the purchase of debt securities or through repurchase
agreements and may not borrow money except as a temporary measure for
extraordinary or emergency purposes.

In addition, as a matter of nonfundamental policy, the Fund may not invest more
than 10% of its total assets, in the aggregate, in securities which are not
readily marketable, in restricted securities and repurchase agreements maturing
in more than seven days.

A complete description of these and other policies and restrictions is contained
under "The Fund's Investment Objective and Policies" in the Fund's Statement of
Additional Information.

Portfolio turnover rate

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

Convertible securities

The Fund may invest in convertible securities (bonds, notes, debentures,
preferred stocks and other securities convertible into common stocks) which may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which the Fund may invest include 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. Prior to
their conversion, convertible securities may have characteristics similar to
both nonconvertible debt securities and equity securities.

Foreign securities

In addition to investments in companies domiciled in the U.S., the Fund may
invest a portion of its assets in listed and unlisted foreign securities of the
same type as the domestic securities in which it is permitted to invest. The
Fund may invest outside of the U.S. when the anticipated performance of foreign
securities is believed by the Adviser to offer more return potential than
domestic alternatives in keeping with the investment objective of the Fund.

Repurchase agreements

As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase them at a specified time and price.

Strategic Transactions and derivatives

The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.

7
<PAGE>

Additional information about policies and investments (cont'd)

Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes. Please refer to "Risk factors--Strategic
Transactions and derivatives" for more information.

Risk factors

The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.

Convertible securities. While convertible securities generally offer lower
yields than nonconvertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities entail less credit risk than the issuer's common stock. Convertible
securities purchased by the Fund must be rated investment-grade, or if unrated,
judged of equivalent quality by the Adviser. Investment-grade convertible
securities are rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc.
("Moody's"), or AAA, AA, A or BBB by S&P. Moody's considers securities it rates
Baa to have speculative elements as well as investment-grade characteristics.

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

Foreign securities. Investing in foreign securities involves considerations not
typically found in investing in U.S. markets. These considerations, which may

8
<PAGE>

favorably or unfavorably affect the Fund's performance, include changes in
exchange rates and exchange rate controls (which may include suspension of the
ability to transfer currency from a given country), costs incurred in
conversions between currencies, non-negotiable brokerage commissions, less
publicly available information, different accounting standards, lower trading
volume and greater market volatility, the difficulty of enforcing obligations in
other countries, less securities regulation, different tax provisions (including
withholding on dividends and interest paid to the Fund), war, expropriation,
political and social instability and diplomatic developments. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets. These considerations generally are more of a concern
in developing countries. For example, the possibility of revolution and the
dependence on foreign economic assistance may be greater in these countries than
in developed countries. The Adviser seeks to mitigate the risks associated with
these considerations through diversification and active professional management.

Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted. In
the event of the commencement of bankruptcy or insolvency proceedings, with
respect to the seller of the security under a repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security. Also, if
a seller defaults, the value of such securities may decline before the Fund is
able to dispose of them.

Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information.

9
<PAGE>

Distribution and performance information

Dividends and capital gains distributions

The Fund intends to distribute any dividends from its net investment income and
net realized capital gains after utilization of capital loss carryforwards, if
any, annually in December to prevent application of federal excise tax, although
an additional distribution may be made if required, at a later date. Any
dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid the following January will
be treated by shareholders for federal income tax purposes as if received on
December 31 of the calendar year declared. According to preference, shareholders
may receive distributions in cash or have them reinvested in additional shares
of the Fund. If the investment is in the form of a retirement plan, all
dividends and capital gains distributions must be reinvested into the
shareholder's account.

Generally, dividends from net investment income are taxable to investors as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains regardless of the length of time shareholders have owned
their shares. Short-term capital gains and any other taxable distributions are
taxable as ordinary income. A portion of dividends from ordinary income may
qualify for the dividends-received deduction for corporations.

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

Performance information

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in the Fund for a specified period. The "average annual total
return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for one year and
the life of the Fund. "Cumulative total return" represents the cumulative change
in value of an investment in the Fund for various periods. All types of total
return calculations assume that all dividends and capital gains distributions
during the period were reinvested in shares of the Fund. "Capital change"
measures return from capital, including reinvestment of any capital gains
distributions but does not include the reinvestment of dividends. Performance
will vary based upon, among other things, changes in market conditions and the
level of the Fund's expenses.

Fund organization

Scudder Quality Growth Fund is a diversified series of Scudder Investment Trust
(the "Trust"), an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Trust, formerly known as
Scudder Growth and Income Fund, was organized as a Massachusetts business trust
in September 1984.

The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Trust is not required to hold and has no current intention
of holding annual shareholder meetings, although special meetings may be called
for purposes such as electing or removing Trustees, changing fundamental
policies or approving an investment management contract. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Trustee as if Section 16(c) of the 1940 Act were applicable.

10
<PAGE>

Investment adviser

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

The management fee payable to the Adviser under its Investment Management
Agreement is equal to an annual rate of 0.70% of the Fund's average daily net
assets.

The fee is payable monthly, provided that the Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid.

All of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.

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

Transfer agent

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.

Underwriter

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

Custodian

State Street Bank and Trust Company is the Fund's custodian.

Fund accounting agent

Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.

Transaction information

Purchasing shares

Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")

By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
or exchange requests by telephone prior to the expiration of the seven-day
period will not be accepted.

By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:

The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552

(Continued on page 14)

11
<PAGE>

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

Make checks o By Mail Send your completed and signed application
payable to "The and check
Scudder Funds."
by regular mail to: or by express, registered,
or certified mail to:

The Scudder Funds Scudder Shareholder Services
P.O. Box 2291 Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA 02061-1612

o By Wire Please see Transaction information--Purchasing shares-- By
wire following these tables for details, including the ABA wire
transfer number. Then call 1-800-225-5163 for instructions.

o In Person Visit one of our Funds Centers to complete your application with the help
of a Scudder representative. Funds Center locations are listed under
Shareholder benefits.

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

Make checks o By Mail Send a check with a Scudder investment slip, or with a letter of
payable to "The instruction including your account number and the complete Fund name, to
Scudder Funds." the appropriate address listed above.

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

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

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

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

12
<PAGE>

Exchanges and redemptions

Exchanging Minimum investments: $1,000 to establish a new account; $100 to exchange among existing accounts
shares

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

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

Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:

The Scudder Funds Scudder Shareholder Services 1-800-821-6234
P.O. Box 2291 Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA
02061-1612

Redeeming
shares o By Telephone To speak with a service representative, call 1-800-225-5163 from 8 a.m. to 8 p.m.
eastern time or to access SAIL(TM), Scudder's Automated Information Line, call
1-800-343-2890 (24 hours a day). You may have redemption proceeds sent to your
predesignated bank account, or redemption proceeds of up to $50,000 sent to your
address of record.

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

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

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

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

13
<PAGE>

Transaction information (cont'd)

(Continued from page 11)

Your wire instructions must also include:

- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).

The account will be established once the application and money order are
received in good order.

You may also make additional investments of $100 or more to your existing
account by wire.

By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. You must
include with your payment the order number given at the time the order is
placed. A confirmation with complete purchase information is sent shortly after
your order is received. If payment by check or wire is not received within three
business days, the order is subject to cancelation and the shareholder will be
responsible for any loss to the Fund resulting from this cancelation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.

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

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

If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "AutoBuy" transactions are not
available for Scudder IRA accounts and most other retirement plan accounts.

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

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

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

Redeeming shares

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

By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to

14
<PAGE>

request that federal funds be sent to your authorized bank account. If you did
not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.

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

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

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

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

Telephone transactions

Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.

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

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

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

Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $50,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations, or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.

15
<PAGE>
Transaction information (cont'd)

For more information, please call 1-800-225-5163.

Share price

Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading. Net asset value per share is
calculated by dividing the current market value of total assets, less all
liabilities, by the total number of shares outstanding.

Processing time

All purchase and redemption requests received in good order by the Fund's
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 regular trading that
day.

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

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

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

Short-term trading

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

Tax information

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

Tax identification number

Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. The Fund reserves the right to reject new account
applications without a certified Social Security or tax identification number.
The Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number.

A shareholder may avoid involuntary redemption by providing the Fund with a tax
identification number during the 30-day notice period.

Minimum balances

Shareholders should maintain a share balance worth at least $1,000, which amount
may be changed by the Board of Trustees. Scudder retirement plans have similar
or lower minimum share balance requirements. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
sub-minimum accounts, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account.
Reductions in value that result solely from market activity will not trigger an
involuntary redemption. The Fund will mail the proceeds of the redeemed account
to the shareholder. The shareholder may restore the share balance to $1,000 or
more during the 60-day notice period and must maintain it at no lower than that

16
<PAGE>

minimum to avoid involuntary redemption.

Third party transactions

If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.

Redemption-in-kind

The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, as a result
of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.

Shareholder benefits

Experienced professional management

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

A team approach to investing

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

Lead Portfolio Manager Valerie F. Malter joined Scudder in 1995 and is
responsible for the Fund's investment strategy and daily operation. Ms. Malter
has 10 years of experience as an analyst covering a wide range of industries,
and three years of portfolio management experience focusing on the stocks of
companies with medium- to large-sized market capitalizations. Bruce F. Beaty,
Portfolio Manager, contributes expertise in technology, a role he has filled
since the Fund's inception. Mr. Beaty joined Scudder in 1991 and has 15 years of
investing experience. Michael K. Shields, Portfolio Manager, focuses on the
Fund's healthcare stocks. Mr. Shields joined the Fund and Scudder in 1992 and
has 14 years of experience in the financial industry.

SAIL(TM)--Scudder Automated Information Line

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

Investment flexibility

Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,

17
<PAGE>

Shareholder benefits (cont'd)

tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. Telephone and
fax redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Fund or the transfer agent. In some cases,
the transfer agent or Scudder Investor Services, Inc. may impose additional
conditions on telephone transactions.

Dividend reinvestment plan

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

Shareholder statements

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

Shareholder reports

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

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

Newsletters

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

Scudder Funds Centers

As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
Cincinnati, Los Angeles, New York, Portland (OR), San Diego, San Francisco and
Scottsdale.

T.D.D. service for the hearing impaired

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

18
<PAGE>

Scudder tax-advantaged retirement plans

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

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

o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.

o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by
the plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans.

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

o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation.

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

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

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

19
<PAGE>

Trustees and Officers

Daniel Pierce*
President and Trustee

Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation

Dudley H. Ladd*
Trustee

George M. Lovejoy, Jr.
Trustee; President and Director, Fifty Associates

Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University

Juris Padegs*
Trustee

Jean C. Tempel
Trustee; General Partner, TL Ventures

Bruce F. Beaty*
Vice President

Jerard K. Hartman*
Vice President

Robert T. Hoffman*
Vice President

Thomas W. Joseph*
Vice President

David S. Lee*
Vice President

Douglas M. Loudon*
Vice President

Valerie F. Malter*
Vice President

Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer

Pamela A. McGrath*
Vice President and Treasurer

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

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

20
<PAGE>

Investment products and services
<TABLE>
<CAPTION>
<C> <C>
The Scudder Family of Funds Income
Money market Scudder Emerging Markets Income Fund
Scudder Cash Investment Trust Scudder Global Bond Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax free money market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Zero Coupon 2000 Fund
Tax free+ Growth
Scudder California Tax Free Fund* Scudder Capital Growth Fund
Scudder High Yield Tax Free Fund Scudder Development Fund
Scudder Limited Term Tax Free Fund Scudder Global Fund
Scudder Managed Municipal Bonds Scudder Global Small Company Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Gold Fund
Scudder Massachusetts Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Medium Term Tax Free Fund Scudder International Fund
Scudder New York Tax Free Fund* Scudder Latin America Fund
Scudder Ohio Tax Free Fund* Scudder Pacific Opportunities Fund
Scudder Pennsylvania Tax Free Fund* Scudder Quality Growth Fund
Growth and Income Scudder Small Company Value Fund
Scudder Balanced Fund Scudder Value Fund
Scudder Growth and Income Fund The Japan Fund
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plans and Tax-Advantaged Investments
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan*+++ (a variable annuity) Profit Sharing and
401(k) Plans Money Purchase Pension Plans
- ---------------------------------------------------------------------------------------------------------------------
Closed-end Funds#
The Argentina Fund, Inc. Scudder New Europe Fund, Inc.
The Brazil Fund, Inc. Scudder World Income Opportunities Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc. Institutional Cash Management
The Latin America Dollar Income Fund, Inc. Scudder Institutional Fund, Inc.
Montgomery Street Income Securities, Inc. Scudder Fund, Inc.
Scudder New Asia Fund, Inc. Scudder Treasurers Trust(TM)++
</TABLE>

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from the
tax-free funds may be subject to federal, state and local taxes. *Not available
in all states. +++A no-load variable annuity contract provided by Charter
National Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens &
Clark, Inc., are traded on various stock exchanges. ++For information on
Scudder Treasurers Trust(TM), an institutional cash management service that
utilizes certain portfolios of Scudder Fund, Inc. ($100,000 minimum), call:
1-800-541-7703.

21
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C>

How to contact Scudder

Account Service and Information: Please address all correspondence to:

For existing account service Scudder Investor Relations The Scudder Funds
and transactions 1-800-225-5163 P.O. Box 2291
Boston, Massachusetts
02107-2291

For personalized information Scudder Automated
about your Scudder accounts; Information Line (SAIL)
exchanges and redemptions; or 1-800-343-2890
information on any Scudder
fund

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

For establishing 401(k) and Scudder Defined Boca Raton New York
403(b) plans Contribution Services Boston Portland, OR
1-800-323-6105 Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale

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

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

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

22
<PAGE>

SCUDDER QUALITY GROWTH FUND

A Pure No-Load(TM) (No Sales Charges) Diversified Mutual Fund Seeking Long-Term
Growth of Capital through Investment Primarily in Equity Securities
of Seasoned, Financially-Strong U.S. Growth Companies.

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

STATEMENT OF ADDITIONAL INFORMATION

March 1, 1996

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

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus for Scudder Quality Growth Fund dated
March 1, 1996, as amended from time to time, a copy of which may be obtained
without charge by writing to Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page

<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Investment Restrictions.....................................................................................11

PURCHASES............................................................................................................14
Additional Information About Opening an Account.............................................................14
Additional Information About Making Subsequent Investments..................................................14
Additional Information About Making Subsequent Investments by AutoBuy.......................................15
Checks......................................................................................................15
Wire Transfer of Federal Funds..............................................................................15
Share Price.................................................................................................16
Share Certificates..........................................................................................16
Other Information...........................................................................................16

EXCHANGES AND REDEMPTIONS............................................................................................16
Exchanges...................................................................................................16
Redemption by Telephone.....................................................................................17
Redemption By AutoSell......................................................................................18
Redemption by Mail or Fax...................................................................................18
Redemption-In-Kind..........................................................................................19
Other Information...........................................................................................19

FEATURES AND SERVICES OFFERED BY THE FUND............................................................................19
The Pure No-Load(TM) Concept................................................................................19
Dividend and Capital Gain Distribution Options..............................................................20
Diversification.............................................................................................21
Scudder Funds Centers.......................................................................................21
Reports to Shareholders.....................................................................................21
Transaction Summaries.......................................................................................21

THE SCUDDER FAMILY OF FUNDS..........................................................................................21

SPECIAL PLAN ACCOUNTS................................................................................................25
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals.............................................................25
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
Self-Employed Individuals..............................................................................25
Scudder IRA: Individual Retirement Account.................................................................25
Scudder 403(b) Plan.........................................................................................26
Automatic Withdrawal Plan...................................................................................26
Group or Salary Deduction Plan..............................................................................27
Automatic Investment Plan...................................................................................27
Uniform Transfers/Gifts to Minors Act.......................................................................27

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................28

PERFORMANCE INFORMATION..............................................................................................28
Average Annual Total Return.................................................................................28
Cumulative Total Return.....................................................................................29
Total Return................................................................................................29
Capital Change..............................................................................................29
Performance Indices.........................................................................................30
Comparison of Fund Performance..............................................................................30

i
<PAGE>

TABLE OF CONTENTS (continued)
Page

FUND ORGANIZATION....................................................................................................33

INVESTMENT ADVISER...................................................................................................34
Personal Investments by Employees of the Adviser............................................................37

TRUSTEES AND OFFICERS................................................................................................38

REMUNERATION.........................................................................................................39

DISTRIBUTOR..........................................................................................................40

TAXES................................................................................................................41

PORTFOLIO TRANSACTIONS...............................................................................................45
Brokerage Commissions.......................................................................................45
Portfolio Turnover..........................................................................................46

NET ASSET VALUE......................................................................................................46

ADDITIONAL INFORMATION...............................................................................................47
Experts.....................................................................................................47
Shareholder Indemnification.................................................................................47
Other Information...........................................................................................47

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

APPENDIX

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THE FUND'S INVESTMENT OBJECTIVE AND POLICIES

(See "Investment objective and policies" and "Additional
information about policies and investments" in the Fund's prospectus.)

General Investment Objective and Policies

Scudder Quality Growth Fund (the "Fund"), a diversified series of
Scudder Investment Trust (the "Trust"), seeks to provide long-term growth of
capital through investment primarily in the equity securities of seasoned,
financially strong U.S. growth companies. Although current income is an
incidental consideration, many of the Fund's securities should provide regular
dividends which are expected to grow over time.

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

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.

Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
Shareholders will receive written notice of any changes in the Fund's objective.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the Fund's
objective will be met.

Investments. The Fund invests primarily in the equity securities issued by
medium- to large-sized domestic companies that offer above-average appreciation
potential. In seeking such investments, the Fund's investment adviser, Scudder,
Stevens & Clark, Inc. (the "Adviser"), invests in companies with the following
characteristics:

o companies that have exhibited above-average growth rates over an extended
period with prospects for maintaining greater than average rates of growth
in earnings, cash flow or assets in the future;

o companies that are in a strong financial position with high credit
standings and profitability;

o companies with important business franchises, leading products or dominant
marketing and distribution systems;

o companies guided by experienced, motivated management;

o companies with at least five years' operating history and annual revenues
of $200 million or more and market capitalization of at least $300 million;
and

o companies selling at attractive prices relative to potential growth in
earnings, cash flow or assets.

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are designed to help determine which growth companies offer the best values at a
given point in time. From time to time, for temporary defensive or emergency
purposes, the Fund may invest a portion of its assets in cash and cash
equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. The Fund also may invest in foreign securities,
repurchase agreements, and may engage in strategic transactions.

Quality. 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 Standard & Poor's ("S&P") or, if not
ranked by S&P, are judged to be of comparable quality by the Adviser. S&P
assigns earnings and dividends rankings to corporations based on a number of
factors, including stability and growth of earnings and dividends. 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. (See
"APPENDIX--Standard & Poor's Earnings and Dividend Rankings for Common Stocks.")

When assessing financial quality, the Adviser weighs four elements of
business risk. These factors are the Adviser's assessment of the strength of a
company's balance sheet, the accounting practices a company follows, the
volatility of a company's earnings over time and the vulnerability of earnings
to changes in external factors, such as the general economy, the competitive
environment, governmental action and technological change.

Convertible Securities. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stocks. Investments in convertible securities may
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.

The convertible securities in which the Fund may invest include
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
nonconvertible securities of similar quality because of their conversion or
exchange features.

Convertible securities are generally subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds

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and convertible preferred stock typically have lower ratings than similar
nonconvertible securities.

Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes (LYONs). Zero coupon securities 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
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follows the
movements in the market value of the underlying common stock. Zero coupon
convertible securities are generally expected to be less volatile than the
underlying common stocks as they are usually issued with short to medium length
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.

Foreign Securities. Investors should recognize that investing in foreign
securities involves certain special considerations, including those set forth
below, which are not typically associated with investing in U.S. securities and
which may favorably or unfavorably affect the Fund's performance. As foreign
companies are not generally subject to uniform accounting, 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
stock markets, while growing in volume of trading activity, have substantially
less volume than the New York Stock Exchange (the "Exchange"), and securities of
some foreign companies are less liquid and more volatile than securities of
domestic companies. 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. Further, foreign markets have different clearance and settlement
procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems either could result in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in a possible liability to the purchaser.
Payment for securities without delivery may be required in certain foreign
markets. Fixed commissions on some foreign stock exchanges are generally higher
than negotiated commissions on U.S. exchanges, although the Fund will endeavor
to achieve the most favorable net results on its portfolio transactions.
Further, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgments in foreign courts. There is generally less
government supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the U.S. It may be more
difficult for the Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters which may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. In addition, with respect to certain foreign countries, there is the
possibility of 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 the Fund seeks to mitigate the
risks associated with the foregoing considerations through diversification and
continuous professional management.

Because investments in foreign securities will usually involve
currencies of foreign countries, and because the Fund may hold foreign
currencies and forward foreign currency exchange contracts ("forward
contracts"), futures contracts and options on futures contracts on foreign
currencies, the value of the assets of the Fund as measured in U.S. dollars may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. Although the Fund values
its assets daily in terms of U.S. dollars, it does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. It will do so
from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.

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Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward contracts
(or options thereon) to purchase or sell foreign currencies. (See "Strategic
Transactions and Derivatives" below.)

Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer 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 Fund may purchase or to be at least equal to that of
issuers of commercial paper rated within the two highest grades assigned by S&P
or Moody's Investors Service, Inc. ("Moody's").

A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
Fund acquires a security ("Obligation") and the seller agrees, at the time of
sale, to repurchase the Obligation at a specified time and price. Obligations
subject to a repurchase agreement are held in a segregated account and the value
of such obligations 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 Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
date of repurchase. In either case, the income to the Fund is unrelated to the
interest rate on the Obligation itself. Obligations will be held by the Fund's
custodian or in the Federal Reserve Book Entry System.

For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), a repurchase agreement is deemed to be a loan from the Fund to the
seller of the Obligation subject to the repurchase agreement and is therefore
subject to the Fund's investment restriction applicable to loans. It is not
clear whether a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may cause loss of interest or decline in price of the
Obligation. If the court characterizes the transaction as a loan and the Fund
has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss from repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case the Fund may incur a loss if the proceeds to the Fund of the sale to a
third party are less than the repurchase price. To protect against such
potential loss, if the market value (including interest) of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including interest), the Fund will direct the seller of the Obligation to
deliver additional securities so that the market value (including interest) of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to impose on the seller a contractual obligation to deliver additional
securities.

Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933 or the availability of an exemption from registration
(such as Rules 144 or 144A) or because they are subject to other legal or
contractual delays in or restrictions on resale.

Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the Securities Act of 1933. A Fund may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 when selling restricted
securities to the public, and in such event a Fund may be liable to purchasers

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of such securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.

Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in the Fund's portfolio, or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.

Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.

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General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.

The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty

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to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the U.S. Securities and Exchange Commission (the "SEC"), currently
takes the position that OTC options purchased by the Fund, and portfolio
securities "covering" the amount of the Fund's obligation pursuant to an OTC
option sold by it (the cost of the sell-back plus the in-the-money amount, if
any) are illiquid, and are subject to the Fund's limitation on investing no more
than 10% of its assets in illiquid securities.

If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.

The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio), and
on securities, indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.

General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.

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The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.

The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.

Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.

The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

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<PAGE>

The Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.

The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.

Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other

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<PAGE>

instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.

Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.

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

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<PAGE>

exercise price on a current basis. A put option written by the Fund requires the
Fund to segregate liquid, high grade assets equal to the exercise price.

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

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

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

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

Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. 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.

The Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company. (See "TAXES.")

Investment Restrictions

Unless specified to the contrary, the following restrictions are
fundamental policies and may not be changed without the approval of "a majority
of the outstanding voting securities" of the Fund which, under the 1940 Act and
the rules thereunder and as used in this Statement of Additional Information,
means the lesser of (1) 67% or more of the shares of the Fund present at a
meeting if the holders of more than 50% of the outstanding shares of the Fund
are present in person or represented by proxy; or (2) more than 50% of the
outstanding shares of the Fund. Nonfundamental policies of the Fund may be
modified by the Fund's Trustees without a vote of shareholders.

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<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 Fund. The Fund
is under no restriction as to the amount of portfolio securities which may be
bought or sold.

As a matter of fundamental policy, the Fund may not:

1. with respect to 75% of its total assets taken at market value
purchase more than 10% of the voting securities of any one
issuer; or invest more than 5% of the value of its total assets
in the securities of any one issuer, except obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities and except securities of other investment
companies;

2. borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse
repurchase agreements provided that the Fund maintains asset
coverage of 300% for all borrowings;

3. purchase or sell real estate (except that the Fund may invest in
(i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or
interests therein, and that the Fund reserves freedom of action
to hold and to sell real estate acquired as a result of the
Fund's ownership of securities); or purchase or sell physical
commodities or contracts relating to physical commodities;

4. act as an underwriter of securities issued by others, except to
the extent that it may be deemed an underwriter in connection
with the disposition of portfolio securities of the Fund;

5. make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent the entry into repurchase
agreements and the purchase of debt securities in accordance with
its investment objective and investment policies may be deemed to
be loans;

6. issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur and except for shares
of the separate classes or series of the Trust, provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation margin,
are not considered to be the issuance of senior securities for
purposes of this restriction; and

7. purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to
be invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that
there is no limitation in respect to investments in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (for the purposes of this restriction,
telephone companies are considered to be in a separate industry
from gas and electric public utilities, and wholly-owned finance
companies are considered to be in the industry of their parents
if their activities are primarily related to financing the
activities of their parents).

Other Investment Policies. The Trustees of the Fund voluntarily adopted policies
and restrictions which are observed in the conduct of the Fund's affairs. These
represent intentions of the Trustees based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Trustees without prior notice to or approval of
shareholders.

As a matter of nonfundamental policy, the Fund may not:

(a) purchase or retain securities of any open-end investment company,
or securities of closed-end investment companies except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchases, or except when
such purchase, though not made in the open market, is part of a

12
<PAGE>

plan of merger, consolidation, reorganization or acquisition of
assets; in any event the Fund may not purchase more than 3% of
the outstanding voting securities of another investment company,
may not invest more than 5% of its assets in another investment
company, and may not invest more than 10% of its assets in other
investment companies;

(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;

(c) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer, director
or trustee of the Fund or a member, officer, director or trustee
of the investment adviser of the Fund if one or more of such
individuals owns beneficially more than one-half of one percent
(1/2%) of the outstanding shares or securities or both (taken at
market value) of such issuer and such individuals owning more
than one-half of one percent (1/2%) of such shares or securities
together own beneficially more than 5% of such shares or
securities or both;

(d) purchase securities on margin or make short sales unless, by
virtue of its ownership of other securities, it has the right to
obtain securities equivalent in kind and amount to the securities
sold and, if the right is conditional, the sale is made upon the
same conditions, except in connection with arbitrage transactions
and except that the Fund may obtain such short-term credits as
may be necessary for the clearance of purchases and sales of
securities;

(e) invest more than 10% of its total assets in securities which are
not readily marketable, the disposition of which is restricted
under Federal securities laws, or in repurchase agreements not
terminable within seven days, and the Fund will not invest more
than 10% of its total assets in restricted securities;

(f) purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors, except
U.S. Government securities, securities of such issuers which are
rated by at least one nationally recognized statistical rating
organization, municipal obligations and obligations issued or
guaranteed by any foreign government or its agencies or
instrumentalities, if such purchase would cause the investments
of the Fund in all such issuers to exceed 5% of the total assets
of the Fund taken at market value;

(g) purchase more than 10% of the voting securities of any one
issuer, except securities issued by the U.S. Government, its
agencies or instrumentalities;

(h) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund at
any time do not exceed 20% of its net assets; or sell put options
on securities if, as a result, the aggregate value of the
obligations underlying such put options would exceed 50% of the
Fund's net assets;

(i) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate
initial margin with respect to all futures contracts entered into
on behalf of the Fund and the premiums paid for options on
futures contracts does not exceed 5% of the fair market value of
the Fund's total assets; provided, however, that in the case of
an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing the 5% limit;

(j) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which own
or invest in such interests);

(k) borrow money, including reverse repurchase agreements, in excess
of 5% of its total assets (taken at market value) except for
temporary or emergency purposes, or borrow other than from banks;

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<PAGE>

(l) purchase warrants if as a result warrants taken at the lower of
cost or market value would represent more than 5% of the value of
the Fund's total net assets or more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchanges or on an exchange with comparable listing requirements
(for this purpose, warrants attached to securities will be deemed
to have no value);

(m) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the time
any loan is made; all loans of portfolio securities will be fully
collateralized and marked to market daily. The Fund has no
current intention of making loans of portfolio securities that
would amount to greater than 5% of the Fund's total assets; and

(n) purchase or sell real estate limited partnership interests.

PURCHASES

(See "Purchases" and "Transaction information" in the Fund's prospectus.)

Additional Information About Opening an Account

Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $1,000 of Fund
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 Fund name, amount to be wired ($1,000 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the tax 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 new account number. Finally, the
investor must send the completed and signed application to the Fund promptly.

The minimum initial purchase amount is less than $1,000 under certain
special plan accounts.

Additional Information About Making Subsequent Investments

Subsequent purchase orders for $10,000 or more, and for an amount not
greater than four times the value of the shareholder's account, may be placed by
telephone, fax, etc. by members of the NASD, by banks and by established
shareholders [except by Scudder Individual Retirement Account (IRA), Scudder
Profit Sharing and Money Purchase Pension Plans, Scudder 401(k) and Scudder
403(b) plan holders]. Orders placed in this manner may be directed to any office
of the Distributor listed in the Fund's prospectus. A two-part invoice of the
purchase will be mailed out promptly following receipt of a request to buy.
Payment should be attached to a copy of the invoice for proper identification.
Federal regulations require that payment be received within seven business days.
If payment is not received within that time, the shares may be canceled. In the
event of such cancellation or cancellation at the purchaser's request, the
purchaser will be responsible for any loss incurred by the Fund or the principal
underwriter by reason of such cancellation. If the purchaser is a shareholder,
the Trust shall have the authority, as agent of the shareholder, to redeem
shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. 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 Fund.

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<PAGE>

Additional Information About Making Subsequent Investments by AutoBuy

Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000 but not less than $250. To
purchase shares by AutoBuy, shareholders should call before 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. AutoBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
AutoBuy and redeem them within seven days of the purchase, the Fund may hold the
redemption proceeds for a period of up to seven business days. If you purchase
shares and there are insufficient funds in your bank account the purchase will
be canceled and you will be subject to any losses or fees incurred in the
transaction. Auto Buy transactions are not available for Scudder IRA accounts
and most other retirement plan accounts.

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

The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine. and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.

Checks

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

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

Wire Transfer of Federal Funds

To obtain the net asset value determined as of the close of regular
trading on a selected day, your bank must forward federal funds by wire transfer
and provide the required account information so as to be available to the Fund
prior to the close of regular trading on the Exchange.

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 Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the Custodian is not open to receive such federal funds on
behalf of the Fund.

15
<PAGE>

Share Price

Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on the Exchange on
each day during which the Exchange is open for trading. Orders received after
the close of regular trading on the Exchange will receive the next day's net
asset value. If the order has been placed by a member of the NASD, other than
the Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to the Fund's transfer agent in Boston by
the close of regular trading on the Exchange.

Share Certificates

Due to the desire of Trust management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund.

Other Information

If purchases or redemptions of Fund shares are arranged and settlement
is made at the investor's election through a member of the NASD other than the
Distributor, that member may, at its discretion, charge a fee for that service.
The Board of Trustees and the Distributor, the Trust's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor each may suspend or terminate
the offering of shares of the Fund at any time.

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

EXCHANGES AND REDEMPTIONS

(See "Exchanges and redemptions" and "Transaction information"
in the Fund's prospectus.)

Exchanges

Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either an additional investment into an existing or may involve opening a new
account in another fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option SAIL ("Scudder Automated
Information Line"), and dividend option as the existing account. Other features
will not carry over automatically to the new account. Exchanges into a new fund
account must be for a minimum of $1,000. When an exchange represents an
additional investment into an existing account, the account receiving the
exchange proceeds must have identical registration, tax identification number,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is different in any respect, the exchange request must be in
writing and must contain a signature guarantee as described under "Transaction
information--Redeeming shares--Signature guarantees" in the Fund's prospectus.

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

Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over 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

16
<PAGE>

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 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 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 a prospectus of the Scudder fund into which the
exchange is being contemplated from the Distributor. 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 up to $50,000 to their address of record. Shareholders
may also request to have the proceeds mailed or wired to their pre-designated
bank account. In order to request 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
pre-designated bank account must complete the appropriate section
on the application.

(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA, Scudder
Pension and Profit Sharing, Scudder 401(k) and Scudder 403(b)
Plan holders) who wish to establish telephone redemption to a
pre-designated bank account or who want to change the bank
account previously designated to receive redemption payments
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) appear 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
retirement accounts.

If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be made by Federal Reserve Bank wire to the bank
account designated on the application unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5.00
charge for all wire redemptions.

Note: Investors designating that a savings bank 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 banks
and submit any special wire transfer information with

17
<PAGE>

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 By AutoSell

Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoSell program may sell shares of the Fund by telephone. To sell shares
by AutoSell, shareholders should call before 4 p.m. eastern time. 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, shares will be redeemed at the net asset value per share calculated at
the close of trading on the day of your call. AutoSell requests received after
the close of regular trading on the Exchange will begin their processing and be
redeemed at the net asset value calculated the following business day. AutoSell
transactions are not available for Scudder IRA accounts and most other
retirement plan accounts.

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

The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.

Redemption by Mail or Fax

In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).

It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to 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 five days after receipt by the Transfer Agent of a request for
redemption that complies with the above requirements. Delays in payment of more
than seven business 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 of
regular accounts. For more information call 1-800-225-5163.

18
<PAGE>

Redemption-In-Kind

The Trust reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Fund and valued as they are for purposes of computing the Fund's net asset
value (a redemption in kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash. The
Trust, on behalf of the Fund, has elected, however, to be governed by Rule 18f-1
under the 1940 Act as a result of which the Fund is obligated to redeem shares,
with respect to any one shareholder during any 90 day period, solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of the period.

Other Information

If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, 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
Fund 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 an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (See "Taxes.")

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

The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times during which (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted for any reason, (c)
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) the SEC may
by order permit such a suspension for the protection of the Trust's
shareholders; provided that applicable rules and regulations of the SEC (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b) or (c) exist.

If transactions at any time reduce a shareholder's account balance in
the Fund to below $1,000 in value, the Trust may notify the shareholder that,
unless the account balance is brought up to at least $1,000, the Trust will
redeem all shares and close the account by making payment to the shareholder.
The shareholder has sixty days to bring the account balance up to $1,000 before
any action will be taken by the Trust. (This policy applies to accounts of new
shareholders, but does not apply to certain Special Plan Accounts.) The Trustees
have the authority to change the minimum account size.

FEATURES AND SERVICES OFFERED BY THE FUND

(See "Shareholder benefits" in the Fund's prospectus.)

The Pure No-Load(TM) Concept

Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its 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.

19
<PAGE>

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 NASD
Rules of Fair Practice, a mutual fund can call itself a "no-load" fund only if
the 12b-1 fee and/or service fee does not exceed 0.25% of a fund's average
annual net assets.

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

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

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

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

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

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

Investors are encouraged to review the fee tables on page 2 of the
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.

Dividend and Capital Gain Distribution Options

Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be received by the Transfer Agent in writing at least five days
prior to a dividend record date. Shareholders may change their dividend option
either by calling 1-800-225-5163 or by sending written instructions to the
Transfer Agent. Please include your account number with your request. See "How
to contact Scudder" in the Prospectus for the address. Shareholders who have
authorized telephone transactions may change their dividend option by calling
1-800-225-5163.

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

20
<PAGE>

Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.

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

Diversification

An investment in the Fund represents an interest in a large,
diversified portfolio of carefully selected securities. Diversification may
protect the shareholder against the possible risks associated with concentrating
in fewer securities or in a specific market sector.

Scudder Funds Centers

Investors may visit any of the Fund Centers maintained by the
Distributor and listed in the Fund's 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 to "The Scudder Funds" at the address listed under
"How to contact Scudder" in the prospectus.

Reports to Shareholders

The Fund issues shareholders financial statements examined by
independent accountants on a semiannual basis and audited annually. These
include a list of investments held and statements of assets and liabilities,
operations, changes in net assets and supplementary information for the Fund.
The Fund presently intends to distribute to shareholders informal quarterly
reports during the intervening quarters, containing certain performance and
investment highlights of the Fund.

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 Fund's prospectus.)

The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
Initial purchases in each Scudder fund must be at least $1,000 or $500 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower.

MONEY MARKET

Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital, and consistent therewith, to maintain the liquidity of
capital and to provide current income through investment in a
supervised portfolio of short-term debt securities. SCIT intends to

21
<PAGE>

seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.

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

INCOME

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

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

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

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

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

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

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

TAX FREE MONEY MARKET

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

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

Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the

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

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

22
<PAGE>

maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.

TAX FREE

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

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

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

Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation by investing in high-grade municipal securities of
intermediate maturities.

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

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

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

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

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

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

GROWTH AND INCOME

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

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

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

23
<PAGE>

GROWTH

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

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

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

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

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

Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.

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

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

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

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

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

The Japan Fund, Inc. seeks capital appreciation through investment
in Japanese securities, primarily in common stocks of Japanese
companies.

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

24
<PAGE>

The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; easy telephone exchanges
into other Scudder funds; shares redeemable at net asset value at any time.

SPECIAL PLAN ACCOUNTS

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

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

Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRA's other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.

None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.

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

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

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

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

Scudder IRA: Individual Retirement Account

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

A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if

25
<PAGE>

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 $2,250 for married couples if one spouse has earned income of no
more than $250). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.

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

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

Starting
Age of Annual Rate of Return
---------------------
Contributions 5% 10% 15%
------------- -- --- ---
<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.)

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

Starting
Age of Annual Rate of Return
---------------------
Contributions 5% 10% 15%
------------- -- --- ---
<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 403(b) Plan

Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.

Automatic Withdrawal Plan

Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Payments are mailed at the end
of each month. The check amounts may be based on the redemption of a fixed

26
<PAGE>

dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains distributions,
if any, to be reinvested in additional shares. Shares are then liquidated as
necessary to provide for withdrawal payments. Since the withdrawals are in
amounts selected by the investor and have no relationship to yield or income,
payments received cannot be considered as yield or income on the investment and
the resulting liquidations may deplete or possibly extinguish the initial
investment. Requests for increases in withdrawal amounts or to change payee must
be submitted in writing, signed exactly as the account is registered and contain
signature guarantee(s) as described under "Transaction information--Redeeming
shares--Signature guarantees" in the Fund's prospectus. Any such requests must
be received by the Fund's transfer agent by the 15th of the month in which such
change is to take effect. An Automatic Withdrawal Plan may be terminated at any
time by the shareholder, the Trust or its agent on written notice, and will be
terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the Trust of notice of death of the shareholder.

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

Group or Salary Deduction Plan

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

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

Automatic Investment Plan

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

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

Uniform Transfers/Gifts to Minors Act

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

27
<PAGE>

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

(See "Distribution and performance information--Dividends and
capital gains distributions" in the Fund's prospectus.)

The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, if it appears to be in the best interest of the Fund and its
shareholders, the Fund may retain all or part of such gain for reinvestment,
after paying the related federal taxes for which shareholders may then be able
to claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Internal Revenue Code, the Fund
may be subject to that excise tax. In certain circumstances, the Fund may
determine that it is in the interest of shareholders to distribute less than the
required amount. (See "TAXES.")

The Fund intends to distribute investment company taxable income in
December each year. The Fund intends to declare in December any net realized
capital gains resulting from its investment activity. The Fund intends to
distribute the December dividends and capital gains either in December or in the
following January. Any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. Additional
distributions may be made if necessary. Both types of distributions will be made
in shares of the Fund and confirmations will be mailed to each shareholder
unless a shareholder has elected to receive cash, in which case a check will be
sent.

PERFORMANCE INFORMATION

(See "Distribution and performance information--Performance
information" in the Fund's prospectus.)

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

Average Annual Total Return

Average annual total return is the average annual compound rate of
return for periods of one year, five years, and ten years (or such shorter
periods as may be applicable dating from the commencement of the Fund's
operations), all ended on the last day of a recent calendar quarter. Average
annual total return quotations reflect changes in the price of the Fund's shares
and assume that all dividends and capital gains distributions during the
respective periods were reinvested in Fund shares. Average annual total return
is calculated by computing 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:

T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.

28
<PAGE>

Average Annual Total Return for the periods ended October 31, 1995

One Year Life of the Fund (1)
-------- --------------------
23.78% 12.75%

(1) For the period from May 15, 1991, commencement of operations.

As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for the Fund will vary based on changes in market conditions and
the level of the Fund's expenses.

In connection with communicating its average annual total return to
current or prospective shareholders, the Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.

Cumulative Total Return

Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by computing
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 October 31, 1995

One Year Life of the Fund (1)
-------- --------------------
23.78% 70.87%

(1) For the period from May 15, 1991, commencement of operations.

Total Return

Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.

Capital Change

Capital change measures the return from invested capital including
reinvested capital gains distributions. Capital change does not include the
reinvestment of income dividends.

Quotations of the Fund's performance are based on historical earnings
and show the performance of a hypothetical investment and are not intended to
indicate future performance of the Fund. An investor's shares when redeemed may

29
<PAGE>

be worth more or less than their original cost. Performance of the Fund will
vary based on changes in market conditions and the level of the Fund's expenses.

Because some of the Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar against these currencies
may account for part of the Fund's investment performance. Information on the
value of the dollar versus foreign currencies may be used from time to time in
advertisements concerning the Fund. Such historical information is not
indicative of future performance.

Performance Indices

The Fund's performance will, from time to time, be compared to the
percentage changes of unmanaged performance indices. Such indices will include
the Dow Jones Industrial Average ("DJIA"), S&P 500 and the Consumer Price Index
("CPI"). The DJIA and S&P 500 are unmanaged indices widely regarded as
representative of the equity market in general. The CPI is a commonly used
measure of inflation.

Comparison of Fund Performance

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

In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.

From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.

From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.

The Fund may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.

Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.

30
<PAGE>

Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.

Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.

Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.

Scudder's Theme: Build Create Provide. Marketing and fund literature may refer
to Scudder's theme: "Build Create Provide." This theme intends to encapsulate
the composition of a sound investment philosophy, one through which Scudder can
help provide investors appropriate avenues for pursuing dreams. Individuals
recognize the need to build investment plans that are suitable and directed at
achieving one's financial goals. The desired result from planning and a
long-term commitment to it is the ability to build wealth over time. While there
are no guarantees in the pursuit of wealth through investing, Scudder believes
that a sound investment plan can enhance one's ability to achieve financial
goals that are clearly defined and appropriately approached. Wealth, while a
relative term, may be defined as the freedom to provide for those interests
which you hold most important -- your family, future, and/or your community.

Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:

American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

31
<PAGE>

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.

CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.

Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.

Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.

IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue'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 Daily, a daily newspaper that features financial, economic, and
business news.

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

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.

Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.

32
<PAGE>

The New York Times, a nationally distributed newspaper which regularly covers
financial news.

The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.

No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

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

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

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

USA Today, a leading national daily newspaper.

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

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

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

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

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

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

FUND ORGANIZATION

(See "Fund organization" in the Fund's prospectus.)

The Fund is a series of Scudder Investment Trust, a Massachusetts
business trust established under a Declaration of Trust dated September 20,
1984, as amended. The name of the Trust was changed, effective May 15, 1991,
from Scudder Growth and Income Fund.

The Trust's authorized capital consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share. The Trust's shares are
currently divided into two series, Scudder Quality Growth Fund and Scudder
Growth and Income Fund. The Trustees of the Trust have the authority to issue
additional series of shares. Each share of each Fund has equal rights with each
other share of that Fund as to voting, dividends and liquidation. All shares

33
<PAGE>

issued and outstanding will be fully paid and nonassessable by the Trust, and
redeemable as described in this Statement of Additional Information and in each
Fund's prospectus.

The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.

Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting that
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series.

The Trustees, in their discretion, may authorize the division of shares
of the Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of any subsequently created classes may bear different
expenses in connection with different methods of distribution of their classes.
The Trustees have no present intention of taking the action necessary to effect
the division of shares into separate classes, nor of changing the method of
distribution of shares of the Fund.

The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Fund 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 Fund except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.

INVESTMENT ADVISER

(See "Fund organization--Investment adviser" in the Fund's prospectus.)

Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to the Fund. This organization is one of the most experienced
investment management firms in the U.S. It was established 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 Scudder 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 firm reorganized from a partnership to a
corporation on June 28, 1985.

The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund,

34
<PAGE>

Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Securities Trust, Scudder State Tax Free
Trust, Scudder Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S.
Treasury Money Fund, Scudder Variable Life Investment Fund, Scudder World Income
Opportunities Fund, Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The
First Iberian Fund, Inc., The Korea Fund, Inc., The Japan Fund, Inc. and The
Latin America Dollar Income Fund, Inc. Some of the foregoing companies or trusts
have two or more series.

The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $12 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust and AARP Cash
Investment Funds.

Institutional assets managed by the Adviser using a quality growth
investment approach exceeded $172 million as of September 31, 1995.

International Investment Experience. The Adviser has been a leader in
international investment management for over forty years. In addition to Scudder
International Fund, Inc., which was incorporated in Canada in 1953 as the first
foreign investment company registered with the SEC, the Adviser's investment
company clients include Scudder Global Fund, and Scudder Global Bond Fund, which
invest worldwide, Scudder Greater Europe Growth Fund, which invests primarily in
the equity securities of European companies, Scudder International Bond Fund,
which invests internationally, Scudder Latin America Fund, which invests in
Latin American issuers, and The Japan Fund, Inc., which invests primarily in
securities of Japanese companies. The Adviser also manages the assets of eight
closed-end investment companies investing in foreign securities: The Argentina
Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund,
Inc., The Latin America Dollar Income Fund, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., and Scudder World Income Opportunities Fund, Inc.
Assets of the Adviser's international investment company clients totaled more
than $20 billion as of December 31, 1995.

The Adviser utilizes its international investment experience when
evaluating foreign accounting practices such as those which may be used by the
issuers of the foreign securities in which the Fund may invest.

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. In this work, the Adviser
utilizes certain reports and statistics from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and other clients of the Adviser, but conclusions are based primarily on
investigations and critical analyses by its own research specialists.

Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward 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
date. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.

The Investment Management Agreement (the "Agreement") between the
Trust, on behalf of Scudder Quality Growth Fund, and the Adviser was last
approved by the Trustees on August 9, 1994 and by a majority of the Fund's
shareholders on May 12, 1992. The Agreement is dated May 9, 1991 and will
continue in effect until September 30, 1996 and from year to year thereafter
only if its continuance is approved annually by the vote of a majority of those
Trustees who are not parties to such Agreement or interested persons of the
Adviser or the Trust, cast in person at a meeting called for the purpose of

35
<PAGE>

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

Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objectives, policies and restrictions and determines which securities
shall be purchased for the portfolio of the Fund, which portfolio securities
shall be held or sold by the Fund, and what portion of the Fund's assets will be
held uninvested, subject always to the provisions of the Trust's Declaration of
Trust and By-Laws, the 1940 Act and the Internal Revenue Code of 1986 and to the
Fund's investment objectives, policies and restrictions, and subject, further,
to such policies and instructions as the Trustees may from time to time
establish. The Adviser also advises and assists the officers of the Fund in
taking such steps as are necessary or appropriate to carry out the decisions of
its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of the Fund.

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

The Adviser pays the compensation and expenses (except those for
attending Board and Committee meetings outside New York, New York and Boston,
Massachusetts) of all Trustees, officers and executive employees of the Trust
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such Trustees, officers and employees of the Adviser as may duly
be elected officers or Trustees of the Trust, subject to their individual
consent to serve and to any limitations imposed by law, and provides the Fund's
office space and facilities. For these services, the Fund is charged by the
Adviser a fee equal to approximately 0.70 of 1% of the Fund's average daily net
assets. The fee is payable monthly, provided the Fund will make such interim
payments as may be requested by Scudder not to exceed 75% of the amount of the
fee then accrued on the books of the Fund and unpaid. The Agreement provides
that if the 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 Adviser retains the ability to
be repaid by the Fund if expenses fall below the specified limit prior to the
end of the fiscal year. These expense limitation arrangements can decrease the
Fund's expenses and improve its performance. During the fiscal years ended
October 31, 1993, 1994 and 1995, these agreements resulted in a reduction of
management fees paid by the Fund of $0, $3,897 and $0, respectively. During the
fiscal years ended October 31, 1993, 1994 and 1995, the Adviser imposed a
portion of its management fee amounting to $883,299, $802,235 and $953,916,
respectively.

Under the Agreement, the Fund is responsible for all of its other
expenses including organizational costs; fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; payment for portfolio pricing services to a pricing agent, if any;
legal, auditing and accounting expenses; the calculation of Net Asset Value,
taxes and governmental fees; the fees and expenses of the transfer agent; the
cost of preparing stock certificates and any other expenses including clerical
expenses of issuance, redemption or repurchase of shares; the expenses of and
the fees for registering or qualifying securities for sale; the fees and
expenses of Trustees, officers and employees of the Trust who are not affiliated
with the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. The Trust may
arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of the Fund. The Fund is also

36
<PAGE>

responsible for its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Trustees with respect thereto.

The Adviser has agreed in the Agreement to reimburse the Fund for
annual expenses in excess of the lowest applicable expense limitation imposed by
any state in which the Fund is at the time offering its shares for sale,
although no payments are required to be made by the Adviser pursuant to this
reimbursement provision in excess of the annual fee paid by the Fund to the
Adviser. Management has been advised that the lowest such limitation is
presently 2 1/2% of average daily net assets up to $30 million, 2% of the next
$70 million of such net assets and 1 1/2% of such net assets in excess of that
amount. Certain expenses such as brokerage commissions, taxes, extraordinary
expenses and interest are excluded from such limitations, and other expenses may
be excluded from time to time. If reimbursement is required, it will be made as
promptly as practicable after the end of the Fund's fiscal year. However, no fee
payment will be made to the Adviser during any fiscal year which will cause year
to date expenses to exceed the cumulative pro rata expense limitation at the
time of such payment.

The Agreement also provides that the Trust and the Fund may use any
name derived from the name "Scudder, Stevens & Clark" only as long as the
Agreement or any extension, any renewal or amendment thereof remains in effect.

In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, Trustees who are not "interested persons" of
the Trust have been represented by independent counsel Ropes & Gray at the
Fund's expense.

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

Officers and employees of the Adviser from time to time may engage in
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.

None of the officers or Trustees of the Trust may have dealings with
the Fund as principals in the purchase or sale of securities, except as
individual subscribers or holders of shares of the Fund.

Personal Investments by Employees of the Adviser

Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. 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.

37
<PAGE>

<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS

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

<S> <C> <C> <C>
Daniel Pierce+*= President and Chairman of the Board and Director, Vice
Trustee Managing Director of Scudder, President and Assistant
Stevens & Clark, Inc. Treasurer

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

Dudley H. Ladd+*= Trustee Managing Director of Scudder, Director and Senior
Stevens & Clark, Inc. Vice President

George M. Lovejoy, Jr.= Trustee President and Director, Fifty --
160 Federal Street Associates
Boston, MA

Wesley W. Marple, Jr.= Trustee Professor of Business --
413 Hayden Hall Administration Northeastern
360 Huntington Ave. University, College of Business
Boston, MA 02115 Administration

Juris Padegs#* Trustee Managing Director of Scudder, Director and Vice
Stevens & Clark, Inc. President

Jean C. Tempel Trustee General Partner, TL Ventures --
Ten Post Office Square
Suite 1325
Boston, MA 02109

Bruce F. Beaty# Vice President Principal of Scudder, Stevens & --
Clark, Inc.

Jerard K. Hartman# Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.

Robert T. Hoffman# Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.

Thomas W. Joseph+ Vice President Principal of Scudder, Stevens & Director, Vice
Clark, Inc. President, Treasurer
and Assistant Clerk

David S. Lee+ Vice President Managing Director of Scudder, President, Assistant
Stevens & Clark, Inc. Treasure and Director

38
<PAGE>

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

Douglas M. Loudon# Vice President Managing Director of Scudder, Senior Vice President
Stevens & Clark, Inc.

Valerie F. Malter# Vice President Principal of Scudder, Stevens & --
Clark, Inc.

Thomas F. McDonough+ Vice President, Principal of Scudder, Stevens & Clerk
Secretary and Clark, Inc.
Assistant Treasurer

Pamela A. McGrath+ Vice President and Managing Director of Scudder, --
Treasurer Stevens & Clark, Inc.

Edward J. O'Connell# Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.

Coleen Downs Dinneen+ Assistant Secretary Vice President of Scudder, Assistant Clerk
Stevens & Clark, Inc.
</TABLE>

Certain accounts for which the Adviser acts as investment adviser owned
1,219,925 shares in the aggregate, or 11.97% of the outstanding shares on
January 31, 1996. The Adviser may be deemed to be the beneficial owner of such
shares but disclaims any beneficial ownership in such shares.

As of January 31, 1996, all Trustees and officers of the Trust as a
group owned beneficially (as the term is defined in Section 13(a) under the
Securities Exchange Act of 1934) 350,192 shares, or 3.44% of the shares of the
Fund outstanding on such date.

To the best of the Trust's knowledge, as of January 31, 1996, no person
owned beneficially more than 5% of the Fund's shares except as stated above.

* Messrs. Ladd, Padegs and Pierce are considered by the Trust
and its counsel to be persons who are "interested persons" of
the Adviser or of the Trust (within the meaning of the 1940
Act, as amended).
** Unless otherwise stated, all the officers and Trustees have
been associated with their respective companies for more than
five years, but not necessarily in the same capacity.
= Messrs. Ladd, Lovejoy, Pierce and Marple are members of the
Executive Committee, which has the power to declare dividends
from ordinary income and distributions of realized capital
gains to the same extent as the Board is so empowered.
+ Address: Two International Place, Boston, Massachusetts
# Address: 345 Park Avenue, New York, New York

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

REMUNERATION

Several of the officers and Trustees of the Trust may be officers or
employees of the Adviser, the Distributor, the Transfer Agent, or Scudder Trust
Company, from whom they receive compensation, as a result of which they may be
deemed to participate in the fees paid by the Fund. The Fund pays no direct
remuneration to any officer of the Trust. However, each of the Trustees who is
not affiliated with the Adviser will be paid by the Fund. Each of these

39
<PAGE>

unaffiliated Trustees receives an annual Trustee's fee of $4,000 from the Fund
plus $400 for attending each Trustees' meeting, audit committee meeting or
meeting held for the purpose of discussing the investment procedures of the Fund
or considering arrangements between the Trust on behalf of the Fund and the
Adviser or any of its affiliates. Each unaffiliated Trustee also receives $150
per committee meeting attended other than those set forth above. For the fiscal
year ended October 31, 1995, the Trustees' fees and expenses amounted to
$35,519.

The following Compensation Table provides, in tabular form, the following data.

Column (1) All Trustees who receive compensation from the Trust.
Column (2) Aggregate compensation received by a Trustee from all series of
Scudder Investment Trust, which is comprised of Scudder Growth and Income Fund
and Scudder Quality Growth Fund.
Columns (3) and (4) Pension or retirement benefits accrued or proposed to be
paid by the Trust. Scudder Investment Trust does not pay its Trustees such
benefits.
Column (5) Total compensation received by a Trustee from Scudder Growth and
Income Fund and Scudder Quality Growth Fund, plus compensation received from
all funds managed by Scudder for which a Trustee serves. The total number of
funds from which a Trustee receives such compensation is also provided in
column (5).

<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1995

(1) (2) (3) (4) (5)

Aggregate Compensation from
Scudder Investment Trust Pension or Total Compensation
(consisting of two funds: Retirement From Scudder
Scudder Growth and Income Benefits Accrued Estimated Investment Trust
Name of Person, Fund and Scudder Quality As Part of Fund Annual Benefits and Fund Complex
Position Growth Fund) Expenses Upon Retirement Paid to Trustee
-------- ------------ -------- --------------- ---------------
<S> <C> <C> <C> <C>
Henry P. Becton, Jr. $16,600 N/A N/A $82,800
Trustee (15 funds)

George M. Lovejoy, Jr. $17,500 N/A N/A $112,900
Trustee (12 funds)

Wesley W. Marple, Jr. $17,500 N/A N/A $93,100
Trustee (15 funds)

Jean C. Tempel $17,200 N/A N/A $92,200
Trustee (15 funds)
</TABLE>

DISTRIBUTOR

The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser. The Trust's underwriting agreement, dated September 10, 1985, will
remain in effect until September 30, 1996 and from year to year thereafter only
if its continuance is approved annually by a majority of the Trustees who are
not parties to such agreement or interested persons of any such party and either
by vote of a majority of the Trustees or a majority of the outstanding voting
securities of the Trust. The underwriting agreement was last approved by the
Trustees on August 9, 1994.

Under the principal underwriting agreement, the Fund is responsible
for: the payment of all fees and expenses in connection with the preparation and
filing with the SEC of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Trust or the Fund as a
broker/dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below

40
<PAGE>

for expenses relating to prospectuses paid by the Distributor), notices, proxy
statements, reports or other communications to shareholders of the Fund; the
cost of printing and mailing confirmations of purchases of shares and the
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of 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 Fund and the
Distributor.

The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
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 the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.

Note: Although the Fund currently has no 12b-1 Plan and the Trustees have no
current intention of adopting one, the Fund will also pay those fees and
expenses permitted to be paid or assumed by the Fund pursuant to a 12b-1 Plan,
if any, adopted by the Fund, notwithstanding any other provision to the contrary
in the underwriting agreement.

As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund 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 the investor. The
Distributor has made no firm commitment to acquire shares of the Fund.

TAXES

(See "Distribution and performance information--Dividends and capital gains
distributions" and "Transaction information--Tax information and Tax
identification number" in the Fund's prospectus.)

The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), or a predecessor statute and has qualified as such since its inception.
It intends to continue to qualify for such treatment. Such qualification does
not involve governmental supervision or management of investment practices or
policy.

As a regulated investment company qualifying under Subchapter M of the
Code, the Fund is required to distribute to its shareholders at least 90 percent
of its investment company taxable income (including net short-term capital
gains) and is not generally subject to federal income tax to the extent that it
annually distributes its investment company taxable income and net realized
capital gains in the manner required under the Code.

The Fund will be 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 an amount equal to the sum of at least 98% of the Fund's ordinary
income for the calendar year, at least 98% of the excess of its capital gains
over capital losses (adjusted for certain ordinary losses as prescribed in the
Code) 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.

The Fund's investment company taxable income includes dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Fund.

If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect

41
<PAGE>

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 relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liabilities, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between a pro rata share of such gains and the
individual tax credit. If the Fund makes such an election, it may not be treated
as having met the excise tax distribution requirement.

Distributions of investment company taxable income are taxable to
shareholders as ordinary income.

Dividends from domestic corporations are expected to comprise a
substantial part of the Fund's gross income. To the extent that such dividends
constitute a portion of the Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the 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 of the Fund, with respect to which the dividends are received,
are treated as debt-financed under federal income tax law and is eliminated if
the shares are deemed to have been held for less than 46 days.

Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time the shares of the Fund have been held by
such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gains 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 gains, whether received in shares or in cash, must be reported by each
shareholder on a federal income tax return. Dividends and capital gains
distributions declared in October, November, or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.

An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and his or her nonearning spouse) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.

Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

42
<PAGE>

If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.

Proposed regulations have been issued which will allow the Fund to make
an election to mark-to-market its shares of these foreign investment companies
in lieu of being taxed in the manner described above. At the end of each taxable
year to which the election applies, the Fund will include in its income the
amount by which the fair market value of the foreign company's stock exceeds the
Fund's adjusted basis in these shares. No mark-to-market losses may be
recognized. Distributions and gain on dispositions of such stock will be treated
as ordinary income distributable to shareholders rather than being subject to a
fund level tax. The Fund intends to make this election if it is determined to be
appropriate and in the best interest of the shareholders.

Dividend and interest income received by the Fund from sources outside
the U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains in respect of investments by foreign
investors.

Equity options written by the Fund (covered call options on portfolio
stock) will be subject to tax under Section 1234 of the Code. If the Fund writes
a call option, no gain is recognized upon its receipt of a premium. If the
option lapses or is closed out, any gain or loss is treated as a short-term
capital gain or loss. If a call option is exercised, any resulting gain or loss
is short-term or long-term capital gain or loss depending on the holding period
of the underlying stock.

Many futures and forward contracts entered into by the Fund and all
listed nonequity options written or purchased by the Fund (including covered
call options written on debt securities and options purchased or written on
futures contracts) will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position generally will be treated as 60% long-term and
40% short-term capital gain or loss, and on the last trading day of the Fund's
fiscal year, all outstanding Section 1256 positions will be marked to market
(i.e., treated as if such positions were closed out at their closing price on
such day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term capital gain or loss. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options, and similar financial instruments entered into or
acquired by the Fund will be treated as ordinary income or loss. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in the
Fund's portfolio.

Subchapter M requires that the Fund realize less than 30% of its annual
gross income from the sale or other disposition of stock, securities and certain
options, futures and forward contracts held for less than three months. Options,
futures and forward activities of the Fund may increase the amount of gains
realized by the Fund that are subject to the 30% limitation. Accordingly, the
amount of such activities that the Fund may engage in may be limited.

Positions of the Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by the Fund.

43
<PAGE>

Positions of the Fund which consist of at least one position not
governed by Section 1256 and at least one futures or forward contract or
nonequity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce or
eliminate the operation of these rules. The Fund will monitor its transactions
in options and futures and may make certain tax elections in connection with
these investments.

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

A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the level of the Fund. Shareholders will be subject to income tax
on such original issue discount, whether or not they elect to receive their
distributions in cash.

The Fund will be required to report to the IRS all distributions of
taxable income and capital gains as well as gross proceeds from the redemption
or exchange of Fund shares, except in the case of certain exempt shareholders.
Under the backup withholding provisions of Section 3406 of the Code,
distributions of 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 the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.

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

Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.

The Fund is organized as a series of a Massachusetts business trust and
is not liable for any income or franchise tax in the Commonwealth of
Massachusetts, provided that the Fund continues to be treated as a regulated
investment company under Subchapter M of the Code.

The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or

44
<PAGE>

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.

Shareholders should consult their tax advisers about the application of
the provisions of tax law in light of their particular tax situations.

PORTFOLIO TRANSACTIONS

Brokerage Commissions

To the maximum extent feasible the Adviser places orders for portfolio
transactions for the Fund through the Distributor, which in turn places orders
on behalf of the Fund with other brokers and dealers. The Distributor receives
no commission, fees or other remuneration from the Fund for this service.
Allocation of brokerage is supervised by the Adviser.

The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results, taking into account such factors as price, commission (negotiable
in the case of U.S. national securities exchange transactions), where
applicable, size of order, difficulty of execution and skill required of the
executing broker/dealer. The Adviser seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
the familiarity of the Distributor with commissions charged on comparable
transactions, as well as by comparing commissions paid by the Fund to reported
commissions paid by others. The Adviser reviews on a routine basis commission
rates, execution and settlement services performed, making internal and external
comparisons.

The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes, or who supply research, market and
statistical information to the Fund. The term "research, market and statistical
information" includes advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, and analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. The Adviser is not
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might have charged for executing the same transaction solely on account of the
receipt of research, market or statistical information. The Adviser does not
place orders with brokers or dealers on the basis that the broker or dealer has
or has not sold shares of the Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available otherwise.

Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Adviser, it is the
opinion of the Adviser that such information will only supplement the Adviser's
own research effort since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Fund, and not all such
information is used by the Adviser in connection with the Fund. Conversely, such
information provided to the Adviser by brokers and dealers through whom other
clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Fund.

In the fiscal years ended October 31, 1995, 1994 and 1993, the Fund
paid brokerage commissions of $313,826, $302,266 and $287,198, respectively. In
the fiscal year ended October 31, 1995, the Fund paid brokerage commissions of
$292,943 (93% of the total brokerage commissions), resulting from orders placed,
consistent with the policy of seeking to obtain the most favorable net results,

45
<PAGE>

for transactions placed with brokers and dealers who provided supplementary
research, market and statistical information to the Trust or Adviser. The amount
of such transactions aggregated $205,708,177 (92% of all brokerage
transactions). The balance of such brokerage was not allocated to any particular
broker or dealer or with regard to the above-mentioned or any other special
factors.

The Trustees of the Trust intend to review from time to time whether
the recapture for the benefit of the Fund of some portion of the brokerage
commissions or similar fees paid by the Fund on portfolio transactions is
legally permissible and advisable.

Portfolio Turnover

The Fund's average annual portfolio turnover rate, i.e. the ratio of
the lesser of sales or purchases to the monthly average value of the portfolio
(excluding from both the numerator and the denominator all securities with
maturities at the time of acquisition of one year or less), for the fiscal years
ended October 31, 1995 and 1994 was 91.6% and 119.7%, respectively. A higher
rate involves greater brokerage and transaction expenses to the Fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed. Purchases and sales are made for the Fund's
portfolio whenever necessary, in management's opinion, to meet the Fund's
objective.

NET ASSET VALUE

The net asset value of shares of the Fund 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, 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 the Fund, less all liabilities, by the total
number of shares outstanding.

An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the NASDAQ System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.

Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.

An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

46
<PAGE>

If, in the opinion of the Fund'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 the Fund is
determined in a manner which, in the discretion of the Valuation Committee, most
fairly reflects fair market value of the property on the valuation date.

Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.

ADDITIONAL INFORMATION

Experts

The financial highlights of the Fund 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 Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.

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 the Trust property or the
acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Trust property of any shareholder held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.

Other Information

The CUSIP number of the Fund is 811167-20-4.

The Fund has a fiscal year ending October 31.

Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Fund's investment adviser in light of the objective and
policies of the Fund 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 Investment Trust" is the designation of the Trustees
for the time being under a Declaration of Trust dated September 20, 1984, as
amended from time to time, and all persons dealing with the Trust must look
solely to the property of the Trust for the enforcement of any claims against
the Trust as neither the Trustees, officers, agents nor shareholders assume any
personal liability for obligations entered into on behalf of the Trust. Upon the
initial purchase of shares, the shareholder agrees to the 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. All persons dealing with the Fund must look only to the assets of
the Fund for the enforcement of any claims against the Fund as no other series
of the Trust assumes any liabilities for obligations entered into on behalf of
the Fund.

47
<PAGE>

Costs of $49,774 incurred by the Fund in conjunction with its
organization are amortized on a straight line basis over the five year period
beginning May 15, 1991.

Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Trust's custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110.

The law firm of Dechert Price & Rhoads is counsel to the Fund.

Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Fund. The Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.025% of the first $150 million of average daily net assets, 0.0075%
of such assets in excess of $150 million, 0.0045% of such assets in excess of $1
billion, plus holding and transaction charges for this service. For the fiscal
year ended October 31, 1995, Scudder Fund Accounting Corporation's fee amounted
to $52,477.

Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Fund and also provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. The Fund pays Service Corporation an
annual fee of $17.55 for each account maintained for a participant. For the
fiscal year ended October 31, 1995, Service Corporation's fee amounted to
$220,302. Please call 1-800-225-5163 for specific mailing instructions regarding
your investment.

Scudder Trust Company, Two International Place, Boston, MA 02110-4103,
an affiliate of the Adviser provides services for certain retirement plan
accounts. The Fund pays Scudder Trust Company an annual fee of $17.55 for each
account maintained for a participant. For the fiscal year ended October 31,
1995, Scudder Trust Company's fee amounted to $86,498.

The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the Commission under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. This Registration Statement is
available for inspection by the public at the SEC in Washington, D.C.

FINANCIAL STATEMENTS

The financial statements, including the investment portfolio, of
Scudder Quality Growth Fund, together with the Report of Independent
Accountants, and Financial Highlights, are incorporated by reference and
attached hereto on pages 9 through 22, inclusive, in the Annual Report to the
Shareholders of the Fund dated October 31, 1995, and are hereby deemed to be a
part of this Statement of Additional Information.

48
<PAGE>

APPENDIX

Standard & Poor's Earnings and Dividend Rankings for Common Stocks

The investment process involves assessment of various factors--such as
product and industry position, corporate resources and financial policy--with
results that make some common stocks more highly esteemed than others. In this
assessment, Standard & Poor believes that earnings and dividend performance is
the end result of the interplay of these factors and that, over the long run,
the record of this performance has a considerable bearing on relative quality.
The rankings, however, do not pretend to reflect all of the factors, tangible or
intangible, that bear on stock quality.

Relative quality of bonds or other debt, that is, degrees of protection
for principal and interest, called creditworthiness, cannot be applied to common
stocks, and therefore rankings are not to be confused with bond quality ratings
which are arrived at by a necessarily different approach.

Growth and stability of earnings and dividends are deemed key elements
in establishing Standard & Poor's earnings and dividend rankings for common
stocks, which are designed to capsulize the nature of this record in a single
symbol. It should be noted, however, that the process also takes into
consideration certain adjustments and modifications deemed desirable in
establishing such rankings.

The point of departure in arriving at these rankings is a computerized
scoring system based on per-share earnings and dividend records of the most
recent ten years--a period deemed long enough to measure significant time
segments of secular growth, to capture indications of basic change in trend as
they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within
long-term trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.

Further, the ranking system makes allowance for the fact that, in
general, corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.

The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample of
stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:

A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower

NR signifies no ranking because of insufficient data or because the
stock is not amenable to the ranking process.

The positions as determined above may be modified in some instances by
special considerations, such as natural disasters, massive strikes, and
non-recurring accounting adjustments.

A ranking is not a forecast of future market price performance, but is
basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may be attractively priced for purchase.
Rankings based upon earnings and dividend records are no substitute for complete
analysis. They cannot take into account potential effects of management changes,
internal company policies not yet fully reflected in the earnings and dividend
record, public relations standing, recent competitive shifts, and a host of
other factors that may be relevant to investment status and decision.

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

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

60-6-125
MIS60A

Scudder
Quality Growth
Fund

Annual Report
October 31, 1995

* A fund seeking long-term growth of capital through investment primarily in
the equity securities of seasoned, financially strong U.S. growth
companies.

* A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.

<PAGE>

SCUDDER QUALITY GROWTH FUND
- --------------------------------------------------------------------------------

CONTENTS

2 In Brief

3 Letter from the Fund's President

4 Performance Update

5 Portfolio Summary

6 Portfolio Management Discussion

9 Investment Portfolio

13 Financial Statements

16 Financial Highlights

17 Notes to Financial Statements

20 Report of Independent Accountants

21 Tax Information

21 Officers and Trustees

22 Investment Products
and Services

23 How to Contact
Scudder

IN BRIEF

* Scudder Quality Growth Fund provided shareholders with a total return of
23.78% for the 12 months ended October 31, 1995, including reinvested
capital gain and income distributions. The Fund's performance outpaced that
of the average growth fund tracked by Lipper Analytical Services, which
returned 22.14%.

* Earnings surprises on the upside were the rule rather than the exception
for much of the Fund's fiscal period: During the third quarter of 1995, 60%
of S&P 500 companies met or exceeded analysts' earnings expectations.
Several of the year's stronger-performing sectors were well-represented in
the portfolio, including technology, healthcare, consumer staples, and
financial services.

* In a slowing economic environment, we believe investors will pay a premium
for stable earnings growth. Accordingly, the Fund's heaviest weighting is
in consumer staples (19% of the portfolio), represented by such holdings as
tobacco and food products market leader Philip Morris and diversified
consumer products manufacturer Procter & Gamble. Healthcare continues to be
heavily represented in the portfolio as well, with five of the top ten
portfolio holdings drawn from that sector.

2
<PAGE>

LETTER FROM THE FUND'S PRESIDENT
- --------------------------------------------------------------------------------

Dear Shareholders,

Stock prices rallied sharply in 1995 after a lackluster 1994, propelled by
a confluence of positive economic and market-related factors. Moreover, stock
market corrections over this period have been few and unusually mild. Scudder
Quality Growth Fund had a solid fiscal year, providing shareholders with a total
return of 23.78% for the 12 months ended October 31, 1995.

After such impressive stock market gains--and given the late stage of the
economic cycle--some market correction would not be surprising. This might be
precipitated by growing investor recognition that a mild slowdown in economic
activity next year, resulting from a lack of corporate pricing power and a
reduction in consumer spending, is likely. With its focus on consistency of
earnings, Scudder Quality Growth Fund may serve as an appropriate vehicle for
maintaining equity exposure in such an environment. Despite near-term market
uncertainties, it is important to keep in mind that the longer-term outlook for
U.S. equities is favorable, given our expectations for continued low inflation,
low interest rates, and strong long-term profit growth.

You will notice we have added the Russell 1000 Growth Index to the
performance comparisons on page 4. This index more closely represents the
large-capitalization stocks that Scudder Quality Growth Fund invests in. We
intend to drop the S&P 500 Index from future reports.

We would also like to take this opportunity to announce that on October 6,
1995, we introduced another U.S. stock fund to the Scudder family: Scudder Small
Company Value Fund. The new fund uses a proprietary quantitative discipline to
identify undervalued stocks of small companies. For more information on Scudder
Small Company Value Fund and other investment products and services, see page
22. If you have any questions about Scudder Quality Growth Fund, please call a
Scudder Investor Relations representative at 1-800-225-2470.

Sincerely,

/s/Daniel Pierce
Daniel Pierce
President,
Scudder Quality Growth Fund

3
<PAGE>

SCUDDER QUALITY GROWTH FUND
PERFORMANCE UPDATE as of October 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER QUALITY GROWTH FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,378 23.78% 23.78%
Life of
Fund* $17,087 70.87% 12.75%

RUSSELL 1000 GROWTH INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,923 29.23% 29.23%
Life of
Fund* $16,766 67.66% 12.41%

S&P 500 INDEX
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,644 26.44% 26.44%
Life of
Fund* $16,909 69.09% 12.63%

* The Fund commenced operations on May 15, 1991.
Index comparisons begin May 31, 1991.

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

Scudder Quality Growth Fund
Year Amount
- ----------------------
5/91* $10,000
10/91 $10,894
4/92 $11,251
10/92 $12,252
4/93 $12,094
10/93 $13,169
4/94 $12,590
10/94 $13,220
4/95 $14,092
10/95 $16,364

Russell 1000 Growth Index
Year Amount
- ----------------------
5/91* $10,000
10/91 $10,350
4/92 $11,022
10/92 $11,470
4/93 $11,507
10/93 $12,308
4/94 $11,947
10/94 $12,973
4/95 $14,291
10/95 $16,766

S&P 500 Index
Year Amount
- ----------------------
5/91* $10,000
10/91 $10,187
4/92 $10,932
10/92 $11,201
4/93 $11,941
10/93 $12,875
4/94 $12,577
10/94 $13,373
4/95 $14,773
10/95 $16,909

The Russell 1000 Growth Index is an unmanaged capitalization-weighted,
price index of the 1000 largest U.S. growth companies traded on the
NYSE, AMEX, and NASDAQ. Index returns assume reinvestment of dividends
and, unlike Fund returns, do not reflect any fees or expenses.

- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------

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

YEARLY PERIODS ENDED OCTOBER 31

1991* 1992 1993 1994 1995
----------------------------------------
NET ASSET VALUE... $13.65 $15.30 $16.42 $16.17 $18.44
INCOME DIVIDENDS.. $ -- $ .03 $ .03 $ .08 $ .15
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .02 $ -- $ .24 $ 1.09
FUND TOTAL
RETURN (%)........ 13.75 12.47 7.49 .39 23.78
INDEX TOTAL
RETURN (%)........ 8.66 10.82 7.31 5.40 29.23

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

4
<PAGE>

PORTFOLIO SUMMARY as of October 31, 1995
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------

Equity Securities 94% The Fund remains nearly fully
Cash Equivalents 6% invested, principally in stocks
---- of fundamentally strong companies
100% with consistent earnings growth
==== and low debt.

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

- --------------------------------------------------------------------------
SECTORS (Excludes 6% Cash Equivalents)
- --------------------------------------------------------------------------
Consumer Staples 19%
Health 17%
Technology 14% The Fund has focused on sectors
Consumer Discretionary 10% such as Consumer Staples, where
Financial 8% earnings stability should be
Service Industries 8% attractive to investors as the
Manufacturing 7% economy slows.
Media 6%
Durables 5%
Other 6%
----
100%
====

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

- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
- --------------------------------------------------------------------------
1. PHILIP MORRIS COMPANIES INC.
Tobacco, food products and brewing
2. COLUMBIA/HCA HEALTHCARE CORP.
Leading hospital management company
3. PROCTER & GAMBLE CO.
Diversified manufacturer of consumer products
4. MERCK & CO. INC.
Leading ethical drug manufacturer
5. AMERICAN INTERNATIONAL GROUP, INC.
Major international insurance holding company
6. PEPSICO INC.
Soft drinks, snack foods and food services
7. JOHNSON & JOHNSON
Health care products
8. SCHERING-PLOUGH CORP.
Pharmaceutical and consumer products
9. GENERAL MOTORS CORP. "E"
Business information services
10. BECTON, DICKINSON & CO.
Manufacturer and marketer of medical and diagnostic products

We continue to feel that many healthcare companies are undervalued,
as negative sentiment surrounding reform prospects for the industry
prevail.

- --------------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio,
see page 9.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings
are available upon request.

5
<PAGE>

SCUDDER QUALITY GROWTH FUND
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------

Dear Shareholders,

Scudder Quality Growth Fund provided shareholders with a total return of
23.78% for the 12 months ended October 31, 1995. This return includes reinvested
distributions of $1.24, of which $1.09 was capital gain and $0.15 was in the
form of income. The Fund's performance modestly lagged the 29.23% return of the
unmanaged Russell 1000 Growth Index but outpaced that of the average long-term
growth fund tracked by Lipper Analytical Services, which returned 22.14%.

Scudder Quality Growth Fund follows a disciplined approach to stock
selection, investing primarily in financially solid U.S. companies with leading
market positions and prospects for above-average growth. In selecting these
companies, we employ both quantitative and qualitative techniques that take into
account such factors as consistency of earnings growth, financial strength,
management ability, and valuation.

Strong Earnings Environment

Over the past year, the U.S. stock market has been the beneficiary of low
inflation, falling interest rates, and strong earnings--a nearly ideal scenario
that few economic prognosticators hoped for. Investors perceive that inflation
has all but disappeared as a threat to the financial markets, with indicators
such as producer price increases hovering near zero the past several months. The
bond market rally of the past year brought the yield on long-term Treasuries
down to approximately 6.3% at the end of October, making stocks more attractive
relative to bonds. Earnings surprises on the upside have been the rule rather
than the exception: During the third quarter of 1995, 60% of S&P 500 companies
met or exceeded analysts' earnings expectations. A very strong correlation
exists between positive earnings surprises for companies and stock price
increases. Finally, demand factors were positive as well, as money flowed into
pension plans and mutual funds.

Several of the year's stronger-performing sectors were well-represented in
the portfolio, including technology, healthcare, consumer staples, and financial
services. Financial stocks contributed to the Fund's performance, as many stocks
in that group benefited from increased earnings driven by falling interest
rates. One of the Fund's largest financial holdings, Federal National Mortgage
Association, rose more than 50% over the first ten months of 1995. Within the

6
<PAGE>

PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------

healthcare group, Johnson & Johnson and pharmaceutical companies Merck and
Schering-Plough were especially good performers.

The technology sector merits special discussion, as returns in that group
were exceptional over most of the Fund's fiscal year, although some gains were
given up in the last three months of this period. While we maintained
significant exposure to technology stocks, the Fund's sector limit guidelines in
effect preclude our assuming a substantially overweighted position in such a
volatile industry. Our approach to this sector is to emphasize fundamental
research, and to avoid stocks of companies with deteriorating fundamentals or
those reporting quarterly earnings shortfalls--two factors that have
historically led to significant disappointments. We have reduced several
technology holdings during the year, including semiconductor manufacturer Texas
Instruments because of concerns over soft computer memory pricing, and cellular
telephone and equipment manufacturer Nokia. At the same time, we have
diversified the Fund's exposure within this group, adding to or initiating
positions in Applied Materials (semiconductor capital equipment) and 3Com
(networking).

Looking Ahead

Our strategy will continue to focus on identifying companies that exhibit
above-average earnings growth. Stable growth companies remain at the core of the
portfolio and are characterized by sustainable, consistent and above-average
rates of earnings growth. These companies tend to have commanding market shares
and high unit growth rates, and participate in markets that are expanding.

On a macroeconomic level, the major issue we face in the months ahead is
whether the U.S. economy is about to turn down or is experiencing a prolonged
business cycle that will yield continued strong earnings, underpinning a further
surge in stock prices. We believe it is more likely that the U.S. economy is
near the end of its four-year expansion, and we are forecasting slower economic
growth over the next year, perhaps closer to 1% than 3%. Inflation should remain
benign, but the flip side of low inflation is the inability of businesses to
increase profits by raising prices. High levels of installment debt are likely
to leave the consumer without much discretionary income, which could impact
corporate profitability. Moreover, the earnings of many companies have been

7
<PAGE>

SCUDDER QUALITY GROWTH FUND
- --------------------------------------------------------------------------------

bolstered by a weak dollar, which promoted exports and made it more difficult
for importers to price their goods advantageously versus competing goods made
here at home. In recent months, the dollar has recovered somewhat and may head
further upward.

In this slowing economic environment, we believe investors will pay a
premium for stable earnings growth. Accordingly, the Fund's heaviest weighting
is in consumer staples (19% of the portfolio), represented by such holdings as
tobacco and food products market leader Philip Morris and diversified consumer
products manufacturer Procter & Gamble. Healthcare continues to be heavily
represented in the portfolio, with five of the top ten portfolio holdings drawn
from that sector. The Fund's energy group holdings have been scaled back, and
several economically sensitive growth companies have been eliminated from the
portfolio, including Cooper Tire & Rubber, diversified manufacturer TRW, and
specialty steel producer Nucor.

U.S. equity valuations, while not extreme, are at much higher levels than a
year ago and therefore warrant a degree of caution going forward. While the
economic and market climate will influence stock selection for the Fund, we do
not believe that attempting to time the market is a worthwhile endeavor, and we
strive to remain fully invested. The Fund's focus on quality companies with
reasonable valuations and prospects for above-average earnings growth should
reward investors seeking capital appreciation over the long-term. We believe
Scudder Quality Growth Fund will remain an excellent vehicle for stock investors
seeking core exposure to the U.S. equity markets.

Sincerely,

Your Portfolio Management Team

/s/Valerie F. Malter /s/Bruce F. Beaty
Valerie F. Malter Bruce F. Beaty

/s/Michael K. Shields
Michael K. Shields

Scudder Quality Growth Fund:
A Team Approach to Investing

Scudder Quality Growth Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders, and other investment specialists who
work in Scudder's offices across the United States and abroad. We believe our
team approach benefits Fund investors by bringing together many disciplines and
leveraging Scudder's extensive resources.

Lead Portfolio Manager Valerie F. Malter joined Scudder in 1995 and is
responsible for Scudder Quality Growth Fund's investment strategy and daily
operation. Valerie has 10 years of experience as an analyst covering a wide
range of industries, and three years of portfolio management experience focusing
on the stocks of companies with medium- to large-sized market capitalizations.
Bruce F. Beaty, Portfolio Manager, contributes expertise in technology, a role
he has filled since the Fund's inception. Bruce joined Scudder in 1991 and has
14 years of investing experience. Michael K. Shields, Portfolio Manager, focuses
on the Fund's healthcare stocks. Mike joined the Fund and Scudder in 1992 and
has 12 years of experience in the financial industry.

8
<PAGE>

INVESTMENT PORTFOLIO AS OF OCTOBER 31, 1995

% of Principal Market
Portfolio Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4.8% REPURCHASE AGREEMENT

8,243,000 Repurchase Agreement with State Street
Bank and Trust dated 10/31/95 at 5.85%,
to be repurchased at $8,244,339 on 11/1/95,
collateralized by a $8,600,000 U.S. Treasury
Bill, 3/28/96 (Cost $8,243,000). . . . . . . . 8,243,000
----------

1.3% SHORT TERM NOTES

2,290,000 Federal Home Loan Mortgage Corp.
Discount Note, 11/1/95 (Cost $2,290,000) . . . 2,290,000
----------

0.9% PREFERRED STOCKS
Shares
---------------------------------------------------------------------
TECHNOLOGY

COMPUTER SOFTWARE 10,500 SAP AG (Cost $1,563,993). . . . . . . . . . . . 1,611,139
----------

93.0% COMMON STOCKS

CONSUMER DISCRETIONARY 9.1%

DEPARTMENT &
CHAIN STORES 4.4% 38,300 May Department Stores . . . . . . . . . . . . . 1,503,275

85,800 Rite Aid Corp.. . . . . . . . . . . . . . . . . 2,316,600

91,200 Wal-Mart Stores Inc.. . . . . . . . . . . . . . 1,972,200

61,200 Walgreen Co.. . . . . . . . . . . . . . . . . . 1,744,200
----------
7,536,275
----------
HOTELS & CASINOS 1.0% 78,100 Carnival Corp., Class A . . . . . . . . . . . . 1,815,825
----------
RESTAURANTS 1.4% 59,100 McDonald's Corp.. . . . . . . . . . . . . . . . 2,423,100
----------
SPECIALTY RETAIL 2.3% 77,600 Corporate Express, Inc.*. . . . . . . . . . . . 2,027,300
111,100 Intimate Brands, Inc.*. . . . . . . . . . . . . 1,860,925
----------
3,888,225
----------
CONSUMER STAPLES 18.1%

ALCOHOL & TOBACCO 3.0% 60,100 Philip Morris Companies Inc.. . . . . . . . . . 5,078,450
----------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

----
9

<PAGE>

SCUDDER QUALITY GROWTH FUND

% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

CONSUMER ELECTRONIC &
PHOTOGRAPHIC PRODUCTS 1.1% 36,000 Duracell International Inc. . . . . . . . 1,885,500
------------

FOOD & BEVERAGE 8.9% 90,100 Albertson's Inc.. . . . . . . . . . . . . 2,995,825
25,600 CPC International Inc.. . . . . . . . . . 1,699,200
61,500 ConAgra Inc.. . . . . . . . . . . . . . . 2,375,438
20,400 General Mills, Inc. . . . . . . . . . . . 1,170,450
72,900 PepsiCo Inc.. . . . . . . . . . . . . . . 3,845,475
109,700 Sara Lee Corp.. . . . . . . . . . . . . . 3,222,438
------------
15,308,826
------------

PACKAGE GOODS/COSMETICS 5.1% 17,100 Clorox Co.. . . . . . . . . . . . . . . . 1,226,925
24,400 Colgate-Palmolive Co. . . . . . . . . . . 1,689,700
36,100 Gillette Co.. . . . . . . . . . . . . . . 1,746,338
51,400 Procter & Gamble Co.. . . . . . . . . . . 4,163,400
------------
8,826,363
------------

HEALTH 15.5%

BIOTECHNOLOGY 1.0% 54,908 Guidant Corp. . . . . . . . . . . . . . . 1,757,056
------------
HOSPITAL MANAGEMENT 2.8% 98,900 Columbia/HCA Healthcare Corp. . . . . . . 4,858,463
------------
MEDICAL SUPPLY
& SPECIALTY 2.0% 51,500 Becton, Dickinson & Co. . . . . . . . . . 3,347,500
------------
PHARMACEUTICALS 9.7% 20,300 American Home Products Corp.. . . . . . . 1,799,088
31,067 Eli Lilly Co. . . . . . . . . . . . . . . 3,001,841
44,000 Johnson & Johnson . . . . . . . . . . . . 3,586,000
69,400 Merck & Co. Inc.. . . . . . . . . . . . . 3,990,500
21,400 Sandoz Ltd. AG (ADR). . . . . . . . . . . 885,425
62,800 Schering-Plough Corp. . . . . . . . . . . 3,367,650
------------
16,630,504
------------

COMMUNICATIONS 2.6%

CELLULAR TELEPHONE 0.9% 51,700 AirTouch Communications, Inc.*. . . . . . 1,473,450
------------

TELEPHONE/
COMMUNICATIONS 1.7% 46,900 American Telephone & Telegraph Co.. . . . 3,001,600
------------
FINANCIAL 7.8%

BANKS 1.6% 68,600 State Street Boston Corp. . . . . . . . . 2,666,825
------------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

- ----
10

<PAGE>

INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>

% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURANCE 4.3% 45,650 American International Group, Inc.. . . . 3,851,719
31,100 EXEL, Ltd.. . . . . . . . . . . . . . . . 1,663,850
27,500 MBIA Inc. . . . . . . . . . . . . . . . . 1,914,688
------------
7,430,257
------------

OTHER FINANCIAL
COMPANIES 1.9% 30,900 Federal National Mortgage Association . . 3,240,638
------------

MEDIA 6.0%

ADVERTISING 0.9% 40,900 Interpublic Group of Companies Inc. . . . 1,584,875
------------

BROADCASTING &
ENTERTAINMENT 5.1% 16,800 Capital Cities/ABC Inc. . . . . . . . . . 1,992,900
70,500 Time Warner Inc.. . . . . . . . . . . . . 2,573,250
50,500 Viacom Inc. "B"*. . . . . . . . . . . . . 2,525,000
28,400 Walt Disney Co. . . . . . . . . . . . . . 1,636,550
------------
8,727,700
------------
SERVICE INDUSTRIES 7.8%

EDP SERVICES 3.6% 42,700 First Data Corp.. . . . . . . . . . . . . 2,823,538
71,400 General Motors Corp. "E". . . . . . . . . 3,364,725
------------
6,188,263
------------

INVESTMENT 1.3% 44,700 Dean Witter, Discover & Co. . . . . . . . 2,223,825
------------

MISCELLANEOUS
COMMERCIAL SERVICES 1.1% 57,500 Sysco Corp. . . . . . . . . . . . . . . . 1,746,563
------------

MISCELLANEOUS
CONSUMER SERVICES 0.8% 34,300 Service Corp. International . . . . . . . 1,376,288
------------

PRINTING/PUBLISHING 1.0% 32,200 Reuters Holdings PLC "B" (ADR). . . . . . 1,787,100
------------
DURABLES 4.6%

AEROSPACE 1.9% 49,200 Boeing Co.. . . . . . . . . . . . . . . . 3,228,750
------------
TELECOMMUNICATIONS
EQUIPMENT 2.7% 27,400 DSC Communications Corp.* . . . . . . . . 1,013,800
108,000 L.M. Ericsson Telephone Co. "B" (ADR) . . 2,306,812
23,400 Nokia AB Oy (ADR) . . . . . . . . . . . . 1,304,550
------------
4,625,162
------------

MANUFACTURING 6.9%

CHEMICALS 1.5% 54,275 Sigma-Aldrich Corp. . . . . . . . . . . . 2,578,063
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

----
11

<PAGE>

SCUDDER QUALITY GROWTH FUND

<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DIVERSIFIED MANUFACTURING 3.5% 38,800 Dover Corp. . . . . . . . . . . . . . . . 1,532,600
50,400 General Electric Co.. . . . . . . . . . . 3,187,800
26,800 Thermo Electron Corp.*. . . . . . . . . . 1,232,800
------------
5,953,200
------------
ELECTRICAL PRODUCTS 1.9% 17,400 ASEA AB (ADR) . . . . . . . . . . . . . . 1,705,200
23,000 Emerson Electric Co.. . . . . . . . . . . 1,638,750
------------
3,343,950
------------

TECHNOLOGY 12.4%

COMPUTER SOFTWARE 1.2% 20,000 Microsoft Corp.*. . . . . . . . . . . . . 2,000,000
------------

DIVERSE ELECTRONIC
PRODUCTS 2.5% 32,400 Applied Materials, Inc.*. . . . . . . . . 1,624,050
40,300 Motorola Inc. . . . . . . . . . . . . . . 2,644,688
------------
4,268,738
------------

ELECTRONIC DATA PROCESSING 3.4% 32,100 Ceridian Corp.* . . . . . . . . . . . . . 1,396,350
32,700 Hewlett-Packard Co. . . . . . . . . . . . 3,028,838
44,300 Silicon Graphics Inc.*. . . . . . . . . . 1,472,975
------------
5,898,163
------------

MILITARY ELECTRONICS 1.5% 88,600 Loral Corp. . . . . . . . . . . . . . . . 2,624,775
------------

OFFICE/PLANT AUTOMATION 1.9% 32,900 3Com Corp.* . . . . . . . . . . . . . . . 1,546,300
22,100 Cisco Systems, Inc.*. . . . . . . . . . . 1,712,750
------------
3,259,050
------------

SEMICONDUCTORS 1.9% 42,900 Intel Corp. . . . . . . . . . . . . . . . 2,997,638
2,400 Texas Instruments Inc.. . . . . . . . . . 163,800
------------
3,161,438
------------

ENERGY 2.2%

ENGINEERING 1.1% 31,500 Fluor Corp. . . . . . . . . . . . . . . . 1,779,750
------------

OIL/GAS TRANSMISSION 1.1% 56,100 Enron Corp. . . . . . . . . . . . . . . . 1,928,438
------------
TOTAL COMMON STOCKS (Cost $130,223,071) . 159,452,948
------------
- --------------------------------------------------------------------------------------------------------------

TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $142,320,064) (a). . . . . . . . . 171,597,087
------------
------------

</TABLE>

* Non-income producing security.

(a) The cost for federal income tax purposes was $142,674,052. At October
31, 1995, net unrealized appreciation for all securities based on tax
cost was $28,923,035. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $30,371,401 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $1,448,366.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

- ----
12

<PAGE>

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

October 31, 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS

Investments, at market (identified cost $142,320,064)
(Note A). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 171,597,087
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544

Receivables:
Investments sold. . . . . . . . . . . . . . . . . . . . . . . 3,008,465
Fund shares sold. . . . . . . . . . . . . . . . . . . . . . . 1,560,107
Dividends and interest. . . . . . . . . . . . . . . . . . . . 115,188
Deferred organization expenses (Note A) . . . . . . . . . . . . . 6,174
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . 176,287,565

LIABILITIES

Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . $ 2,298,001
Fund shares redeemed. . . . . . . . . . . . . . . . . . . . . 314,092
Accrued management fee (Note C) . . . . . . . . . . . . . . . 99,885
Other accrued expenses (Note C) . . . . . . . . . . . . . . . 103,872
------------
Total liabilities. . . . . . . . . . . . . . . . . . . . 2,815,850
-------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . $ 173,471,715
=============

NET ASSETS

Net assets consist of:

Undistributed net investment income . . . . . . . . . . . . . $ 966,778
Unrealized appreciation on investments. . . . . . . . . . . . 29,277,023
Accumulated net realized gain . . . . . . . . . . . . . . . . 5,417,965
Shares of beneficial interest . . . . . . . . . . . . . . . . 94,092
Additional paid-in capital. . . . . . . . . . . . . . . . . . 137,715,857
-------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . $ 173,471,715
=============
Net asset value, offering and redemption price per
share ($173,471,715 DIVIDED BY 9,409,227 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized). . . . . . . . . . . . $18.44
======

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

----
13

<PAGE>

SCUDDER QUALITY GROWTH FUND

STATEMENT OF OPERATIONS

Year Ended October 31, 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME

Income:
Dividends (net of foreign taxes withheld of $19,678). . . . . . . $ 2,234,790
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331,505
------------
2,566,295

Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . . . . . $ 953,916
Services to shareholders (Note C) . . . . . . . . . . . . . . . . 352,368
Custodian and accounting fees (Note C). . . . . . . . . . . . . . 82,528
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . . . . . 35,519
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . 68,694
Auditing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,625
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,872
Federal registration. . . . . . . . . . . . . . . . . . . . . . . 10,398
State registration. . . . . . . . . . . . . . . . . . . . . . . . 19,486
Amortization of organization expense (Note A) . . . . . . . . . . 9,946
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,192 1,599,544
--------- ------------
Net investment income . . . . . . . . . . . . . . . . . . . . . . 966,751
------------
Net realized and unrealized gain on investments
Net realized gain from investments. . . . . . . . . . . . . . . . 5,911,775
Net unrealized appreciation on investments
during the period . . . . . . . . . . . . . . . . . . . . . . . . 23,228,314
------------
Net gain on investments . . . . . . . . . . . . . . . . . . . . . 29,140,089
------------
Net increase in net assets resulting from operations. . . . . . . $ 30,106,840
============

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

- ----
14

<PAGE>

FINANCIAL STATEMENTS

STATEMENTS OF CHANGES IN NET ASSETS

Years Ended October 31,
-----------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . $ 966,751 $ 1,114,659
Net realized gain on investments . . . . . . . . . 5,911,775 7,612,915
Net unrealized appreciation (depreciation)
on investments during the period . . . . . . . 23,228,314 (8,282,506)
------------- -------------
Net increase in net assets
resulting from operations. . . . . . . . . . . 30,106,840 445,068
------------- -------------
Distributions to shareholders from:
Net investment income ($.15 and $.08
per share, respectively) (1,069,236) (573,627)
------------- -------------
Net realized gains from investment
transactions ($1.09 and $.24 per share,
respectively). . . . . . . . . . . . . . . . . (7,769,783) (1,793,533)
------------- -------------
Fund share transactions:
Proceeds from shares sold. . . . . . . . . . . . . 62,792,871 30,065,461
Net asset value of shares issued to
shareholders in reinvestment of
distributions. . . . . . . . . . . . . . . . . 8,642,766 2,309,792
Cost of shares redeemed. . . . . . . . . . . . . . (32,495,742) (43,432,867)
------------- -------------
Net increase (decrease) in net assets from
Fund share transactions. . . . . . . . . . . . 38,939,895 (11,057,614)
------------- -------------
Increase (decrease) in net assets. . . . . . . . . 60,207,716 (12,979,706)
Net assets at beginning of period. . . . . . . . . 113,263,999 126,243,705
------------- -------------
Net assets at end of period (including
undistributed net investment income
of $966,778 and $919,547, respectively). . . . $ 173,471,715 $ 113,263,999
============= =============

Other Information
Increase (decrease) in Fund shares
Shares outstanding at beginning of period. . . . . 7,006,138 7,689,455
------------- -------------
Shares sold. . . . . . . . . . . . . . . . . . . . 3,794,148 1,895,781
Shares issued to shareholders in reinvestment
of distributions . . . . . . . . . . . . . . . 595,642 144,448
Shares redeemed. . . . . . . . . . . . . . . . . . (1,986,701) (2,723,546)
------------- -------------
Net increase (decrease) in Fund shares . . . . . . 2,403,089 (683,317)
------------- -------------
Shares outstanding at end of period. . . . . . . . 9,409,227 7,006,138
============= =============

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

----
15

<PAGE>

SCUDDER QUALITY GROWTH FUND
FINANCIAL HIGHLIGHTS

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.

For the Period
May 15, 1991
(commencement
Years Ended October 31, of operations)
----------------------------------- to October 31,
1995 1994 1993 1992 1991
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period. . . . . . . . . $16.17 $16.42 $15.30 $13.65 $12.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (a). . . . . . . . . . . . . . .11 .16 .06 .02 .03
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . . . 3.40 (.09) 1.09 1.68 1.62
------ ------ ------ ------ ------
Total from investment operations. . . . . . . . . . . 3.51 .07 1.15 1.70 1.65
------ ------ ------ ------ ------
Less distributions from:
Net investment income. . . . . . . . . . . . . . . . (.15) (.08) (.03) (.03) --
Net realized gains on investment transactions. . . . (1.09) (.24) -- (.02) --
------ ------ ------ ------ ------
Total distributions . . . . . . . . . . . . . . . . . (1.24) (.32) (.03) (.05) --
------ ------ ------ ------ ------
Net asset value, end of period. . . . . . . . . . . . $18.44 $16.17 $16.42 $15.30 $13.65
====== ====== ====== ====== ======
Total Return (%). . . . . . . . . . . . . . . . . . . 23.78 .39 7.49 12.47 13.75**
Ratios and Supplemental Data
Net assets, end of period ($ millions). . . . . . . . 173 113 126 101 30
Ratio of operating expenses net, to average daily
net assets (%) (a) . . . . . . . . . . . . . . . . . 1.17 1.25 1.20 1.25 1.25*
Ratio of net investment income to average daily
net assets (%) . . . . . . . . . . . . . . . . . . . .71 .96 .39 .24 .83*
Portfolio turnover rate (%) . . . . . . . . . . . . . 91.6 119.7 111.4 27.4 11.5*
(a) Reflects a per share amount of expenses,
exclusive of management fees, reimbursed
by the Adviser of . . . . . . . . . . . . . . . $ -- $ -- $ -- $ -- $ .01
Reflects a per share amount of management
fee not imposed by the Adviser of . . . . . . . $ -- $ -- $ -- $ .01 $ .02
Operating expense ratio including expenses
reimbursed, management fee and other
expenses not imposed (%). . . . . . . . . . . . -- -- -- 1.40 2.67*

</TABLE>

* Annualized
** Not annualized

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16

<PAGE>

NOTES TO FINANCIAL STATEMENTS

A. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------

Scudder Quality Growth Fund (the "Fund") is a diversified series of Scudder
Investment Trust (the "Trust"). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
policies described below are followed consistently by the Fund in the
preparation of its financial statements in conformity with generally accepted
accounting principles.

SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
National Association of Securities Dealers Automatic Quotation ("NASDAQ")
System, for which there have been sales, are valued at the most recent sale
price reported on such system. If there are no such sales, the value is the
high or "inside" bid quotation. Securities which are not quoted on the NASDAQ
System but are traded in another over-the-counter market are valued at the
most recent sale price on such market. If no sale occurred, the security is
then valued at the calculated mean between the most recent bid and asked
quotations. If there are no such bid and asked quotations, the most recent
bid quotation shall be used. Short-term investments having a maturity of
sixty days or less are valued at amortized cost.

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

FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable

----
17

<PAGE>

SCUDDER QUALITY GROWTH FUND

income to its shareholders. Accordingly, the Fund paid no federal income
taxes and no federal income tax provision was required.

DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
The differences primarily relate to investments in certain securities sold at
a loss. As a result, net investment income (loss) and net realized gain
(loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, the Fund
may periodically make reclassifications among certain of its capital accounts
without impacting the net asset value of the Fund.

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

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

OTHER. Investment security transactions are accounted for on a trade date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.

B. PURCHASES AND SALES OF SECURITIES
- -------------------------------------------------------------------------------

For the year ended October 31, 1995, purchases and sales of investment
securities (excluding short-term investments) aggregated $140,424,234 and
$120,765,280, respectively.

C. RELATED PARTIES
- -------------------------------------------------------------------------------

Under the Fund's Investment Management Agreement (the "Agreement") with
Scudder, Stevens & Clark, Inc. (the "Adviser"), the Fund pays the Adviser a
fee equal to an annual rate of 0.70% of the

- ----
18

<PAGE>

NOTES TO FINANCIAL STATEMENTS

Fund's average daily net assets, computed and accrued daily and payable
monthly. As manager of the assets of the Fund, the Adviser directs the
investments of the Fund in accordance with its investment objectives,
policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased,
sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Agreement. The Agreement provides that if the 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. In addition, the Adviser has agreed not to impose all or a
portion of its management fee until February 29, 1996 in order to maintain
the annualized expenses of the Fund at not more than 1.25% of average daily
net assets. For the year ended October 31, 1995, the fee pursuant to the
Agreement amounted to $953,916.

Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the
Adviser, is the transfer, dividend paying and shareholder service agent for
the Fund. For the year ended October 31, 1995, the amount charged by SSC
aggregated $306,800, of which $36,234 is unpaid at October 31, 1995.

Scudder Fund Accounting Corporation ("SFAC"), a wholly-owned subsidiary of
the Adviser, is responsible for determining the daily net asset value per
share and maintaining the portfolio and general accounting records of the
Fund. For the year ended October 31, 1995, the amount charged to the Fund by
SFAC aggregated $52,477, of which $4,436 is unpaid at October 31, 1995.

The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually plus specified amounts for attended board and committee meetings.
For the year ended October 31, 1995, Trustees fees aggregated $35,519.

----
19

<PAGE>

SCUDDER QUALITY GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE TRUSTEES OF SCUDDER INVESTMENT TRUST AND THE SHAREHOLDERS OF SCUDDER
QUALITY GROWTH FUND:

We have audited the accompanying statement of assets and liabilities of
Scudder Quality Growth Fund including the investment portfolio, as of October
31, 1995, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, and for the period May 15, 1991 (commencement of
operations) to October 31, 1991. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1995, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Quality Growth Fund as of October 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the four years in the period then ended, and for the period May 15, 1991
(commencement of operations) to October 31, 1991 in conformity with generally
accepted accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 13, 1995

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20

<PAGE>

TAX INFORMATION
- --------------------------------------------------------------------------------
The Fund will mail shareholders IRS Form 1099-Div in late January,
summarizing ALL taxable distributions paid for 1995.

Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$3,087,104 as capital gain dividends for the year ended October 31, 1995.

Pursuant to section 854 of the Internal Revenue Code, the Fund designates
$2,247,158 as dividends eligible for the dividends received deduction for
corporations for the year ended October 31, 1995.

OFFICERS AND TRUSTEES
- --------------------------------------------------------------------------------
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Dudley H. Ladd*
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director, Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
Juris Padegs*
Trustee
Jean C. Tempel
Trustee; General Partner,
TL Ventures
Bruce F. Beaty*
Vice President
Jerard K. Hartman*
Vice President
Robert T. Hoffman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President
Douglas M. Loudon*
Vice President
Valerie F. Malter*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

21
<PAGE>

INVESTMENT PRODUCTS AND SERVICES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax Free Money Market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Small Company Value Fund
Scudder Growth and Income Fund Scudder Value Fund
The Japan Fund

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

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

Institutional Cash Management
-----------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc. Scudder Treasurers Trust(TM)++
Scudder 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. +A portion of the income from
the tax-free funds may be subject to federal, state, and local taxes. *Not available in all states. +++A
no-load variable annuity contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark,
Inc. are traded on various stock exchanges. ++For information on Scudder Treasurers Trust,(TM) an
institutional cash management service that utilizes certain portfolios of Scudder Fund, Inc. ($100,000
minimum), call 1-800-541-7703.
</TABLE>

22
<PAGE>

HOW TO CONTACT SCUDDER
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Account Service and Information
-------------------------------------------------------------------------------------------------------------

For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163

For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890

Investment Information
-------------------------------------------------------------------------------------------------------------

To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR RELATIONS
1-800-225-2470

For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105

Please address all correspondence to
-------------------------------------------------------------------------------------------------------------

THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291

Or stop by a Scudder Funds Center
-------------------------------------------------------------------------------------------------------------

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

Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
-------------------------------------------------------------------------------------------------------------

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

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

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

23
<PAGE>

Celebrating Over 75 Years of Serving Investors
- --------------------------------------------------------------------------------

Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 37 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.

Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.