SCUDDER
INVESTMENTS(SM)
[LOGO]
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EQUITY/DOMESTIC
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Scudder Real Estate
Investment Fund
Fund #302
Annual Report
December 31, 1999
For investors seeking long-term capital growth and current income through
investment in real estate securities.
A no-load fund with no commissions to buy, sell, or exchange shares.
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
13 Glossary of Investment Terms
14 Investment Portfolio
17 Financial Statements
20 Financial Highlights
21 Notes to Financial Statements
25 Report of Independent Accountants
26 Tax Information
27 Officers and Trustees
28 Investment Products and Services
30 Scudder Solutions
2 | Scudder Real Estate Investment Fund
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Scudder Real Estate Investment Fund
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ticker symbol SCREX fund number 302
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Date of o Scudder Real Estate Investment Fund posted a -3.86%
Inception: total return during the 12 months ended December 31, 1999.
4/06/98 This compares with the -3.17% return of the fund's unmanaged
benchmark, the Wilshire Associates Real Estate Securities
Total Net Index.
Assets as of
12/31/99: o Although the real estate market continued to benefit
$15 million from the strong U.S. economy in 1999, REIT stocks were weak
through most of the year as investors sold REIT shares and
shifted money to technology and other growth sectors.
o While overweightings relative to the Wilshire Index in
hotel REITs contributed to the fund's underperformance
during the period, the fund's overweighting in residential
REITs, one of the best performing sectors, helped
performance.
3 | Scudder Real Estate Investment Fund
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Letter from the Fund's President
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Dear Shareholders,
We are pleased to report to you on Scudder Real Estate Investment Fund's most
recent annual period. The fund's objective is to provide long-term capital
growth and current income. Managed by a team of experienced professionals, the
fund has enabled investors to participate in the real estate market without
directly owning properties themselves.
The market for real estate investment trusts (REITs) faced a difficult period in
1999, although not because of a downturn in the real estate market. Rather,
investors' attention was diverted by the overwhelming strength of the technology
market, as well as other growth-company stocks. As tech stock indices continued
to climb, investors sold REITs and shifted to technology. As a result, managers
of REIT funds often were forced to sell holdings in a declining REIT market to
meet redemptions. In this environment, Scudder Real Estate Investment Fund
posted a -3.86% return, compared with a -3.17% return for the fund's benchmark,
the Wilshire Associates Real Estate Securities Index. For more information on
the fund's market environment and strategy, please read the interview with
Portfolio Manager Jennifer Carter that begins on page 10.
Finally, the Board of Scudder Real Estate Investment Fund has voted to liquidate
the fund as of the close of business on or about May 5, 2000. The Board
considered many factors in making this decision, among them the fund's high
current expenses and the
4 | Scudder Real Estate Investment Fund
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likelihood that the fund would not realize a competitive expense level in the
near future. We value our relationship with you and encourage you to consider an
alternate Scudder fund. Please call a Scudder representative if you'd like to
discuss other appropriate fund options.
Thank you for investing in Scudder Real Estate Investment Fund. Please do not
hesitate to contact Investor Relations at 1-800-SCUDDER with any questions
regarding your account. Or visit Scudder's Web site at www.scudder.com.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Real Estate Investment Fund
5 | Scudder Real Estate Investment Fund
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Performance Update
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December 31, 1999
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Wilshire Associates
Real Estate Real Estate
Investment Fund Securities Index*
4/6/98** 10000 10000
4/98 9717 9647
6/98 9560 9504
9/98 8903 8367
12/98 8700 8267
3/98 8069 7976
6/99 9194 8823
9/99 8533 7981
12/99 8364 8006
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 12/31/1999 $10,000 Cumulative Annual
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Scudder Real Estate Investment Fund
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1 year $ 9,614 -3.86% -3.86%
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Life of Fund** $ 8,364 -16.36% -9.77%
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Wilshire Associates Real Estate Securities Index*
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1 year $ 9,683 -3.17% -3.17%
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Life of Fund** $ 8,006 -19.94% -12.02%
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* The Wilshire Associates Real Estate Securities Index is a market
capitalized weighted publicly traded real estate index. The index is
rebalanced monthly and returns are calculated on a buy and sell basis.
Index returns assume reinvestment of dividends and, unlike Fund returns, do
not reflect any fees or expenses.
** The Fund commenced operations on April 6, 1998. Index comparisons begin
April 6, 1998.
6 | Scudder Real Estate Investment Fund
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Returns and Per Share Information
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
Scudder Wilshire Associates
Real Estate Real Estate
Investment Fund Securities Index*
1998 -13.00 -17.42
1999 -3.86 -3.17
1998 1999
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Fund Total
Return (%) -13.00 -3.86
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Index Total
Return (%) -17.82 -3.17
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Net Asset Value
($) 9.92 8.75
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Income
Dividends ($) .53 .79
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Capital Gains
Distributions
($) -- --
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* The Wilshire Associates Real Estate Securities Index is a market
capitalized weighted publicly traded real estate index. The index is
rebalanced monthly and returns are calculated on a buy and sell basis.
Index returns assume reinvestment of dividends and, unlike Fund returns, do
not reflect any fees or expenses.
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the Fund's total returns would have been
lower.
7 | Scudder Real Estate Investment Fund
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Portfolio Summary
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December 31, 1999
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Asset Allocation
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THE ORIGINAL DOCUMENT CONTAINS A PIE CHART
PIE CHART DATA:
Common Stock 100% We seek to keep the fund
- ---------------------------------------- fully invested whenever
100% possible.
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Sector Diversification
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THE ORIGINAL DOCUMENT CONTAINS A PIE CHART
PIE CHART DATA:
Residential 27% By investing in seven
Retail Outlets 23% diverse subsectors, the
Office 22% fund provides broad
Recreation 10% exposure to the overall
Industrial 10% real estate market.
Diversified 7%
Health Care 1%
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100%
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8 | Scudder Real Estate Investment Fund
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Ten Largest Equity Holdings
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(25% of Portfolio) The fund's overweighting
in apartments, which was
one of the best-
performing sectors,
helped performance.
1. Essex Property Trust, Inc.
Developer and manager of multifamily residential
properties
2. SL Green Realty Corp.
Manager of office properties
3. Equity Residential Properties Trust
Owner of apartment properties
4. Charles E. Smith Residential Realty, Inc.
Real estate investment trust
5. CenterPoint Properties Corp.
Development and management of warehouse and industrial
real estate
6. Prentiss Properties Trust
Real estate investment trust
7. PS Business Parks, Inc.
Developer, owner and operator of commercial properties
8. Gables Residential Trust
Developer and manager of multifamily apartment communities
9. Town & Country Trust
Owner and manager of multifamily properties
10. EastGroup Properties, Inc.
Developer of industrial properties
For more complete details about the Fund's investment portfolio, see page 14. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9 | Scudder Real Estate Investment Fund
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Portfolio Management Discussion
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December 31, 1999
In the following interview, portfolio manager Jennifer P. Carter discusses the
key factors leading to Scudder Real Estate Investment Fund's performance over
its most recent annual period.
Q: How did the fund perform over the past year?
A: The fund's total return over the 12-month period ended December 31, 1999, was
- -3.86%, compared with the -3.17% return of the unmanaged Wilshire Associates
Real Estate Securities Index. Since its inception on April 6, 1998 -- during a
difficult period for REITs -- the fund has outperformed the Wilshire Index by
approximately three percentage points.
Q: How would you describe the tone of the REIT market in 1999?
A: In spite of favorable industry fundamentals -- increasing property values,
falling vacancies, rising rents, and attractive yields -- REIT prices languished
throughout almost all of 1999, with the exception of brief rallies in April and
December. Both rallies were the result of actions by Warren Buffett. In April,
Mr. Buffett invested in a handful of REITs, which caused other investors to jump
on the bandwagon. Then, in December, he showed more confidence in the sector by
contributing a REIT tip tucked inside his wallet to a charity auction.
For the year, however, the REIT market was unable to overcome a significant
obstacle: the tremendous surge in technology and other growth company stocks. As
tech stock indices rallied to unprecedented gains, investors sold REIT and REIT
mutual funds in order to shift to technology stocks. As a result, managers of
REIT funds, including this one, often were forced to sell holdings in a
declining REIT market to meet redemptions.
Q: How would you evaluate the fund's performance in this environment?
A: I'm disappointed that performance was negative for the year, because we try
to manage the portfolio to decline
10 | Scudder Real Estate Investment Fund
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less than the Wilshire Index in a down market. The fund missed some of the
rallies in the REIT market, but that was primarily because our portfolio is more
diversified and we typically have a more equal weighting of assets than the
Wilshire Index. For example, the fund's largest position at the end of 1999 was
Essex Properties, at approximately 2.9% of assets. That holding has done very
well for us. The largest position in the index, meanwhile, is Equity Office, at
5.5%. Over the long run, we believe our more-diversified strategy gives the fund
less exposure to the possibility of a downturn in any one issue.
Q: How did the fund's allocations affect performance?
A: Overweightings relative to the Wilshire Index in poorly performing
diversified REITs and hotel REITs contributed to the fund's underperformance
relative to its benchmark. On the other hand, the fund's overweighting in
apartments helped performance. That was one of the best performing sectors, and
we maintained our overweighting in it throughout the year. Also, we revised our
investment policy during the year to eliminate mortgage REITs. I think they
would have added a lot of volatility to the fund because of uncertainty over
changing interest rates.
11 | Scudder Real Estate Investment Fund
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Scudder Real Estate Investment Fund:
A Team Approach to Investing
Scudder Real Estate Investment Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays 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 offices across the United
States and abroad. The Adviser believes that a team approach benefits fund
investors by bringing together many disciplines and leveraging the firm's
extensive resources.
Lead portfolio manager Jennifer P. Carter joined the Adviser in 1992 and has ten
years of investment industry experience, with four years specializing in real
estate research.
Portfolio manager Josephine W.K. Chu joined the Adviser in 1997 and joined the
fund as a portfolio manager in January 1999.
Portfolio manager Philip S. Fortuna joined the Adviser in 1986 and has over 13
years of experience in global planning and quantitative services.
12 | Scudder Real Estate Investment Fund
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Glossary of Investment Terms
Defensive Stocks and bonds that are more conservative than average,
Securities and tend to perform better than the overall market when
that market is weak. Often, non-cyclical stocks are used to
establish a defensive position, since they tend not to be
as severely affected during economic slowdowns.
Funds From The measurement used to evaluate the financial performance
Operations of a REIT. It subtracts the depreciation of properties from
(FFO) the REIT's net income, providing a more effective gauge of
management's performance.
Mortgage REIT A REIT that invests in loans secured by real estate.
These mortgages may be originated and underwritten by the
REIT, or the REIT may purchase preexisting mortgages on
the secondary market. The other kind of REIT is an equity
REIT, which takes an ownership position in real estate,
instead of acting as a lender.
Real Estate A company, usually traded publicly, that manages a portfolio
Investment of real estate to earn profits for investors. A REIT
Trust (REIT) functions in a similar fashion to a mutual fund in
that its investors obtain the potential benefits of a
diversified portfolio under professional management.
Equity REITs take equity positions in real estate;
shareholders receive income from the rents received from
the properties and also receive capital gains as buildings
are sold at a profit.
Weighting Refers to the allocation of assets -- usually in terms of
(over/under) sectors, industries, or countries -- within a portfolio
relative to the portfolio's benchmark index or investment
universe.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
13 | Scudder Real Estate Investment Fund
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Investment Portfolio as of December 31, 1999
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Shares Value ($)
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Common Stocks 100.0%
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Diversified 6.8%
Banyan Strategic Realty Trust ........... 33,200 199,200
Colonial Properties Trust ............... 10,000 231,875
Glenborough Realty Trust Inc. ........... 16,200 216,675
Lexington Corporate Properties Trust .... 20,600 189,263
Pennsylvania Real Estate Investment Trust 11,300 164,556
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1,001,569
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Health Care 1.1%
Health Care REIT, Inc. .................. 10,700 161,838
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Industrial 10.0%
AMB Property Corp. ...................... 1,600 31,900
Bedford Property Investors, Inc. ........ 4,000 68,250
Cabot Industrial Trust .................. 10,100 185,588
CenterPoint Properties Corp. ............ 9,800 351,575
EastGroup Properties, Inc. .............. 17,200 318,200
First Industrial Realty Trust, Inc. ..... 9,300 255,169
Liberty Property Trust .................. 7,600 184,300
Pacific Gulf Properties, Inc. ........... 4,200 85,050
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1,480,032
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Office 22.2%
Alexandria Real Estate Equities, Inc. ... 3,600 114,525
Arden Realty, Inc. ...................... 1,500 30,094
Boston Properties, Inc. ................. 3,400 105,825
Brandywine Realty Trust ................. 11,600 189,950
CarrAmerica Realty Corp. ................ 14,400 304,200
Cornerstone Properties, Inc. ............ 4,600 67,275
Corporate Office Properties Trust ....... 17,400 132,675
Great Lake REIT Inc. .................... 14,400 207,000
Highwoods Properties Inc. ............... 8,000 186,000
Kilroy Realty Corp. ..................... 11,000 242,000
Koger Equity Inc. ....................... 7,700 129,938
Mack-Cali Realty Corp. .................. 5,000 130,313
PS Business Parks, Inc. ................. 14,900 338,975
Parkway Properties, Inc. ................ 1,800 51,863
Prentiss Properties Trust ............... 16,500 346,500
Reckson Associates Realty Corp. ......... 10,200 209,100
SL Green Realty Corp. ................... 18,800 408,900
The accompanying notes are an integral part of the financial statements.
14 | Scudder Real Estate Investment Fund
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Shares Value ($)
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Spieker Properties, Inc. ................ 2,200 80,163
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3,275,296
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Recreation 10.0%
Boykin Lodging Company .................. 21,800 238,438
Equity Inns Inc. ........................ 40,400 272,700
Felcor Lodging Trust Inc. ............... 3,000 52,500
Golf Trust of America, Inc. ............. 11,500 194,781
Host Marriot Corp. ...................... 13,700 113,025
Innkeepers USA Trust .................... 37,200 304,575
Winston Hotels, Inc. .................... 37,400 303,875
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1,479,894
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Residential 26.5%
Amli Residential Properties Trust ....... 12,000 242,250
Apartment Investment & Management Co. ... 3,700 147,306
Archstone Communities Trust ............. 10,800 221,400
Avalonbay Communities, Inc. ............. 3,500 120,094
Camden Property Trust ................... 5,300 145,088
Charles E. Smith Residential Realty, Inc. 10,800 382,050
Chateau Communities, Inc. ............... 10,200 264,563
Cornerstone Realty Income Trust, Inc. ... 19,200 187,200
Equity Residential Properties Trust ..... 9,539 407,196
Essex Property Trust, Inc. .............. 12,700 431,800
Gables Residential Trust ................ 13,600 326,400
Home Properties of New York Inc. ........ 1,500 41,156
Manufactured Home Communities, Inc. ..... 12,500 303,906
Mid-America Apartment Communities, Inc. . 12,100 273,755
Post Properties, Inc. ................... 2,400 91,800
Town & Country Trust .................... 18,100 324,669
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3,910,633
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Retail Outlets 23.4%
Bradley Real Estate, Inc. ............... 13,400 233,663
Burnham Pacific Properties, Inc. ........ 11,100 104,063
CBL & Associates Properties, Inc. ....... 7,800 160,875
Crown American Realty Trust ............. 33,000 181,500
Developers Diversified Realty Corp. ..... 13,700 176,388
First Washington Realty Trust, Inc. ..... 7,200 134,550
General Growth Properties, Inc. ......... 9,500 266,000
Glimcher Realty Trust ................... 16,000 206,000
JDN Realty Corp. ........................ 4,100 66,113
JP Realty, Inc. ......................... 2,300 35,938
The accompanying notes are an integral part of the financial statements.
15 | Scudder Real Estate Investment Fund
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Shares Value ($)
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Konover Property Trust, Inc. ....... 7,900 49,869
The Macerich Company ............... 14,300 297,619
Mid-Atlantic Realty Trust .......... 22,700 228,419
Pan Pacific Retails Properties, Inc. 14,900 243,056
Prime Retail, Inc. ................. 38,500 216,563
Tanger Factory Outlet Centers, Inc. 10,100 209,575
Taubman Centers, Inc. .............. 15,800 169,850
Urban Shopping Centers, Inc. ....... 7,000 189,875
Vornado Realty Trust ............... 6,200 201,500
Westfield America Inc. ............. 6,500 80,031
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3,451,447
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Total Investment Portfolio -- 100.0%
(Cost $17,003,684) (a) 14,760,709
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(a) The cost for federal income tax purposes was $17,003,684. At December 31,
1999, net unrealized depreciation for all securities based on tax cost was
$2,242,975. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$163,840 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value of $2,406,815.
The accompanying notes are an integral part of the financial statements.
16 | Scudder Real Estate Investment Fund
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Financial Statements
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Statement of Assets and Liabilities as of December 31, 1999
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Assets
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Investments in securities, at value (cost $17,003,684) $ 14,760,709
Cash ................................................. 88,318
Dividends and interest receivable .................... 171,632
Receivable for Fund shares sold ...................... 23,751
Deferred organization expenses ....................... 7,624
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Total assets ......................................... 15,052,034
Liabilities
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Payable for Fund shares redeemed ..................... 23,161
Other accrued expenses and payables .................. 171,748
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Total liabilities .................................... 194,909
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Net assets, at value $ 14,857,125
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Net Assets
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Net assets consist of:
Unrealized appreciation (depreciation) on:
Investments .......................................... (2,242,975)
Accumulated net realized gain (loss) ................. (2,522,876)
Paid-in capital ...................................... 19,622,976
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Net assets, at value $ 14,857,125
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Net Asset Value
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Net Asset Value, offering and redemption price
per share ($14,857,125 / 1,697,239 outstanding shares
of beneficial interest, $.01 par value, unlimited --------------
number of shares authorized) ......................... $ 8.75
--------------
The accompanying notes are an integral part of the financial statements.
17 | Scudder Real Estate Investment Fund
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Statement of Operations for the year ended December 31, 1999
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Investment Income
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Dividends ...................................................... $ 1,245,496
Interest ....................................................... 17,784
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Total income ................................................... 1,263,280
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Expenses:
Management fee ................................................. 138,542
Services to shareholders ....................................... 97,868
Custodian and accounting fees .................................. 45,867
Trustees' fees and expenses .................................... 14,540
Auditing ....................................................... 18,284
Registration fees .............................................. 21,050
Reports to shareholders ........................................ 14,628
Legal .......................................................... 10,669
Amortization of organization expense ........................... 2,398
Other .......................................................... 5,835
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Total expenses before expense reductions ....................... 369,681
Expense reductions ............................................. (153,055)
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Total expenses after expense reductions ........................ 216,626
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Net investment income (loss) 1,046,654
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Realized and unrealized gain (loss) on investment transactions
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Net realized gain (loss) from:
Investments .................................................... (2,232,077)
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... 546,172
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Net gain (loss) on investment transactions (1,685,905)
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Net increase (decrease) in net assets resulting from operations $ (639,251)
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The accompanying notes are an integral part of the financial statements.
18 | Scudder Real Estate Investment Fund
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Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
For the Period
April 6, 1998
Year Ended (commencement of
December 31, operations) to
Increase (Decrease) in Net Assets 1999 December 31, 1998
- ------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ...................... $ 1,046,654 $ 748,809
Net realized gain (loss) on investment transactions (2,232,077) (717,426)
Net unrealized appreciation (depreciation) on
investment transactions during the period........ 546,172 (2,789,147)
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations.................................... (639,251) (2,757,764)
--------------- ---------------
Distributions to shareholders:
From net investment income ........................ (969,110) (741,912)
--------------- ---------------
Tax return of capital ............................. (432,774) (222,451)
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ......................... 5,333,159 24,951,658
Reinvestment of distributions ..................... 1,225,215 832,002
Cost of shares redeemed ........................... (7,774,944) (3,998,104)
Redemption fees ................................... 20,452 29,749
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions............................... (1,196,118) 21,815,305
--------------- ---------------
Increase (decrease) in net assets ................. (3,237,253) 18,093,178
Net assets at beginning of period ................. 18,094,378 1,200
--------------- ---------------
Net assets at end of period ....................... $ 14,857,125 $ 18,094,378
--------------- ---------------
Other Information
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Shares outstanding at beginning of period ......... 1,824,072 100
--------------- ---------------
Shares sold ....................................... 560,071 2,126,236
Shares issued to shareholders in reinvestment of .. 134,830 81,009
distributions
Shares redeemed ................................... (821,734) (383,273)
--------------- ---------------
Net increase (decrease) in Fund shares ............ (126,833) 1,823,972
--------------- ---------------
Shares outstanding at end of period ............... 1,697,239 1,824,072
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 | Scudder Real Estate Investment Fund
<PAGE>
Financial Highlights
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The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
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Years ended December 31, 1999 1998(b)
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Net asset value, beginning of period $ 9.92 $ 12.00
---------------------
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Income (loss) from investment operations:
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Net investment income (loss) (a) .58 .41
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Net realized and unrealized gain (loss) on investment
transactions (.97) (1.98)
---------------------
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Total from investment operations (.39) (1.57)
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Less distributions from:
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Net investment income (.54) (.41)
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Tax Return of capital (.25) (.12)
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Redemption fees .01 .02
---------------------
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Total distributions (.78) (.51)
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Net asset value, end of period $ 8.75 $ 9.92
---------------------
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Total Return (%) (c) (3.86) (13.0)(d)**
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Ratios to Average Net Assets and Supplemental Data
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Net assets, end of period ($ millions) 15 18
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Ratio of expenses before expense reductions (%) 2.13 2.66*
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Ratio of expenses after expense reductions (%) 1.25 1.25*
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Ratio of net investment income (loss) (%) 6.04 5.32*
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Portfolio turnover rate (%) 42 34*
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(a) Based on monthly average shares outstanding during the period.
(b) For the period April 6, 1998 (commencement of operations) to December
31,1998.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
20 | Scudder Real Estate Investment Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Real Estate Investment Fund (the "Fund") is a non-diversified series of
Investment Trust (the "Trust") which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sale price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Fund, whose
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required
21 | Scudder Real Estate Investment Fund
<PAGE>
to be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
At December 31, 1999, the Fund had a net tax basis capital loss carryforward of
approximately $2,110,000 which may be applied against any unrealized net taxable
capital gains of each succeeding year until fully utilized December 31, 2006
($475,000), December 31, 2007 ($1,635,000) or until January 31, 2008, whichever
occurs first. In addition, from November 1 through December 31, 1999, the Fund
incurred approximately $414,000 of net realized capital losses. As permitted by
tax regulations, the Fund intends to elect to defer these losses and treat them
as arising in the fiscal year ended December 31, 2000.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made quarterly. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
22 | Scudder Real Estate Investment Fund
<PAGE>
Redemption Fees. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for 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 redemption fee is accounted for as an addition to paid-in
capital.
B. Purchases and Sales of Securities
During the year ended December 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $7,120,217 and
$8,247,524, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.80% of the Fund's
average daily net assets, computed and accrued daily and payable monthly. In
addition, the Adviser has agreed not to impose all or a portion of its
management fee until April 30, 2000 in order to maintain the annualized expenses
of the Fund at not more than 1.25% of average daily net assets. Accordingly, for
the year ended December 31, 1999, the Adviser did not impose any of its fee
amounting to $138,542.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended December 31, 1999, SSC did not impose a portion of its fee, which
amounted to $9,883. The amount imposed aggregated $83,958, all of which is
unpaid at December 31, 1999.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended December 31,
1999, STC did not incur any such fees.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and
23 | Scudder Real Estate Investment Fund
<PAGE>
maintaining the portfolio and general accounting records of the Fund. For the
year ended December 31, 1999, SFAC did not impose a portion of its fee, which
aggregated $3,941. The amount imposed aggregated $33,559, of which all is unpaid
at December 31, 1999.
The Fund pays each Trustee not affiliated with the Adviser an annual retainer,
plus specified amounts for attended board and committee meetings. For the year
ended December 31, 1999, Trustees' fees and expenses aggregated $14,540.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. For the year ended December 31, 1999,
the Fund's custodian and transfer agent fees were reduced by $245 and $444,
respectively, under these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The Fund may
borrow up to a maximum of 33 percent of its net assets under the agreement.
F. Subsequent Event
On February 7, 2000, the Board of Trustees of the Fund approved the cessation of
operations of the Fund effective on or about May 5, 2000 (the "Closing Date").
Accordingly, the Board has voted to liquidate and terminate the Fund on the
Closing Date. Shareholders will receive the net asset value per share for all
shares they own on that date. This may be a taxable event for shareholders with
the exception of those participating in a qualified defined contribution plan,
defined benefit plan or other qualified retirement vehicle. In conjunction with
approving the cessation of operations of the Fund, the Board approved closing
the Fund to new investors and waiving the applicable redemption fees for the
Fund effective as of the close of business on February 7, 2000.
24 | Scudder Real Estate Investment Fund
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of Investment Trust and the Shareholders of Scudder Real Estate
Investment Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Real Estate Investment Fund
(the "Fund") at December 31, 1999, the results of its operations, the changes in
its net assets, and the financial highlights for the periods indicated therein,
in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
As described in Note F, on February 7, 2000, the Trustees voted to liquidate the
Fund on or about May 5, 2000.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 18, 2000
25 | Scudder Real Estate Investment Fund
<PAGE>
Tax Information
- --------------------------------------------------------------------------------
December 31, 1999
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
26 | Scudder Real Estate Investment Fund
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Lynn S. Birdsong
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
o Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
o Trustee, Corporate Director
George M. Lovejoy, Jr.
o Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
o Trustee; Professor of Business
Administration, Northeastern
University
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
o Trustee; Venture Partner,
Internet Capital Corp.
Bruce F. Beaty*
o Vice President
Jennifer P. Carter*
o Vice President
James M. Eysenbach*
o Vice President
William F. Gadsden*
o Vice President
Valerie F. Malter*
o Vice President
Ann M. McCreary*
o Vice President
Kathleen T. Millard*
o Vice President
Robert D. Tymoczko*
o Vice President
John Millette*
o Vice President and Secretary
John R. Hebble*
o Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
27 | Scudder Real Estate Investment Fund
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
28 | Scudder Real Estate Investment Fund
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ Funds within categories are listed in order from expected least
risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family
of Funds.
++ Only the International Shares of the fund are part of the Scudder
Family of Funds.
+++ +++ A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold 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 other stock exchanges.
29 | Scudder Real Estate Investment Fund
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* Dollar cost averaging involves continuous investment in
securities regardless of price fluctuations and does not
assure a profit or protect against loss in declining
markets. Investors should consider their ability to
continue such a plan through periods of low price
levels.
Around-the- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
30 | Scudder Real Estate Investment Fund
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
31 | Scudder Real Estate Investment Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
