SCUDDER INVESTMENT TRUST, 497, 1998-03-05

SCUDDER INVESTMENT TRUST
497, 1998-03-05

Previous: SAUL B F REAL ESTATE INVESTMENT TRUST, 8-K, 1998-03-05

Next: AMERICAN GENERAL LIFE INSURANCE CO SEPARATE ACCOUNT D, 497J, 1998-03-05

This prospectus sets forth concisely the information about Scudder Real Estate
Investment Fund, a non-diversified 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 2, 1998, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov).

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

Contents--see page 3.

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

SCUDDER (logo)

Scudder
Real Estate
Investment
Fund

Prospectus
March 2, 1998

A pure no-load(TM) (no sales charges) mutual fund which seeks long-term capital
growth and current income by investing primarily in equity securities of
companies in the real estate industry.

<PAGE>

Expense information

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

This information is designed to help you understand the various costs and
expenses of investing in Scudder Real Estate Investment 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 1.00% *
Fees to exchange shares 1.00% *

2) Annual Fund operating expenses: Estimated 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 initial fiscal period ending August
31, 1998.

Investment management fee (after waiver) 0.00% **
12b-1 fees NONE
Other expenses (after reimbursements) 1.25% **
-----
Total Fund operating expenses (after waiver and reimbursements) 1.25% **
=====
Example

Based on the estimated 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.

1 Year 3 Years
------ -------
$13 $40

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.

* There is a 1% fee retained by the Fund which is imposed only on redemptions or
exchanges of shares held less than one year. You may redeem by writing or
calling the Fund. If you wish to receive your redemption proceeds via wire,
there is a $5 wire service fee. For additional information, please refer to
"Transaction information--Redeeming shares."

** Until December 31, 1998, the Adviser and certain of its subsidiaries have
agreed to waive and/or reimburse all or portions of their fees payable by the
Fund to the extent necessary so that the total annualized expenses of the Fund
do not exceed 1.25% of average daily net assets. If the Adviser and its
subsidiaries had not agreed to waive and/or reimburse all or portions of their
fees, it is estimated that annualized Fund expenses would be: investment
management fee 0.80%, other expenses 1.17% and total operating expenses 1.97%
for the initial fiscal period ending August 31, 1998. Estimates are based on a
full fiscal year.

<PAGE>

A message from the President

[Photo of Edmond D. Villani]
Edmond D. Villani, President
and CEO, Scudder Kemper
Investments, Inc.

Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.

We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 45 no-load mutual fund portfolios. We also 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 numerous
other open and closed-end funds that invest in this country and other countries
around the world.

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

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

The Scudder Family of Funds includes those Funds, or classes of Funds, advised
by Scudder Kemper Investments, Inc., that are offered without commissions to
purchase or redeem 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/Edmond D. Villani

Scudder Real Estate
Investment Fund

Investment objective

o long-term capital growth and current income by investing primarily in
equity securities of companies in the real estate industry

Investment characteristics

o provides low cost liquid exposure to the U.S. real estate market

o seeks to provide long-term capital growth, above-average dividend potential
and enhanced portfolio diversification

o a pure no-load(TM) fund with no sales charges, commissions or 12b-1 fees

o a 1% redemption and exchange fee on shares held less than one year,
retained by the Fund for the benefit of remaining shareholders

Contents

Investment objective and policies ....................4
Why invest in the Fund? ..............................5
Investment experience of the Adviser .................6
Additional information about policies
and investments....................................6
Distribution and performance information ............10
Fund organization ...................................11
Transaction information .............................12
Shareholder benefits ................................16
Purchases ...........................................19
Exchanges and redemptions ...........................20
Trustees and Officers ...............................22
Investment products and services ....................23
How to contact Scudder...................... Back cover

<PAGE>

Investment objective and policies

Scudder Real Estate Investment Fund (the "Fund"), a non-diversified series of
Scudder Investment Trust (the "Trust"), seeks long-term capital growth and
current income by investing primarily in equity securities of companies in the
real estate industry. The Fund's investment adviser, Scudder Kemper Investments,
Inc. (the "Adviser"), uses a systematic, proprietary investment approach to
identify real estate investment trusts and other real estate equity securities
that, in the opinion of the Adviser, offer above average total return potential
over time.

The Fund seeks to provide long-term capital growth and above-average dividend
income relative to other equity securities, while enhancing the long-term
diversification of the asset classes in an investor's total personal portfolio.

The Fund will invest in a wide array of income-producing real estate equity
securities, identified through a disciplined, quantitative investment strategy;
however, investment in the Fund does entail above-average investment risk.
Shares of the Fund should be purchased with a long-term horizon in mind. To
encourage long-term investment, a 1% redemption and exchange fee on shares held
less than one year, described more fully below, is payable to the Fund for the
benefit of remaining shareholders.

Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in the Fund's 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 attempts to achieve its investment objective by investing, under normal
circumstances, at least 80% of its total assets in real estate investment trusts
("REITs") and the securities of other companies that are principally engaged in
the real estate industry. A company will be considered to be principally engaged
in the real estate industry if, in the determination of the Adviser, at least
50% of its revenue or at least 50% of the market value of its assets is
attributable to the ownership, construction, management, financing or sale of
residential, commercial or industrial real estate. Eligible investments for the
Fund include companies directly and indirectly involved in the real estate
industry, including real estate brokers and developers, real estate operating
companies, hotel and real estate chains, builders, mortgage lenders,
manufacturers and distributors of building supplies, real estate master limited
partnerships, equity REITs, mortgage REITs and hybrid REITs. The Adviser uses a
proprietary, computer-based model to identify real estate securities that, in
its opinion, are selling at reasonable valuations, while offering attractive
long-term growth prospects.

The Fund may invest up to 10% of its total assets in securities of foreign real
estate companies. The Fund may also invest up to 20% of its total assets in
preferred stocks, convertible securities, warrants and rights and enter into
repurchase agreements and reverse repurchase agreements.

In addition, the Fund may engage in strategic transactions, using such
derivatives contracts as index options and futures, to increase stock market
participation, enhance liquidity and manage transaction costs.

For temporary defensive purposes, the Fund may invest without limit in cash and
cash equivalents and in U.S. Treasury, agency and instrumentality obligations.
These investments may be utilized when the Adviser deems such a position
advisable in light of economic or market conditions. It is

<PAGE>

impossible to predict accurately how long such alternative strategies may be
utilized. More information about these investment techniques is provided under
"Additional information about policies and investments."

Real estate investment trusts

The Fund expects to invest a substantial portion of its assets in shares of
REITs. REITs pool investor funds for allocation to income-producing real estate
or real estate-related loans or interests. These could involve office buildings,
shopping centers, malls, factory outlet centers, manufactured home communities,
industrial properties, self-storage facilities, recreational facilities,
health-care facilities, apartment complexes and hotels. A REIT is not taxed on
income distributed to shareholders if it complies with several IRS requirements
relating to its organization, ownership, assets and income and, further, if it
distributes to its shareholders at least 95% of its taxable income each year.

REITs are typically classified as equity REITs, mortgage REITs or hybrid REITs.
Equity REITs own properties and, as such, derive their income primarily from
rents and lease payments. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive their income primarily from
interest payments. Hybrid REITs combine the characteristics of both equity REITs
and mortgage REITs. Of these three basic types of REITs, the Fund expects to
invest predominantly in equity REITs.

Systematic investment approach

The Fund is actively managed using a disciplined, quantitative investment
strategy. The Adviser uses an internally developed model to identify a portfolio
of REITs and other real estate equity securities that may offer added portfolio
diversification and competitive total return potential over time.

Diversification within the real estate asset class is an important component of
the Fund's investment management process. To help mitigate volatility of the
Fund's share price relative to the real estate securities sector, the Adviser
expects to maintain wide geographic and property class diversification. Risk is
further managed by employing specialized portfolio management techniques which
help assess the risk of each individual security and its impact on the return
patterns of the overall portfolio. Despite these techniques, which may not be
successful, the Fund's share price can move up and down significantly, even over
short periods of time, due to the focused nature of the investment.

Why invest in the Fund?

Scudder Real Estate Investment Fund offers a convenient and professionally
managed way to take advantage of the long-term growth and income opportunities
offered by the real estate industry. Real estate securities such as REITs can
provide an attractive alternative to direct investment in real estate by
combining the liquidity of common stocks with the fundamental investment
attributes and benefits of real estate. REITs tend to pay higher dividends than
other types of common stocks as a result of their underlying investments and
special tax structure.

While the Fund may invest in a broad range of real estate securities, it is not
itself a complete investment program. Nonetheless, by representing a distinct
asset class, it can help improve the diversification of an investment portfolio
that is already holding other types of stock and fixed-income securities.
Historically, real estate investments have not always moved in tandem with
traditional investments such as stocks, bonds and cash. Thus, owning Fund shares
can help add balance to a personal investment portfolio.

The Fund offers low-cost, easy access to an investment category in which
individual

<PAGE>

investors might find it difficult to participate on their own.
Investors might find it a challenge to analyze data across various property
types and geographic regions, and receive complete, up-to-date financial
information in order to buy and sell REITs and real estate securities at
favorable prices. The Fund's portfolio management team assumes the burden of
these varied responsibilities on behalf of shareholders.

Investment experience of the Adviser

The Adviser is one of America's largest investment managers and has been
involved in U.S. stock investing for over 75 years. The Adviser has been
investing in real estate securities for an extended period for many of its
actively managed mutual funds and separate accounts. Members of the Fund's
portfolio management team also manage Scudder Micro Cap Fund and Scudder Small
Company Value Fund, with combined assets of $348 million as of December 31,
1997.

Additional information about policies and investments

Investment restrictions

The Fund has certain investment restrictions which are designed to reduce the
Fund's investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Trust's Board of Trustees. A complete listing of
investment restrictions is contained under "Investment Restrictions" in the
Fund's Statement of Additional Information.

As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
total assets in reverse repurchase agreements or dollar rolls.

As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness or through repurchase agreements. The Fund has adopted
a non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.

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

Common stocks

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

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.

<PAGE>

Illiquid securities

The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price.

Foreign securities

In addition to investments in companies domiciled in the U.S. and securities
issued by U.S. entities with substantial foreign holdings, the Fund may invest
up to 10% of the Fund's total assets in listed and unlisted foreign securities
that meet the same criteria as the Fund's domestic holdings. The Fund may invest
in foreign securities when the anticipated performance of foreign securities is
believed by the Adviser to offer more potential than domestic alternatives, in
keeping with the investment objective of the Fund.

Obligations of U.S. Government agencies and instrumentalities

Obligations of U.S. Government agencies and instrumentalities are debt
securities issued or guaranteed by U.S. Government-sponsored enterprises and
federal agencies. Some of such obligations are supported by (a) the full faith
and credit of the U.S. Treasury (such as Government National Mortgage
Association participation certificates), (b) the limited authority of the issuer
to borrow from the U.S. Treasury (such as securities of the Federal Home Loan
Bank), (c) the authority of the U.S. Government to purchase certain obligations
of the issuer (such as securities of the Federal National Mortgage Association)
or (d) only the credit of the issuer. In the case of obligations not backed by
the full faith and credit of the U.S. Government, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment, which agency may be privately owned. The Fund will invest in
obligations of U.S. Government agencies and instrumentalities only when the
Adviser is satisfied that the credit risk with respect to the issuer is minimal.

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.

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

<PAGE>

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 total 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 upon 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 to create leveraged exposure in the Fund. 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.

Real estate investment trusts. Investment in REITs may subject the Fund to risks
similar to those associated with the direct ownership of real estate (in
addition to securities markets risks). REITs are sensitive to various factors,
such as changes in real estate values and property taxes, interest rates, cash
flow of underlying real estate assets, supply and demand, and the management
skill and creditworthiness of the issuer. REITs may also be affected by tax and
regulatory requirements.

REITs in which the Fund invests may be affected by changes in underlying real
estate values, which may have an exaggerated effect to the extent that certain
REITs may concentrate investments in particular geographic regions or property
types. Additionally, rising interest rates may cause investors in REITs to
demand a higher annual yield from future distributions, which may in turn
decrease market prices for equity securities issued by REITs. Rising interest
rates also generally increase the costs of obtaining financing, which could
cause the value of the Fund's investments to decline. During periods of
declining interest rates, certain mortgage REITs may hold mortgages that the
mortgagors elect to prepay, which prepayment may diminish the yield on
securities issued by such mortgage REITs. In addition, a mortgage REIT may be
affected by the ability of borrowers to repay when due, the debt extended by the
REIT. Similarly, equity REITs may be affected by the ability of tenants to pay
rent.

Industry concentration. The Fund "concentrates," for purposes of the Investment
Company Act of 1940 (the "1940 Act"), its assets in securities related to the
real estate industry, which means that at least 25% of its total assets will be
invested in these holdings at all times. As a result, the Fund may be subject to
greater market fluctuation than a fund which has securities representing a
broader range of investment alternatives.

<PAGE>

Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of securities issued by such REITs.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. By investing in REITs
indirectly through the Fund, a shareholder will bear not only his proportionate
share of the expenses of the Fund, but also, indirectly, similar expenses of the
REITs. REITs depend generally on their ability to generate cash flow to make
distributions to shareholders.

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 of the
seller of the securities before repurchase of the securities under a repurchase
agreement, the Fund may encounter delay and incur costs, including a decline in
value of the securities, before being able to sell the securities.

Illiquid securities. The absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid securities
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. Investments in foreign securities involve special
considerations, due to more limited information, higher brokerage costs and
different accounting standards. They may also entail certain risks, such as
possible imposition of dividend or interest withholding or confiscatory taxes,
possible currency blockages or transfer restrictions, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Foreign securities may
be less liquid and more volatile than comparable domestic securities, and there
is less government regulation of stock exchanges, brokers, listed companies and
banks than in the U.S. Purchases of foreign securities are usually made in
foreign currencies and, as a result, the Fund may incur currency conversion
costs and may be affected favorably or unfavorably by changes in the value of
foreign currencies against the U.S. dollar.

Non-diversified investment company. As a non-diversified investment company, the
Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers and therefore may be subject to greater market and
credit risk than a more broadly diversified portfolio.

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's
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

<PAGE>

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.

Distribution and performance information

Dividends and capital gains distributions

The Fund intends to distribute dividends from its net investment income
quarterly in March, June, September and December. The Fund intends to distribute
net realized capital gains after utilization of capital loss carryforwards, if
any, in November or December to prevent application of a federal excise tax. An
additional distribution may be made, if necessary. Any dividends or capital
gains distributions declared in October, November or December with a record date
in such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared.

According to preference, shareholders may receive distributions in cash or have
them reinvested in additional shares of the Fund. If an investment is in the
form of a retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholder's account.

Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
individual shareholders at a maximum 20% or 28% capital gains rate (depending on
the Fund's holding period for the assets giving rise to the gain), regardless of
the length of time shareholders have owned their shares. Short-term capital
gains and any other taxable income distributions are taxable as ordinary income.

A portion of the dividends paid by REITs may represent a return of capital. As a
result, it is expected that a portion of the Fund's dividends may also be a
return of capital. Return of capital dividends are not taxed currently, but you
must deduct them from the cost basis of your investment in the Fund thereby
affecting the capital gain or loss you realize when you sell or exchange Fund
shares. REITs may also pay capital gain distributions to shareholders.

REITs do not provide information about the tax status of their distributions
until after calendar year-end. As a result, the Fund cannot determine the
proportion of its distributions that are dividends, capital gains or a return of
capital until after the January 31 deadline for 1099-DIV reporting. Therefore,
the Fund plans to request permission from the IRS each year to mail tax forms to
shareholders in February so that the information you receive is complete and
accurate.

Under normal investment conditions, it is anticipated that the Fund's portfolio
turnover rate will not exceed 100% for the initial fiscal year. However,
economic and market conditions may necessitate more active trading, resulting in
a higher portfolio turnover rate. A higher rate involves greater brokerage
expenses to the Fund

<PAGE>

and may result in the realization of net capital gains,
which would be taxable to shareholders when distributed.

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 the life of
the Fund as of a stated ending date. "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.
Performance will vary based upon, among other things, changes in market
conditions and the level of the Fund's expenses.

Fund organization

Scudder Real Estate Investment Fund is a non-diversified series of Scudder
Investment Trust, an open-end management investment company registered under 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
investment 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.

Investment adviser

The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.,
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.

Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.

The Fund pays the Adviser an annual fee of 0.80% 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.

The Adviser has agreed to maintain the annualized expenses of the Fund at no
more than 1.25% of the average daily net assets of the Fund until December 31,
1998.

Under the Investment Management Agreement with the Adviser, the Fund is
responsible for all of its expenses, including fees and expenses incurred in
connection with membership in investment company organizations; fees and
expenses of the Fund's accounting agent; brokers'

<PAGE>

commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and employees of the 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.

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 Kemper Investments, Inc. is located at
Two International Place, Boston, Massachusetts.

Transfer agent

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

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.

Custodian

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

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
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

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).

<PAGE>

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

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

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

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

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

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

Exchanging and redeeming shares

Upon the redemption or exchange of shares held less than one year, a fee of 1%
of the current net asset value of the shares will be assessed and retained by
the Fund for the benefit of the remaining shareholders. The fee is waived for
all shares purchased through certain retirement plans, including 401(k) plans,
403(b) plans, 457 plans, Keogh accounts, and Profit Sharing and Money Purchase
Pension Plans. However, if such shares are purchased through a broker, financial
institution or recordkeeper maintaining an omnibus account for the shares, such
waiver may not apply. (Before purchasing shares, please check with your account
representative concerning the availability of the fee waiver.) In addition, this
waiver does not apply to any IRA and SEP-IRA accounts. This fee is intended to
encourage long-term investment in the Fund, to avoid transaction and other
expenses caused by early redemptions, and to facilitate portfolio management.
The fee is not a deferred sales charge, is not a commission paid to the Adviser
or its subsidiaries, and does not benefit the Adviser in any way. The Fund
reserves the right to modify the terms of or terminate this fee at any time.

The fee applies to redemptions from the Fund and exchanges to other funds in the
Scudder Family of Funds, but not to dividend or capital gains

<PAGE>

distributions which have been automatically reinvested in the Fund.

The fee is applied to the shares being redeemed or exchanged in the order in
which they were purchased. See "Exchanges and Redemptions" in the Fund's
Statement of Additional Information for a more detailed description of the
redemption fee.

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.

Telephone transactions

Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be 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.

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 value of total Fund assets, less all liabilities, by
the total number of shares outstanding.

Processing time

All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of 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).

Purchase restrictions

Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including 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 correct 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 correct tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary

<PAGE>

redemption by providing the Fund with a correct tax identification number during
the 30-day notice period.

Minimum balances

Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum balance requirements. A shareholder
may open an account with at least $1,000, if an automatic investment plan of
$100/month is established.

Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder. Reductions in
value that result solely from market activity will not trigger an involuntary
redemption. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
"Exchanges and Redemptions--Other information" in the Fund's Statement of
Additional Information for more information.

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.

Shareholder benefits

Experienced professional management

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

A team approach to investing

Scudder Real Estate Investment Fund is managed by a team of 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 the Adviser's large
staff of economists, research analysts, traders and other investment specialists
who work in the Adviser's offices across the United States and abroad. The
Adviser believes its team approach benefits Fund investors by bringing together
many disciplines and leveraging its extensive resources.

Philip S. Fortuna, Portfolio Manager, joined the Adviser in 1986 as a manager of
institutional equity accounts, served as director of quantitative services from
1987 to 1993 and director of investment operations from 1993 to 1995. From 1995
to 1997 he was involved in global planning and new product development in
addition to his portfolio management responsibilities. Mr. Fortuna is currently
director of the Adviser's quantitative group.

James M. Eysenbach, Portfolio Manager, joined the Adviser in 1991 as a senior
quantitative analyst, served as director of quantitative services from 1993 to
1997 and has been co-manager of quantitative equity products since 1995. He is
currently managing portfolios full-time. Mr. Eysenbach has more than 10 years
investment management experience, specializing in

<PAGE>

quantitative research, analysis and portfolio management.

Jennifer P. Carter, Portfolio Manager, joined the Adviser in 1992 as a senior
quantitative analyst. Ms. Carter has more than eight years of industry
experience including two years specializing in real estate research.

SAIL(TM)--Scudder Automated Information Line

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

Investment flexibility

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

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

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

Dividend reinvestment plan

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

Shareholder statements

You will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. 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.

<PAGE>

Scudder Investor Centers

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

T.D.D. service for the hearing impaired

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

<PAGE>

Purchases

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

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

The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291

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

o In Person Visit one of our Investor Centers to complete your application
with the help of a Scudder representative. Investor Center
locations are listed under Shareholder benefits.
- ------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional 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
Scudder Funds." Fund name, to the appropriate address listed above.

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

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

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

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

<PAGE>

Exchanges and redemptions

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

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

There is a 1% o By Mail Print or type your instructions and include:
fee payable to or Fax - the name of the Fund and the account number you are exchanging from;
the Fund for - your name(s) and address as they appear on your account;
redemptions of - the dollar amount or number of shares you wish to exchange;
shares held - the name of the Fund you are exchanging into;
less than one - your signature(s) as it appears on your account; and
year. - 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 The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA 02107-2291 Braintree, MA 02184

Redeeming o By Telephone To speak with a service representative, call 1-800-225-5163 from
shares 8 a.m. to 8 p.m eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent t predesignated bank account, or redemption
proceeds of up to $100,000 sent to your address of record.

There is a 1% o By Mail Send your instructions for redemption to the appropriate address or fax number
fee payable to or Fax above and include:
the Fund for - the name of the Fund and account number you are redeeming from;
exchanges of - your name(s) and address as they appear on your account;
shares held - the dollar amount or number of shares you wish to redeem;
less than one - your signature(s) as it appears on your account; and
year. - a daytime telephone number.

A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.

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

<PAGE>

Scudder tax-advantaged retirement plans

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

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

o Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
these retirement plans provide a unique opportunity for qualifying
individuals to accumulate investment earnings tax free. Unlike a
traditional IRA, with a Roth IRA, if you meet the distribution
requirements, you can withdraw your money without paying any taxes on the
earnings. No tax deduction is allowed for contributions to a Roth IRA. The
Scudder Roth IRA charges you no annual custodial fee.

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

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

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

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

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

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

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

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

<PAGE>

Trustees and Officers

Daniel Pierce*
President and Trustee

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

Dawn-Marie Driscoll
Trustee; Executive Fellow, Center for Business Ethics, Bentley College

Peter B. Freeman
Trustee; Director, The A. H. Belo Company

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

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

Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary

Jean C. Tempel
Trustee; Managing Partner, Technology Equity Partners

Bruce F. Beaty*
Vice President

Philip S. Fortuna*
Vice President

William F. Gadsden*
Vice President

Jerard K. Hartman*
Vice President

Robert T. Hoffman*
Vice President

Thomas W. Joseph*
Vice President

Valerie F. Malter*
Vice President

Thomas F. McDonough*
Treasurer, Vice President
and Secretary

John R. Hebble*
Assistant Treasurer

Caroline Pearson*
Assistant Secretary

*Scudder Kemper Investments, Inc.

<PAGE>

Investment products and services

The Scudder Family of Funds+++

Money Market

Scudder U.S. Treasury Money Fund

Scudder Cash Investment Trust

Scudder Money Market Series--

Premium Shares*

Managed Shares*

Scudder Government Money Market Series--Managed Shares*

Tax Free Money Market+

Scudder Tax Free Money Fund

Scudder Tax Free Money Market Series--Managed Shares*

Scudder California Tax Free Money Fund**

Scudder New York Tax Free Money Fund**

Tax Free+

Scudder Limited Term Tax Free Fund

Scudder Medium Term Tax Free Fund

Scudder Managed Municipal Bonds

Scudder High Yield Tax Free Fund

Scudder California Tax Free Fund**

Scudder Massachusetts Limited
Term Tax Free Fund**

Scudder Massachusetts Tax Free Fund**

Scudder New York Tax Free Fund**

Scudder Ohio Tax Free Fund**

Scudder Pennsylvania Tax Free Fund**

U.S. Income

Scudder Short Term Bond Fund

Scudder Zero Coupon 2000 Fund

Scudder GNMA Fund

Scudder Income Fund

Scudder High Yield Bond Fund

Global Income

Scudder Global Bond Fund

Scudder International Bond Fund

Scudder Emerging Markets Income Fund

Asset Allocation

Scudder Pathway Conservative Portfolio

Scudder Pathway Balanced Portfolio

Scudder Pathway Growth Portfolio

Scudder Pathway International Portfolio

U.S. Growth and Income

Scudder Balanced Fund

Scudder Growth and Income Fund

Scudder S&P 500 Index Fund

Scudder Real Estate Investment Fund

U.S. Growth

Value

Scudder Large Company Value Fund

Scudder Value Fund

Scudder Small Company Value Fund

Scudder Micro Cap Fund

Growth

Scudder Classic Growth Fund

Scudder Large Company Growth Fund

Scudder Development Fund

Scudder 21st Century Growth Fund

Global Growth

Worldwide

Scudder Global Fund

Scudder International Growth and Income Fund

Scudder International Fund

Scudder Global Discovery Fund

Scudder Emerging Markets Growth Fund

Scudder Gold Fund

Regional

Scudder Greater Europe Growth Fund

Scudder Pacific Opportunities Fund

Scudder Latin America Fund

The Japan Fund, Inc.

Industry Sector Funds

Choice Series

Scudder Financial Services Fund

Scudder Health Care Fund

Scudder Technology Fund

Retirement Programs and Education Accounts

Retirement Programs

Traditional IRA

Roth IRA

SEP-IRA

Keogh Plan

401(k), 403(b) Plans

Scudder Horizon Plan **+++ +++
(a variable annuity)

Education Accounts

Education IRA

UGMA/UTMA

Closed-End Funds#

The Argentina Fund, Inc.

The Brazil Fund, Inc.

The Korea Fund, Inc.

Montgomery Street Income Securities, Inc.

Scudder Global High Income Fund, Inc.

Scudder New Asia Fund, Inc.

Scudder New Europe Fund, Inc.

Scudder Spain and Portugal Fund, Inc.

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

<PAGE>

How to contact Scudder

Account Service and Information:

For existing account service and transactions

Scudder Investor Relations -- 1-800-225-5163

For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you

Scudder Electronic Account Services -- http://funds.scudder.com

For personalized information about your
Scudder accounts, exchanges and redemptions

Scudder Automated Information Line (SAIL) -- 1-800-343-2890

Investment Information:

For information about the Scudder funds, including additional
applications and prospectuses, or for answers to investment questions

Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com

For establishing 401(k) and 403(b) plans

Scudder Defined Contribution Services -- 1-800-323-6105

Scudder Brokerage Services:

To receive information about this discount brokerage service and
to obtain an application

Scudder Brokerage Services* -- 1-800-700-0820

Personal CounselSM -- A Managed Fund Portfolio Program:

To receive information about this mutual fund portfolio guidance
and management program

Personal Counsel from Scudder -- 1-800-700-0183

Please address all correspondence to:

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

Or Stop by a Scudder Investor Center:

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

Boca Raton Chicago San Francisco
Boston New York

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

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

<PAGE>
SCUDDER REAL ESTATE INVESTMENT FUND

A Pure No-Load(TM) (No Sales Charges) Mutual Fund Seeking
Long-Term Capital Growth and Current Income by Investing

Primarily in Equity Securities of Companies in the Real Estate Industry

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

STATEMENT OF ADDITIONAL INFORMATION

March 2, 1998

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

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus of Scudder Real Estate Investment Fund
dated March 2, 1998, as amended from time to time, copies of which may be
obtained without charge by writing to Scudder Investor Services, Inc., Two
International Place, Boston, Massachusetts 02110-4103.

<PAGE>

TABLE OF CONTENTS

Page
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES...................................1
General Investment Objective and Policies................................1
Master/feeder structure..................................................2
Specialized Investment Techniques........................................2
Investment Restrictions.................................................11

PURCHASES.....................................................................12
Additional Information About Opening An Account.........................12
Additional Information About Making Subsequent Investments..............13
Additional Information About Making Subsequent Investments by QuickBuy..13
Checks..................................................................14
Wire Transfer of Federal Funds..........................................14
Share Price.............................................................14
Share Certificates......................................................14
Other Information.......................................................14

EXCHANGES AND REDEMPTIONS.....................................................15
Special Redemption and Exchange Information.............................15
Exchanges...............................................................15
Redemption by Telephone.................................................16
Redemption by QuickSell.................................................17
Redemption by Mail or Fax...............................................17
Other Information.......................................................18

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

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

SPECIAL PLAN ACCOUNTS.........................................................26
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension
Plans for Corporations and Self-Employed Individuals.................27
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations
and Self-Employed Individuals........................................27
Scudder IRA: Individual Retirement Account.............................27
Scudder Roth IRA: Individual Retirement Account........................28
Scudder 403(b) Plan.....................................................29
Automatic Withdrawal Plan...............................................29
Group or Salary Deduction Plan..........................................29
Automatic Investment Plan...............................................29
Uniform Transfers/Gifts to Minors Act...................................30

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.....................................30

PERFORMANCE INFORMATION.......................................................31
Average Annual Total Return.............................................31
Cumulative Total Return.................................................31
Total Return............................................................31
Comparison of Fund Performance..........................................31

i
<PAGE>

ORGANIZATION OF THE FUND......................................................35

INVESTMENT ADVISER............................................................36
Personal Investments by Employees of the Adviser........................38

TRUSTEES AND OFFICERS.........................................................39

REMUNERATION..................................................................41
Responsibilities of the Board--Board and Committee Meetings.............41
Compensation of Officers and Trustees of the Fund.......................41

DISTRIBUTOR...................................................................42

TAXES.........................................................................43

PORTFOLIO TRANSACTIONS........................................................47
Brokerage Commissions...................................................47
Portfolio Turnover......................................................48

NET ASSET VALUE...............................................................48

ADDITIONAL INFORMATION........................................................49
Experts.................................................................49
Other Information.......................................................49
FINANCIAL STATEMENTS..........................................................50

ii
<PAGE>

THE FUND'S INVESTMENT OBJECTIVE AND POLICIES

(See "Investment objective and policies" in the Fund's prospectus.)

Scudder Real Estate Investment Fund (the "Fund") is a non-diversified,
pure no-load(TM) series of Scudder Investment Trust (the "Trust"), an open-end
management investment company which continuously offers and redeems shares at
net asset value. The Fund is a company of the type commonly known as a mutual
fund.

General Investment Objective and Policies

The Fund's investment objective is to seek long-term growth of capital
and current income by investing primarily in equity securities of companies in
the real estate industry. The Fund's investment adviser, Scudder Kemper
Investments, Inc. (the "Adviser"), uses a systematic, proprietary investment
approach to identify real estate investment trusts and other real estate equity
securities that, in the opinion of the Adviser, offer substantial total return
potential over time.

The Fund seeks to provide long-term capital growth and above-average
dividend income relative to other equity securities, while enhancing the
long-term diversification of the asset classes in an investor's total personal
portfolio.

The Fund will invest in a wide array of income-producing real estate
equity securities, identified through a disciplined, quantitative investment
strategy; however, investment in the Fund does entail above-average investment
risk. Shares of the Fund should be purchased with a long-term horizon in mind.
To encourage long-term investment, a 1% redemption and exchange fee on shares
held less than one year, described more fully below, is payable to the Fund for
the benefit of remaining shareholders.

Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in the Fund's investment objective, shareholders should
consider whether the Fund remains an appropriate investment. There can be no
assurance that the Fund's objective will be met.

Investments

The Fund attempts to achieve its investment objective by investing, under
normal circumstances, at least 80% of its total assets in real estate investment
trusts ("REITs") and the securities of other companies that are principally
engaged in the real estate industry. A company will be considered to be
principally engaged in the real estate industry if, in the determination of the
Adviser, at least 50% of its revenue or at least 50% of the market value of its
assets is attributable to the ownership, construction, management, financing or
sale of residential, commercial or industrial real estate. Eligible investments
for the Fund include companies directly and indirectly involved in the real
estate industry, including real estate brokers and developers, real estate
operating companies, hotel and real estate chains, builders, mortgage lenders,
manufacturers and distributors of building supplies, real estate master limited
partnerships, equity REITs, mortgage REITs and hybrid REITs. The Adviser uses a
proprietary, computer-based model to identify real estate securities that, in
its opinion, are selling at reasonable valuations, while offering attractive
long-term growth prospects.

The Fund may invest up to 10% of its total assets in securities of
foreign real estate companies. The Fund may also invest up to 20% of its total
assets in preferred stocks, convertible securities, warrants and rights,
repurchase agreements and reverse repurchase agreements.

<PAGE>

For temporary defensive purposes, the Fund may invest without limit in
cash and cash equivalents and U.S. Treasury, agency and instrumentality
obligations. The investments may be utilized when the Adviser deems such a
position advisable in light of economic or market conditions. It is impossible
to predict accurately for how long such alternative strategies may be utilized.
More information about these investment techniques is provided under
"Specialized investment techniques."

Real estate investment trusts

The Fund expects to invest a substantial portion of its assets in shares
of REITs. REITs pool investor funds for allocation to income-producing real
estate or real estate-related loans or interests. These could involve office
buildings, shopping centers, malls, factory outlet centers, manufactured home
communities, industrial properties, self-storage facilities, recreational
facilities, health-care facilities, apartment complexes and hotels. A REIT is
not taxed on income distributed to shareholders if it complies with several IRS
requirements relating to its organization, ownership, assets and income and,
further, if it distributes to its shareholders at least 95% of its taxable
income each year.

REITs are typically classified as equity REITs, mortgage REITs or hybrid
REITs. Equity REITs own properties and, as such, derive their income primarily
from rents and lease payments. Equity REITs can also realize capital gains by
selling properties that have appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive their income
primarily from interest payments. Hybrid REITs combine the characteristics of
both equity REITs and mortgage REITs. Of these three basic types of REITs, the
Fund expects to invest predominantly in equity REITs.

Master/feeder structure

The Board of Trustees has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder structure as described below.

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

Specialized Investment Techniques

Real Estate Investment Trusts. Investment in REITs may subject the Fund to risks
similar to those associated with the direct ownership of real estate (in
addition to securities markets risks). REITs are sensitive to various factors,
such as changes in real estate values and property taxes, interest rates, cash
flow of underlying real estate assets, supply and demand, and the management
skill and creditworthiness of the issuer. REITs may also be affected by tax and
regulatory requirements.

REITs in which the Fund invests may be affected by changes in underlying
real estate values, which may have an exaggerated effect to the extent that
certain REITs may concentrate investments in particular geographic regions or
property types. Additionally, rising interest rates may cause investors in REITs
to demand a higher annual yield from future distributions, which may in turn
decrease market prices for equity securities issued by REITs. Rising interest
rates also generally increase the costs of obtaining financing, which could
cause the value of the Fund's investments to decline. During periods of
declining interest rates, certain mortgage REITs may hold mortgages that the
mortgagors elect to prepay, which prepayment may diminish the yield on
securities issued by such mortgage REITs. In addition, a mortgage REIT may be
affected by the ability of borrowers to repay when due, the debt extended by the
REIT. Similarly, equity REITs may be affected by the ability of tenants to pay
rent.

2
<PAGE>

A REIT must distribute dividends at least equal to 95% of its taxable
income annually and, thus, is unable to retain significant amounts of capital
with which to grow. Therefore, REITs depend more than other businesses upon
their ability to access capital markets. Without raising new capital, REITs
would not be able to acquire or develop additional properties, and growth would
be highly dependent on improved results from existing properties. REITs are also
subject to heavy cash flow dependency, defaults by borrowers and the possibility
of failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the registration requirements of the Investment Company Act of 1940 (the "1940
Act").

Industry Concentration. The Fund "concentrates," for purposes of the Investment
Company Act of 1940 (the "1940 Act"), its assets in securities related to the
real estate industry, which means that at least 25% of its total assets will be
invested in these holdings at all times. As a result, the Fund may be subject to
greater market fluctuation than a fund which has securities representing a
broader range of investment alternatives.

Certain REITs have relatively small market capitalization, which may tend
to increase the volatility of the market price of securities issued by such
REITs. Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. By investing in REITs
indirectly through the Fund, a shareholder will bear not only his proportionate
share of the expenses of the Fund, but also, indirectly, similar expenses of the
REITs. REITs depend generally on their ability to generate cash flow to make
distributions to shareholders.

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. The 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 the Fund may be liable to purchasers
of such securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.

The Adviser will monitor the liquidity of such restricted securities
subject to the supervision of the Board of Trustees. In reaching liquidity
decisions, the Adviser will consider the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of their potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (i.e. the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).

The Fund may not invest more than 15% of its net assets in securities that
are deemed to be illiquid.

Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, any foreign bank or with any domestic or
foreign broker-dealer which is recognized as a reporting government securities
dealer if the creditworthiness of the bank or broker-dealer has been determined
by the Adviser to be at least as high as that of other obligations the Fund may
purchase.

3
<PAGE>

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
purchaser (i.e., 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. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon 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 Custodian or in the Federal Reserve Book Entry system.

For purposes of the 1940 Act a repurchase agreement is deemed to be a loan
from 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 involve 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 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 through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
Obligation, in which case 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. However, if the
market value 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 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 enforce the seller's contractual obligation to deliver additional securities.
A repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction, and such
repurchase agreements involve risks similar to repurchase agreements with U.S.
entities.

Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
will maintain a segregated account, as described under "Use of Segregated and
Other Special Accounts" in connection with outstanding reverse repurchase
agreements. Reverse repurchase agreements are deemed to be borrowings subject to
the Fund's investment restrictions applicable to that activity. The Fund will
enter into a reverse repurchase agreement only when the Adviser believes that
the interest income to be earned from the investment of the proceeds of the
transaction will be greater than the interest expense of the transaction.

Investing in Foreign Securities. The Fund may invest up to 10% of the Fund's
total assets in listed and unlisted 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 United States securities and which may favorably or
unfavorably affect the Fund's performance. As foreign companies are not
generally subject to uniform accounting and 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 markets are less than the volume and
liquidity in the United States and at times, volatility of price can be greater
than in the United States. 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.

4
<PAGE>

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 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 United States. 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 United States and foreign countries may be less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. In addition, with respect to certain foreign countries, there is the
possibility of nationalization, expropriation, the imposition of withholding or
confiscatory taxes, political, social, or economic instability, or diplomatic
developments which could affect United States investments in those countries.
Investments in foreign securities may also entail certain risks, such as
possible currency blockages or transfer restrictions, and the difficulty of
enforcing rights in other countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.

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 management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.

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

The convertible securities in which the Fund may invest are either fixed
income or zero coupon debt securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.

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

5
<PAGE>

Convertible securities generally are 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
and convertible preferred stock typically have lower ratings than similar
non-convertible 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"(TM)).

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

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 the 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 the 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 total 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 to create leveraged exposure in the Fund.

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.

6
<PAGE>

General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of 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.

7
<PAGE>

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
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 they are 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 are determined to be of equivalent
credit quality by the Adviser. The staff of the 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 its assets in illiquid securities. The Fund can invest
no more than 15% of its net 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 on
securities indices and futures contracts other than futures on individual
corporate debt and individual equity securities. The Fund may also purchase and
sell put options in foreign sovereign debt, Eurodollar instruments and
currencies. The Fund will not sell put options if, as a result, more than 50% of
the Fund's total 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.

8
<PAGE>

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 or equity market changes, for duration
management and for risk management purposes. In addition, the Fund may enter
into financial futures contracts or purchase or sell put and call options on
such futures as a hedge against anticipated currency market changes. 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.

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.

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 they do not own securities or other
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.

9
<PAGE>

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.

Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian, State Street Bank and Trust Company (the "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 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 cash or liquid 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 cash or liquid assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate cash or liquid 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 cash or liquid 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, 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.

10
<PAGE>

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.

Investment Restrictions

Unless specified to the contrary, the following restrictions 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 voting securities present at such meeting, if the holders of more than 50%
of the outstanding voting securities of the Fund are present or represented by
proxy, or (2) more than 50% of the outstanding voting securities of the Fund.

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 has elected to be classified as a non-diversified series of an
open-end investment company.

In addition, as a matter of fundamental policy, the Fund may not:

(1) borrow money, except as permitted under the 1940 Act, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;

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

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

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

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

11
<PAGE>

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

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

(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging
in reverse repurchase agreements, dollar rolls, or other investments
or transactions described in the Fund's registration statement which
may be deemed to be borrowings;

(2) enter into either reverse repurchase agreements or dollar rolls in
an amount greater than 5% of its total assets;

(3) purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with futures
contracts, options or other permitted investments, (iv) that
transactions in futures contracts and options shall not be deemed to
constitute selling securities short, and (v) that the Fund may
obtain such short-term credits as may be necessary for the clearance
of securities transactions;

(4) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of
the obligations underlying such put options would exceed 50% of its
total assets;

(5) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf
of the Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the Fund's
total assets; provided 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;

(6) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the
value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to have
no value); and

(7) lend portfolio securities in an amount greater than 5% of its total
assets.

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 $2,500 of Fund
shares through Scudder Investor Services, Inc. by letter, fax, TWX, or
telephone.

Shareholders of other Scudder funds who have submitted an account
application and have certified a Tax Identification Number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call the investor will be asked to indicate
the Fund name, amount to be wired ($2,500 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the tax identification or social security number, address and telephone
number. The investor must then call the bank to arrange a wire transfer to The
Scudder Funds, Boston, MA 02110, ABA Number 011000028, DDA Account Number
9903-5552. The investor must give the Scudder fund name, account name and the
new account number. Finally, the investor must send the completed and signed
application to the Fund promptly.

12
<PAGE>

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

Additional Information About Making Subsequent Investments

Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder pension and profit sharing, Scudder 401(k) and
Scudder 403(b) Plan holders), members of the NASD, and banks. Orders placed in
this manner may be directed to any Scudder Investor Services, Inc. office 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 three 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 Fund 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.

Additional Information About Making Subsequent Investments by QuickBuy

Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
Exchange, normally 4 p.m. eastern time. Proceeds in the amount of your purchase
will be transferred from your bank checking account two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. QuickBuy requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day. If you purchase shares by QuickBuy and redeem them within seven
days of the purchase, the 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. QuickBuy transactions are not
available for most retirement plan accounts. However, QuickBuy transactions are
available for Scudder IRA accounts.

In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy 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.

13
<PAGE>

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

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

Boston banks are closed on certain local holidays although the Exchange
may be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
funds on behalf of the Fund.

Share Price

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

Share Certificates

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

Other Information

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

14
<PAGE>

The Tax Identification Number section of the application must be completed
when opening an account. Applications and purchase orders without a correct
certified tax identification number and certain other certified information
(e.g., certification of exempt status from exempt investors), will be returned
to the investor.

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

EXCHANGES AND REDEMPTIONS

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

Special Redemption and Exchange Information

In general, shares of the Fund may be exchanged or redeemed at net asset
value. However, shares of the Fund held for less than one year are redeemable at
a price equal to 99% of the then current net asset value per share. This 1%
discount, referred to in the prospectus and this statement of additional
information as a redemption fee, directly affects the amount a shareholder who
is subject to the discount receives upon exchange or redemption. It is intended
to encourage long-term investment in the Fund, to avoid transaction and other
expenses caused by early redemptions and to facilitate portfolio management. The
fee is not a deferred sales charge, is not a commission paid to the Adviser or
its subsidiaries, and does not benefit the Adviser in any way. The Fund reserves
the right to modify the terms of or terminate this fee at any time.

The redemption discount will not be applied to (a) a redemption of shares
of the Fund outstanding for one year or more, (b) shares purchased through
certain retirement plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh
accounts, and Profit Sharing and Money Purchase Pension Plans, (c) a redemption
of reinvestment shares (i.e., shares purchased through the reinvestment of
dividends or capital gains distributions paid by the Fund), (d) a redemption of
shares due to the death of the registered shareholder of a Fund account, or, due
to the death of all registered shareholders of a Fund account with more than one
registered shareholder, (i.e., joint tenant account), upon receipt by Scudder
Service Corporation of appropriate written instructions and documentation
satisfactory to Scudder Service Corporation, or (e) a redemption of shares by
the Fund upon exercise of its right to liquidate accounts (i) falling below the
minimum account size by reason of shareholder redemptions or (ii) when the
shareholder has failed to provide tax identification information. However, if
shares are purchased for a retirement plan account through a broker, financial
institution or recordkeeper maintaining an omnibus account for the shares, such
waiver may not apply. (Before purchasing shares, please check with your account
representative concerning the availability of the fee waiver.) In addition, this
waiver does not apply to IRA and SEP-IRA accounts. For this purpose and without
regard to the shares actually redeemed, shares will be treated as redeemed as
follows: first, reinvestment shares; second, purchased shares held one year or
more; and third, purchased shares held for less than one year. Finally, if a
redeeming shareholder acquires Fund shares through a transfer from another
shareholder, applicability of the discount, if any, will be determined by
reference to the date the shares were originally purchased, and not from the
date of transfer between shareholders.

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 account 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, "Scudder Automated Information
Line" (SAIL) transaction authorization 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 $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee as described under "Transaction information--Redeeming
shares--Signature guarantees" in the Fund's prospectus.

15
<PAGE>

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

Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund 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 telephone or in writing. Automatic
Exchanges will continue until the shareholder requests by telephone or in
writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.

There is no charge to the shareholder for any exchange described above.
However, shares that are exchanged may be subject to the Fund's 1% redemption
fee. (See "Special Redemption and Exchange Information." 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, the Fund 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. The exchange privilege may
not be available for certain Scudder Funds or classes thereof. For more
information, please call 1-800-225-5163.

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

Redemption by Telephone

Shareholders currently receive the right, automatically without having to
elect it, to redeem by telephone up to $100,000 and have the proceeds mailed to
their address of record. Shareholders may request to have the proceeds mailed or
wired to their predesignated 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
predesignated 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)
Planholders) who wish to establish telephone redemption to a
predesignated bank account or who want to change the bank account
previously designated to receive redemption proceeds should either
return a Telephone Redemption Option Form (available upon request)
or send a letter identifying the account and specifying the exact
information to be changed. The letter must be signed exactly as the
shareholder's name(s) appears on the account. An original signature
and an original signature guarantee are required for each person in
whose name the account is registered.

16
<PAGE>

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

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

Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.

Redemption by QuickSell

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

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

Redemption by Mail or Fax

In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request 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.

17
<PAGE>

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

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

Other Information

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

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

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

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

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

18
<PAGE>

Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in the Fund, without establishing an AIP, will be assessed an annual
$10.00 per fund charge with the fee to be reinvested in the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder at the address
of record. Reductions in value that result solely from market activity will not
trigger an involuntary redemption. UGMA, UTMA, IRA and other retirement accounts
will not be assessed the $10.00 charge or be subject to automatic liquidation.

FEATURES AND SERVICES OFFERED BY THE 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 Scudder Family of
Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.

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

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

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

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

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

19
<PAGE>

YEARS Scudder Family 8.50% Load Load Fund with No-Load Fund
of Funds Pure Fund 0.75% 12b-1 Fee with 0.25%
No-Load(TM) Fund 12b-1 Fee

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

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

20 67,275 61,557 58,672 64,282

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.

Internet access

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

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

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

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

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

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

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

20
<PAGE>

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 given to the Transfer Agent in writing at least five days
prior to a dividend record date. Shareholders may change their dividend option
by calling 1-800-225-5163 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See "How to
Contact Scudder" in the Fund's prospectus for the address.

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

Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after 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 Withdrawal Plan
must reinvest any dividends or capital gains. For most retirement plan accounts,
the reinvestment of dividends and capital gains is also required.

Scudder Investor Centers

Investors may visit any of the Centers maintained by the Distributor
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 find
assistance with opening an account, adding monies or special options to existing
accounts, making exchanges within the Scudder Family of Funds, redeeming shares
or opening retirement plans. Checks should not be mailed to the Centers but
should be mailed to "The Scudder Funds" at the address listed under "How to
contact Scudder" in the prospectus.

Reports to Shareholders

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

Transaction Summaries

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

21
<PAGE>

THE SCUDDER FAMILY OF FUNDS

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

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

MONEY MARKET

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

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

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

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

TAX FREE MONEY MARKET

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

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

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

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

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

TAX FREE

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

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

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

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

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

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

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

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

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

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

U.S. INCOME

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

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

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

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

23
<PAGE>

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

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

GLOBAL INCOME

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

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

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

ASSET ALLOCATION

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

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

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

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

U.S. GROWTH AND INCOME

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

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

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

24
<PAGE>

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

U.S. GROWTH

Value

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

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

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

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

Growth

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

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

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

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

SCUDDER CHOICE SERIES

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

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

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

GLOBAL GROWTH

Worldwide

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

25
<PAGE>

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

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

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

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

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

Regional

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

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

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

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

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

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

SPECIAL PLAN ACCOUNTS

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

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

26
<PAGE>

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 IRAs 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 as to form.

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

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

Scudder IRA: Individual Retirement Account

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

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

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

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

27
<PAGE>

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

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

This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)

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

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

Scudder Roth IRA: Individual Retirement Account

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

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

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

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

An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional

28
<PAGE>

IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.

Scudder 403(b) Plan

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

Automatic Withdrawal Plan

Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information--Redeeming shares--Signature
guarantees" in the Fund's prospectus. Any such requests must be received by the
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Trust 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

29
<PAGE>

same dollar amount each period, when shares are priced low the investor will
purchase more shares than when the share price is higher. Over a period of time
this investment approach may allow the investor to reduce the average price of
the shares purchased. However, this investment approach does not assure a profit
or protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.

Uniform Transfers/Gifts to Minors Act

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

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

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

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

The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes net investment income and
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, the Fund may retain all or part of such gain
for reinvestment after paying the related federal income taxes for which the
shareholders may then be asked to claim a credit against their federal income
tax liability. (See "TAXES.")

According to preference, shareholders may receive distributions in cash or
have them reinvested in additional shares of the Fund. If an investment is in
the form of a retirement plan, all dividends and capital gains distributions
must be reinvested into the shareholder's account.

Generally, dividends from net investment income are taxable to
shareholders as ordinary income. Long-term capital gains distributions, if any,
are taxable to individual shareholders at a maximum 20% or 28% capital gains
rate (depending on the Fund's holding period for the assets giving rise to the
gain), regardless of the length of time shareholders have owned their shares.
Short-term capital gains and any other taxable income distributions are taxable
as ordinary income.

A portion of the dividends paid by REITs may represent a return of
capital. As a result, it is expected that a portion of the Fund's dividends may
also be a return of capital. Return of capital dividends are not taxed
currently, but you must deduct them from the cost basis of your investment in
the Fund thereby affecting the capital gain or loss you realize when you sell or
exchange Fund shares. REITs may also pay capital gain distributions to
shareholders.

REITs do not provide information about the tax status of their
distributions until after calendar year-end. As a result, the Fund cannot
determine the proportion of its distributions that are dividends, capital gains
or a return of capital until after the January 31 deadline for 1099-DIV
reporting. Therefore, the Fund plans to request permission from the IRS each
year to mail tax forms to shareholders in February so that the information you
receive is complete and accurate.

30
<PAGE>

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 will be calculated in the following manner:

Average Annual Total Return

Average annual total return is the average annual compound rate of return
for the periods of one year and the life of the Fund, 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 finding the average annual
compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):

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

Where:

T = Average Annual Total Return
P = a hypothetical initial payment 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.

Cumulative Total Return

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

Total Return

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

Comparison of Fund Performance

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

31
<PAGE>

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, the Wilshire Real Estate Securities 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 Trust, 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.

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

32
<PAGE>

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.

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.

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

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

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

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

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

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

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

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

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

IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."

33
<PAGE>

Ibbotson Associates, Inc., a company specializing in investment research and
data.

Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.

Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.

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

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

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

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

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

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

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

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

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

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

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

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

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

USA Today, a leading national daily newspaper.

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

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

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

34
<PAGE>

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

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

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

ORGANIZATION OF THE FUND

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

The Fund is a non-diversified 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 five series,
Scudder Growth and Income Fund, Scudder Large Company Growth Fund, Scudder
Classic Growth Fund, Scudder S&P 500 Index Fund and Scudder Real Estate
Investment Fund.

The Trustees have the authority to issue additional series of shares and
to designate the relative rights and preferences as between the different
series. Each share of the Fund has equal rights with each other share of the
Fund as to voting, dividends and liquidation. All shares issued and outstanding
will be fully paid and nonassessable by the Trust, and redeemable as described
in this Statement of Additional Information and in the 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 different classes may bear different expenses in
connection with different methods of distribution.

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

35
<PAGE>

in the reasonable belief that their actions were in the best interests of the
Fund. Nothing in the Declaration of Trust, however, protects or indemnifies a
Trustee or officer against any liability to which that person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of that person's
office.

INVESTMENT ADVISER

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

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

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

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

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

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

36
<PAGE>

The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. Scudder's international investment
management team travels the world, researching hundreds of companies. In
selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.

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 to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the 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 between the Fund and the Adviser is
dated March 2, 1998 and was approved by the Trustees on February 10, 1998 and by
the initial shareholder of the Fund on February 26, 1998. The investment
management agreement (the "Agreement") will continue in effect for an initial
term ending on September 30, 1999. The Agreement will continue in effect 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 the Agreement or
interested persons of the Adviser or the Trust, cast in person at a meeting
called for the purpose of voting on such approval, and either by a vote of the
Trust's Trustees on behalf of the Fund or of a majority 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 regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject to the Trust's Declaration of Trust,
By-Laws, the 1940 Act, the Code and to the Fund's investment objective, policies
and restrictions, and subject, further, to such policies and instructions as the
Board of Trustees of the Trust may from time to time establish. The Adviser also
advises and assists the officers of the Trust 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.

Under the Agreement, the Adviser 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.

37
<PAGE>

The Adviser pays the compensation and expenses of all Trustees, officers
and executive employees (except expenses incurred attending Board and committee
meetings outside New York, New York or Boston, Massachusetts) 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 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 will pay the Adviser an annual fee equal to
0.80% of the Fund's average daily net assets, payable monthly, provided 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.
The Adviser has agreed until December 31, 1998 to maintain the total annualized
expenses of the Fund at no more than 1.25% of the average daily net assets of
the Fund

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; fees and expenses of the Fund's
accounting agent; brokers' commissions; legal, auditing and accounting expenses;
taxes and governmental fees; the fees and expenses of the Transfer Agent; any
other expenses of issue, sale, underwriting, distribution, 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 Fund who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to stockholders; and the fees and disbursements
of custodians. The Fund 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 responsible for its expenses of shareholders' meetings, the cost of
responding to shareholders' inquiries, and its expenses incurred in connection
with litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees of the Fund with respect thereto.

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

In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Trust who are not
"interested persons" of the Adviser are represented by independent counsel 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 have
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.

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

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 to 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

38
<PAGE>

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.

TRUSTEES AND OFFICERS

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

Daniel Pierce (63)+*= President and Chairman of the Board Director, Vice
Trustee and Managing Director President and
of Scudder Kemper Assistant
Investments, Inc. Treasurer

Henry P. Becton, Jr. Trustee President and General --
(53) 125 Western Manager, WGBH
Avenue Allston, MA Educational
02134 Foundation

Dawn-Marie Driscoll Trustee Executive Fellow, --
(50) 4909 SW 9th Center for Business
PlaceCape Coral, FL Ethics, Bentley
33914 College; President,
Driscoll Associates

Peter B. Freeman Trustee Director, The A.H. --
(65) 100 Alumni Belo Company;
AvenueProvidence, Trustee, Eastern
RI 02906 Utilities Associates
(public utility
holding company);
Director, AMICA Life
Insurance Co.;
Director, AMICA
Insurance Co.

George M. Lovejoy, Trustee President and --
Jr. (67)= Director, Fifty
50 Congress Street Associates (real
Suite 543 estate investment
Boston, MA 02109 trust)

Wesley W. Marple, Jr. Trustee Professor of Business --
(65)= 413 Hayden Hall Administration,
360 Huntington Ave. Northeastern
Boston, MA 02115 University, College

of Business
Administration

Kathryn L. Quirk Trustee, Vice Managing Director of Director,
(44)++*= President and Scudder Kemper Assistant
Assistant Investments, Inc. Treasurer and
Secretary Senior Vice
President

Jean C. Tempel (54) Trustee Managing --
Ten Post Office Partner, Technology
Square Equity Partners

39
<PAGE>

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

Suite 1325
Boston, MA 02109

Bruce F. Beaty (38)++ Vice President Senior Vice President --
of Scudder Kemper
Investments, Inc.

Philip S. Fortuna Vice President Managing Director of Vice President
(41)++ Scudder Kemper

Investments, Inc.

William F. Gadsden Vice President Managing Director of --
(42)++ Scudder Kemper

Investments, Inc.

Jerard K. Hartman Vice President Managing Director of --
(64)++ Scudder Kemper

Investments, Inc.

John R. Hebble (39)+ Assistant Senior Vice President --
Treasurer of Scudder Kemper

Investments, Inc.

Robert T. Hoffman Vice President Managing Director of --
(38)++ Scudder Kemper

Investments, Inc.

Thomas W. Joseph Vice President Senior Vice President Director, Vice
(58)+ of Scudder Kemper President,

Investments, Inc. Treasurer and
Assistant Clerk

Valerie F. Malter Vice President Senior Vice President --
(39)++ of Scudder Kemper

Investments, Inc.

Thomas F. McDonough Treasurer, Vice Senior Vice President Clerk
(50)+ President and of Scudder Kemper

Secretary Investments, Inc.

Caroline Pearson Assistant Director of Mutual --
(35)+ Secretary Fund Administration

* Mr. Pierce and Ms. Quirk are considered by the Fund and counsel to be
persons who are "interested persons" of the Adviser or of the Fund, within
the meaning of the Investment Company Act of 1940, as amended.

** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years, but
not necessarily in the same capacity.
= Messrs. Lovejoy, Pierce, Marple and Ms. Quirk are members of the Executive
Committee for the Trust, 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

40
<PAGE>

The Trustees and officers of the Fund also serve in similar capacities
with other Scudder Funds.

All Trustees and officers as a group owned less than 1% of the Fund's
outstanding shares at the commencement of operations.

REMUNERATION

Responsibilities of the Board--Board and Committee Meetings

The Board of Trustees of the Trust is responsible for the general
oversight of the Fund's business. A majority of the Board's members are not
affiliated with Scudder Kemper Investments, Inc. These "Independent Trustees"
have primary responsibility for assuring that the Fund is managed in the best
interests of its shareholders.

The Board of Trustees meets at least quarterly to review the investment
performance of each Fund of the Trust and other operational matters, including
policies and procedures designated to assure compliance with various regulatory
requirements. At least annually, the Independent Trustees review the fees paid
to Scudder and its affiliates for investment advisory services and other
administrative and shareholder services. In this regard, they evaluate, among
other things, the quality and efficiency of the various other services provided,
costs incurred by Scudder and its affiliates, and comparative information
regarding fees and expenses of competitive funds. They are assisted in this
process by the Fund's independent public accountants and by independent legal
counsel selected by the Independent Trustees.

All of the Independent Trustees serve on the Committee of Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.

Compensation of Officers and Trustees of the Fund

The Independent Trustees receive the following compensation from the Funds
of Scudder Investment Trust: an annual trustee's fee of $2,400 for a Fund in
which assets do not exceed $100 million, $4,800 for assets which exceed $100
million, but not exceeding $1 billion, and $7,200 if assets exceed $1 billion; a
fee of $150 for attendance at each board meeting, audit committee meeting, or
other meeting held for the purposes of considering arrangements between the
Trust for the Fund and Scudder or any affiliate of Scudder; $75 for any other
committee meeting (although in some cases the Independent Trustees have waived
committee meeting fees); and reimbursement of expenses incurred for travel to
and from Board Meetings. No additional compensation is paid to any Independent
Trustee for travel time to meetings, attendance at directors' educational
seminars or conferences, service on industry or association committees,
participation as speakers at directors' conferences, service on special trustee
task forces or subcommittees or service as lead or liaison trustee. Independent
Trustees do not receive any employee benefits such as pension, retirement or
health insurance.

The Independent Trustees also serve in the same capacity for other funds
managed by Scudder. These funds differ broadly in type an complexity and in some
cases have substantially different Trustee fee schedules. The following table
shows the aggregate compensation received by each Independent Trustee during
1997 from the Trust and from all of Scudder funds as a group.

41
<PAGE>

SCUDDER INVESTMENT
NAME TRUST* ALL SCUDDER FUNDS
---- ------ -----------------

Henry P. Becton, Jr. $27,782 $113,974 (23 funds)
Trustee ------- -------- ---

Dawn-Marie Driscoll** $3,450 $107,142 (23 funds)
Trustee ------ -------- ---

Peter B. Freeman** $3,645 $137,011 (42 funds)
Trustee ------ -------- ---

George M. Lovejoy, Jr. $27,757 $138,533 (21 funds)
Trustee ------- -------- ---

Wesley W. Marple, Jr. $27,757 $120,549 (22 funds)
Trustee ------- -------- ---

Jean C. Tempel $27,982 $121,924 (22 funds)
Trustee ------- -------- ---

* In 1997, Scudder Investment Trust consisted of four funds: Scudder Growth
and Income Fund, Scudder Large Company Growth Fund, Scudder Classic Growth
Fund, Scudder S&P 500 Index Fund and Scudder Real Estate Investment Fund.
Scudder S&P 500 Index Fund commenced operations on August 29, 1997.
Scudder Real Estate Investment Fund commenced operations on March 2, 1998.
** Elected as trustee on October 24, 1997.

DISTRIBUTOR

The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The Trust's underwriting agreement dated
September 10, 1985 will remain in effect until September 30, 1998 and from year
to year thereafter only if its continuance is approved annually by a majority of
the members of the Board of Trustees who are not parties to such agreement or
interested persons of any such party and either by vote of a majority of the
Board of Trustees or a majority of the outstanding voting securities of the
Fund. The underwriting agreement was last approved by the Trustees on August 14,
1997.

Under the 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 Fund as a broker or dealer in
various states, as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor); notices, proxy statements,
reports or other communications to shareholders of the Fund; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the 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

42
<PAGE>

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 does not currently have a 12b-1 Plan, and the
Trustees have no current intention of adopting one, the Fund would also
pay those fees and expenses permitted to be paid or assumed by the Fund
pursuant to a 12b-1 Plan, if any, were adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement.

As agent, the Distributor currently offers shares of the Fund 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 to 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,
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 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.

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

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

Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of 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
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 taxable to individual shareholders at a maximum 20% or 28% capital gains
rate (depending on the Fund's holding period for the assets giving rise to the
gain), will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between the shareholder's pro rata
share of such gains and the shareholder's 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.

43
<PAGE>

Dividends from domestic corporations are not expected to comprise a
substantial part of the Fund's gross income. If any 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 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares 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 either those
shares or the shares of the Fund are deemed to have been held by the Fund or the
shareholder, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.

Properly designated distributions of the excess of net long-term capital
gain over net short-term capital loss are taxable to individual shareholders at
a maximum 20% or 28% capital gains rate (depending on the Fund's holding period
for the assets giving rise to the gain), 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 gain during such six-month period.

Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.

All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.

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

Distributions by 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.

Equity options (including covered call options written on portfolio stock)
and over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss will
be recognized by the Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse

44
<PAGE>

or sale of the option, on the Fund's holding period for the option, and in the
case of the exercise of a put option, on the Fund's holding period for the
underlying property. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
any property in the Fund's portfolio similar to the property underlying the put
option. If the Fund writes an 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
short-term capital gain or loss. If the option is exercised, the character of
the gain or loss depends on the holding period of the underlying stock.

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 stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the Fund.

Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), 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.

Subchapter M of the Code requires the Fund to 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.
The Fund's options, futures and forward transactions may increase the amount of
gains realized by the Fund that are subject to this 30% limitation. Accordingly,
the amount of such transactions that the Fund may undertake may be limited.

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
or other position 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, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. The Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.

Notwithstanding any of the foregoing, recent tax law changes may require
the Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting material principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests including options, futures and forward contracts and short sales in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.

Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.

45
<PAGE>

Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues receivables or 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 options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract 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.

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.

The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark-to-market losses and any loss from an actual disposition of
shares would be deductible as ordinary losses to the extent of any net
mark-to-market gains included in income in prior years. The effect of the
election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a fund-level tax when distributed to
shareholders as a dividend. Alternatively, the Fund may elect to include as
income and gain its share of the ordinary earnings and net capital gain of
certain foreign investment companies in lieu of being taxed in the manner
described above.

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 Fund's level. In addition, if the Fund invests in certain high yield
original issue discount obligations issued by corporations, a portion of the
original issue discount accruing on the obligation may be eligible for the
deduction for dividends received by corporations. In such event, dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of accrued original
issue discount, may be eligible for this deduction for dividends received by
corporations if so designated by the Fund in a written notice to shareholders.

The Fund will be required to report to the Internal Revenue Service (the
"IRS") all distributions of investment company 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 investment company
taxable income and capital gains and proceeds from the redemption or exchange of
the shares of a regulated investment company may be subject to withholding of
federal income tax at the rate of 31% in the case of non-exempt shareholders who
fail to furnish the investment company with their taxpayer identification
numbers and with required certifications regarding their status under the
federal income tax law. Withholding may also be required if 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.

46
<PAGE>

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 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 described in this statement of additional information
in light of their particular tax situations.

PORTFOLIO TRANSACTIONS

Brokerage Commissions

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 a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission 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
broker/dealers 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; 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 authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction on account of execution services and the
receipt of research, market or statistical information. The Adviser will not
place orders with broker/dealers on the basis that the broker/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 elsewhere.

To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.

Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements 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 broker/dealers through

47
<PAGE>

whom other clients of the Adviser effect securities transactions may be useful
to the Adviser in providing services to the Fund.

The Trustees 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 is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. A higher rate
involves greater brokerage 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. Under normal
investment conditions, it is anticipated that the portfolio turnover rate in the
Fund's initial fiscal year will not exceed 100%.

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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of 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 Nasdaq
Stock Market ("Nasdaq") system is valued at its most recent sale price. Lacking
any sales, the security is valued at the most recent 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
purchased with remaining maturities of sixty days or less shall be 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.

48
<PAGE>

If, in the opinion of the Trust'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 Fund's prospectus,
and the Financial Statements incorporated by reference to the Statement of
Additional Information will be so included or incorporated by reference in
reliance on the report of Coopers & Lybrand, L.L.P., One Post Office Square,
Boston, Massachusetts 02109, independent accountants, and given on the authority
of that firm as experts in accounting and auditing. Coopers & Lybrand, L.L.P. is
responsible for performing annual audits of the financial statements and
financial highlights of the Fund in accordance with Generally Accepted Auditing
Standards, and the preparation of federal tax returns.

Other Information

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 Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.

The CUSIP number of Scudder Real Estate Investment Fund is: 811167501.

The Fund has a fiscal year end of August 31.

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

The Fund employs State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 as Custodian.

Estimated costs of $12,000 incurred by Scudder Real Estate Investment Fund
in conjunction with its organization are amortized over the five-year period
beginning March 2, 1998.

Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer
and dividend disbursing agent for the Fund. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Fund pays Service Corporation an annual fee for each account maintained for a
participant. The Fund, or the Adviser (including any affiliate of the Adviser),
or both, may pay unaffiliated third parties for providing recordkeeping and
other administrative services with respect to accounts of participants in
retirement plans or other beneficial owners of Fund shares whose interests are
held in an omnibus account.

Annual service fees are paid by the Fund to Scudder Trust Company, Two
International Place, Boston, Massachusetts 02110-4103, an affiliate of the
Adviser, for certain retirement plan accounts.

Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts 02110-4103, a subsidiary of the Adviser, computes net asset values
for the Fund. The Fund pays Scudder Fund Accounting

49
<PAGE>

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 and 0.0045%
of such assets in excess of $1 billion, plus holding and transaction charges for
this service.

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

FINANCIAL STATEMENTS

The Statement of Assets and Liabilities as of February 25, 1998 and the
Report of Independent Accountants for the Fund is included herein.

50
<PAGE>

SCUDDER REAL ESTATE INVESTMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
February 25, 1998

Assets
Cash........................................................ $1,200
Deferred organization expense (Note)........................ 12,000
---------------
Total assets................................................ 13,200
---------------
Liabilities
Accrued liabilities (Note).................................. 12,000
---------------
Total liabilities........................................... 12,000
---------------
Net Assets.................................................... $1,200
===============
Net Assets consist of:
Shares of beneficial interest............................... 1
Additional paid-in capital.................................. 1,199
---------------
Net Assets.................................................... $1,200
===============
Net asset value, offering and redemption price per share
($1,200/100 outstanding shares of beneficial interest,
$.01 par value, unlimited number of shares authorized)........ $12.00
===============

The accompanying note is an integral part of the financial statement.

Scudder Real Estate Investment Fund (the "Fund") is a non-diversified series of
Scudder Investment Trust (the "Trust"), formerly known as Scudder Growth and
Income Fund, an open-end, management investment company registered under the
Investment Company Act of 1940, as amended, (the "1940 Act"). The Trust was
organized as a Massachusetts business trust under a Declaration of Trust dated
September 20, 1984, as amended. The Trust assumed the business of its
predecessor on May 15, 1991. The Trust's authorized capital consists of an
unlimited number of shares of beneficial interest of $0.01 par value. The
Trust's shares are currently divided into five series, Scudder Growth and Income
Fund, Scudder Large Company Growth Fund, Scudder Classic Growth Fund, Scudder
S&P 500 Index Fund and Scudder Real Estate Investment Fund. The Trustees have
the authority to issue additional series of shares and to designate the
relative rights and preferences as between the different series. Each share of
the Fund has equal rights with each other share of the Fund as to voting,
dividends and liquidation. The Fund has had no operations to date other than
matters relating to its organization and registration as a non-diversified
series.

Costs incurred by the Fund in connection with its organization, estimated at
$12,000, will be amortized on a straight-line basis over a five-year period
beginning at the commencement of operations of the Fund. In the event that any
of the initial shares of the Fund are redeemed during the amortization period,
the redemption proceeds will be reduced by any unamortized organization expenses
in the same proportion as the number of shares being redeemed bears to the
number of initial shares outstanding at the time of such redemption. Offering
costs, including initial registration costs, will be charged to expense during
the Fund's first year of operations.
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

To the Trustees of Scudder Investment Trust and the Shareholder of Scudder
Real Estate Investment Fund:

We have audited the accompanying statement of assets and liabilities of Scudder
Real Estate Investment Fund as of February 25, 1998. This financial statement
is the responsibility of the Fund's management. Our responsibility is to
express an opinion on this financial statement based on our audit.

We have conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit of the financial statement provides a reasonable basis
for our opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Scudder Real Estate Investment
Fund as of February 25, 1998 in conformity with generally accepted accounting
principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 27, 1998