INVESTMENT TRUST

                           Scudder Capital Growth Fund
                 Class A, B, C, R and Institutional Class Shares

                        Scudder Large Company Growth Fund
                 Class A, B, C, R and Institutional Class Shares

                              SCUDDER GROWTH TRUST

                               Scudder Growth Fund

         Class A, B, C and Institutional Class (formerly Class I) Shares





                       STATEMENT OF ADDITIONAL INFORMATION


                                December 1, 2004
                          As Revised December 21, 2004


This combined Statement of Additional Information is not a prospectus and should
be read in conjunction with the applicable prospectus for Scudder Capital Growth
Fund,  Scudder Growth Fund and Scudder Large Company Growth Fund (each a "Fund,"
collectively,  the  "Funds"),  dated  December 1, 2004,  as amended from time to
time,  copies of which may be  obtained  without  charge by  contacting  Scudder
Distributors,   Inc.,  222  South  Riverside  Plaza,  Chicago,  Illinois  60606,
1-800-621-1048,  or from  the firm  from  which  this  Statement  of  Additional
Information  was obtained,  and is available  along with other  materials on the
Securities and Exchange Commissions Internet Web site (http://www.sec.gov).

The Annual Reports to Shareholders  dated September 30, 2004 for Scudder Capital
Growth Fund and Scudder Growth Fund, and July 31, 2004 for Scudder Large Company
Growth  Fund  are  attached   hereto  (for  Scudder  Capital  Growth  Fund)  and
incorporated  by reference and are hereby deemed to be part of this Statement of
Additional Information (for Scudder Large Company Growth Fund).

This Statement of Additional  Information is  incorporated by reference into the
corresponding prospectuses for each class of shares of the Funds noted above.







                                TABLE OF CONTENTS
                                                                           Page
                                                                           ----

INVESTMENT RESTRICTIONS.......................................................1

INVESTMENT POLICIES AND TECHNIQUES............................................3

MANAGEMENT OF THE FUNDS......................................................18
   Investment Advisor........................................................18
   Administrative Agreement..................................................24

SERVICE PROVIDERS............................................................25
   Principal Underwriter and Administrator...................................25
   Independent Registered Public Accounting Firms............................30
   Legal Counsel.............................................................30
   Fund Accounting Agent.....................................................30
   Administrator.............................................................31
   Custodian, Transfer Agent and Shareholder Service Agent...................31

PORTFOLIO TRANSACTIONS.......................................................32

PURCHASE AND REDEMPTION OF SHARES............................................34

DIVIDENDS....................................................................44

TAXES........................................................................45

NET ASSET VALUE..............................................................49

TRUSTEES AND OFFICERS........................................................50

TRUST ORGANIZATION...........................................................66

PROXY VOTING GUIDELINES......................................................67

FINANCIAL STATEMENTS.........................................................69

ADDITIONAL INFORMATION.......................................................69


                                       i



                             INVESTMENT RESTRICTIONS

Except as otherwise indicated, each Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders.  There can be
no assurance that a Fund's objective will be met.

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, a Fund.

Each Fund has elected to be classified  as a  diversified  series of an open-end
investment  management  company. A diversified fund may not, with respect to 75%
of total  assets,  invest more than 5% of total  assets in the  securities  of a
single issuer or invest in more than 10% of the outstanding voting securities of
such issuer.

As a matter of fundamental policy, each Fund will not:

(1)      borrow money,  except as permitted under the Investment  Company Act of
         1940, as amended (the "1940 Act"),  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;

(3)      concentrate its investments in a particular  industry,  as that term is
         used in the 1940 Act;

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

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

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

(7)      make loans except as permitted under the 1940 Act.

A  fundamental  policy may not be changed  without the approval of a majority of
the outstanding  voting  securities of a 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 a Fund
are present or  represented  by proxy,  or (2) more than 50% of the  outstanding
voting securities of a Fund.

The  Trustees  of each Trust  have  voluntarily  adopted  certain  policies  and
restrictions,  which  are  observed  in the  conduct  of  each  Fund's  affairs.
Nonfundamental  policies  may be changed by the  Trustees  of the Trust  without
requiring prior notice to or approval of shareholders.

As a matter of non-fundamental policy, each Fund currently may not:

(a)      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 a Fund's registration statement which may be
         deemed to be borrowings;

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




(c)      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 a Fund  may  obtain  such  short-term
         credits  as  may  be  necessary   for  the   clearance  of   securities
         transactions;

(d)      purchase  options,  unless  the  aggregate  premiums  paid on all  such
         options  held by a 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;

(e)      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
         a Fund and the premiums paid for such options on futures contracts does
         not  exceed  5% of the fair  market  value of a  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;

(f)      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 a
         Fund's total assets (for this  purpose,  warrants  acquired in units or
         attached to securities will be deemed to have no value);

(g)      lend  portfolio  securities  in an amount  greater  than 33 1/3% of its
         total assets;

(h)      for  Scudder  Growth Fund only -- invest more than 15% of net assets in
         illiquid securities; and

(i)      for Scudder  Capital  Growth Fund and Scudder Large Company Growth Fund
         only -- acquire securities of registered open-end investment  companies
         or  registered   unit   investment   trusts  in  reliance  on  Sections
         12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.

All Funds are restricted by the Securities and Exchange  Commission's  ("SEC" or
"Commission") 15% limitation on investing in illiquid securities.

Temporary  Defensive Policy.  For temporary  defensive  purposes,  each Fund may
invest  without  limit in cash and cash  equivalents  (including  foreign  money
market  instruments,  such as  bankers'  acceptances,  certificates  of deposit,
commercial  paper,   short-term  government  and  corporate   obligations,   and
repurchase agreements), obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities ("Government Securities"), domestic repurchase
agreements,  money market  instruments and high quality debt securities  without
equity  features.  In such a case,  a Fund  would not be  pursuing,  and may not
achieve, its investment objective.

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

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


                                       2


                       INVESTMENT POLICIES AND TECHNIQUES

Scudder  Capital  Growth Fund and Scudder Large  Company  Growth Fund are each a
diversified  series of Investment  Trust (a "Trust").  Scudder  Growth Fund is a
diversified  series of Scudder  Growth  Trust (a "Trust" and  collectively  with
Investment Trust, the "Trusts").  Each Fund is an open-end management investment
company which  continuously  offers and redeems shares at net asset value.  Each
Fund is a company of the type commonly known as a mutual fund.  Scudder  Capital
Growth Fund offers the following  classes of shares:  Class AARP, Class S, Class
A, Class B, Class C, Class R and Institutional Class shares. For Scudder Capital
Growth  Fund,  the Board  authorized  the  consolidation  of Class I shares into
Institutional  Class on or about August 13, 2004. Scudder Growth Fund offers the
following classes of shares:  Class A, Class B, Class C and Institutional Class.
Effective  August  13,  2004,  Class  I  shares  of  Scudder  Growth  Fund  were
redesignated as  Institutional  Class shares.  Scudder Large Company Growth Fund
offers the following  classes of shares:  Class AARP, Class S, Class A, Class B,
Class C, Class R and  Institutional  Class  shares.  Only Classes A, B, C, R and
Institutional shares, as applicable,  are offered herein. Each class has its own
important features and policies.

General Investment Objective and Policies

Descriptions  in  this  Statement  of  Additional  Information  of a  particular
investment  practice  or  technique  in which a Fund  may  engage  are  meant to
describe  the  spectrum  of  investments  that  Deutsche  Investment  Management
Americas Inc. ("the Advisor") in its discretion  might,  but is not required to,
use in managing each Fund's portfolio assets. The Advisor, may in its discretion
at any time employ such practice,  technique or instrument for one or more Funds
but not for all funds  advised by it.  Furthermore,  it is possible that certain
types of financial instruments or investment techniques described herein may not
be available, permissible, economically feasible or effective for their intended
purposes in all markets. Certain practices, techniques or instruments may not be
principal activities of the Funds, but, to the extent employed,  could from time
to time have a material impact on a Fund's performance.

It is possible that certain investment  practices and techniques described below
may not be  permissible  for a Fund  based on its  investment  restrictions,  as
described herein, and in that Fund's applicable prospectus.

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

Common  Stocks.  Common  stock is issued by companies to raise cash for business
purposes  and  represents  a  proportionate  interest in the issuing  companies.
Therefore, a 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 and financial market  movements.  Despite the risk of price
volatility, however, common stocks have historically offered a greater potential
for long-term gain on investment,  compared to other classes of financial assets
such as bonds or cash equivalents,  although there can be no assurance that this
will be true in the future.

Convertible Securities.  A 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 a 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


                                       3


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.   Convertible  securities
generally offer lower yields than non-convertible  securities of similar quality
because of their conversion or exchange features.

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  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)).

Debt  Securities.  When the Adviser  believes that it is appropriate to do so in
order to achieve a fund's objective of long-term  capital  appreciation,  a fund
may invest in debt  securities,  including bonds of private  issuers.  Portfolio
debt  investments  will be selected on the basis of, among other things,  credit
quality, and the fundamental  outlooks for currency,  economic and interest rate
trends,  taking into  account the ability to hedge a degree of currency or local
bond price risk. A fund may purchase  "investment-grade" bonds, rated Aaa, Aa, A
or Baa by Moody's or AAA,  AA, A or BBB by S&P or, if  unrated,  judged to be of
equivalent quality as determined by the Adviser.

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

Depositary  Receipts.  A fund may invest in  sponsored or  unsponsored  American
Depositary  Receipts ("ADRs"),  European  Depositary  Receipts ("EDRs"),  Global
Depositary  Receipts ("GDRs"),  International  Depositary  Receipts ("IDRs") and
other types of Depositary  Receipts  (which,  together with ADRs, EDRs, GDRs and
IDRs are hereinafter referred to as "Depositary Receipts").  Depositary receipts
provide  indirect  investment  in  securities  of  foreign  issuers.  Prices  of
unsponsored Depositary Receipts may be more volatile than if they were sponsored
by  the  issuer  of the  underlying  securities.  Depositary  Receipts  may  not
necessarily be  denominated  in the same currency as the  underlying  securities
into which  they may be  converted.  In  addition,  the  issuers of the stock of
unsponsored   Depositary   Receipts  are  not  obligated  to  disclose  material
information in the United States and, therefore,  there may not be a correlation
between such information and the market value of the Depositary  Receipts.  ADRs
are  Depositary  Receipts which are bought and sold in the United States and are
typically  issued by a US bank or trust  company,  which  evidence  ownership of
underlying  securities by a foreign  corporation.  GDRs, IDRs and other types


                                       4


of Depositary Receipts are typically issued by foreign banks or trust companies,
although they may also be issued by United States banks or trust companies,  and
evidence  ownership  of  underlying  securities  issued by either a foreign or a
United States corporation. Generally, Depositary Receipts in registered form are
designed for use in the United States securities markets and Depositary Receipts
in bearer form are designed  for use in  securities  markets  outside the United
States.  For purposes of a fund's investment  policies,  a fund's investments in
ADRs,  GDRs  and  other  types  of  Depositary  Receipts  will be  deemed  to be
investments in the underlying securities.  Depositary Receipts,  including those
denominated  in US dollars,  will be subject to foreign  currency  exchange rate
risk. However, by investing in US  dollar-denominated  ADRs rather than directly
in foreign  issuers'  stock, a fund avoids  currency risks during the settlement
period.  In general,  there is a large,  liquid  market in the United States for
most ADRs. However, certain Depositary Receipts may not be listed on an exchange
and therefore may be illiquid securities.

Dollar Roll Transactions. Dollar roll transactions consist of the sale by a fund
to a bank or broker/dealer  (the  "counterparty")  of GNMA certificates or other
mortgage-backed  securities  together  with a  commitment  to purchase  from the
counterparty  similar,  but not  identical,  securities at a future date, at the
same price.  The  counterparty  receives all  principal  and interest  payments,
including  prepayments,  made on the  security  while it is the  holder.  A fund
receives a fee from the  counterparty  as  consideration  for entering  into the
commitment  to  purchase.  Dollar  rolls may be renewed over a period of several
months  with  a  different  purchase  and  repurchase  price  fixed  and a  cash
settlement  made  at each  renewal  without  physical  delivery  of  securities.
Moreover,  the  transaction  may  be  preceded  by a firm  commitment  agreement
pursuant to which a fund agrees to buy a security on a future date.

A fund will segregate  cash, US Government  securities or other liquid assets in
an amount sufficient to meet their purchase  obligations under the transactions.
A fund will also maintain  asset  coverage of at least 300% for all  outstanding
firm commitments, dollar rolls and other borrowings.

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

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

Foreign  Securities.  Investments in foreign securities involves certain special
considerations,  including  those  set  forth  below,  which  are not  typically
associated   with  investing  in  US  securities  and  which  may  favorably  or
unfavorably affect a fund's performance.  As foreign companies are not generally
subject to uniform  accounting,  auditing  and  financial  reporting  standards,
practices and requirements comparable to those applicable to domestic companies,
there may be less publicly  available  information  about a foreign company than
about a domestic company. Many foreign stock markets, while growing in volume of
trading  activity,  have  substantially  less  volume  than the New  York  Stock
Exchange,  Inc. (the  "Exchange"),  and securities of some foreign companies are
less liquid and more volatile than securities of domestic companies.  Similarly,
volume and  liquidity in most foreign bond markets is less than in the US and at
times,  volatility  of price can be  greater  than in the US.  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 a fund are  uninvested  and no return is earned  thereon.  The inability of a
fund to make intended security purchases due to settlement  problems could cause
a fund to miss  attractive  investment  opportunities.  Inability  to dispose of
portfolio securities due to


                                       5


settlement  problems  either could result in losses to a fund due to  subsequent
declines in value of the  portfolio  security  or, if a fund has entered  into a
contract  to sell the  security,  could  result in a possible  liability  to the
purchaser.  Payment for securities  without  delivery may be required in certain
foreign markets. Fixed commissions on some foreign stock exchanges are generally
higher  than  negotiated  commissions  on US  exchanges,  although  a fund  will
endeavor  to  achieve  the  most   favorable   net  results  on  its   portfolio
transactions.  Further, a 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 US. It may be more difficult
for a 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 US and foreign  countries  may be less
reliable than within the US, thus increasing the risk of delayed  settlements of
portfolio  transactions or loss of  certificates  for portfolio  securities.  In
addition, with respect to certain foreign countries, there is the possibility of
expropriation  or confiscatory  taxation,  political or social  instability,  or
diplomatic  developments  which could affect US investments in those  countries.
Moreover,  individual foreign economies may differ favorably or unfavorably from
the US economy in such  respects as growth of gross  national  product,  rate of
inflation,  capital  reinvestment,  resource  self-sufficiency  and  balance  of
payments  position.  The  management  of a fund  seeks  to  mitigate  the  risks
associated  with  the  foregoing   considerations  through  diversification  and
continuous professional management.

Because  investments in foreign  securities will usually  involve  currencies of
foreign  countries,  and because a fund may hold foreign  currencies and forward
foreign currency exchange contracts ("forward contracts"), futures contracts and
options on futures contracts on foreign currencies, the value of the assets of a
fund as  measured  in US dollars may be affected  favorably  or  unfavorably  by
changes in foreign currency exchange rates and exchange control regulations, and
a  fund  may  incur  costs  in  connection  with  conversions   between  various
currencies.  Although a fund values its assets daily in terms of US dollars,  it
does not intend to convert its holdings of foreign currencies into US dollars on
a daily basis. It will do so from time to time, and investors should be aware of
the costs of  currency  conversion.  Although  foreign  exchange  dealers do not
charge a fee for  conversion,  they do realize a profit based on the  difference
(the "spread")  between the prices at which they are buying and selling  various
currencies. Thus, a dealer may offer to sell a foreign currency to a fund at one
rate,  while  offering a lesser rate of exchange  should a fund desire to resell
that currency to the dealer. A fund will conduct its foreign  currency  exchange
transactions  either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward contracts
(or options  thereon) to purchase or sell foreign  currencies.  (See  "Strategic
Transactions and Derivatives" below.)

Illiquid  Securities and Restricted  Securities.  A fund may purchase securities
that are subject to legal or  contractual  restrictions  on resale  ("restricted
securities").  Generally speaking, restricted securities may be sold (i) only to
qualified  institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers;  (iii) in limited  quantities after they have been
held for a specified  period of time and other conditions are met pursuant to an
exemption  from  registration;  or  (iv)  in  a  public  offering  for  which  a
registration statement is in effect under the Securities Act of 1933, as amended
(the "1933 Act").  Issuers of  restricted  securities  may not be subject to the
disclosure and other investor  protection  requirements that would be applicable
if their securities were publicly traded.

Restricted  securities  are often  illiquid,  but they may also be  liquid.  For
example,  restricted securities that are eligible for resale under Rule 144A are
often deemed to be liquid.

A fund's Board has  approved  guidelines  for use by the Advisor in  determining
whether a security  is liquid or  illiquid.  Among the  factors  the Advisor may
consider in reaching  liquidity  decisions relating to Rule 144A securities are:
(1) the  frequency  of trades  and quotes  for the  security;  (2) the number of
dealers  wishing  to  purchase  or sell the  security  and the  number  of other
potential purchasers;  (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the market for the security
(i.e.,  the time  needed to dispose of the  security,  the method of  soliciting
offers, and the mechanics of the transfer). Issuers of restricted securities may
not be subject to the disclosure and other investor protection  requirement that
would  be  applicable  if  their  securities  were  publicly  traded.   Where  a
registration  statement is required for the resale of restricted  securities,  a
fund may be required to bear all or part of the  registration  expenses.  A fund
may be deemed to be an "underwriter"  for purposes


                                       6


of the 1933 Act, when selling  restricted  securities to the public and, in such
event, a fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.

A fund may also purchase securities that are not subject to legal or contractual
restrictions  on resale,  but that are deemed  illiquid.  Such securities may be
illiquid, for example, because there is a limited trading market for them.

A fund may be unable to sell a restricted or illiquid security.  In addition, it
may be more  difficult to determine a market  value for  restricted  or illiquid
securities.  Moreover,  if adverse market  conditions were to develop during the
period between a fund's  decision to sell a restricted or illiquid  security and
the point at which a fund is  permitted  or able to sell such  security,  a fund
might  obtain a price  less  favorable  than the price  that  prevailed  when it
decided to sell. This investment practice,  therefore,  could have the effect of
increasing the level of illiquidity of a fund.

IPO Risk.  Securities  issued  through  an  initial  public  offering  (IPO) can
experience an immediate drop in value if the demand for the securities  does not
continue to support the  offering  price.  Information  about the issuers of IPO
securities is also difficult to acquire since they are new to the market and may
not have lengthy operating histories. A fund may engage in short-term trading in
connection  with its IPO  investments,  which could produce higher trading costs
and  adverse  tax  consequences.  The number of  securities  issued in an IPO is
limited,  so it is likely that IPO securities will represent a smaller component
of a fund's  portfolio as a fund's assets increase (and thus have a more limited
effect on a fund's performance).

Interfund  Borrowing and Lending  Program.  The Trusts have  received  exemptive
relief from the Securities and Exchange Commission ("SEC"), which permits a fund
to  participate  in  an  interfund  lending  program  among  certain  investment
companies  advised by the Advisor.  The  interfund  lending  program  allows the
participating  funds to  borrow  money  from and loan  money to each  other  for
temporary  or  emergency  purposes.  The  program  is  subject  to a  number  of
conditions  designed to ensure fair and equitable treatment of all participating
funds, including the following: (1) no fund may borrow money through the program
unless it receives a more favorable  interest rate than a rate approximating the
lowest  interest  rate at which  bank  loans  would be  available  to any of the
participating  funds  under a loan  agreement;  and (2) no fund may  lend  money
through  the  program  unless it  receives  a more  favorable  return  than that
available  from an  investment  in  repurchase  agreements  and,  to the  extent
applicable,  money  market  cash sweep  arrangements.  In  addition,  a fund may
participate in the program only if and to the extent that such  participation is
consistent  with the fund's  investment  objectives  and policies (for instance,
money market  funds would  normally  participate  only as lenders and tax exempt
funds only as borrowers).  Interfund loans and borrowings may extend  overnight,
but could  have a maximum  duration  of seven  days.  Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed.  Any delay in repayment to a lending
fund could result in a lost  investment  opportunity  or additional  costs.  The
program is subject to the  oversight  and  periodic  review of the Boards of the
participating  funds.  To the extent a fund is  actually  engaged  in  borrowing
through  the  interfund   lending  program,   the  fund  will  comply  with  its
non-fundamental policy on borrowing.

Investment of Uninvested Cash Balances.  A fund may have cash balances that have
not been invested in portfolio securities  ("Uninvested Cash").  Uninvested Cash
may result from a variety of sources,  including  dividends or interest received
from portfolio securities, unsettled securities transactions,  reserves held for
investment strategy purposes, scheduled maturity of investments,  liquidation of
investment securities to meet anticipated redemptions and dividend payments, and
new cash received from investors.  Uninvested  Cash may be invested  directly in
money market  instruments or other short-term debt  obligations.  Pursuant to an
Exemptive  Order issued by the SEC, a fund may use  Uninvested  Cash to purchase
shares of affiliated  funds including money market funds,  short-term bond funds
and Scudder Cash Management Investment Trust, or one or more future entities for
which the Advisor  acts as trustee or  investment  advisor  that operate as cash
management  investment  vehicles and that are excluded  from the  definition  of
investment  company  pursuant  to  Section  3(c)(1)  or  3(c)(7) of the 1940 Act
(collectively,  the  "Central  Funds") in excess of the  limitations  of Section
12(d)(1) of the 1940 Act.  Investment  by a fund in shares of the Central  Funds
will be in accordance with a fund's investment  policies and restrictions as set
forth in its registration statement.

Certain of the Central Funds comply with Rule 2a-7 under the 1940 Act. The other
Central Funds are or will be short-term  bond funds that invest in  fixed-income
securities  and maintain a dollar  weighted  average  maturity of


                                       7


three years or less.  Each of the Central Funds will be managed  specifically to
maintain a highly  liquid  portfolio,  and access to them will  enhance a fund's
ability to manage Uninvested Cash.

A fund will invest  Uninvested  Cash in Central  Funds only to the extent that a
fund's  aggregate  investment  in the  Central  Funds does not exceed 25% of its
total  assets.  Purchase  and sales of shares of  Central  Funds are made at net
asset value.

Investment Company Securities. A fund may acquire securities of other investment
companies to the extent consistent with its investment  objective and subject to
the limitations of the 1940 Act. A fund will  indirectly bear its  proportionate
share of any management  fees and other  expenses paid by such other  investment
companies.

For example,  a fund may invest in a variety of investment  companies which seek
to track the  composition  and  performance  of  specific  indexes or a specific
portion of an index.  These  index-based  investments hold  substantially all of
their assets in securities representing their specific index.  Accordingly,  the
main risk of investing in index-based  investments is the same as investing in a
portfolio  of equity  securities  comprising  the index.  The  market  prices of
index-based  investments  will fluctuate in accordance  with both changes in the
market  value of their  underlying  portfolio  securities  and due to supply and
demand for the  instruments on the exchanges on which they are traded (which may
result in their  trading at a discount  or premium to their  NAVs).  Index-based
investments  may not replicate  exactly the performance of their specified index
because of  transaction  costs and because of the  temporary  unavailability  of
certain component securities of the index.

Examples of index-based investments include:

SPDRs(R):  SPDRs,  an acronym for "Standard & Poor's  Depositary  Receipts," are
based on the S&P 500  Composite  Stock Price Index.  They are issued by the SPDR
Trust,  a unit  investment  trust that  holds  shares of  substantially  all the
companies  in the S&P 500 in  substantially  the  same  weighting  and  seeks to
closely track the price performance and dividend yield of the Index.

MidCap  SPDRs(R):  MidCap SPDRs are based on the S&P MidCap 400 Index.  They are
issued by the MidCap SPDR Trust, a unit investment  trust that holds a portfolio
of securities  consisting of  substantially  all of the common stocks in the S&P
MidCap 400 Index in substantially  the same weighting and seeks to closely track
the price performance and dividend yield of the Index.

Select Sector SPDRs(R):  Select Sector SPDRs are based on a particular sector or
group of  industries  that are  represented  by a specified  Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end  management  investment  company with nine
portfolios  that each seeks to closely track the price  performance and dividend
yield of a particular Select Sector Index.

DIAMONDS(SM):  DIAMONDS are based on the Dow Jones Industrial Average(SM).  They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.

Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100  Trust, a unit investment  trust that holds a portfolio
consisting of substantially  all of the securities,  in  substantially  the same
weighting,  as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.

WEBs(SM):  WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific  Morgan Stanley Capital International  Indexes. They are issued
by the WEBs Index Fund,  Inc., an open-end  management  investment  company that
seeks to generally  correspond to the price and yield  performance of a specific
Morgan Stanley Capital International Index.

Lending of Portfolio Securities. Each Fund may lend its investment securities to
approved  institutional  borrowers  who need to  borrow  securities  in order to
complete certain  transactions,  such as covering short sales, avoiding


                                       8


failures to deliver securities or completing  arbitrage  operations.  By lending
its  investment  securities,  the Fund  attempts to increase its net  investment
income  through the  receipt of  interest  on the loan.  Any gain or loss in the
market  price of the  securities  loaned that might occur during the term of the
loan would belong to the Fund.  The Fund may lend its  investment  securities so
long as the  terms,  structure  and the  aggregate  amount of such loans are not
inconsistent  with the 1940 Act or the rules and regulations or  interpretations
of the SEC thereunder,  which currently require that (a) the borrower pledge and
maintain  with the Fund  collateral  consisting of liquid,  unencumbered  assets
having a value at all times  not less  than 100% of the value of the  securities
loaned,  (b) the  borrower  add to such  collateral  whenever  the  price of the
securities  loaned  rises (i.e.,  the borrower  "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Fund at any time, and
(d) the Fund  receives  reasonable  interest  on the loan (which may include the
Fund investing any cash collateral in interest bearing short-term  investments),
and  distributions  on the loaned  securities  and any  increase in their market
value. There may be risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However,  loans will be made only to borrowers  selected by the Fund's  delegate
after a  commercially  reasonable  review of relevant  facts and  circumstances,
including the creditworthiness of the borrower.

At the  present  time,  the staff of the SEC does not  object  if an  investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such  fees are set  forth in a  written  contract  and  approved  by the
investment company's Board of Trustees/Directors. In addition, voting rights may
pass with the loaned  securities,  but if a material  event occurs  affecting an
investment on loan, the loan must be called and the securities  voted.  Pursuant
to an exemptive order granted by the SEC, cash  collateral  received by the Fund
may be  invested in a money  market  fund  managed by the Advisor (or one of its
affiliates).

Privatized Enterprises. Investments in foreign securities may include securities
issued  by  enterprises   that  have  undergone  or  are  currently   undergoing
privatization.  The  governments of certain  foreign  countries have, to varying
degrees,  embarked on privatization  programs  contemplating  the sale of all or
part of their  interests  in state  enterprises.  A  fund's  investments  in the
securities  of  privatized   enterprises   may  include   privately   negotiated
investments in a government or  state-owned or controlled  company or enterprise
that has not yet  conducted  an  initial  equity  offering,  investments  in the
initial  offering of equity  securities  of a state  enterprise  or former state
enterprise and investments in the securities of a state enterprise following its
initial equity offering.

In certain  jurisdictions,  the ability of foreign entities,  such as a fund, to
participate in privatizations may be limited by local law, or the price or terms
on which a fund may be able to  participate  may be less  advantageous  than for
local investors.  Moreover, there can be no assurance that governments that have
embarked on  privatization  programs will continue to divest their  ownership of
state  enterprises,  that  proposed  privatizations  will be  successful or that
governments will not re-nationalize enterprises that have been privatized.

In the case of the  enterprises in which a fund may invest,  large blocks of the
stock of those  enterprises may be held by a small group of  stockholders,  even
after  the  initial  equity  offerings  by those  enterprises.  The sale of some
portion or all of those blocks could have an adverse  effect on the price of the
stock of any such enterprise.

Prior to making an initial  equity  offering,  most state  enterprises or former
state  enterprises go through an internal  reorganization  or  management.  Such
reorganizations  are made in an attempt to better  enable these  enterprises  to
compete in the private sector. However,  certain reorganizations could result in
a  management  team  that does not  function  as well as an  enterprise's  prior
management and may have a negative effect on such enterprise.  In addition,  the
privatization  of an  enterprise  by its  government  may occur over a number of
years,  with the  government  continuing to hold a  controlling  position in the
enterprise even after the initial equity offering for the enterprise.

Prior to privatization, most of the state enterprises in which a fund may invest
enjoy the protection of and receive  preferential  treatment from the respective
sovereigns  that own or control them.  After making an initial equity  offering,
these   enterprises   may  no  longer  have  such  protection  or  receive  such
preferential  treatment and may become subject to market  competition from which
they were  previously  protected.  Some of these  enterprises may not be able to
operate  effectively in a competitive market and may suffer losses or experience
bankruptcy due to such competition.

                                       9


Real Estate Investment Trusts ("REITs").  A fund may invest in REITs.  REITs are
sometimes  informally  characterized as equity REITs,  mortgage REITs and hybrid
REITs.  Investment  in REITs  may  subject a fund to risks  associated  with the
direct  ownership  of real  estate,  such as  decreases  in real estate  values,
overbuilding,  increased competition and other risks related to local or general
economic conditions, increases in operating costs and property taxes, changes in
zoning  laws,   casualty  or   condemnation   losses,   possible   environmental
liabilities,  regulatory  limitations on rent and fluctuations in rental income.
Equity REITs generally  experience these risks directly through fee or leasehold
interests,  whereas  mortgage REITs generally  experience these risks indirectly
through  mortgage  interests,   unless  the  mortgage  REIT  forecloses  on  the
underlying real estate. Changes in interest rates may also affect the value of a
fund's investment in REITs. For instance,  during periods of declining  interest
rates,  certain  mortgage REITs may hold mortgages that the mortgagors  elect to
prepay,  which  prepayment may diminish the yield on securities  issued by those
REITs.

Certain REITs have relatively  small market  capitalizations,  which may tend to
increase the  volatility of the market price of their  securities.  Furthermore,
REITs  are  dependent  upon   specialized   management   skills,   have  limited
diversification and are,  therefore,  subject to risks inherent in operating and
financing a limited  number of  projects.  REITs are also  subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for 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 1940 Act. By investing in REITs indirectly through a fund, a
shareholder will bear not only his or her proportionate share of the expenses of
a fund's,  but also,  indirectly,  similar  expenses of the REITs.  In addition,
REITs  depend  generally  on  their  ability  to  generate  cash  flow  to  make
distributions to shareholders.

Repurchase  Agreements.  A fund may invest in repurchase  agreements pursuant to
its investment guidelines.  In a repurchase agreement, a fund acquires ownership
of a security and simultaneously  commits to resell that security to the seller,
typically a bank or broker/dealer.

A repurchase  agreement  provides a means for a fund to earn income on funds for
periods as short as overnight.  It is an  arrangement  under which the purchaser
(i.e., a 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 is 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 a fund, or the purchase and repurchase prices may
be the same,  with  interest  at a stated rate due to a fund  together  with the
repurchase  price  upon  repurchase.  In either  case,  the  income to a 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.

It is not clear  whether a court would  consider the  Obligation  purchased by a
fund subject to a  repurchase  agreement as being owned by that fund or as being
collateral  for a  loan  by  that  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,  a 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 a fund has
not perfected a security  interest in the Obligation,  that 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,  a fund would be at risk of
losing some or all of the principal and income involved in the  transaction.  As
with any unsecured  debt  Obligation  purchased for a fund, the Advisor 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 a fund
may incur a loss if the  proceeds  to that fund of the sale to a third party are
less  than  the  repurchase  price.  However,  if the  market  value  (including
interest) of the  Obligation  subject to the repurchase  agreement  becomes less
than the repurchase price (including interest), a fund will direct the seller of
the  Obligation  to  deliver  additional  securities  so that the  market  value
(including  interest) of all securities subject to the repurchase agreement will
equal or exceed the repurchase price.

Reverse  Repurchase  Agreements.  A fund  may  enter  into  "reverse  repurchase
agreements,"  which are repurchase  agreements in which a fund, as the seller of
the  securities,  agrees to repurchase  them at an agreed upon time and price. A
fund  maintains a segregated  account in  connection  with  outstanding  reverse
repurchase agreements. A


                                       10


fund will  enter  into  reverse  repurchase  agreements  only  when the  Advisor
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.  Such transactions may increase fluctuations in the market value of
a fund's assets and may be viewed as a form of leverage.

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

Zero Coupon Securities.  A fund may invest in zero coupon securities,  which pay
no cash  income  and are  sold at  substantial  discounts  from  their  value at
maturity.  When  held to  maturity,  their  entire  income,  which  consists  of
accretion of  discount,  comes from the  difference  between the issue price and
their value at maturity.  Zero coupon  securities  are subject to greater market
value  fluctuations  from  changing  interest  rates  than debt  obligations  of
comparable  maturities which make current distributions of interest (cash). Zero
coupon  securities which are convertible into common stock offer the opportunity
for capital  appreciation  as increases  (or  decreases) in market value of such
securities  closely  follow the movements in the market value of the  underlying
common stock. Zero coupon  convertible  securities  generally are expected to be
less volatile than the underlying  common stocks as they usually are issued with
maturities  of 15 years or less and are issued with  options  and/or  redemption
features  exercisable  by the holder of the  obligation  entitling the holder to
redeem the obligation and receive a defined cash payment.

Zero coupon securities include municipal securities,  securities issued directly
by the US Treasury,  and US Treasury bonds or notes and their unmatured interest
coupons and receipts for their underlying principal  ("coupons") which have been
separated by their holder,  typically a custodian  bank or investment  brokerage
firm, from the underlying  principal (the "corpus") of the US Treasury security.
A number of securities  firms and banks have  stripped the interest  coupons and
receipts and then resold them in  custodial  receipt  programs  with a number of
different names,  including  Treasury Income Growth Receipts  ("TIGRS(TM)")  and
Certificate  of Accrual on Treasuries  ("CATS(TM)").  The underlying US Treasury
bonds and notes  themselves are held in book-entry  form at the Federal  Reserve
Bank or, in the case of bearer securities (i.e.,  unregistered  securities which
are owned ostensibly by the bearer or holder thereof), in trust on behalf of the
owners  thereof.  Counsel to the  underwriters  of these  certificates  or other
evidences  of  ownership of the US Treasury  securities  have stated  that,  for
federal  tax and  securities  purposes,  in  their  opinion  purchasers  of such
certificates,  such as a fund, most likely will be deemed the beneficial  holder
of the  underlying  US  Government  securities.  A fund intends to adhere to the
current SEC staff position that  privately  stripped  obligations  should not be
considered US Government  securities for the purpose of determining if a fund is
"diversified" under the 1940 Act.

The US Treasury has facilitated transfers of ownership of zero coupon securities
by accounting  separately  for the beneficial  ownership of particular  interest
coupon and corpus  payments on Treasury  securities  through the Federal Reserve
book-entry record-keeping system. The Federal Reserve program, as established by
the Treasury Department, is known as "STRIPS" or "Separate Trading of Registered
Interest and Principal of Securities."  Under the STRIPS program, a fund will be
able  to have  its  beneficial  ownership  of zero  coupon  securities  recorded
directly  in the  book-entry  record-keeping  system  in lieu of  having to hold
certificates  or other  evidences  of ownership  of the  underlying  US Treasury
securities.

When US Treasury  obligations  have been  stripped of their  unmatured  interest
coupons  by the  holder,  the  principal  or corpus  is sold at a deep  discount
because the buyer  receives  only the right to receive a future fixed payment on
the  security  and does not  receive  any  rights to  periodic  interest  (cash)
payments.  Once  stripped  or  separated,  the  corpus and  coupons  may be sold
separately.  Typically,  the coupons are sold  separately  or grouped with other
coupons with like  maturity  dates and sold bundled in such form.  Purchasers of
stripped  obligations   acquire,  in  effect,   discount  obligations  that  are
economically identical to the zero coupon securities that the Treasury sells.

                                       11


Strategic  Transactions  and  Derivatives.  A fund may,  but is not required to,
utilize various other investment  strategies as described below for a variety of
purposes,  such as hedging various market risks, managing the effective maturity
or duration of  fixed-income  securities  in a fund's  portfolio,  or  enhancing
potential gain.  These  strategies may be executed through the use of derivative
contracts.

In the course of pursuing these investment  strategies,  a fund may purchase and
sell  exchange-listed and  over-the-counter  put and call options on securities,
equity and fixed-income indices and other instruments, purchase and sell futures
contracts and options thereon,  enter into various  transactions  such as swaps,
caps, floors, collars,  currency forward contracts,  currency futures contracts,
currency swaps or options on currencies,  or currency  futures and various other
currency  transactions  (collectively,  all  the  above  are  called  "Strategic
Transactions").  In  addition,  Strategic  Transactions  may  also  include  new
techniques,  instruments or strategies that are permitted as regulatory  changes
occur.  Strategic  Transactions  may be used without  limit  (subject to certain
limits imposed by the 1940 Act) to attempt to protect against  possible  changes
in the  market  value  of  securities  held in or to be  purchased  for a fund's
portfolio   resulting  from  securities   markets  or  currency   exchange  rate
fluctuations, to protect a 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 a fund's  portfolio,  or to
establish a position in the  derivatives  markets as a substitute for purchasing
or selling particular  securities.  Some Strategic Transactions may also be used
to enhance  potential  gain  although no more than 5% of a fund's assets will be
committed  to  certain  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 a
fund to utilize these  Strategic  Transactions  successfully  will depend on the
Advisor's  ability  to  predict  pertinent  market  movements,  which  cannot be
assured.  A fund  will  comply  with  applicable  regulatory  requirements  when
implementing   these   strategies,   techniques   and   instruments.   Strategic
Transactions  will  not be used to alter  fundamental  investment  purposes  and
characteristics  of a fund, and a fund will segregate  assets (or as provided by
applicable  regulations,  enter into certain offsetting  positions) to cover its
obligations under options, futures and swaps to limit leveraging of a 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 Advisor'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 a 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 a fund can realize on its investments or cause
a fund  to  hold a  security  it  might  otherwise  sell.  The  use of  currency
transactions  can result in a 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 a
fund  creates  the  possibility  that losses on the  hedging  instrument  may be
greater than gains in the value of a 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, a
fund might not be able to close out a transaction without incurring  substantial
losses,  if at all.  Although  the use of futures and options  transactions  for
hedging  should tend to minimize  the risk of loss due to a decline in the value
of the hedged  position,  at the same time they tend to limit any potential gain
which might  result from an increase  in value of such  position.  Finally,  the
daily variation margin requirements for futures contracts would create a greater
ongoing  potential  financial  risk than would  purchases of options,  where the
exposure is limited to the cost of the initial  premium.  Losses  resulting from
the use of Strategic  Transactions  would  reduce net asset value,  and possibly
income,  and such losses can be greater than if the Strategic  Transactions  had
not been utilized.

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

                                       12


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,  a 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.  A 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. A 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.

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

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

OTC  options  are  purchased  from  or  sold to  securities  dealers,  financial
institutions  or  other  parties  ("Counterparties")  through  direct  bilateral
agreement with the Counterparty.  In contrast to exchange listed options,  which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement,  term, exercise price,
premium,  guarantees and security, are set by negotiation of the parties. A 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.  A fund expects
generally  to enter  into OTC  options  that  have cash  settlement  provisions,
although it is not required to do so.

Unless the  parties  provide  for it,  there is no central  clearing or guaranty
function in an OTC option.  As a result,  if the  Counterparty  fails to make or
take delivery of the security,  currency or other  instrument  underlying an OTC
option  it has  entered  into  with the fund or fails to make a cash  settlement
payment due in accordance with the terms of that option,  the fund will lose any
premium  it paid  for the  option  as well  as any  anticipated  benefit  of the
transaction.  Accordingly,  the Advisor 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

                                       13


satisfied. A fund will engage in OTC option transactions only with US government
securities  dealers  recognized  by the  Federal  Reserve  Bank  of New  York as
"primary  dealers"  or  broker/dealers,  domestic  or  foreign  banks  or  other
financial  institutions which have received (or the guarantors of the obligation
of which have  received) a short-term  credit rating of A-1 from S&P or P-1 from
Moody's or an  equivalent  rating  from any  nationally  recognized  statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions,  are
determined to be of equivalent  credit quality by the Advisor.  The staff of 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 a  fund's  limitation  on
investing no more than 15% of its net assets in illiquid securities.

If a 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.

A fund may purchase and sell call  options on  securities  including US Treasury
and agency  securities,  mortgage-backed  securities,  foreign  sovereign  debt,
corporate debt securities,  equity securities (including convertible securities)
and  Eurodollar  instruments  that  are  traded  on US  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 a fund exposes a 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.

A fund may purchase and sell put options on securities including US Treasury and
agency securities, mortgage-backed securities, foreign sovereign debt, corporate
debt  securities,  equity  securities  (including  convertible  securities)  and
Eurodollar  instruments  (whether  or not it holds the above  securities  in its
portfolio),  and on securities  indices,  currencies and futures contracts other
than futures on individual corporate debt and individual equity securities. Each
fund will not sell put options if, as a result,  more than 50% of a 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 a fund may be required to
buy the underlying security at a disadvantageous price above the market price.

General  Characteristics  of Futures. A fund may enter into futures contracts or
purchase  or sell  put and  call  options  on such  futures  as a hedge  against
anticipated  interest rate, currency or equity market changes,  and for duration
management,  risk  management  and  return  enhancement  purposes.  Futures  are
generally  bought and sold on the  commodities  exchanges  where they are listed
with payment of initial and variation  margin as described  below. The sale of a
futures contract  creates a firm obligation by a 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 funds have claimed exclusion from the definition of the term "commodity pool
operator"  adapted  by the  CFTC and the  National  Futures  Association,  which
regulate trading in the futures markets. Therefore, the funds are not subject to
commodity pool operator registration and regulation under the Commodity Exchange
Act.  Futures and options on futures may be entered into for bona fide  hedging,
risk management  (including  duration  management) or other portfolio and return
enhancement management purposes to the extent consistent with the exclusion from
commodity pool operator registration.  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


                                       14


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.

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

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

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

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

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

To reduce  the  effect of  currency  fluctuations  on the value of  existing  or
anticipated holdings of portfolio securities,  the fund may also engage in proxy
hedging.  Proxy  hedging  is  often  used  when the  currency  to which a fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging  entails  entering into a commitment or option to sell a currency  whose
changes in value are  generally  considered  to be  correlated  to a currency or
currencies  in which  some or all of a fund's  portfolio  securities  are or are
expected  to be  denominated,  in  exchange  for US  dollars.  The amount of the
commitment  or  option  would  not  exceed  the  value  of a  fund's  securities
denominated in correlated currencies. Currency hedging involves some of the same
risks  and  considerations  as  other  transactions  with  similar  instruments.
Currency  transactions  can result in losses to the fund if the  currency  being

                                       15


hedged  fluctuates  in  value  to  a  degree  or  in a  direction  that  is  not
anticipated.  Further,  there is the risk that the perceived correlation between
various  currencies  may  not be  present  or  may  not be  present  during  the
particular  time that the fund is  engaging in proxy  hedging.  If a fund enters
into a  currency  hedging  transaction,  a  fund  will  comply  with  the  asset
segregation requirements described below.

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

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

Swaps,  Caps,  Floors and Collars.  Among the Strategic  Transactions into which
each fund may enter are interest rate,  currency,  index and other swaps and the
purchase or sale of related  caps,  floors and collars.  A 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. Each fund will not sell interest rate caps or floors where it does 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.

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

Risks of Strategic  Transactions  Outside the US. When conducted outside the US,
Strategic  Transactions may not be regulated as rigorously as in the US, may not
involve a clearing mechanism and related guarantees, and are subject to the risk
of  governmental  actions  affecting  trading  in,  or the  prices  of,  foreign
securities,  currencies and


                                       16


other instruments.  The value of such positions also could be adversely affected
by: (i) other complex foreign political, legal and economic factors, (ii) lesser
availability  than in the US of data on which to make trading  decisions,  (iii)
delays in a fund's  ability to act upon  economic  events  occurring  in foreign
markets  during  non-business  hours in the US, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
US, and (v) lower trading volume and liquidity.

Use of Segregated and Other Special Accounts.  Many Strategic  Transactions,  in
addition to other  requirements,  require that a fund  segregate  cash or liquid
assets with its  custodian  to the extent  fund  obligations  are not  otherwise
"covered" through ownership of the underlying security,  financial instrument or
currency. In general,  either the full amount of any obligation by a 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  assets 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 a 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 assets  sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by a fund on an index  will  require a 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 a fund  requires a fund to  segregate  cash or liquid  assets
equal to the exercise price.

Except when a 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 a fund to buy or sell currency will generally
require a fund to hold an amount of that currency or liquid  assets  denominated
in that currency  equal to a fund's  obligations  or to segregate cash or liquid
assets equal to the amount of a fund's obligation.

OTC options  entered into by a 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 a fund
sells  these  instruments  it will  only  segregate  an amount of cash or liquid
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 a 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 a fund  sells a call  option  on an  index  at a time  when  the
in-the-money amount exceeds the exercise price, a 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 a fund other than those
above  generally  settle with physical  delivery,  or with an election of either
physical delivery or cash settlement and a fund will segregate an amount of cash
or liquid  assets  equal to the full value of the option.  OTC options  settling
with physical  delivery or with an election of either physical  delivery or cash
settlement  will be treated the same as other  options  settling  with  physical
delivery.

In the case of a futures  contract  or an option  thereon,  a fund must  deposit
initial  margin and possible daily  variation  margin in addition to segregating
cash or liquid 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 liquid  assets may  consist of cash,  cash
equivalents, liquid debt or equity securities or other acceptable assets.

With respect to swaps, a 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 assets having a value equal
to the accrued excess.  Caps,  floors and collars require  segregation of assets
with a value equal to a fund's net obligation, if any.

Strategic  Transactions  may be covered  by other  means  when  consistent  with
applicable   regulatory   policies.  A  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,  a 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  cash or liquid assets if a
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


                                       17


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,
cash or  liquid  assets  equal  to any  remaining  obligation  would  need to be
segregated.

                             MANAGEMENT OF THE FUNDS

Investment Advisor

On April 5, 2002, Zurich Scudder Investments,  Inc. ("Scudder"),  the investment
advisor for each Fund,  was  acquired  by Deutsche  Bank AG. Upon the closing of
this  transaction,  Scudder became part of Deutsche Asset Management and changed
its  name  to  Deutsche  Investment  Management  Americas  Inc.  ("DeIM"  or the
"Advisor").  DeIM, which is part of Deutsche Asset Management  ("DeAM"),  is the
investment advisor for each Fund. Under the supervision of the Board of Trustees
of each Fund,  DeIM, with  headquarters at 345 Park Avenue,  New York, New York,
10154 makes each Fund's investment decisions,  buys and sells securities for the
Funds and conducts  research  that leads to these  purchase and sale  decisions.
DeIM and its predecessors have more than 80 years of experience  managing mutual
funds  and  DeIM  provides  a full  range of  investment  advisory  services  to
institutional  and  retail  clients.  Each  Fund's  investment  advisor  is also
responsible  for  selecting  brokers and dealers and for  negotiating  brokerage
commissions and dealer charges.

DeAM is the  marketing  name in the US for the asset  management  activities  of
Deutsche  Bank  AG,  DeIM,   Deutsche  Asset  Management  Inc.,  Deutsche  Asset
Management  Investment  Services Ltd.,  Deutsche Bank Trust Company Americas and
Scudder  Trust  Company.  DeAM is a global asset  management  organization  that
offers a wide range of investing expertise and resources,  including hundreds of
portfolio  managers and analysts and an office  network that reaches the world's
major investment centers.  This well-resourced global investment platform brings
together a wide variety of experience and investment insight, across industries,
regions,  asset classes and investing styles. DeIM is an indirect,  wholly owned
subsidiary  of Deutsche  Bank AG.  Deutsche  Bank AG is a major  global  banking
institution  that is engaged in a wide range of  financial  services,  including
investment  management,  mutual fund,  retail,  private and commercial  banking,
investment banking and insurance.

DeIM and its  predecessors are one of the most  experienced  investment  counsel
firms in the US. 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
Scudder  introduced  Scudder  International  Fund,  Inc.,  the first mutual fund
available  in the US  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 December 31,  1997,  Zurich  Insurance
Company  ("Zurich")  acquired a majority interest in Scudder,  and Zurich Kemper
Investments,  Inc., a Zurich subsidiary,  became part of Scudder. Scudder's name
was changed to Scudder  Kemper  Investments,  Inc.  On January 1, 2001,  Scudder
changed  its name from  Scudder  Kemper  Investments,  Inc.  to  Zurich  Scudder
Investments,  Inc. On April 5, 2002, 100% of Scudder, not including certain U.K.
operations  (known as Threadneedle  Investments),  was acquired by Deutsche Bank
AG.

The Advisor manages each Fund's daily investment and business affairs subject to
the policies  established  by each Trust's Board of Trustees.  The Trustees have
overall responsibility for the management of each Fund under Massachusetts law.

Pursuant to an investment  management agreement with each Fund, the Advisor acts
as each Fund's  investment  advisor,  manages its  investments,  administers its
business affairs,  furnishes office facilities and equipment,  provides clerical
and  administrative  services and permits its  officers  and  employees to serve
without  compensation as trustees or officers of one or more funds if elected to
such  positions.  To the extent  permissible  by law,  the  Advisor  may appoint
certain of its affiliates to perform certain of the Advisor's duties.

The principal source of the Advisor's income is professional  fees received from
providing continuous investment advice. Today it provides investment counsel for
many individuals and institutions,  including  insurance  companies,  industrial
corporations,  and  financial  and banking  organizations,  as well as providing
investment advice to open- and closed-end SEC registered funds.


                                       18


The Advisor  maintains a large research  department,  which conducts  continuous
studies of the factors that affect the position of various industries, companies
and  individual   securities.   The  Advisor  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
Advisor's clients. However, the Advisor regards this information and material as
an  adjunct  to  its  own  research  activities.   The  Advisor's  international
investment  management team travels the world researching hundreds of companies.
In  selecting  securities  in  which a Fund  may  invest,  the  conclusions  and
investment  decisions of the Advisor with respect to a Fund are based  primarily
on the analyses of its own research department.

In certain cases, the investments for a Fund are managed by the same individuals
who manage one or more  other  mutual  funds  advised by the  Advisor  that have
similar names, objectives and investment styles. You should be aware that a Fund
is likely to differ from these other mutual funds in size, cash flow pattern and
tax matters. Accordingly, the holdings and performance of a Fund can be expected
to vary from those of these other mutual funds.

Certain  investments  may be  appropriate  for a Fund and also for other clients
advised by the Advisor.  Investment  decisions  for a 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 Advisor 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 a Fund.  Purchase  and sale  orders for a Fund may be  combined  with
those of other  clients of the  Advisor in the  interest of  achieving  the most
favorable net results to a Fund.

Each Fund is  managed  by a team of  investment  professionals  who each play an
important  role in a Fund's  management  process.  Team members work together to
develop investment strategies and select securities for a Fund's portfolio. This
team works for the Advisor or its  affiliates  and is supported by a large staff
of economists,  research analysts, traders and other investment specialists. The
Advisor or its affiliates  believe(s) its team approach  benefits Fund investors
by bringing  together many  disciplines and leveraging its extensive  resources.
Team members with primary responsibility for management of the Funds, as well as
team members who have other ongoing management  responsibilities  for each Fund,
are  identified in the Funds'  prospectuses.  Composition of the team may change
over time,  and Fund  shareholders  and  investors  will be  notified of changes
affecting individuals with primary Fund management responsibility.

The current  Agreements for Capital  Growth Fund,  Growth Fund and Large Company
Growth  Fund were  approved by the  Trustees  on February 4, 2002.  Shareholders
approved the Agreements on March 28, 2002 and they became  effective on April 5,
2002. The Trustees last approved the Agreements for Scudder  Capital Growth Fund
and Scudder  Large  Company  Growth Fund on August 9, 2004.  The  Trustees  last
approved  the  Agreement  for Scudder  Growth Fund on September  26,  2004.  The
Agreements had an initial term ending  September 30, 2002 and continue from year
to year thereafter only if their continuance is approved annually by the vote of
a  majority  of  those  Trustees  who are not  parties  to  such  Agreements  or
interested persons of the Advisor or the Trust ( "Independent  Trustees"),  cast
in person at a meeting  called for the purpose of voting on such  approval,  and
either by a vote of a majority of the  Trust's  Trustees or of a majority of the
outstanding voting securities of a Fund.

The  Agreements  may be  terminated  at any time  without  payment of penalty by
either party on sixty days' written  notice and  automatically  terminate in the
event of their assignment.

Under each Agreement,  the Advisor regularly  provides each Fund with continuing
investment  management  for each Fund's  portfolio  consistent  with each Fund's
investment  objective,  policies and restrictions and determines what securities
shall be  purchased,  held or sold and what portion of a Fund's  assets shall be
held uninvested, subject to each Trust's Declaration of Trust, By-Laws, the 1940
Act,  the  Code  and  to  each  Fund's   investment   objective,   policies  and
restrictions,  and subject,  further,  to such policies and  instructions as the
Board of Trustees of the Trust


                                       19


may from time to time  establish.  The  Advisor  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 each Fund.

Under each Fund's Agreement,  the Advisor also renders  administrative  services
(not otherwise  provided by third parties)  necessary for each 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 a Fund  (such  as each  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 each
Fund's  federal,  state and local tax returns;  preparing and filing each 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 each Fund  under  applicable
federal and state securities laws;  maintaining each Fund's books and records to
the extent not otherwise maintained by a third party;  assisting in establishing
accounting policies of each Fund;  assisting in the resolution of accounting and
legal  issues;   establishing  and  monitoring  each  Fund's  operating  budget;
processing  the  payment  of each  Fund's  bills;  assisting  each Fund in,  and
otherwise  arranging  for,  the  payment of  distributions  and  dividends;  and
otherwise  assisting  each Fund in the conduct of its  business,  subject to the
direction and control of the Trustees.

The Advisor pays the  compensation  and expenses of all  Trustees,  officers and
executive  employees of a Fund affiliated with the Advisor and makes  available,
without  expense to the Trust,  the  services  of such  Trustees,  officers  and
employees  of the  Advisor as may duly be elected  officers  or  Trustees of the
Trust,  subject  to their  individual  consent  to serve and to any  limitations
imposed by law, and provides a Fund's office space and facilities.

Scudder  Capital  Growth Fund pays the Advisor,  at the annual rate of 0.580% of
the first $3 billion of average daily net assets,  0.555% of the next $1 billion
and 0.530%  thereafter,  computed and accrued daily. The fee is payable monthly,
provided  that the Fund will make such  interim  payments as may be requested by
the Advisor not to exceed 75% of the amount of the fee then accrued on the books
of the Fund and unpaid.

Scudder Growth Fund pays the Advisor,  at the annual rate of 0.580% of the first
$250,000,000  of average daily net assets,  0.550% for the next  $750,000,000 of
average daily net assets,  0.530% for the next  $1,500,000,000  of average daily
net  assets,  0.510% for the next  $2,500,000,000  of average  daily net assets,
0.480% for the next  $2,500,000,000 of average daily net assets,  0.460% for the
next   $2,500,000,000  of  average  daily  net  assets,   0.440%  for  the  next
$2,500,000,000   of  average   daily  net  assets,   and  0.420%  in  excess  of
$12,500,000,000,  computed  and  accrued  daily.  The  fee is  payable  monthly,
provided  that the Fund will make such  interim  payments as may be requested by
the Advisor not to exceed 75% of the amount of the fee then accrued on the books
of the Fund and unpaid.

Scudder Large Company Growth Fund pays the Advisor,  at the annual rate of 0.70%
of the first $1.5  billion of average  daily net assets,  0.65% of the next $500
million and 0.60%  thereafter,  computed and accrued  daily.  The fee is payable
monthly,  provided  that the Fund  will  make such  interim  payments  as may be
requested by the Advisor not to exceed 75% of the amount of the fee then accrued
on the books of the Fund and unpaid.

The advisory fees paid by each Fund for its last three fiscal years are shown in
the table below.



Fund                                        Fiscal 2004                   Fiscal 2003             Fiscal 2002
- ----                                        -----------                   -----------             -----------
                                                                                             
Capital Growth Fund*                         $7,291,471                    $6,773,635              $9,200,982
Growth Fund*                                 $5,384,177                    $5,339,758              $7,582,323
Large Company Growth Fund**                  $3,716,723                    $3,633,299              $5,569,054


*        Fiscal  year end for Capital  Growth Fund and Growth Fund is  September
         30.

**       Fiscal year end for Large Company Growth Fund is July 31.

                                       20


Under  its  Agreement,  a Fund  is  responsible  for all of its  other  expenses
including:  organizational  costs, fees and expenses incurred in connection with
membership in investment company  organizations;  brokers'  commissions;  legal,
auditing and accounting  expenses;  insurance;  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 a Fund who are not  affiliated
with the Advisor;  the cost of printing and distributing  reports and notices to
shareholders;  and the fees and disbursements of custodians.  A Fund may arrange
to have third parties  assume all or part of the expenses of sale,  underwriting
and  distribution  of  shares of the Fund.  A 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 applicable Fund with respect thereto.

In reviewing  the terms of each  Agreement and in  discussions  with the Advisor
concerning  such  Agreement,  the  Trustees  of a Trust who are not  "interested
persons" of the Advisor are  represented  by  independent  counsel at the Funds'
expense.

Each  Agreement  provides  that the Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by a 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  Advisor in the
performance  of its  duties or from  reckless  disregard  by the  Advisor of its
obligations and duties under the Agreement.

Officers and  employees  of the Advisor from time to time may have  transactions
with various  banks,  including the Funds'  custodian  bank. It is the Advisor'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 Advisor may serve as advisor to other funds with  investment  objectives and
policies  similar  to those  of a Fund  that  may  have  different  distribution
arrangements or expenses, which may affect performance.

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

Board Considerations in Connection with Annual Renewal of Investment  Management
Agreement for Scudder Growth Fund. The Board of Trustees approved the renewal of
the Fund's advisory  contract at a meeting held on September 23 and 24, 2004. As
part of the annual contract review process, commencing in July, 2004, the Board,
as a whole,  the  Independent  Trustees,  separately,  and the Fund's  Oversight
Committee  met on  several  occasions  to  consider  the  renewal  of the Fund's
investment management agreement.  The Oversight Committee initially analyzed and
reviewed extensive materials,  requested and received responses from the Advisor
and received advice from  independent  legal counsel.  The Independent  Trustees
also retained an independent  consultant to evaluate the  appropriateness of the
groupings  used by the Advisor for purposes of comparing  fees of similar  funds
and other  institutional  accounts.  The  Committee  presented  its findings and
recommendations to the Independent Trustees as a group. The Independent Trustees
then reviewed the  Committee's  findings and  recommendations  and presented its
recommendations to the full Board. At a meeting on September 24, 2004, the Board
concluded that the terms of the investment management agreement for the Fund are
fair and reasonable and the continuance of the agreement is in the best interest
of the Fund. As a part of its decision-making  process, the Board noted that the
Advisor and its predecessors have managed the Fund since its inception,  and the
Trustees  believe that a long-term  relationship  with a capable,  conscientious
adviser is in the best interests of the Fund. The Board  considered,  generally,
that  shareholders  invested in the Fund, or approved the investment  management
agreement  for the Fund,  knowing that the Adviser  managed the Fund and knowing
the  investment  management  fee schedule.  As such,  the Board  considered,  in
particular,  whether  the  Advisor  managed  the  Fund in  accordance  with  its
investment  objectives  and  policies as disclosed  to  shareholders.  The Board
concluded  that  the  Fund  was  managed  by the  Advisor  consistent  with  its
investment objectives and policies.

In  connection  with  their  meetings,  the  Oversight  Committee  and the Board
received  comprehensive  materials from the Advisor and from independent sources
relating  to the  management  fees  charged  and  services  provided,  including
information  about (i) the  nature  and  quality  of  services  provided  by the
Advisor,  including information with respect


                                       21


to administrative  services provided under the investment  management  agreement
and compliance with legal requirements; (ii) the management fees, expense ratios
and  asset  size of the Fund  relative  to peer  groups;  (iii) the level of the
Advisor's  profits with respect to the  management  of the Fund,  including  the
methodology  used to allocate  costs  among funds  advised by the Advisor and an
attestation report from an accounting firm as to the methodology employed;  (iv)
the short-term and long-term  performance of the Fund relative to an appropriate
peer group and a market  index;  (v)  fall-out  benefits to the Advisor from its
relationship to the Fund,  including  revenues derived from services provided to
the Fund by affiliates of the Advisor; (vi) the potential incidental benefits to
the Advisor and its affiliates, the Fund and its shareholders; and (vii) general
information  about the Advisor.  With respect to  investment  performance,  Fund
expenses and Advisor profitability,  the Board focused primarily on data for the
period ended  December  31, 2003,  but also  considered  more recent  investment
performance and its observations from ongoing  performance  reviews. In addition
to the materials  prepared  specifically  for contract  review  analysis,  on an
ongoing  basis  the  Board  receives   information  and  reports  on  investment
performance as well as operational and compliance matters.

Investment Performance.  The Board reviewed the Fund's investment performance as
well as the  performance  of a peer group of funds,  and the  performance  of an
appropriate index. The Board considered short-term and long-term performance, as
well as the  factors  contributing  to  underperformance  and steps taken by the
Advisor to improve such  underperformance.  In particular,  the Board noted that
the  Advisor  has a process  by which it  identifies  those  funds  experiencing
significant  underperformance  relative to their peer group for designated  time
periods ("Focus  Funds") and provides more frequent  reports of steps to monitor
and  improve  performance  of the Focus  Funds.  The Board noted that during the
period in which the Board was evaluating the  investment  management  agreement,
the Fund had been  identified  as a Focus Fund,  and that a change in  portfolio
management  team was made in early 2003 as a part of the steps  taken to improve
performance.  The Board also considered the  adjustments in investment  approach
taken  in late  2003 and  early  2004 to  address  performance  issues,  and the
subsequent improvements in performance.

Fees and Expenses. The Board considered the Fund's management fee rates, expense
ratios and asset size relative to an appropriate peer group of funds,  including
information about the expense limitation commitments from the Advisor. The Board
also  considered the Fund's  management fee rates as compared to fees charged by
the  Advisor  and  certain  of  its   affiliates  for   non-investment   company
institutional  accounts.  The Board  noted  that the mix of  services  under the
Fund's investment management agreement versus those under the Advisor's advisory
agreements   for   non-investment    company   institutional   accounts   differ
significantly. The Board also took note of the expense caps to which the Advisor
had agreed for approximately three years that would take effect upon the closing
of a proposed reorganization with Scudder Capital Growth Fund.

Profitability.  The Board  considered  the level of the  Advisor's  profits with
respect  to the  management  of the Fund,  including  a review of the  Advisor's
methodology  in allocating  its costs to the  management of the Fund.  The Board
considered the profits  realized by the Advisor in connection with the operation
of the Fund and  whether the amount of profit is a fair  entrepreneurial  profit
for the management of the Fund. The Board also considered the Advisor's  overall
profit margins in comparison with available industry data.

Economies of Scale.  The Board  considered  whether there have been economies of
scale  with  respect  to the  management  of the Fund and  whether  the Fund has
appropriately  benefited  from any  economies  of scale.  The  Board  considered
whether the  management  fee rate is reasonable in relation to the asset size of
the Fund.  The  Board  noted  that the  investment  management  fee for the Fund
included  seven  breakpoints,  designed  to share  economies  of scale  with the
shareholders.

Advisor  Personnel and Methods.  The Board  considered  the size,  education and
experience of the  Advisor's  staff,  its use of technology  and its approach to
recruiting,  training and retaining  portfolio  managers and other  research and
management personnel.

Nature and Quality of Other Services. The Board considered the nature,  quality,
cost and extent of  administrative  and  shareholder  services  performed by the
Advisor and its affiliated companies.

                                       22


Other  Benefits to the Advisor.  The Board also  considered  the  character  and
amount of other incidental benefits received by the Advisor and its affiliates.

Board Considerations in Connection with Annual Renewal of Investment  Management
Agreements for Capital Growth Fund and Large Company Growth Fund

The Funds' Trustees  approved the continuation of the Funds' current  investment
management  agreements with the Advisor in August 2004. The Trustees  believe it
is important and useful for Fund  shareholders to understand some of the reasons
why  these  contracts  were  approved  for  another  year  and how they go about
considering it.

In terms of the process the Trustees  followed prior to approving each contract,
shareholders should know that:

o        At present  time,  all Fund  Trustees -- including  the chairman of the
         Board -- are independent of the Advisor and its affiliates.

o        The Trustees  meet  frequently to discuss Fund  matters.  In 2003,  the
         Trustees  conducted 34 meetings  (spanning  19 different  days) to deal
         with Fund issues  (including  regular and special  Board and  committee
         meetings).  Each year,  the  Trustees  dedicate  part or all of several
         meetings to contract review matters.

o        The Trustees  regularly meet privately with their  independent  counsel
         (and, as needed,  other advisors) to discuss  contract review and other
         matters.

The Trustees do not believe that the  investment  management  contracts  for the
Funds  should be "put out to bid" or changed  without a compelling  reason.  The
Advisor  and its  predecessors  (Deutsche  Bank  acquired  Scudder in 2002) have
managed each Fund since its inception, and the Trustees believe that a long-term
relationship  with a capable,  conscientious  adviser is in the best interest of
shareholders.  As you may know,  the Advisor is part of Deutsche  Bank,  a major
global  banking  institution  that  is  engaged  in a wide  range  of  financial
services.  The Trustees  believe that there are significant  advantages to being
part of a global asset management business that offers a wide range of investing
expertise and resources,  including  hundreds of portfolio managers and analysts
with research capabilities in many countries throughout the world.

In addition to the Advisor's research and investment capabilities,  the Trustees
considered other aspects of the Advisor's qualifications, including its services
to  Fund  shareholders.  The  Advisor  and its  affiliates  have  maintained  an
excellent  service  record,  and have achieved many 5-star  rankings by National
Quality Review in important service categories.  The investment  performance for
many Funds  continues  to be strong  relative to other  similar  funds,  and the
Trustees are satisfied  that the Advisor is committed to  addressing  individual
fund performance issues when they arise.

Shareholders  may  focus  only on fund  performance  and  fees,  but the  Funds'
Trustees  consider  these and many other  factors,  including  the  quality  and
integrity  of the  Advisor's  personnel  and such  other  issues as  back-office
operations, fund valuations, and compliance policies and procedures. The Advisor
has also  implemented  new,  forward-looking  policies  and  procedures  in many
important  areas,  such as those involving  brokerage  commissions and so-called
"soft dollars", even when not obligated to do so by law or regulation.

In determining to approve the continuation of each Fund's investment  management
agreement,  the Trustees  considered this and other information and factors that
they  believed  relevant  to  the  interest  of  Fund  shareholders,  including:
investment  management  fees,  expense ratios and asset sizes of the Fund itself
and relative to appropriate  peer groups,  including the Advisor's  agreement to
cap fund expenses at specified levels through  September 30, 2005;  advisory fee
rates charged by the Advisor to its institutional  clients; the nature,  quality
and  extent  of  services  provided  by  the  Advisor  to the  Fund;  investment
performance, both of the Fund itself and relative to appropriate peer groups and
market  indices;  the Advisor's  profitability  from managing the Fund and other
mutual funds (before  marketing  expenses  paid by the  Advisor);  the extent to
which  economies  of scale would be realized  as the Fund  grows;  and  possible
financial and other  benefits to the Advisor from serving as investment  adviser
and from  affiliates  of the  Advisor  providing  various  services  to the Fund
(including  research  services  available  to the Advisor by reason of brokerage
business generated by the Fund).



                                       23


The Trustees  requested and received  extensive  information from the Advisor in
connection  with their review of these and other  factors.  At the conclusion of
this process,  the Trustees  determined that  continuing each Fund's  investment
management  agreement  with  the  Advisor  was  in the  best  interest  of  Fund
shareholders.

Administrative Agreement

Effective July 17, 2000 for Capital Growth Fund,  June 25, 2001 for Growth Fund,
and October 2, 2000 for Large Company  Growth Fund, as amended  August 19, 2002,
each Fund entered into an  administrative  services  agreement  with the Advisor
(the "Administrative  Agreement") pursuant to which the Advisor provided or paid
others to provide  substantially all of the administrative  services required by
the Fund  (other  than  those  provided  by the  Advisor  under  its  investment
management  agreement  with the Fund,  as  described  above) in exchange for the
payment  by the Fund (for all Funds  except  Growth  Fund) of an  administrative
services fee (the "Administrative  Fee") of 0.325% for Class A, 0.375% for Class
B, 0.350% for Class C and 0.275% for  Institutional  Class (Capital  Growth Fund
only) of the average daily net assets of the applicable class.  Growth Fund paid
an Administrative Fee of 0.225%,  0.375%, 0.325% and 0.100% of average daily net
assets for Class A, B and C shares,  which was  computed  and accrued  daily and
payable monthly.

The administrative fees incurred by each Fund are shown in the table below.



Fund                                                   Fiscal 2004            Fiscal 2003            Fiscal 2002
- ----                                                   -----------            -----------            -----------
                                                                                                
Large Company Growth Fund -- Class A                        $96,660               $131,362               $200,352
Large Company Growth Fund -- Class B                         $9,245                 $9,362                 $7,160
Large Company Growth Fund -- Class C                         $6,784                 $6,225                 $4,564
Large Company Growth Fund -- Class R*                            NA                     NA                     NA
Large Company Growth Fund -- Institutional                  $13,829                $10,811                     $3
Class

Capital Growth Fund -- Class A                             $224,587               $352,592               $336,519
Capital Growth Fund -- Class B                             $100,116               $183,749               $238,905
Capital Growth Fund -- Class C                              $44,983                $69,691                $70,901
Capital Growth Fund -- Class R*                                  NA                     NA                     NA
Capital Growth Fund -- Class I                               $3,618                $11,289                 $5,741
Capital Growth Fund -- Institutional Class                     $943                 $1,007                     $1

Growth Fund -- Class A                                           NA             $2,709,403             $2,587,912
Growth Fund -- Class B                                           NA               $477,067               $718,034
Growth Fund -- Class C                                           NA                $78,348                $83,397
Growth Fund -- Institutional Class                               NA                 $5,449                $11,528


* Class R shares launched on October 1, 2003.

Effective March 31, 2004, the Administrative  Agreement was terminated.  Without
the   Administrative   Agreement,   fees  paid  by  each  class  of  shares  for
administrative   services   previously   paid  and  provided   pursuant  to  the
Administrative  Agreement may be higher.  Through November 30, 2005, the Advisor
will contractually waive all or a portion of its management fee and reimburse or
pay  operating  expenses of the Funds to the extent  necessary to maintain  each
Fund's  total  operating  expenses,  excluding  extraordinary  expenses,  taxes,
brokerage,  interest  expense,  Rule 12b-1  and/or  service  fee and trustee and
trustee counsel fees and expenses, organization and offering expenses at 1.000%,
1.015%,  1.000%  and  1.50% for  Class A,  Class B,  Class C and Class R shares,
respectively, of Capital Growth Fund, 0.920%, 1.005%, 0.990% and 0.715% of Class
A, Class B, Class C and Class I shares, respectively, of Growth Fund, and 1.050%
for Class A,  Class B and  Class C shares  and 1.55% for Class R shares of Large
Company Growth Fund.

Each Agreement for Capital Growth Fund and Large Company Growth Fund  identifies
the Advisor as the exclusive  licensee of the rights to use and  sublicense  the
names "Scudder,"  "Scudder  Investments" and "Scudder,  Stevens and


                                       24


Clark,  Inc." (together,  the "Scudder Marks").  Under this license,  the Trust,
with respect to a 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.  The term "Scudder Investments" is the
designation  given to the services provided by the Advisor and its affiliates to
the Scudder Mutual Funds.

Certain  expenses  of  each  Fund  were  not  borne  by the  Advisor  under  the
Administrative Agreement,  such as taxes, brokerage,  interest and extraordinary
expenses;  and the fees and expenses of the Independent  Trustees (including the
fees  and  expenses  of their  independent  counsel).  In  addition,  each  Fund
continued to pay the fees required by its investment  management  agreement with
the Advisor.

AMA  InvestmentLink(SM)  Program  (Scudder Capital Growth Fund and Scudder Large
Company Growth Fund only)

Pursuant  to an  agreement  between  the  Advisor  and AMA  Solutions,  Inc.,  a
subsidiary of the American Medical  Association (the "AMA"),  dated May 9, 1997,
the Advisor 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  Advisor  with  respect to assets  invested  by AMA  members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Advisor
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  advisor
or broker/dealer  under federal  securities laws. Any person who participates in
the AMA  InvestmentLink(SM)  Program  will be a customer of the Advisor (or of a
subsidiary   thereof)   and   not   the   AMA  or  AMA   Solutions,   Inc.   AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.

Codes of Ethics

The Funds,  the Advisor and the Funds'  principal  underwriter have each adopted
codes of ethics under Rule 17j-1 under the 1940 Act. Board members,  officers of
the Trusts and employees of the Advisor and principal  underwriter are permitted
to make personal securities  transactions,  including transactions in securities
that  may be  purchased  or held  by the  Funds,  subject  to  requirements  and
restrictions set forth in the applicable Code of Ethics.  The Advisor's Codes of
Ethics  contains  provisions and  requirements  designed to identify and address
certain  conflicts of interest  between personal  investment  activities and the
interests  of the  Funds.  Among  other  things,  the  Advisor's  Code of Ethics
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
quarterly 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
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.

                                SERVICE PROVIDERS

Principal Underwriter and Administrator

Pursuant to separate  Underwriting and Distribution  Services Agreements (each a
"Distribution  Agreement"),   Scudder  Distributors,  Inc.  ("SDI"),  222  South
Riverside Plaza,  Chicago,  Illinois 60606, an affiliate of the Advisor,  is the
principal  underwriter,  distributor and administrator for the Class A, Class B,
Class C and Institutional  Class shares of each Fund, Class R shares for Capital
Growth Fund and Large Company  Growth Fund and  Institutional  Class for Capital
Growth Fund,  and acts as agent of each Fund in the  continuous  offering of its
Shares.  The  Distribution  Agreements for Large Company Growth Fund and Capital
Growth  Fund,  each dated April 5, 2002,  were last  approved by the Trustees on
August 9, 2004. The Distribution Agreement for Growth Fund, dated April 5, 2002,
was last approved by the Trustees on September 26, 2004.

Each  Distribution  Agreement  continues in effect until  September 30, 2004 and
from year to year  thereafter only if its continuance is approved for each class
at  least  annually  by a vote of the  Board  members  of the  applicable  Fund,

                                       25


including the Trustees who are not interested  persons of each Fund and who have
no direct or indirect financial interest in the Agreement.

Each  Distribution  Agreement  automatically  terminates  in  the  event  of its
assignment and may be terminated for a class at any time without penalty by each
Fund or by SDI upon 60 days'  written  notice.  Termination  by each  Fund  with
respect to a class may be by vote of (i) a majority of the Board members who are
not interested persons of each Fund and who have no direct or indirect financial
interest in the Distribution  Agreement,  or (ii) a "majority of the outstanding
voting securities" of the class of each Fund, as defined under the 1940 Act. All
material  amendments  must be  approved  by the Board of  Trustees in the manner
described  above  with  respect  to  the  continuation  of  the  Agreement.  The
provisions concerning continuation,  amendment and termination of a Distribution
Agreement are on a series by series and class by class basis.

SDI bears all of its expenses of providing services pursuant to the Distribution
Agreement, including the payment of any commissions. Each Fund pays the cost for
the  prospectus and  shareholder  reports to be typeset and printed for existing
shareholders,  and SDI, as  principal  underwriter,  pays for the  printing  and
distribution of copies thereof used in connection with the offering of shares to
prospective  investors.  SDI also pays for  supplementary  sales  literature and
advertising  costs.  As indicated under "Purchase and Redemption of Shares," SDI
retains  the  sales  charge  upon the  purchase  of  shares  and pays or  allows
concessions  or  discounts  to firms  for the  sale of the  Funds'  shares.  SDI
receives compensation from the Funds as principal underwriter for Class A, Class
B, Class C and Class R shares, as applicable.

Shareholder and  administrative  services are provided to each Fund on behalf of
Class  A,  Class B,  Class C and  Class  shareholders,  as  applicable,  under a
Shareholder Services Agreement (the "Services Agreement") with SDI. The Services
Agreement  continues in effect from year to year so long as such  continuance is
approved for the Fund at least annually by a vote of the Board of the applicable
Fund, including the Board members who are not interested persons of the Fund and
who have no direct or indirect financial interest in the Services Agreement. The
Services Agreement  automatically  terminates in the event of its assignment and
may be  terminated  at any time  without  penalty  by the Fund or by SDI upon 60
days' written notice.  Termination with respect to the Class A, B, C or R shares
of a Fund may be by a vote of (i) the majority of the Board  members of the Fund
who are not  interested  persons of the Fund and who have no direct or  indirect
financial  interest  in the  Services  Agreement,  or  (ii) a  "majority  of the
outstanding  voting  securities"  of the Class A, B, C or R shares,  as  defined
under the 1940 Act.  The  Services  Agreement  may not be amended for a class to
increase  materially  the fee to be  paid  by the  Fund  without  approval  of a
majority of the outstanding  voting  securities of such class of a Fund, and all
material  amendments  must in any event be  approved by the Board of Trustees in
the manner  described  above with  respect to the  continuation  of the Services
Agreement.

Under the Services Agreement,  SDI may provide or appoint various  broker-dealer
firms and other service or administrative firms ("firms") to provide information
and services to investors in a Fund. Typically,  SDI appoints firms that provide
services and  facilities  for their  customers or clients who are investors in a
Fund. Firms appointed by SDI provide such office space and equipment,  telephone
facilities and personnel as is necessary or beneficial for providing information
and services to their clients. Such services and assistance may include, but are
not limited to,  establishing and maintaining  accounts and records,  processing
purchase and redemption  transactions,  answering routine inquiries  regarding a
Fund,  providing  assistance  to clients in  changing  dividend  and  investment
options,  account  designations  and  addresses  and such  other  administrative
services as may be agreed  upon from time to time and  permitted  by  applicable
statute, rule or regulation.

SDI bears all of its  expenses  of  providing  those  services  pursuant  to the
Services Agreement,  including the payment of a service fee to firms (as defined
below).  As  indicated  below SDI receives  compensation  from the Funds for its
services under the Services Agreement.

Rule 12b-1 Plans

Each Fund has  adopted a plan  pursuant to Rule 12b-1 under the 1940 Act (each a
"Rule 12b-1  Plan") that  provides for fees payable as an expense of the Class B
shares,  Class C  shares  and  Class R  shares  that  are used by SDI to pay for
distribution  services  for those  classes.  Pursuant  to each Rule 12b-1  Plan,
shareholder and  administrative  services are provided to the applicable Fund on
behalf  of its  Class A, B, C and R  shareholders  under  each  Fund's  Services
Agreement with SDI. Because 12b-1 fees are paid out of Fund assets on an ongoing
basis,  they will,  over time,  increase the cost of an investment  and may cost
more than other types of sales charges.



                                       26


Expenses  of the Funds paid in  connection  with the Rule  12b-1  Plans for each
class of shares include  advertising  and  literature,  prospectus  printing for
prospective investors, marketing and sales expenses,  miscellaneous expenses and
interest  expenses.  A portion of the marketing and sales and operating expenses
could be considered overhead expenses.

The Rule  12b-1  distribution  plans  for  Class B,  Class C and  Class R shares
provide  alternative methods for paying sales charges and may help funds grow or
maintain  asset  levels to provide  operational  efficiencies  and  economies of
scale.  Rule 12b-1 service plans provide  compensation to SDI or  intermediaries
for post-sales  servicing.  Since each Distribution  Agreement provides for fees
payable as an  expense of the Class B shares,  Class C shares and Class R shares
that are used by SDI to pay for distribution and services for those classes, the
agreement is approved and reviewed  separately  for the Class B shares,  Class C
shares  and Class R shares in  accordance  with Rule  12b-1  under the 1940 Act,
which  regulates  the manner in which an  investment  company  may,  directly or
indirectly,  bear the  expenses of  distributing  its shares.  The  Distribution
Agreement and Rule 12b-1 Plans may not be amended to increase the fee to be paid
by a Fund  with  respect  to a  class  without  approval  by a  majority  of the
outstanding voting securities of such class of the Fund. Similarly, the Services
Agreement is approved and reviewed  separately  for the Class A shares,  Class B
shares, Class C shares and Class R shares in accordance with Rule 12b-1.

If a Rule 12b-1 Plan is terminated in accordance with its terms,  the obligation
of the  applicable  Fund to make payments to SDI pursuant to the Rule 12b-1 Plan
will  cease  and the Fund will not be  required  to make any  payments  past the
termination  date.  Thus,  there  is no legal  obligation  for a Fund to pay any
expenses incurred by SDI other than fees payable under a Rule 12b-1 Plan, if for
any  reason  the Rule 12b-1 Plan is  terminated  in  accordance  with its terms.
Future fees under the Plan may or may not be sufficient to reimburse SDI for its
expenses incurred.

Distribution  Services. For its services under the Distribution  Agreement,  SDI
receives a fee from each Fund under its Rule 12b-1 Plan, payable monthly, at the
annual rate of 0.75% (0.37% for Scudder Growth Fund) of average daily net assets
of the Fund attributable to its Class B shares.  This fee is accrued daily as an
expense of Class B shares.  SDI also  receives  any  contingent  deferred  sales
charges paid with respect to Class B shares. SDI currently compensates firms for
sales of Class B shares at a commission rate of 3.75%.

For its services under the Distribution Agreement,  SDI receives a fee from each
Fund under its Rule 12b-1 Plan, payable monthly,  at the annual rate of 0.75% of
average daily net assets of the Fund attributable to Class C shares. This fee is
accrued daily as an expense of Class C shares.  SDI currently  advances to firms
the first  year  distribution  fee at a rate of 0.75% of the  purchase  price of
Class C shares.  For periods after the first year,  SDI currently pays firms for
sales of Class C shares a distribution fee, payable quarterly, at an annual rate
of 0.75% of net assets attributable to Class C shares maintained and serviced by
the firm. This fee continues until terminated by SDI or the applicable Fund. SDI
also receives any contingent deferred sales charges paid with respect to Class C
shares.

For its services under the Distribution  Agreement,  SDI receives a fee from the
Capital  Growth Fund and Large  Company  Growth  Fund under  their 12b-1  Plans,
payable  monthly,  at an annual rate of 0.25% of average daily net assets of the
Fund attributable to Class R shares.

Shareholder  Services.  For its  services  under  the  Services  Agreement,  SDI
receives a  shareholder  services  fee from each Fund  under a Rule 12b-1  Plan,
payable  monthly,  at an  annual  rate of up to 0.25% of the  average  daily net
assets of Class A, B, C and R shares of that Fund.

With  respect  to Class A and R shares  of a Fund,  SDI pays each firm a service
fee,  payable  quarterly,  at an annual rate of up to 0.25% of the net assets in
Fund accounts that it maintains and services attributable to Class A and Class R
shares,  respectively,  of a Fund,  commencing with the month after  investment.
With respect to Class B and Class C shares of a Fund, SDI currently  advances to
firms the first-year  service fee at a rate of up to 0.25% of the purchase price
of such shares.  For periods after the first year, SDI currently  intends to pay
firms a  service  fee at a rate of up to  0.25%  (calculated  monthly  and  paid
quarterly) of the net assets  attributable  to Class B and Class C shares of the
Fund  maintained  and serviced by the firm.  Firms to which  service fees may be
paid  include  affiliates  of SDI. In addition SDI may,  from time to time,  pay
certain   firms  from  it  own   resources   additional   amounts   for  ongoing
administrative  services and assistance  provided to their customers and clients
who are shareholders of a Fund.



                                       27


SDI also may provide  some of the above  services  and may retain any portion of
the fee under the Services  Agreement not paid to firms to compensate itself for
shareholder or administrative  functions  performed for a Fund.  Currently,  the
shareholder  services  fee  payable to SDI is payable at an annual rate of up to
0.25% of net assets based upon Fund assets in accounts for which a firm provides
administrative services and at the annual rate of 0.15% of net assets based upon
Fund  assets in accounts  for which there is no firm of record  (other than SDI)
listed on a Fund's records.  The effective  shareholder  services fee rate to be
charged  against all assets of each Fund while this  procedure is in effect will
depend upon the  proportion  of Fund assets that is held in accounts for which a
firm of record  provides  shareholder  services.  The Board of each Fund, in its
discretion, may approve basing the fee to SDI at the annual rate of 0.25% on all
Fund assets in the future.

Expenses  of the Funds paid in  connection  with the Rule  12b-1  Plans for each
class of shares are set forth below.  A portion of the  marketing  and sales and
operating expenses shown below could be considered overhead expenses.

                                       28




- ------------------------------------------------------------------------------------------------------------------
                           Compensation to Underwriter and Firms
                          for Fiscal Year Ended September 30, 2004
- ------------------------------------------------------------------------------------------------------------------
                                                Contingent Deferred
                            Rule 12b-1 Fees         Sales Charge
Fund                         Paid to SDI           Paid to SDI
- ----                         -----------           -----------

                                                                                             
Capital Growth Fund
    Class A                             $0                 $0
    Class B                       $327,863           $133,080
    Class C                       $155,522             $1,990
    Class R                           $398                 NA

Growth Fund
    Class A                             $0               $113
    Class B                       $723,345           $309,070
    Class C                       $152,183             $1,219

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



- ------------------------------------------------------------------------------------------------------------------
                                     Other Distribution Expenses Paid by Underwriter for Fiscal Year
                                                         Ended September 30, 2004
- ------------------------------------------------------------------------------------------------------------------
                          Advertising                Marketing      Misc.
                              and       Prospectus   and Sales     Operating      Interest
Fund                      Literature     Printing     Expenses     Expenses       Expense
- ----                      ----------     --------     --------     --------       -------

Capital Growth Fund
    Class A                       NA           NA           NA           NA           NA
    Class B                      $53           $2          $22           $2         $235
    Class C                      $43           $2          $19           $5           $0
    Class R                       $0           $0           $0           $0           $0

Growth Fund
    Class A                       NA           NA           NA           NA           NA
    Class B                     $118           $6          $50           $1           $0
    Class C                      $34           $2          $15           $1           $0

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

- ------------------------------------------------------------------------------------------------------------------
                            Compensation to Underwriter and Firms
                             for Fiscal Year Ended July 31, 2004
- ------------------------------------------------------------------------------------------------------------------
                                             Contingent Deferred
                             Rule 12b-1 Fees      Sales Charge
                              Paid to SDI         Paid to SDI
                              -----------         -----------

Large Company Growth Fund
    Class A                             $0                 $0
    Class B                        $28,367             $8,596
    Class C                        $21,855               $287
    Class R                           $398                 NA

- ------------------------------------------------------------------------------------------------------------------
                                       Other Distribution Expenses Paid by
                                        Underwriter for Fiscal Year Ended
                                                  July 31, 2004
- ------------------------------------------------------------------------------------------------------------------
                             Advertising                 Marketing      Misc.
                                 and        Prospectus   and Sales    Operating   Interest
                              Literature     Printing     Expenses     Expenses    Expense
                              ----------     --------     --------     --------    -------

Large Company Growth Fund
    Class A                           NA           NA           NA           NA        NA
    Class B                           $4           $0           $2           $0        $0
    Class C                           $6           $0           $3           $0        $0
    Class R                           $0           $0           $0           $0        $0



                                       29


The following table shows the aggregate amount of underwriting  commissions paid
to SDI,  the  amount in  commissions  it paid out to  brokers  and the amount of
underwriting commissions retained by SDI.



                                                   Aggregate       Aggregate    Aggregate Commissions      Aggregate
                                                     Sales        Commissions    Paid to Affiliated       Commissions
Fund                               Fiscal Year    Commissions    Paid to Firms          Firms           Retained by SDI
- ----                               -----------    -----------    -------------          -----           ---------------

                                                                                              
Capital Growth Fund                    2004         $104,000         $81,000              $5,000             $18,000
Class A                                2003          $42,000         $35,000              $1,000              $6,000
                                       2002         $119,000         $94,000                  $0             $25,000

Growth Fund                            2004         $259,000        $204,000             $22,000             $33,000
Class A                                2003         $143,000        $114,000             $11,000             $18,000
                                       2002         $407,000        $332,000             $24,000             $51,000

Large Company Growth Fund              2004          $24,000         $19,000              $2,000              $3,000
Class A                                2003          $26,000         $22,000              $1,000              $3,000
                                       2002          $32,000         $26,000                  $0              $6,000


Certain  trustees or officers of the Funds are also directors or officers of the
Advisor or SDI, as indicated under "Officers and Trustees."

Independent Registered Public Accounting Firms

The  financial  highlights  of Scudder  Capital  Growth Fund and  Scudder  Large
Company  Growth  Fund  included in each Fund's  prospectuses  and the  Financial
Statements incorporated by reference in this Statement of Additional Information
have been so included or  incorporated by reference in reliance on the report of
PricewaterhouseCoopers  LLP,  125 High  Street,  Boston,  MA 02110,  the  Funds'
independent  registered  public  accounting firm, given on the authority of said
firm as experts in auditing and  accounting.  PricewaterhouseCoopers  LLP audits
the financial  statements of the Funds and provides other audit, tax and related
services.  Shareholders  will receive  annual audited  financial  statements and
semi-annual unaudited financial statements.

The  financial  highlights  of Scudder  Growth  Fund are  included in the Fund's
prospectus  and the  Financial  Statements  incorporated  by  reference  in this
Statement of Additional  Information  in reliance on the report of Ernst & Young
LLP, 200 Clarendon Street,  Boston, MA 02116, the fund's independent  registered
public  accounting  firm,  given on the  authority  of said firm as  experts  in
auditing and  accounting.  Ernst & Young LLP audits the financial  statements of
the Fund and provides other audit, tax and related  services.  Shareholders will
receive annual audited financial statements and semi-annual  unaudited financial
statements.

Legal Counsel

Ropes & Gray LLP, One International  Place,  Boston,  MA 02110,  serves as legal
counsel  to  Capital  Growth  Fund and  Large  Company  Growth  Fund  and  their
Independent Trustees.

Vedder, Price, Kaufman and Kammholz, P.C., 222 North LaSalle Street, Chicago, IL
60601, serves as legal counsel to Growth Fund and its Independent Trustees.

Fund Accounting Agent

Scudder Fund Accounting  Corporation ("SFAC"),  Two International Place, Boston,
Massachusetts,   02110,  a  subsidiary  of  the  Advisor,   is  responsible  for
determining  net asset value per share and maintaining the portfolio and general
accounting records for the Funds.


                                       30


Pursuant to an agreement among the Advisor, SFAC and State Street Bank and Trust
Company ("SSB") (the "Sub-Accounting and Sub-Administrator Agreement"), SFAC and
the Advisor have delegated  certain fund  accounting  functions to SSB under the
fund accounting  agreement.  The costs and expenses of such delegation are borne
by the Advisor and SFAC, not by the Funds.

Capital  Growth  Fund pays SFAC an annual  fee equal to 0.025% on the first $150
million of average  daily net  assets,  0.0075% of such assets in excess of $150
million up to and including $1 billion,  and 0.0045% of such assets in excess of
$1 billion, plus holding and transaction charges. Large Company Growth Fund pays
SFAC an annual  fee equal to 0.025% of the first $150  million of average  daily
net assets,  0.0075% on the next $850  million of such  assets,  0.0045% of such
assets in excess of $1 billion,  plus  holding  and  transaction  charges.  From
December 29, 2000  through  March 31, 2004,  the costs of fund  accounting  were
borne by the Advisor in accordance with the  Administrative  Agreement.  For the
period April 1, 2004 through  September 30, 2004,  SFAC charged  Scudder Capital
Growth Fund $92,511 in accounting fees, all of which was unpaid at September 30,
2004.

Large Company Growth Fund. In accordance with the Administrative  Agreement, the
above  fees had been paid by the  Advisor  since July 17,  2000 for the  Capital
Growth Fund and October 2, 2000 for the Large Company  Growth Fund,  but are now
borne  directly  by  the  Funds  due to the  termination  of the  Administrative
Agreement on March 31, 2004.

From December 29, 2000 through March 31, 2004, the costs of fund accounting were
borne by the Advisor in accordance with the  Administrative  Agreement.  For the
period April 1, 2004 through July 31, 2004,  SFAC charged  Scudder Large Company
Growth  Fund  $63,074 in  accounting  fees,  all of which was unpaid at July 31,
2004.

Administrator

Pursuant to a  sub-administrator  agreement  between  the  Advisor and SSB,  the
Advisor  has  delegated  certain  administrative  functions  to  SSB  under  the
investment management  agreement.  The costs and expenses of such delegation are
borne by the Advisor, not by the Funds.

The Administrative  Agreement between the Advisor and each Fund terminated March
31, 2004 and effective April 1, 2004, each Fund directly bears the cost of those
expenses  formerly covered under the  Administrative  Agreement,  subject to the
Advisor's  contractual  obligation  to waive  fees  and  reimburse  expenses  to
maintain the Fund's operating expenses at a specified level, as disclosed in the
Prospectus.

Custodian, Transfer Agent and Shareholder Service Agent

Capital Growth Fund and Large Company  Growth Fund.  State Street Bank and Trust
Company (the "Custodian"),  225 Franklin Street, Boston, Massachusetts 02110, as
custodian  has custody of all  securities  and cash of each Fund.  The Custodian
attends  to the  collection  of  principal  and  income,  and  payment  for  and
collection  of  proceeds  of  securities  bought and sold by the Funds.  Scudder
Investments  Service Company ("SISC" or "Shareholder  Service Agent"),  811 Main
Street,  Kansas City, Missouri  64105-2005,  an affiliate of the Advisor, is the
Funds' transfer agent,  dividend-paying  agent and shareholder service agent for
the Funds' Class A, B, C, R, I and  Institutional  Class shares,  as applicable.
Prior to the  implementation of the Administrative  Agreement,  SISC received as
transfer  agent,  annual  account  fees  of  $5  per  account,  transaction  and
maintenance  charges,  annual fees associated with the contingent deferred sales
charge (Class B shares only) and out-of-pocket expense reimbursement.  For Class
R shares,  SISC is compensated as follows:  (for non-money  market  accounts) an
open account  charge of $29 and an  asset-based  fee of 0.05% for  out-of-pocket
expenses.

Custodian's  fees may be reduced by  certain  earnings  credits in favor of each
Fund.

For period April 1, 2004 through  September 30, 2004, the amount charged by SISC
to Scudder  Capital  Growth Fund  aggregated  $204,068 (of which $33,709 was not
imposed and $101,938 was unpaid at September 30, 2004) for


                                       31


Class A shares; $95,426 (of which $29,961 was not imposed and $51,104 was unpaid
at  September  30, 2004) for Class B shares;  $43,351 (of which  $12,644 was not
imposed and $23,152 was unpaid at September  30, 2004) for Class C shares;  $732
(of which $311 was not imposed and $411 was unpaid at  September  30,  2004) for
Class R shares; and $718 for Institutional Class shares.

For period April 1, 2004 through  July 31, 2004,  the amount  charged by SISC to
Scudder Large Company Growth Fund  aggregated  $57,928 (of which $27,698 was not
imposed and $30,230 was unpaid at July 31, 2004) for Class A shares;  $5,612 (of
which $3,023 was not imposed and $2,589 was unpaid at July 31, 2004) for Class B
shares;  $5,490 (of which  $3,475 was not  imposed and $2,015 was unpaid at July
31,  2004) for Class C shares;  $5,368  (of which  $5,368 was unpaid at July 31,
2004) for Class I shares;  and $610 (of which $410 was not  imposed and $200 was
unpaid at July 31, 2004.

Prior to April 1, 2004,  the service  provider fees outlined  above were paid by
the Advisor in accordance with the Administrative Agreement.  Growth Fund. State
Street  Bank  and  Trust   Company,   ("SSB")  225  Franklin   Street,   Boston,
Massachusetts 02110, as custodian, has custody of all securities and cash of the
Funds. It attends to the collection of principal and income, and payment for and
collection of proceeds of securities  bought and sold by the Funds.  SSB is also
the Funds'  transfer  agent and  dividend-paying  agent.  Pursuant to a services
agreement with SSB, Scudder Investments  Service Company ("SISC"),  an affiliate
of the Advisor,  serves as "Shareholder Service Agent" of the Fund and, as such,
performs all of SSB's duties as transfer  agent and dividend  paying agent.  SSB
receives as transfer agent, and pays to SISC as follows:  annual account fees of
$10.00  ($18.00  for  retirement  accounts)  plus set up  charges,  annual  fees
associated  with the  contingent  deferred  sales  charges  (Class  B only),  an
asset-based fee of 0.08% and out-of-pocket reimbursement.

Pursuant to a sub-transfer  agency agreement between SISC and DST Systems,  Inc.
("DST"),  SISC has delegated  certain  transfer agent and dividend  paying agent
functions to DST. The costs and expenses of such  delegation  are borne by SISC,
not by the Funds.

Retirement  Service  Provider.  Scudder Trust Company  ("STC"),  11 Northeastern
Boulevard,  Salem, NH 03079 an affiliate of the Advisor,  provides subaccounting
and recordkeeping  services for shareholder  accounts in certain  retirement and
employee  benefit plans  invested in the funds.  Annual service fees are paid by
each  fund to  STC,  for  such  accounts.  Prior  to the  implementation  of the
Administrative  Agreements,  each fund paid Scudder  Trust Company an annual fee
per shareholder account.

                             PORTFOLIO TRANSACTIONS

The Advisor is  responsible  for placing the orders for the purchase and sale of
portfolio securities, including the allocation of brokerage.

The primary objective of the Advisor 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,   among  others,   as  price,   commission  (where
applicable),  size of order,  difficulty of execution and skill  required of the
executing broker-dealer. Pursuant to law, the Advisor will not consider the sale
of the Advisor's or its affiliates' products or the investing of assets with the
Advisor or its affiliates when placing orders with  broker-dealers.  The Advisor
seeks to evaluate the overall  reasonableness of brokerage commissions paid with
commissions  charged  on  comparable  transactions,  as  well  as  by  comparing
commissions paid by a Fund to reported  commissions paid by others.  The Advisor
routinely reviews commission rates,  execution and settlement services performed
and makes internal and external comparisons.

A Fund's purchases and sales of fixed-income  securities are generally placed by
the Advisor  with primary  market  makers for these  securities  on a net basis,
without any brokerage  commission being paid by a 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.  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.



                                       32


When it can be done consistently with the policy of obtaining the most favorable
net results,  the Advisor may place such orders with  broker-dealers  who supply
research  services to the Advisor or a Fund. The term  "research  services," may
include,  but is not  limited  to,  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 Advisor is authorized
when  placing  portfolio  transactions,  if  applicable,  for a  Fund  to  pay a
brokerage commission in excess of that which another  broker-dealer might charge
for  executing  the same  transaction  on account of execution  services and the
receipt of research services. The Advisor has negotiated arrangements, which are
not applicable to most fixed income  transactions,  with certain  broker-dealers
pursuant to which a broker-dealer will provide proprietary  research services to
the  Advisor  in  exchange  for  the  direction  by  the  Advisor  of  brokerage
transactions to the broker-dealer.  Other than proprietary research, the Advisor
may not take into account any benefit,  service or arrangement  that the Advisor
or any of its  affiliates  may  have  with  a  particular  broker-dealer.  These
arrangements  regarding receipt of research  services  generally apply to equity
security  transactions.  Although certain research services from  broker-dealers
may be useful to a Fund and to the  Advisor,  it is the  opinion of the  Advisor
that  such  information  only  supplements  its own  research  effort  since the
information must still be analyzed, weighed and reviewed by the Advisor's staff.
Such  information may be useful to the Advisor in providing  services to clients
other  than a Fund  and not all  such  information  is  used by the  Advisor  in
connection with a Fund. Conversely,  such information provided to the Advisor by
broker-dealers  through  whom other  clients of the  Advisor  effect  securities
transactions may be useful to the Advisor in providing services to a Fund.

The following shows total brokerage  commissions  paid for the past three fiscal
years,  as applicable  and for the most recent fiscal year,  the amount that was
allocated to firms based upon research information provided.

Capital  Growth Fund: For the fiscal years ended  September 30, 2002,  September
30, 2003 and September 30, 2004, the Fund paid aggregate  brokerage  commissions
of $716,010, $504,398 and $457,080, respectively.

Growth Fund: For the fiscal years ended  September 30, 2002,  September 30, 2003
and  September  30,  2004,  the Fund paid  aggregate  brokerage  commissions  of
$1,822,383, $543,777 and $560,572, respectively.

Large Company  Growth Fund:  For the fiscal years ended July 31, 2002,  July 31,
2003  and July 31,  2004,  the Fund  paid  aggregate  brokerage  commissions  of
$1,030,811, $345,693 and $323,004, respectively.



                                  Percentage of      Percentage of
                                   Commissions        Transactions        Dollar Amount of
                                     Paid to           Involving        Commissions Paid to
                                    Affiliated    Commissions Paid to       Brokers for
Name of Fund                         Brokers       Affiliated Brokers    Research Services
- ------------                         -------       ------------------    -----------------

                                                                        
Capital Growth Fund                     0%                 0%                    $111,512
Growth Fund                             0%                 0%                    $132,580
Large Company Growth Fund               0%                 0%                     $62,380


Portfolio Turnover

Portfolio  turnover  rate is  defined  by the SEC as the ratio of the  lesser of
sales or purchases to the monthly average value of such securities  owned during
the year,  excluding all securities  whose  remaining  maturities at the time of
acquisition were one year or less.

Portfolio turnover rates for the two most recent fiscal years are as follows:

Fund                                    2004                  2003
- ----                                    ----                  ----

Capital Growth Fund                      12%                  22%
Growth Fund                              21%                  25%
Large Company Growth Fund                21%                  31%



                                       33


A higher rate involves greater brokerage and transaction  expenses to a 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 a Fund's
portfolio  whenever  necessary,  in  management's  opinion,  to  meet  a  Fund's
objective.

                        PURCHASE AND REDEMPTION OF SHARES

General Information

Redemption fee.  Effective  February 1, 2005, each fund will impose a redemption
fee of 2% of the total redemption amount (calculated at net asset value, without
regard to the effect of any  contingent  deferred  sales charge;  any contingent
deferred  sales charge is also assessed on the total  redemption  amount without
regard to the assessment of the 2% redemption  fee) on all fund shares  redeemed
or exchanged within 15 days of buying them (either by purchase or exchange). The
redemption  fee is paid  directly  to the fund,  and is  designed  to  encourage
long-term  investment and to offset  transaction and other costs associated with
short-term  or  excessive  trading.  For  purposes  of  determining  whether the
redemption  fee  applies,  shares held the longest time will be treated as being
redeemed  first and  shares  held the  shortest  time will be  treated  as being
redeemed last. The redemption fee is applicable to fund shares  purchased either
directly  or  through  a  financial  intermediary,   such  as  a  broker-dealer.
Transactions through financial intermediaries typically are placed with the fund
on an omnibus  basis and include both purchase and sale  transactions  placed on
behalf of multiple investors. These purchase and sale transactions are generally
netted against one another and placed on an aggregate  basis;  consequently  the
identities  of the  individuals  on whose  behalf  the  transactions  are placed
generally are not known to the fund. For this reason, the fund has undertaken to
notify financial intermediaries of their obligation to assess the redemption fee
on customer accounts and to collect and remit the proceeds to the fund. However,
due to operational  requirements,  the intermediaries'  methods for tracking and
calculating  the fee may be  inadequate  or  differ  in some  respects  from the
fund's.

Policies and procedures affecting  transactions in Fund shares can be changed at
any  time  without  notice,  subject  to  applicable  law.  Transactions  may be
contingent  upon proper  completion of application  forms and other documents


                                       35


by  shareholders  and their receipt by a Fund's  agents.  Transaction  delays in
processing (and changing account features) due to circumstances within or beyond
the control of a Fund and its agents may occur. Shareholders (or their financial
service  firms)  are  responsible  for all losses  and fees  resulting  from bad
checks,  cancelled  orders or the failure to  consummate  transactions  effected
pursuant to instructions reasonably believed to be genuine.

A  distribution  will be  reinvested in shares of the same Fund and class if the
distribution check is returned as undeliverable.

Orders will be confirmed at a price based on the net asset value  (including any
applicable sales charge) of the Fund next determined after receipt in good order
by SDI of the order accompanied by payment.  However, orders received by dealers
or other financial  services firms prior to the determination of net asset value
and received in good order by SDI prior to the close of its business day will be
confirmed at a price based on the net asset value  effective on that day ("trade
date").

Certificates. Share certificates will not be issued. Share certificates now in a
shareholder's  possession may be sent to the transfer agent for cancellation and
book-entry  credit to such  shareholder's  account.  Certain telephone and other
procedures   require   book-entry   holdings.   Shareholders   with  outstanding
certificates bear the risk of loss.

Use of Financial  Services  Firms.  Investment  dealers and other firms  provide
varying arrangements for their clients to purchase and redeem the Fund's shares,
including higher minimum investments,  and may assess transaction or other fees.
Firms may arrange  with their  clients for other  investment  or  administrative
services.  Such firms may independently  establish and charge additional amounts
to their  clients for such  services.  Firms also may hold the Fund's  shares in
nominee or street  name as agent for and on behalf of their  customers.  In such
instances,  a Fund's transfer agent,  Scudder  Investments  Service Company (the
"Transfer  Agent") will have no information  with respect to or control over the
accounts of specific shareholders.  Such shareholders may obtain access to their
accounts and information  about their accounts only from their firm.  Certain of
these  firms may receive  compensation  from the Fund  through  the  Shareholder
Service Agent for  record-keeping  and other expenses  relating to these nominee
accounts.  In  addition,  certain  privileges  with  respect to the purchase and
redemption  of shares or the  reinvestment  of


                                       34


dividends may not be available through such firms. Some firms may participate in
a  program  allowing  them  access  to their  clients'  accounts  for  servicing
including,  without  limitation,  transfers of  registration  and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of SDI, may
receive  compensation  from the Fund through the  Shareholder  Service Agent for
these services.

Telephone  and  Electronic  Transaction  Procedures.  Shareholders  have various
telephone,  Internet,  wire and other electronic privileges available. A Fund or
its  agents may be liable  for any  losses,  expenses  or costs  arising  out of
fraudulent or unauthorized  instructions  pursuant to these privileges  unless a
Fund or its  agents  reasonably  believe,  based  upon  reasonable  verification
procedures, that the instructions were genuine.  Verification procedures include
recording instructions,  requiring certain identifying information before acting
upon instructions and sending written  confirmations.  During periods when it is
difficult to contact the  Shareholder  Service Agent, it may be difficult to use
telephone, wire and other privileges.

QuickBuy  and  QuickSell  (not  applicable  to  Class R  shares).  QuickBuy  and
QuickSell permits the transfer of money via the Automated  Clearing House System
(minimum $50,  maximum  $250,000) from or to a shareholder's  bank,  savings and
loan, or credit union  account in connection  with the purchase or redemption of
Fund  shares.  Shares  purchased by check or through  QuickBuy and  QuickSell or
Direct Deposit may not be redeemed  under this privilege  until such Shares have
been  owned for at least 10 days.  QuickBuy  and  QuickSell  cannot be used with
passbook savings accounts or for certain tax-deferred plans such as IRAs.

Tax-Sheltered   Retirement   Plans.  The  Shareholder   Service  Agent  provides
retirement plan services and documents and SDI can establish  investor  accounts
in any of the  following  types of retirement  plans:

o        Traditional,  Roth and Education IRAs. This includes Savings  Incentive
         Match Plan for  Employees  of Small  Employers  ("SIMPLE"),  Simplified
         Employee Pension Plan ("SEP") IRA accounts and prototype documents.

o        403(b)(7)  Custodial  Accounts.  This  type  of plan  is  available  to
         employees of most non-profit organizations.

o        Prototype  money  purchase  pension  and  profit-sharing  plans  may be
         adopted by employers.

Brochures  describing these plans as well as model defined benefit plans, target
benefit plans,  457 plans,  401(k) plans,  simple 401(k) plans and materials for
establishing them are available from the Shareholder Service Agent upon request.
Additional fees and transaction policies and procedures may apply to such plans.
Investors  should  consult with their own tax  advisors  before  establishing  a
retirement plan.

Purchases

A Fund  reserves the right to withdraw  all or any part of the offering  made by
its prospectus and to reject purchase orders for any reason.  Also, from time to
time, a Fund may temporarily  suspend the offering of any class of its shares to
new  investors.  During the period of such  suspension,  persons who are already
shareholders of such class of such Fund may be permitted to continue to purchase
additional shares of such class and to have dividends reinvested.

A Fund reserves the right to reject new account  applications  without a correct
certified Social Security or tax identification number. A 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 Fund may waive the minimum for purchases by trustees,  directors,  officers or
employees of the Fund or the Advisor and its affiliates.

Purchase  of Class C Shares.  As of March 1,  2004,  Class C shares of each Fund
will be offered at net asset  value.  No initial  sales  charge will be imposed.
Class C shares sold  without an initial  sales charge will allow the full amount


                                       35


of the investor's  purchase  payment to be invested in Class C shares for his or
her account. Class C shares will continue to be subject to a contingent deferred
sales  charge of 1.00% (for shares sold  within one year of  purchase)  and Rule
12b-1  fees,  as  described  in each  prospectus  and  Statement  of  Additional
Information.

Financial Services Firms' Compensation. Banks and other financial services firms
may provide  administrative  services  related to order placement and payment to
facilitate  transactions in shares of a Fund for their clients,  and SDI may pay
them a transaction  fee up to the level of the discount or commission  allowable
or payable to dealers.

SDI may, from time to time,  pay or allow to firms a 1% commission on the amount
of shares  of a Fund sold  under the  following  conditions:  (i) the  purchased
shares are held in a Scudder IRA  account,  (ii) the shares are  purchased  as a
direct "roll over" of a distribution  from a qualified  retirement  plan account
maintained on a participant subaccount record keeping system provided by Scudder
Investments  Service Company,  (iii) the registered  representative  placing the
trade is a member of Executive  Council, a group of persons designated by SDI in
acknowledgment  of their  dedication to the employee benefit plan area; and (iv)
the purchase is not  otherwise  subject to a commission.  Furthermore,  SDI may,
from to time,  pay or allow to firms 0.25%  commission  on the amount of Class R
shares of Capital Growth Fund and Large Company Growth Fund.

In addition to the discounts or commissions described herein and the prospectus,
SDI  may  pay  or  allow  additional   discounts,   commissions  or  promotional
incentives,  in the form of cash,  to firms that sell shares of a Fund.  In some
instances,  such amounts may be offered  only to certain  firms that sell or are
expected to sell during specified time periods certain minimum amounts of shares
of a Fund, or other funds underwritten by SDI.

SDI may  re-allow  to dealers  up to the full  applicable  Class A sales  charge
during  periods  and  for  transactions   specified  in  such  notice  and  such
re-allowances  may be based upon  attainment  of minimum  sales  levels.  During
periods when 90% or more of the sales charge is re-allowed,  such dealers may be
deemed to be  underwriters  as that  term is  defined  in the 1933 Act.  Scudder
Distributors,  Inc. ("SDI") may in its discretion  compensate investment dealers
or other financial  services firms in connection with the sale of Class A shares
of a Fund at net asset value in  accordance  with the Large  Order NAV  Purchase
Privilege  and  one of the  three  following  compensation  schedules  up to the
following amounts:



          Compensation Schedule #1(1)               Compensation Schedule #2(2)       Compensation Schedule #3(2)(3)
          ------------------------                  ------------------------          ------------------------
                                       As a                              As a                                As a
                                  Percentage of                      Percentage of                        Percentage
            Amount of                  Net       Amount of Shares         Net           Amount of           of Net
           Shares Sold             Asset Value          Sold          Asset Value      Shares Sold       Asset Value
           -----------             -----------          ----          -----------      -----------       -----------
                                                                                                
$1 million to $5 million              1.00%      Under $15 million       0.75%      Over $15 million    0.25% - 0.50%
Over $5 million to $50 million        0.50%              --                 --                --                 --
Over $50 million                      0.25%              --                 --                --                 --


(1)      The  commission  schedule  will be reset on a  calendar  year basis for
         sales of shares  pursuant to the Large Order NAV Purchase  Privilege to
         employer-sponsored   employee   benefit  plans  using  the  proprietary
         subaccount  record  keeping  system,  made  available  through  Scudder
         Investments   Service   Company.   For  purposes  of  determining   the
         appropriate  commission  percentage to be applied to a particular  sale
         under the foregoing  schedule,  SDI will consider the cumulative amount
         invested  by the  purchaser  in a Fund and  other  Funds  listed  under
         "Special Features -- Class A Shares -- Combined  Purchases,"  including
         purchases pursuant to the "Combined  Purchases," "Letter of Intent" and
         "Cumulative Discount" features referred to above.

(2)      Compensation  Schedules  2 and 3 apply to employer  sponsored  employee
         benefit plans using the OmniPlus  subaccount record keeping system. The
         Compensation  Schedule  will be  determined  based on the  value of the
         conversion  assets.  Conversion  from  "Compensation  Schedule  #2"  to
         "Compensation  Schedule #3" is not an automatic process.  When a plan's
         assets grow to exceed $15  million,  the Plan Sponsor may request to be
         re-underwritten  by contacting  must contact their Client  Relationship
         Manager to discuss a conversion to Compensation Schedule #3.



                                       36


(3)      Compensation  Schedule  3 is  based  on  individual  plan  underwriting
         criteria.  In most cases,  the investment  dealers are compensated at a
         rate of  0.25%.  However,  certain  underwriting  factors,  such as the
         number of enrollment and education  meetings conducted by Scudder staff
         the  number  of  non-Scudder   funds  the  plan  chooses  and  the  per
         participant record keeping fee, can increase the fee paid up to 0.50%.

The  privilege of  purchasing  Class A shares of a Fund at net asset value under
the Large Order NAV  Purchase  Privilege  is not  available if another net asset
value purchase privilege also applies.

SDI  compensates  firms  for  sales of  Class B shares  at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. SDI is
compensated  by the Fund for services as distributor  and principal  underwriter
for Class B shares.  SDI advances to firms the first year  distribution fee at a
rate of 0.75% of the purchase price of such shares.  For periods after the first
year, SDI currently pays firms for sales of Class C shares of distribution  fee,
payable  quarterly,  at an annual  rate of 0.75% of net assets  attributable  to
Class C shares  maintained  and serviced by the firm.  SDI is compensated by the
Fund for services as distributor and principal underwriter for Class C shares.

Class A Purchases. The sales charge scale is applicable to purchases made at one
time by any "purchaser" which includes: an individual; or an individual,  his or
her spouse and children under the age of 21; or a trustee or other  fiduciary of
a single trust estate or single  fiduciary  account;  or an organization  exempt
from  federal  income  tax under  Section  501(c)(3)  or (13) of the Code;  or a
pension,  profit-sharing or other employee benefit plan whether or not qualified
under  Section  401 of the Code;  or other  organized  group of persons  whether
incorporated  or not,  provided the  organization  has been in existence  for at
least six months and has some  purpose  other than the  purchase  of  redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales  charge,  all orders from an  organized  group will have to be
placed  through a single  investment  dealer  or other  firm and  identified  as
originating from a qualifying purchaser.

Initial Sales Charge Alternative -- Class A Shares. The public offering price of
Class A shares for purchasers  choosing the initial sales charge  alternative is
the net asset value plus a sales charge, as set forth below.



                                                                  Sales Charge
                                                                  ------------
                                                                                           Allowed to Dealers
                                             As a Percentage       As a Percentage of     as a Percentage of
Amount of Purchase                          of Offering Price       Net Asset Value*         Offering Price
- ------------------                          -----------------       ---------------          --------------
                                                                                       
Less than $50,000                                  5.75%                  6.10%                  5.20%
$50,000 but less than $100,000                     4.50                   4.71                   4.00
$100,000 but less than $250,000                    3.50                   3.63                   3.00
$250,000 but less than $500,000                    2.60                   2.67                   2.25
$500,000 but less than $1 million                  2.00                   2.04                   1.75
$1 million and over                                 .00**                  .00**                 ***


*        Rounded to the nearest one-hundredth percent.

**       Redemption  of shares  may be subject to a  contingent  deferred  sales
         charge as discussed below.

***      Commission is payable by SDI as discussed below.

Class A NAV Sales. Class A shares may be sold at net asset value to:

(a)      a current or former  director or trustee of Deutsche or Scudder  mutual
         funds;

(b)       an  employee  (including  the  employee's  spouse or life  partner and
          children or  stepchildren  age 21 or younger) of Deutsche  Bank or its
          affiliates  or of a  subadvisor  to any fund in the Scudder  family of
          funds or of a  broker-dealer  authorized to sell shares of the Fund or
          service agents of the Fund;



                                       37


(c)       certain  professionals  who assist in the promotion of Scudder  mutual
          funds pursuant to personal services contracts with SDI, for themselves
          or members of their  families.  SDI in its  discretion  may compensate
          financial  services  firms  for  sales of Class A  shares  under  this
          privilege  at a  commission  rate of  0.50% of the  amount  of Class A
          shares purchased;

(d)       any trust, pension, profit-sharing or other benefit plan for only such
          persons listed under the preceding paragraphs (a) and (b);

(e)       persons who purchase such shares through bank trust  departments  that
          process  such  trades  through an  automated,  integrated  mutual fund
          clearing program provided by a third party clearing firm;

(f)       persons  who  purchase  shares of the Fund  through  SDI as part of an
          automated   billing  and  wage  deduction   program   administered  by
          RewardsPlus  of America for the benefit of employees of  participating
          employer groups;

(g)       selected  employees  (including  their  spouses or life  partners  and
          children  or  stepchildren  age 21 or  younger)  of  banks  and  other
          financial services firms that provide administrative  services related
          to order placement and payment to facilitate transactions in shares of
          the Fund for their clients pursuant to an agreement with SDI or one of
          its affiliates. Only those employees of such banks and other firms who
          as part of their usual duties provide services related to transactions
          in Fund shares qualify;

(h)       unit  investment  trusts  sponsored by Ranson &  Associates,  Inc. and
          unitholders  of  unit   investment   trusts   sponsored  by  Ranson  &
          Associates,  Inc. or its predecessors  through  reinvestment  programs
          described in the prospectuses of such trusts that have such programs;

(i)       through certain  investment  advisors  registered under the Investment
          Advisers Act of 1940 and other financial  services firms acting solely
          as  agent  for  their  clients,   that  adhere  to  certain  standards
          established by SDI,  including a requirement  that such shares be sold
          for the  benefit  of  their  clients  participating  in an  investment
          advisory program or agency commission program under which such clients
          pay a fee to the  investment  advisor  or  other  firm  for  portfolio
          management  or agency  brokerage  services.  Such  shares are sold for
          investment  purposes and on the condition that they will not be resold
          except through redemption or repurchase by the Fund;

(j)       (1)  employer   sponsored   employee  benefit  plans  using  the  Flex
          subaccount  recordkeeping system ("Flex Plans"),  established prior to
          October 1, 2003, provided that the Flex Plan is a participant-directed
          plan that has not less than 200 eligible  employees  and (2) investors
          investing  $1  million or more,  either as a lump sum or  through  the
          "Combined  Purchases,"  "Letter of Intent" and  "Cumulative  Discount"
          features  referred  to  above  (collectively,  the  "Large  Order  NAV
          Purchase  Privilege").  The Large Order NAV Purchase  Privilege is not
          available if another net asset value purchase  privilege is available;
          and

(k)       in  connection  with the  acquisition  of the  assets  of or merger or
          consolidation with another investment  company,  or to shareholders in
          connection  with the investment or  reinvestment of income and capital
          gain dividends,  and under other  circumstances  deemed appropriate by
          SDI and consistent with regulatory requirements.

Class A shares also may be purchased at net asset value in any amount by members
of the plaintiff class in the proceeding known as Howard and Audrey Tabankin, et
al. v. Kemper  Short-Term  Global  Income Fund, et al., Case No. 93 C 5231 (N.D.
IL). This privilege is generally non-transferable and continues for the lifetime
of individual class members and for a ten-year period for  non-individual  class
members.  To make a  purchase  at net asset  value  under  this  privilege,  the
investor  must,  at the time of  purchase,  submit a  written  request  that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin  Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares  purchased  under  this  privilege.  For  more  details  concerning  this
privilege,  class members should refer to the Notice of (i) Proposed  Settlement
with Defendants;  and (ii) Hearing to Determine Fairness of Proposed Settlement,
dated  August 31,  1995,  issued in  connection  with the  aforementioned  court
proceeding.  For  sales of Fund  shares  at


                                       38


net asset  value  pursuant  to this  privilege,  SDI may in its  discretion  pay
investment  dealers and other  financial  services  firms a concession,  payable
quarterly,  at an annual rate of up to 0.25% of net assets  attributable to such
shares  maintained  and serviced by the firm.  A firm  becomes  eligible for the
concession based upon assets in accounts  attributable to shares purchased under
this  privilege  in the month  after the month of  purchase  and the  concession
continues until terminated by SDI. The privilege of purchasing Class A shares of
the Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.

Class A  Quantity  Discounts.  An  investor  or the  investor's  dealer or other
financial  services  firm  must  notify  the  Shareholder  Service  Agent or SDI
whenever  a  quantity  discount  or  reduced  sales  charge is  applicable  to a
purchase.  In order to qualify  for a lower  sales  charge,  all orders  from an
organized  group will have to be placed  through a single  investment  dealer or
other firm and identified as originating from a qualifying purchaser.

Letter of Intent.  The reduced sales charges for Class A shares, as shown in the
applicable prospectus,  also apply to the aggregate amount of purchases of Class
A shares of Scudder Funds that bear a sales charge made by any purchaser  within
a 24-month period under a written Letter of Intent  ("Letter")  provided by SDI.
The Letter,  which imposes no obligation to purchase or sell additional  Class A
shares,  provides  for a price  adjustment  depending  upon  the  actual  amount
purchased  within  such  period.  The Letter  provides  that the first  purchase
following  execution  of the  Letter  must be at least 5% of the  amount  of the
intended  purchase,  and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending  completion of the intended
purchase.  If the total  investments under the Letter are less than the intended
amount and thereby  qualify only for a higher sales charge than  actually  paid,
the  appropriate  number of escrowed  shares are redeemed and the proceeds  used
toward  satisfaction  of the obligation to pay the increased  sales charge.  The
Letter  for  an  employer-sponsored  employee  benefit  plan  maintained  on the
subaccount record keeping system available through the Shareholder Service Agent
may have special  provisions  regarding  payment of any  increased  sales charge
resulting from a failure to complete the intended  purchase under the Letter.  A
shareholder  may  include  the value (at the maximum  offering  price,  which is
determined by adding the maximum  applicable sales load charged to the net asset
value)  of all  Class A shares of such  Scudder  Funds  held of record as of the
initial  purchase date under the Letter as an  "accumulation  credit" toward the
completion of the Letter, but no price adjustment will be made on such shares.

Class A Cumulative Discount. Class A shares of the Fund may also be purchased at
the rate  applicable to the discount  bracket  attained by adding to the cost of
shares being  purchased,  the value of all Class A shares of Scudder  Funds that
bear a sales charge  (computed at the maximum  offering price at the time of the
purchase for which the discount is applicable)  already owned by the investor or
his or her immediate family member.

For purposes of the Combined Purchases, Letter of Intent and Cumulative Discount
features  described above,  employer  sponsored employee benefit plans using the
Flex  subaccount  record keeping  system may include:  (a) Money Market Funds as
"Scudder Funds", (b) all classes of shares of any Scudder Fund and (c) the value
of any other plan  investments,  such as  guaranteed  investment  contracts  and
employer stock, maintained on such subaccount record keeping system.

Combined  Purchases.  The  Fund's  Class A shares may be  purchased  at the rate
applicable to the sales charge discount  bracket  attained by combining same day
investments in Class A shares of any Scudder Funds that bear a sales charge.

Multi-Class Suitability.  SDI has established the following procedures regarding
the purchase of Class A, Class B and Class C shares.  Orders to purchase Class B
shares of $100,000 or more and orders to purchase  Class C shares of $500,000 or
more will be declined  with the  exception of orders  received from firms acting
for   clients   whose   shares   will  be  held  in  an  omnibus   account   and
employer-sponsored  employee  benefit  plans  using the Flex  subaccount  record
keeping system ("Flex System")  maintained by ADP under an alliance with SDI and
its affiliates ("Scudder Flex Plans").

The following provisions apply to Scudder Flex Plans.

a. Class B Share Plans.  Class B shares have not been sold to Scudder Flex Plans
that were  established  on the Flex  System  after  October 1,  2003.  Orders to
purchase  Class B shares for a Scudder Flex Plan  established on the Flex


                                       39


System  prior to  October 1, 2003 that has  regularly  been  purchasing  Class B
shares  will be  invested  instead in Class A shares at net asset value when the
combined  subaccount value in Scudder Funds or other eligible assets held by the
plan is $100,000 or more.  This provision will be imposed for the first purchase
after eligible plan assets reach the $100,000 threshold.

b. Class C Share  Plans.  Orders to purchase  Class C shares for a Scudder  Flex
Plan,  regardless of when such plan was established on the Flex System,  will be
invested  instead  in Class A  shares  at net  asset  value  when  the  combined
subaccount  value in Scudder Funds or other eligible  assets held by the plan is
$1 million or more.  This provision will be imposed for the first purchase after
eligible plan assets reach the $1 million threshold.

The  procedures  described  in a.  and b.  above do not  reflect  in any way the
suitability of a particular class of shares for a particular investor and should
not be  relied  upon  as  such.  A  suitability  determination  must  be made by
investors with the assistance of their financial representative.

Purchase of Institutional Class Shares.  Information on how to buy Institutional
Class shares is set forth in the section entitled "Buying and Selling Shares" in
the Fund's prospectus.  The following supplements that information.  The minimum
initial  investment for  Institutional  Class shares is $1,000,000.  There is no
minimum subsequent  investment  requirement for the Institutional  Class shares.
This minimum amount maybe changed at any time in management's discretion.

Investors  may  invest in  Institutional  Class  shares by setting up an account
directly with a Fund's  transfer  agent or through an authorized  service agent.
Investors who establish  shareholder  accounts directly with the Fund's transfer
agent  should  submit  purchase  and  redemption  orders  as  described  in  the
prospectus. Additionally, the Fund has authorized brokers to accept purchase and
redemption  orders for  Institutional  Class shares, as well as Class A, B and C
shares  of  the  Fund.   Brokers,   including   authorized  brokers  of  service
organizations,  are, in turn,  authorized to designate other  intermediaries  to
accept purchase and redemption orders on the Fund's behalf. Investors who invest
through brokers, service organizations or their designated intermediaries may be
subject  to  minimums  established  by their  broker,  service  organization  or
designated intermediary.



                                       40


Investors who invest through authorized brokers,  service organizations or their
designated  intermediaries should submit purchase and redemption orders directly
to their broker, service organization or designated intermediary.  The broker or
intermediary  may charge you a transaction  fee. The Fund will be deemed to have
received a purchase  or  redemption  order when an  authorized  broker,  service
organization  or, if  applicable,  an  authorized  designee,  accepts the order.
Shares of the Fund may be  purchased  or redeemed on any Business Day at the net
asset value next  determined  after receipt of the order,  in good order, by the
Fund's transfer agent.

To sell shares in a  retirement  account,  your request must be made in writing,
except for exchanges to other eligible funds in the Scudder  Investments  family
of funds,  which can be requested  by phone or in writing.  For  information  on
retirement distributions, contact your Service Agent or call Scudder Investments
Service Company at 1-800-621-1048.  To sell shares by bank wire you will need to
sign up for these services in advance when completing your account application.

Information on how to purchase Class R shares is set forth in the section in the
relevant Fund's prospectuses.  The following supplements that information. Class
R shares are subject to an annual distribution and shareholder  servicing fee of
0.50% (0.25% distribution fee, 0.25% shareholder service fee).

Investors  may  invest in  Institutional  Class  shares by setting up an account
directly with a Fund's  transfer  agent or through an authorized  service agent.
Investors who establish  shareholder  accounts  directly with a Fund's  transfer
agent  should  submit  purchase  and  redemption  orders  as  described  in  the
Prospectus.  Investors may invest in Class R shares through  certain  retirement
and other plans. Additionally,  a Fund has authorized brokers to accept purchase
and redemption orders for  Institutional  Class shares, as well as Class A, B, C
and R shares for each applicable Fund. Brokers,  including authorized brokers of
service   organizations,   are,  in  turn,   authorized   to   designate   other
intermediaries  to accept  purchase and  redemption  orders on a Fund's  behalf.
Investors who invest through brokers,  service organizations or their designated
intermediaries may be subject to minimums  established by their broker,  service
organization or designated intermediary.

A Fund will be deemed to have  received a purchase or  redemption  order when an
authorized  broker,  service  organization  or,  if  applicable,  an  authorized
designee,  accepts the order.  Shares of a Fund may be  purchased or redeemed on
any Business  Day at the net asset value next  determined  after  receipt of the
order,  in good order, by Scudder  Investments  Service  Company.  Investors who
invest through  authorized  brokers,  service  organizations or their designated
intermediaries  should submit  purchase and redemption  orders directly to their
broker,  service  organization  or  designated   intermediary.   The  broker  or
intermediary may charge you a transaction fee.

To sell shares in a  retirement  account,  your request must be made in writing,
except for exchanges to other eligible funds in the Scudder  Investments  family
of funds,  which can be requested  by phone or in writing.  For  information  on
retirement distributions, contact your Service Agent or call Scudder Investments
Service Company at 1-800-621-1048.

To sell  shares  by bank wire you will  need to sign up for  these  services  in
advance when completing your account application.

Automatic  Investment Plan. A shareholder may purchase additional shares of each
Fund through an automatic  investment program.  With the Direct Deposit Purchase
Plan ("Direct  Deposit"),  investments are made  automatically  (minimum $50 and
maximum $250,000) from the shareholder's  account at a bank, savings and loan or
credit union into the shareholder's  Fund account.  Termination by a shareholder
will become effective within thirty days after the Shareholder Service Agent has
received the request.  A Fund may immediately  terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.

Payroll  Investment  Plans. A shareholder  may purchase  shares through  Payroll
Direct Deposit or Government  Direct  Deposit.  Under these  programs,  all or a
portion of a shareholder's  net pay or government check is invested each payment
period.  A shareholder may terminate  participation  in these programs by giving
written  notice  to  the  shareholder's   employer  or  government   agency,  as
appropriate.  (A reasonable  time to act is required.) A Fund is not responsible
for the  efficiency of the employer or  government  agency making the payment or
any financial institutions transmitting payments.

Redemptions

Each Fund may suspend the right of  redemption  or delay payment more than seven
days (a) during any period  when the  Exchange  is closed  other than  customary
weekend  and  holiday  closings  or during  any  period in which  trading on the
Exchange  is  restricted,  (b) during any period when an  emergency  exists as a
result  of which  (i)  disposal  of the  Fund's  investments  is not  reasonably
practicable,  or (ii) it is not reasonably  practicable  for a Fund to determine
the value of its net  assets,  or (c) for such  other  periods as the SEC may by
order permit for the protection of a Fund's shareholders.

A  request  for  repurchase  (confirmed  redemption)  may be  communicated  by a
shareholder  through a financial services firm to SDI, which firms must promptly
submit orders to be effective.

Redemption  requests  must be  unconditional.  Redemption  requests (and a stock
power for certificated  shares) must be duly endorsed by the account holder.  As
specified  in  the  prospectus,  signatures  may  need  to  be  guaranteed  by a
commercial bank, trust company,  savings and loan  association,  federal savings
bank,  member  firm  of  a  national  securities  exchange  or  other  financial
institution  permitted by SEC rule.  Additional  documentation  may be required,
particularly  from   institutional  and  fiduciary  account  holders,   such  as
corporations,  custodians  (e.g.,  under the Uniform  Transfers  to Minors Act),
executors, administrators, trustees or guardians.

If the proceeds of the  redemption  (prior to the  imposition of any  contingent
deferred  sales charge) are $100,000 or less and the proceeds are payable to the
shareholder of record at the address of record,  normally a telephone request or
a written  request by any one account  holder  without a signature  guarantee is
sufficient for  redemptions by individual or joint account  holders,  and trust,
executor and guardian account holders  (excluding  custodial  accounts for gifts
and transfers to minors), provided the trustee, executor or guardian is named in
the account  registration.  Other  institutional  account  holders and  guardian
account  holders of  custodial  accounts  for gifts and  transfers to minors may
exercise  this special  privilege of  redeeming  shares by telephone  request or
written request without


                                       41


signature  guarantee  subject  to the  same  conditions  as  individual  account
holders,   provided  that  this  privilege  has  been   pre-authorized   by  the
institutional  account holder or guardian account holder by written  instruction
to the Shareholder Service Agent with signatures guaranteed.  This privilege may
not be used to redeem  shares held in  certificated  form and may not be used if
the  shareholder's  account  has had an  address  change  within  15 days of the
redemption request.

Wires.  Delivery of the proceeds of a wire redemption of $250,000 or more may be
delayed  by a Fund for up to  seven  days if a Fund or the  Shareholder  Service
Agent deems it appropriate under then-current market conditions.  The ability to
send wires is limited by the business hours and holidays of the firms  involved.
Each Fund is not  responsible  for the  efficiency of the federal wire system or
the account  holder's  financial  services firm or bank.  The account  holder is
responsible  for any charges  imposed by the account  holder's  firm or bank. To
change the  designated  account  to receive  wire  redemption  proceeds,  send a
written request to the Fund Shareholder Service Agent with signatures guaranteed
as described above or contact the firm through which Fund shares were purchased.

Automatic  Withdrawal  Plan.  The owner of $5,000 or more of a class of a Fund's
shares at the  offering  price (net  asset  value  plus,  in the case of Class A
shares,  the initial  sales charge) may provide for the payment from the owner's
account of any  requested  dollar amount to be paid to the owner or a designated
payee monthly,  quarterly,  semiannually or annually. The $5,000 minimum account
size is not applicable to IRAs. The minimum periodic payment is $50. The maximum
annual rate at which  shares,  subject to CDSC may be redeemed is 12% of the net
asset value of the account. Shares are redeemed so that the payee should receive
payment  approximately  the first of the month.  Investors  using this Plan must
reinvest Fund distributions.

The purchase of Class A shares while  participating  in an automatic  withdrawal
plan will  ordinarily be  disadvantageous  to the investor  because the investor
will be paying a sales  charge on the  purchase  of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.

Contingent  Deferred Sales Charge (CDSC).  The following example will illustrate
the operation of the CDSC.  Assume that an investor  makes a single  purchase of
$10,000 of the Fund's  Class B shares and that 16 months  later the value of the
shares has grown by $1,000  through  reinvested  dividends  and by an additional
$1,000 of share appreciation to a total of $12,000. If the investor were then to
redeem the entire  $12,000 in share  value,  the CDSC would be payable only with
respect to $10,000  because  neither the $1,000 of reinvested  dividends nor the
$1,000 of share  appreciation  is subject to the charge.  The charge would be at
the rate of 3.00%  ($300)  because it was in the second year after the  purchase
was made.

The rate of the CDSC is  determined  by the length of the  period of  ownership.
Investments  are tracked on a monthly  basis.  The period of ownership  for this
purpose  begins the first day of the month in which the order for the investment
is received.  For example, an investment made in March 1998 will be eligible for
the second  year's charge if redeemed on or after March 1, 1999. In the event no
specific  order is  requested  when  redeeming  shares  subject  to a CDSC,  the
redemption will be made first from shares representing  reinvested dividends and
then from the earliest purchase of shares.  SDI receives any CDSC directly.  The
charge will not be imposed  upon  redemption  of  reinvested  dividends or share
appreciation.

The Class A CDSC will be waived in the event of:

(a)      redemptions  by  a   participant-directed   qualified  retirement  plan
         described in Code Section 401(a), a participant-directed  non-qualified
         deferred   compensation  plan  described  in  Code  Section  457  or  a
         participant-directed   qualified  retirement  plan  described  in  Code
         Section 403(b)(7) which is not sponsored by a K-12 school district;

(b)      redemptions  by  employer-sponsored  employee  benefit  plans using the
         subaccount record keeping system made available through the Shareholder
         Service Agent;

(c)      redemption  of shares of a  shareholder  (including a registered  joint
         owner) who has died;



                                       42


(d)      redemption  of shares of a  shareholder  (including a registered  joint
         owner) who after purchase of the shares being redeemed  becomes totally
         disabled  (as  evidenced  by a  determination  by  the  federal  Social
         Security Administration);

(e)      redemptions under the Fund's Automatic  Withdrawal Plan at a maximum of
         12% per year of the net asset value of the account; and

(f)      redemptions  of  shares  whose  dealer  of  record  at the  time of the
         investment  notifies  SDI  that the  dealer  waives  the  discretionary
         commission applicable to such Large Order NAV Purchase.

The Class B CDSC will be waived  for the  circumstances  set forth in items (c),
(d) and (e) for Class A shares. In addition, this CDSC will be waived:

(g)      for redemptions made pursuant to any IRA systematic withdrawal based on
         the  shareholder's  life  expectancy  including,  but not  limited  to,
         substantially  equal  periodic  payments  described in the Code Section
         72(t)(2)(A)(iv) prior to age 59 1/2;

(h)      for redemptions to satisfy required minimum  distributions after age 70
         1/2 from an IRA account (with the maximum amount subject to this waiver
         being based only upon the shareholder's Scudder IRA accounts); and

(i)      in connection with the following redemptions of shares held by employer
         sponsored  employee benefit plans  maintained on the subaccount  record
         keeping system made available by the Shareholder  Service Agent: (1) to
         satisfy participant loan advances (note that loan repayments constitute
         new purchases for purposes of the CDSC and the  conversion  privilege),
         (2) in connection  with  retirement  distributions  (limited at any one
         time to 12% of the total  value of plan  assets  invested in the Fund),
         (3) in  connection  with  distributions  qualifying  under the hardship
         provisions  of  the  Code  and  (4)  representing   returns  of  excess
         contributions to such plans.

The Class C CDSC will be waived  for the  circumstances  set forth in items (b),
(c), (d) and (e) for Class A shares and for the circumstances set forth in items
(g) and (h) for Class B shares. In addition, this CDSC will be waived for:

(j)      redemption  of shares by an employer  sponsored  employee  benefit plan
         that  offers  funds in addition  to Scudder  Funds and whose  dealer of
         record has waived the advance of the first year administrative  service
         and  distribution  fees applicable to such shares and agrees to receive
         such fees quarterly, and

(k)      redemption  of  shares  purchased  through  a  dealer-sponsored   asset
         allocation  program  maintained  on an  omnibus  record-keeping  system
         provided  the dealer of record had waived the advance of the first year
         administrative services and distribution fees applicable to such shares
         and has agreed to receive such fees quarterly.

In-kind  Redemptions.  A Fund  reserves  the  right to  honor  any  request  for
redemption  or  repurchase  by  making  payment  in whole or in part in  readily
marketable securities. These securities will be chosen by the fund and valued as
they are for purposes of computing the Fund's net asset value. A shareholder may
incur transaction expenses in converting these securities to cash.

Exchanges

Shareholders  may request a taxable  exchange of their  shares for shares of the
corresponding class of other Scudder Funds without imposition of a sales charge,
subject to the provisions  below. For purposes of calculating any CDSC,  amounts
exchanged retain their original cost and purchase date.

Shares of money  market  funds that were  acquired  by purchase  (not  including
shares acquired by dividend  reinvestment)  are subject to the applicable  sales
charge on exchange. Series of Scudder Target Fund are available on


                                       43


exchange  only during the  Offering  Period for such series as  described in the
applicable prospectus.  Cash Equivalent Fund, Tax-Exempt California Money Market
Fund, Cash Account Trust, Investors Municipal Cash Fund and Investors Cash Trust
are  available on exchange but only through a financial  services  firm having a
services  agreement  with SDI. You may exchange from the following  money market
funds into the same class of a Scudder fund,  if available,  at net asset value,
subject to the conditions  detailed in each fund's  prospectus:  Cash Management
Fund Investment,  Tax Free Money Fund  Investment,  New York Tax Free Money Fund
Investment,  Treasury Money Fund Investment,  Money Market Fund Investment, Cash
Management Fund  Institutional,  Cash Reserves Fund  Institutional  and Treasury
Money Fund Institutional.

Shares of a Scudder Fund with a value in excess of  $1,000,000  (except  Scudder
Cash Reserves Fund) acquired by exchange through another Scudder Fund, or from a
money market fund,  may not be exchanged  thereafter  until they have been owned
for 15 days (the "15-Day Hold  Policy").  In addition,  shares of a Scudder Fund
with a value of $1,000,000 or less (except  Scudder Cash Reserves Fund) acquired
by exchange from another  Scudder Fund, or from a money market fund,  may not be
exchanged  thereafter  until  they  have  been  owned  for 15 days,  if,  in the
Advisor's  judgment,  the exchange  activity  may have an adverse  effect on the
fund.  In  particular,  a pattern of  exchanges  that  coincides  with a "market
timing"  strategy may be  disruptive  to the Scudder Fund and  therefore  may be
subject to the 15-Day  Hold  Policy.  For  purposes of  determining  whether the
15-Day Hold Policy applies to a particular exchange,  the value of the shares to
be  exchanged  shall be  computed  by  aggregating  the  value of  shares  being
exchanged  for  all  accounts  under  common  control,   discretion  or  advice,
including,  without  limitation,  accounts  administered by a financial services
firm offering market timing, asset allocation or similar services.

Shareholders must obtain prospectuses of the Funds they are exchanging into from
dealers, other firms or SDI.

Automatic Exchange Plan (not applicable to Class R shares).  The owner of $1,000
or more of any class of shares of a Scudder  Fund may  authorize  the  automatic
exchange  of a specified  amount ($50  minimum) of such shares for shares of the
same class of another such Scudder Fund.  Exchanges  will be made  automatically
until the  shareholder  or the Fund  terminates  the  privilege.  Exchanges  are
subject to the terms and conditions described above.

Multi-Class  Conversions.  For purposes of conversion to Class A shares,  shares
purchased  through the  reinvestment of dividends and other  distributions  paid
with respect to Class B shares in a shareholder's Fund account will be converted
to Class A shares on a pro rata basis.

                                    DIVIDENDS

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

Each  Fund  intends  to  distribute  dividends  from its net  investment  income
excluding  short-term  capital gains annually in December.  Each Fund intends to
distribute  net  realized  capital  gains  after  utilization  of  capital  loss
carryforwards,  if any, in 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.

The level of income  dividends  per share (as a  percentage  of net asset value)
will be lower for Class B and Class C Shares  than for Class A Shares  primarily
as a result of the higher  distribution  services fee  applicable to Class B and
Class C Shares. Distributions of capital gains, if any, will be paid in the same
amount for each class.



                                       44


Income  and  capital  gain  dividends,  if any,  of a Fund will be  credited  to
shareholder  accounts in full and fractional  shares of the same class of a Fund
at net asset value on the reinvestment  date,  except that, upon written request
to the Shareholder  Service Agent, a shareholder may select one of the following
options:

1.       To receive  income and  short-term  capital gain  dividends in cash and
         long-term  capital  gain  dividends  in shares of the same class at net
         asset value; or

2.       To receive income and capital gain dividends in cash.

Dividends  will be  reinvested  in Shares of the same  class of the Fund  unless
shareholders  indicate in writing  that they wish to receive  them in cash or in
shares of other Scudder  Funds with multiple  classes of shares or Scudder Funds
as provided in the prospectus.  To use this privilege of investing  dividends of
the Fund in shares of another Scudder Fund, shareholders must maintain a minimum
account value of $1,000 in the Fund  distributing  the dividends.  The Fund will
reinvest  dividend checks (and future dividends) in shares of that same Fund and
class if checks are returned as undeliverable. Dividends and other distributions
of the Fund in the aggregate amount of $10 or less are automatically  reinvested
in shares of the Fund unless the  shareholder  requests  that such policy not be
applied to the shareholder's account.

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.

If  a  shareholder   has  elected  to  reinvest  any   dividends   and/or  other
distributions,  such  distributions  will be made in  shares  of that  Fund  and
confirmations will be mailed to each shareholder. If a shareholder has chosen to
receive cash, a check will be sent.  Distributions of investment company taxable
income and net realized  capital  gains are  taxable,  whether made in shares or
cash.

Each  distribution  is  accompanied  by a  brief  explanation  of the  form  and
character of the  distribution.  The  characterization  of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year,  each Fund issues to each  shareholder  a statement of the
federal income tax status of all distributions in the prior calendar year.

Each Fund may at any time vary its foregoing dividend practices and,  therefore,
reserves  the  right  from  time to time to  either  distribute  or  retain  for
reinvestment  such of its net  investment  income  and  its net  short-term  and
long-term  capital  gains as its  Board  determines  appropriate  under the then
current circumstances. In particular, and without limiting the foregoing, a Fund
may make additional  distributions of net investment  income or capital gain net
income in order to satisfy the minimum  distribution  requirements  contained in
the Code.

                                      TAXES

The following is intended to be a general  summary of certain federal income tax
consequences  of  investing  in the  funds.  It is not  intended  as a  complete
discussion  of all such  consequences,  nor  does it  purport  to deal  with all
categories of investors.  Investors are therefore  advised to consult with their
tax advisors before making an investment in a Fund.

Federal Taxation.  Each Fund has elected to be treated as a regulated investment
company  under  Subchapter  M of the Code,  and has  qualified as such since its
inception.  Each Fund  intends to continue to so qualify in each taxable year as
required  under the Code in order to avoid payment of federal  income tax at the
Fund level.  In order to qualify as a regulated  investment  company,  each Fund
must  meet  certain  requirements  regarding  the  source  of  its  income,  the
diversification of its assets and the distribution of its income. Each Fund must
derive at least 90% of its gross income from dividends,  interest, payments with
respect  to  certain  securities  loans,  and  gains  from  the  sale of  stock,
securities and foreign currencies, or other income (including but not limited to
gains from options,  futures,  or forward contracts) derived with respect to its
business of investing in such stock, securities,  or currencies.  Each Fund must
diversify  its holdings so that, at the end of each quarter of its taxable year,
(i) at least 50% of the market value of the Fund's assets is represented by cash
and  cash  items,  US  government  securities,  securities  of  other


                                       45


regulated investment  companies,  and other securities limited in respect of any
one  issuer to a value not  greater  than 5% of the  value of the  Fund's  total
assets and to not more than 10% of the  outstanding  voting  securities  of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities (other than those of the US Government or other regulated  investment
companies)  of any one issuer or of two or more issuers  which the fund controls
and which are engaged in the same,  similar,  or related  trades or  businesses.
Each Fund is  required to  distribute  to its  shareholders  at least 90% of its
taxable  and  tax-exempt  net  investment  income  (including  the excess of net
short-term  capital gain over net long-term capital losses) and generally is not
subject to federal  income tax to the extent that it  distributes  annually such
net  investment  income and net realized  capital  gains in the manner  required
under the Code.

If for any taxable year a Fund does not qualify for the special  federal  income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal  income tax at regular  corporate  rates (without any
deduction for distributions to its  shareholders),  and all  distributions  from
earnings and profits,  including any  distributions of net tax-exempt income and
net long-term capital gains, will be taxable to shareholders as ordinary income.
Such  distributions  would be eligible (i) to be treated as  qualified  dividend
income  in the  case of  shareholders  taxed  as  individuals  and  (ii) for the
dividends received deduction in the case of corporate shareholders. In addition,
the Fund could be required to recognize  unrealized gains, pay substantial taxes
and  interest  and  make  substantial  distributions  before  requalifying  as a
regulated investment company that is accorded special tax treatment.

Each 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 taxable  ordinary income for the calendar year and at least 98% of
the excess of its capital gains over capital losses realized during the one-year
period  ending  October 31 (in most cases) of such year as well as amounts  that
were neither  distributed  nor taxed to the Fund during the prior calendar year.
Although each Fund's distribution  policies should enable it to avoid excise tax
liability,  a Fund may  retain  (and be  subject  to income or excise  tax on) a
portion of its capital  gain or other income if it appears to be in the interest
of such Fund.

Taxation  of  Distributions  from the Funds.  For federal  income tax  purposes,
distributions  of investment  income are generally  taxable as ordinary  income.
Taxes on  distributions  of capital  gains are  determined by how long the Funds
owned the investments  that generated  them,  rather than how long a shareholder
has owned his or her shares. Distributions of net capital gains from the sale of
investments  that a Fund  owned  for more  than  one year and that are  properly
designated by the Fund as capital gain dividends ("Capital Gain Dividends") will
be taxable as long-term  capital gains.  Distributions of gains from the sale of
investments  that a Fund owned for one year or less will be taxable as  ordinary
income.   For  taxable  years   beginning  on  or  before   December  31,  2008,
distributions  of  investment  income  designated  by a  Fund  as  derived  from
"qualified  dividend  income" will be taxed in the hands of  individuals  at the
rates  applicable to long-term  capital gain,  provided holding period and other
requirements are met at both the shareholder and Fund level.

Distributions  are taxable to shareholders  even if they are paid from income or
gains  earned  by the Fund  before a  shareholder's  investment  (and  thus were
included in the price the shareholder  paid).  Distributions are taxable whether
shareholders  receive them in cash or reinvest them in additional shares through
the reinvestment  privilege. A shareholder whose distributions are reinvested in
shares  will be treated as having  received a dividend  equal to the fair market
value of the new shares issued to the  shareholder.  Any gain resulting from the
sale or exchange of Fund shares generally will be taxable as capital gains.

Long-term  capital gain rates  applicable to individuals  have been  temporarily
reduced -- in general,  to 15% with lower rates applying to taxpayers in the 10%
and 15% rate brackets -- for taxable years  beginning on or before  December 31,
2008.

In order for some portion of the dividends  received by a Fund shareholder to be
"qualified  dividend  income,"  the Fund  must  meet  holding  period  and other
requirements  with respect to some portion of the dividend  paying stocks in its
portfolio and the  shareholder  must meet holding period and other  requirements
with respect to each Fund's shares.  A dividend will not be treated as qualified
dividend income (at either the Fund or shareholder level) (1) if the dividend is
received  with  respect to any share of stock held for fewer than 61 days during
the  121-day  period


                                       46


beginning  on the date  which is 60 days  before  the date on which  such  share
becomes  ex-dividend  with respect to such  dividend (or, in the case of certain
preferred stock, 91 days during the 181-day period beginning 90 days before such
date),  (2) to the extent that the  recipient  is under an  obligation  (whether
pursuant to a short sale or otherwise) to make related  payments with respect to
positions in  substantially  similar or related  property,  (3) if the recipient
elects to have the dividend income treated as investment interest, or (4) if the
dividend is received from a foreign corporation that is (a) not eligible for the
benefits of a  comprehensive  income tax treaty with the United States (with the
exception  of  dividends  paid on stock of such a  foreign  corporation  readily
tradable  on an  established  securities  market in the  United  States)  or (b)
treated as a foreign personal holding company,  foreign investment  company,  or
passive foreign investment company.

In  general,  distributions  of  investment  income  designated  by each Fund as
derived from  qualified  dividend  income will be treated as qualified  dividend
income by a shareholder  taxed as an individual  provided the shareholder  meets
the holding period and other  requirements  described  above with respect to the
Fund's  shares.  If the  aggregate  dividends  received  by the Fund  during any
taxable  year  are 95% or more of its  gross  income  (excluding  net  long-term
capital  gain  over  net  short-term  capital  loss),  then  100% of the  Fund's
dividends (other than dividends  properly  designated as capital gain dividends)
will be eligible to be treated as qualified  dividend income.  For this purpose,
the  only  gain  included  in the  term  "gross  income"  is the  excess  of net
short-term capital gain over net long-term capital loss.

Special tax rules apply to  investments  though defined  contribution  plans and
other  tax-qualified  plans.  Shareholders  should  consult their tax adviser to
determine  the  suitability  of shares of a fund as an  investment  through such
plans  and  the  precise  effect  of and  investment  on  their  particular  tax
situation.

Dividends  from domestic  corporations  may comprise a substantial  part of each
Fund's  gross  income.  If any such  dividends  constitute a portion of a Fund's
gross income, a portion of the income distributions of such 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 a 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 a 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.

Transactions  in Fund Shares.  Any loss realized  upon the  redemption of shares
held for six  months  or less at the time of  redemption  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. Furthermore,  any loss from
the sale or  redemption  of shares  held six  months or less  generally  will be
disallowed to the extent that  tax-exempt  interest  dividends were paid on such
shares.

Foreign  Taxation.  Foreign  withholding  or other foreign taxes with respect to
income  (possibly  including,  in some cases,  capital gains) on certain foreign
securities may occur.  These taxes may be reduced or eliminated  under the terms
of an applicable US income tax treaty.  As it is not expected that more than 50%
of the value of each Fund's total assets will  consist of  securities  issued by
foreign  corporations,  the  Funds  will  not be  eligible  to pass  through  to
shareholders its proportionate  share of any foreign taxes paid, with the result
that  shareholders  will  not be able to  include  in  income,  and  will not be
entitled to take any credits or deductions for such foreign taxes.

Passive Foreign  Investment  Companies.  Equity investments by a Fund in certain
"passive foreign investment  companies"  ("PFICs") could potentially subject the
Fund to a US federal income tax (including  interest  charges) on  distributions
received from the company or on proceeds received from the disposition of shares
in the company,  which tax cannot be eliminated by making  distributions to Fund
shareholders.  However, such Fund may elect to avoid the imposition of that tax.
For example,  the Fund may elect to treat a PFIC as a "qualified  electing fund"
(a "QEF  election"),  in which case the Fund would be  required  to include  its
share of the  company's  income and net capital  gains  annually,  regardless of
whether it receives any distribution  from the company.  Such Fund also may make
an election to mark the gains (and to a limited  extent losses) in such holdings
"to the  market" as though it had sold and  repurchased  its  holdings  in those
PFICs on the last day of the  Fund's  taxable  year.  Such  gains and losses are
treated as ordinary  income and loss. The QEF and  mark-to-market  elections may
accelerate the  recognition of


                                       47


income  (without  the receipt of cash) and  increase  the amount  required to be
distributed  by the Fund to avoid  taxation.  Making  either of these  elections
therefore may require such Fund to liquidate other  investments  (including when
it is not  advantageous to do so) to meet its  distribution  requirement,  which
also may accelerate the  recognition of gain and affect the Fund's total return.
Dividends  paid by PFICs  will  not be  eligible  to be  treated  as  "qualified
dividend income."

The American Jobs Creation Act of 2004,  signed by President Bush on October 22,
2004,  modifies  the  tax  treatment  of  distributions  from  a Fund  that  are
attributable  to gain from "US real property  interests"  ("USRPIs").  Which the
Code defines to include direct holdings of US real property and interests (other
than solely as a creditor) in "US real property  holding  corporations"  such as
REITs.  Notably,  the Code deems any  corporation  that holds USRPIs with a fair
market value equal to 50% or more of the fair market value of the  corporation's
US and foreign real property  assets used of held for use in a trade or business
to be a US real  property  holding  corporation.  Under  the new  law  which  is
generally  effective for dividends  with respect to tax years of RICs  beginning
after December 31, 2004, the  distribution  of gains from USRPIs will be subject
to  withholding of US federal income tax at a rate of 35% when made to a foreign
shareholder and will give rise to an obligation for that foreign  shareholder to
file a US tax return.  To the extent a distribution to a foreign  shareholder is
attributable  to the gains  recognized by a REIT, or until  December 31, 2007, a
RIC,  from its  sale or  exchange  of a USRPI,  the  Code  treats  that  gain as
recognized  by the foreign  shareholder  and not the REIT or RIC. As such,  that
foreign shareholder's gain triggers withholding  obligations for the REIT or RIC
and US tax filing obligations for the foreign shareholder. However, a USRPi does
not include  sales of  interests in a REIT or RIC that is less than 50% owned by
foreign persons at all times during the testing period.  Further, a distribution
by a REIT with  respect to any class of stock  which is  regularly  traded on an
established  US securities  market shall not be treated as  recognized  from the
sale or exchange of a USRPI if the REIT  shareholder  owned less than 5% of such
class of stock at all times during the taxable year.

Other Tax Considerations.  A Fund's use of options,  futures contracts,  forward
contracts (to the extent  permitted)  and certain other  Strategic  Transactions
will be subject to special  tax rules  (including  mark-to-market,  constructive
sale, straddle,  wash sale, short sale and other rules), the effect of which may
be to accelerate  the Fund's  income,  defer losses,  cause  adjustments  in the
holding  periods of portfolio  securities,  convert  capital gains into ordinary
income and convert  short-term  capital  losses into long-term  capital  losses.
These  rules  could  therefore  affect  the  amount,  timing  and  character  of
distributions to investors.

Certain of a Fund's hedging activities  (including its transactions.  If any, in
foreign  currencies or foreign  currency-denominated  instruments) are likely to
produce a  difference  between  its book  income  and its  taxable  income,  the
distribution  (if any) of such  excess  will be treated as (i) a dividend to the
extent of the Fund's  remaining  earnings  and profits  (including  earnings and
profits arising from tax-exempt income),  (ii) thereafter as a return of capital
to the extent of the recipient's basis in the shares,  and (iii) thereafter as a
gain from the sale or  exchange of a capital  asset.  If a Fund's book income is
less than its taxable  income,  a Fund could be  required to make  distributions
exceeding  book  income to qualify as a  regulated  investment  company  that is
accorded special tax treatment.

The Fund's  investment  in zero coupon bonds and other debt  obligations  having
original issue discount may cause the Fund to recognize taxable income in excess
of any cash received from the investment.

Under the backup withholding provisions of the Code, redemption proceeds as well
as  distributions  may be subject to federal income tax  withholding for certain
shareholders,  including  those who fail to furnish a Fund with  their  taxpayer
identification numbers and certifications as to their tax status.

Shareholders of a Fund may be subject to state and local taxes on  distributions
received from the Fund and on redemptions of a Fund's  shares.  Any  shareholder
who is not a US Person (as such term is defined in the Code) should consider the
US and foreign tax  consequences of ownership of shares of a Fund. Under current
law,  dividends (other than capital gain dividends) paid by the Fund to a person
who is not a "U.S.  person" within the meaning of the Code (a "foreign  person")
are generally subject to withholding of U.S. federal income tax at a rate of 30%
(or lower applicable treaty rate).  Under the American Jobs Creation Act of 2004
signed by President Bush on October 22, 2004, effective for taxable years of the
Fund beginning after December 31, 2004 and before January 1, 2008, the Fund will
no longer be required to withhold any amounts with respect to


                                       48


distributions of net short-term capital gains in excess of net long-term capital
losses that the Fund properly  designates nor with respect to  distributions  of
U.S. source interest income that would not be subject to U.S. federal income tax
if earned directly by a foreign person.

Capital gains  distributions  may be reduced if Fund capital loss  carryforwards
are available.  Any capital loss  carryforwards  to which a Fund is entitled are
disclosed in a Fund's annual and semi-annual reports to shareholders.

All distributions by a Fund result in a reduction in the net asset value of that
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 be careful to 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 receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

Under recently promulgated Treasury regulations,  if a shareholder  recognizes a
loss with respect to the Fund's  shares of $2 million or more for an  individual
shareholder or $10 million or more for a corporate shareholder,  the shareholder
must file with the Internal Revenue Service a disclosure statement on Form 8886.
Direct shareholders of portfolio securities are in many cases excepted from this
reporting requirement,  but under current guidance,  shareholders of a regulated
investment  company are not  excepted.  Future  guidance  may extend the current
exception  from  this  reporting  requirement  to  shareholders  of  most or all
regulated investment  companies.  The fact that a loss is reportable under these
regulations  does not affect the legal  determination  of whether the taxpayer's
treatment of the loss is proper.  Shareholders should consult their tax advisors
to determine the applicability of these regulations in light of their individual
circumstances.

                                 NET ASSET VALUE

The net  asset  value of  shares  of each  Fund is  computed  as of the close of
regular trading on the New York Stock Exchange (the  "Exchange") on each day the
Exchange is open for trading (the "Value Time"). The Exchange is scheduled to be
closed on the following  holidays:  New Year's Day, Dr. Martin Luther King,  Jr.
Day,  Presidents' Day, Good Friday,  Memorial Day,  Independence Day, Labor Day,
Thanksgiving  and Christmas,  and on the preceding  Friday or subsequent  Monday
when one of these  holidays  falls on a Saturday  or Sunday,  respectively.  Net
asset  value  per share is  determined  separately  for each  class of shares by
dividing the value of the total assets of the Fund attributable to the shares of
that class, less all liabilities attributable to that class, by the total number
of shares of that class outstanding.  The per share net asset value may be lower
for  certain  classes  of the Fund  because  of higher  expenses  borne by these
classes.

An equity  security is valued at its most  recent  sale price on the  security's
primary  exchange  or OTC market as of the Value Time.  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") on such exchange or
OTC  market  as of the  Value  Time.  If it is not  possible  to  determine  the
Calculated Mean, the security is valued at the most recent bid quotation on such
exchange  or OTC market as of the Value  Time.  In the case of  certain  foreign
exchanges  or OTC  markets,  the closing  price  reported by the exchange or OTC
market  (which may  sometimes  be  referred  to as the  "official  close" or the
"official  closing  price" or other similar  term) will be  considered  the most
recent sale price.

Debt securities are valued as follows.  Money market instruments  purchased with
an  original or  remaining  maturity  of 60 days or less,  maturing at par,  are
valued at amortized  cost.  Other money market  instruments  are valued based on
information  obtained from an approved  pricing agent or, if such information is
not readily  available,  by using  matrix  pricing  techniques  (formula  driven
calculations based primarily on current market yields). Bank loans are valued at
prices supplied by an approved  pricing agent (which are intended to reflect the
mean between the bid and asked prices), if available,  and otherwise at the mean
of the most recent bid and asked quotations or evaluated  prices, as applicable,
based  on   quotations   or  evaluated   prices   obtained   from  one  or  more
broker-dealers.  Privately  placed  debt  securities,  other than Rule 144A debt
securities,  initially are valued at cost and  thereafter  based on all relevant
factors  including  type  of  security,  size of  holding  and  restrictions  on
disposition.  Municipal  debt  securities  are valued at prices  supplied  by an
approved  pricing  agent (which are intended to reflect the mean between the bid
and asked prices), if available, and otherwise at the average of the means based
on the most recent bid and asked


                                       49


quotations  or evaluated  prices  obtained from two  broker-dealers.  Other debt
securities  are valued at prices  supplied  by an  approved  pricing  agent,  if
available, and otherwise at the most recent bid quotation or evaluated price, as
applicable,  obtained from one or more broker-dealers.  If it is not possible to
value a particular debt security pursuant to the above methods,  the security is
valued on the basis of factors including (but not limited to) maturity,  coupon,
creditworthiness, currency denomination, and the movement of the market in which
the security is normally traded.

An exchange-traded option contract on securities, currencies and other financial
instruments  is valued at its most recent sale price on the  relevant  exchange.
Lacking any sales,  the option contract is valued at the Calculated  Mean. If it
is not possible to determine the Calculated  Mean, the option contract is valued
at the most recent bid quotation in the case of a purchased  option  contract or
the most recent asked  quotation in the case of a written  option  contract,  in
each case as of the Value Time. An option contract on securities, currencies and
other financial instruments traded in the OTC market is valued on the Value Date
at the evaluated price provided by the  broker-dealer  with which it was traded.
Futures contracts (and options thereon) are valued at the most recent settlement
price, if available,  on the exchange on which they are traded most extensively.
With the exception of stock index futures  contracts  which trade on the Chicago
Mercantile Exchange,  closing settlement times are prior to the close of trading
on the New York Stock Exchange. For stock index futures contracts which trade on
the  Chicago  Mercantile  Exchange,   closing  settlement  prices  are  normally
available  at  approximately  4:20  Eastern  time.  If no  settlement  price  is
available, the last traded price on such exchange will be used.

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 US  dollars  is  calculated  by
converting  the  Local  Currency  into US  dollars  at the  prevailing  currency
exchange rate on the valuation date.

If market quotations for portfolio assets are not readily available or the value
of a portfolio asset as determined in accordance with Board approved  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 Fund's
Pricing  Committee  (or,  in  some  cases,  the  Board's  Valuation  Committee),
represents fair market value. The value of other portfolio holdings owned by the
Fund is  determined  in a manner  which is intended  to fairly  reflect the fair
market value of the asset on the valuation date,  based on valuation  procedures
adopted  by the  Fund's  Board and  overseen  primarily  by the  Fund's  Pricing
Committee.

                              TRUSTEES AND OFFICERS

Investment Trust

The following  table  presents  certain  information  regarding the Trustees and
Officers of the Trust as of December 1, 2004.  Each  Trustee's  year of birth is
set forth in parentheses after his or her name. Unless otherwise noted, (i) each
Trustee has  engaged in the  principal  occupation(s)  noted in the table for at
least the most recent five years, although not necessarily in the same capacity,
and (ii) the address of each Trustee is c/o Dawn-Marie Driscoll,  PO Box 100176,
Cape Coral, FL 33904. Unless otherwise indicated, the address of each Officer is
Two International  Place,  Boston, MA 02110. The term of office for each Trustee
is until the next  meeting of  shareholders  called for the  purpose of electing
Trustees and until the election and qualification of a successor,  or until such
Trustee sooner dies, resigns, retires or is removed as provided in the governing
documents  of the  Trust.  Because  the Fund does not hold an annual  meeting of
shareholders,  each Trustee will hold office for an  indeterminate  period.  The
Trustees of the Trust may also serve in similar  capacities  with other funds in
the fund complex.



                                       50


Independent Trustees



- -------------------------------------------------------------------------------------------------------------------
Name, Year of Birth, Position(s)                                                                Number of Funds
Held with the Trust and              Principal Occupation(s) During Past 5 Years and            in Fund Complex
Length of Time Served^1              Other Directorships Held                                   Overseen
- -------------------------------------------------------------------------------------------------------------------
                                                                                                 
Dawn-Marie Driscoll (1946)           President, Driscoll Associates (consulting firm);                  49
Chairman since 2004 and Trustee,     Executive Fellow, Center for Business Ethics, Bentley
1987-present                         College; formerly, Partner, Palmer & Dodge (1988-1990);
                                     Vice President of Corporate Affairs and General Counsel,
                                     Filene's (1978-1988). Directorships:  CRS Technology
                                     (technology service company); Advisory Board, Center for
                                     Business Ethics, Bentley College; Board of Governors,
                                     Investment Company Institute; former Chairman, ICI
                                     Directors Services Committee
- -------------------------------------------------------------------------------------------------------------------
Henry P. Becton, Jr. (1943)          President, WGBH Educational Foundation. Directorships:             49
Trustee, 1990-present                Becton Dickinson and Company (medical technology
                                     company); The A.H. Belo Company (media company); Concord
                                     Academy; Boston Museum of Science; Public Radio
                                     International. Former Directorships:  American Public
                                     Television; New England Aquarium; Mass. Corporation for
                                     Educational Telecommunications; Committee for Economic
                                     Development; Public Broadcasting Service
- -------------------------------------------------------------------------------------------------------------------
Keith R. Fox (1954)                  Managing Partner, Exeter Capital Partners (private equity          49
Trustee, 1996-present                funds). Directorships:  Facts on File (school and library
                                     publisher); Progressive Holding Corporation (kitchen
                                     importer and distributor); Cloverleaf Transportation Inc.
                                     (trucking); K-Media, Inc. (broadcasting); Natural
                                     History, Inc. (magazine publisher); National Association
                                     of Small Business Investment Companies (trade association)
- -------------------------------------------------------------------------------------------------------------------
Louis E. Levy (1932)                 Retired. Formerly, Chairman of the Quality Control                 49
Trustee, 2002-present                Inquiry Committee, American Institute of Certified Public
                                     Accountants (1992-1998); Partner, KPMG LLP (1958-1990).
                                     Directorships:  Household International (banking and
                                     finance); ISI Family of Funds (registered investment
                                     companies; 4 funds overseen)
- -------------------------------------------------------------------------------------------------------------------
Jean Gleason Stromberg (1943)        Retired. Formerly, Consultant (1997-2001); Director, US            49
Trustee, 1999-present                General Accounting Office (1996-1997); Partner, Fulbright
                                     & Jaworski, L.L.P. (law firm) (1978-1996).
                                     Directorships:  The William and Flora Hewlett Foundation;
                                     Service Source, Inc.
- -------------------------------------------------------------------------------------------------------------------
Jean C. Tempel (1943)                 Managing Partner, First Light Capital (venture capital            49
Trustee, 1994-present                group) (2000-present); formerly, Special Limited Partner,
                                     TL Ventures (venture capital fund) (1996-1998); General
                                     Partner, TL Ventures (1994-1996); President and Chief
                                     Operating Officer, Safeguard Scientifics, Inc. (public
                                     technology business incubator company) (1991-1993).
                                     Directorships:  Sonesta International Hotels, Inc.;
                                     Aberdeen Group (technology research); United Way of Mass.
                                     Bay; The Commonwealth Institute (supports women
                                     entrepreneurs). Trusteeships:  Connecticut College, Vice
                                     Chair of Board, Chair, Finance Committee; Northeastern
                                     University, Vice Chair of Finance Committee, Chair, Funds
                                     and Endowment Committee
- -------------------------------------------------------------------------------------------------------------------


                                       51


- -------------------------------------------------------------------------------------------------------------------
Name, Year of Birth, Position(s)                                                                Number of Funds
Held with the Trust and              Principal Occupation(s) During Past 5 Years and            in Fund Complex
Length of Time Served^1              Other Directorships Held                                   Overseen
- -------------------------------------------------------------------------------------------------------------------
Carl W. Vogt (1936)                  Senior Partner, Fulbright & Jaworski, L.L.P (law firm);            49
Trustee, 2002-present                formerly, President (interim) of Williams College
                                     (1999-2000); President, certain funds in
                                     the Deutsche Asset Management Family of
                                     Funds (formerly, Flag Investors Family of
                                     Funds) (registered investment companies)
                                     (1999-2000). Directorships: Yellow
                                     Corporation (trucking); American Science &
                                     Engineering (x-ray detection equipment);
                                     ISI Family of Funds (registered investment
                                     companies; 4 funds overseen); National
                                     Railroad Passenger Corporation (Amtrak);
                                     formerly, Chairman and Member, National
                                     Transportation Safety Board
- -------------------------------------------------------------------------------------------------------------------

Officers^2

- -------------------------------------------------------------------------------------------------------------------
Name, Year of Birth, Position(s)                                                                Number of Funds
Held with the Trust and              Principal Occupation(s) During Past 5 Years and            in Fund Complex
Length of Time Served^1              Other Directorships Held                                   Overseen
- -------------------------------------------------------------------------------------------------------------------
Julian F. Sluyters^3 (1960)          Managing Director, Deutsche Asset Management (since May           n/a
President and Chief Executive        2004); President and Chief Executive Officer of The
Officer, 2004-present                Germany Fund, Inc., The New Germany Fund, Inc., The
                                     Central Europe and Russia Fund, Inc., The Brazil Fund,
                                     Inc., The Korea Fund, Inc., Scudder Global High Income
                                     Fund, Inc. and Scudder New Asia Fund, Inc. (since May
                                     2004); President and Chief Executive Officer, UBS Fund
                                     Services (2001-2003); Chief Administrative Officer
                                     (1998-2001) and Senior Vice President and Director of
                                     Mutual Fund Operations (1991 to 1998) UBS Global Asset
                                     Management
- -------------------------------------------------------------------------------------------------------------------
John Millette (1962)                 Director, Deutsche Asset Management                               n/a
Vice President and Secretary,
1999-present
- -------------------------------------------------------------------------------------------------------------------
Kenneth Murphy (1963)                Vice President, Deutsche Asset Management (2000-present);         n/a
Vice President, 2002-present         formerly, Director, John Hancock Signature Services
                                     (1992-2000)
- -------------------------------------------------------------------------------------------------------------------
Paul Schubert^3 (1963)               Managing Director, Deutsche Asset Management
Chief Financial Officer,             (2004-present); formerly, Executive Director, Head of
2004-present                         Mutual Fund Services and Treasurer for UBS Family of
                                     Funds at UBS Global Asset Management (1994-2004)
- -------------------------------------------------------------------------------------------------------------------
Charles A. Rizzo (1957)              Managing Director, Deutsche Asset Management (April               n/a
Treasurer, 2002-present              2004-present); formerly, Director, Deutsche Asset
                                     Management (April 2000-March 2004); Vice President and
                                     Department Head, BT Alex. Brown Incorporated (now
                                     Deutsche Bank Securities Inc.) (1998-1999); Senior
                                     Manager, Coopers & Lybrand L.L.P. (now
                                     PricewaterhouseCoopers LLP) (1993-1998)
- -------------------------------------------------------------------------------------------------------------------
Lisa Hertz^3 (1970)                  Assistant Vice President, Deutsche Asset Management               n/a
Assistant Secretary, 2003-present
- -------------------------------------------------------------------------------------------------------------------


                                       52


- -------------------------------------------------------------------------------------------------------------------
Name, Year of Birth, Position(s)                                                                Number of Funds
Held with the Trust and              Principal Occupation(s) During Past 5 Years and            in Fund Complex
Length of Time Served^1              Other Directorships Held                                   Overseen
- -------------------------------------------------------------------------------------------------------------------
Daniel O. Hirsch^4 (1954)            Managing Director, Deutsche Asset Management                      n/a
Assistant Secretary, 2002-present    (2002-present) and Director, Deutsche Global Funds Ltd.
                                     (2002-present); formerly, Director, Deutsche Asset
                                     Management (1999-2002); Principal, BT Alex. Brown
                                     Incorporated (now Deutsche Bank Securities Inc.)
                                     (1998-1999); Assistant General Counsel, United States
                                     Securities and Exchange Commission (1993-1998)
- -------------------------------------------------------------------------------------------------------------------
Caroline Pearson (1962)              Managing Director, Deutsche Asset Management                      n/a
Assistant Secretary, 1997-present
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Gay (1959)                  Vice President, Deutsche Asset Management                         n/a
Assistant Treasurer, 2004-present
- -------------------------------------------------------------------------------------------------------------------
Salvatore Schiavone (1965)           Director, Deutsche Asset Management                               n/a
Assistant Treasurer, 2003-present
- -------------------------------------------------------------------------------------------------------------------
Kathleen Sullivan D'Eramo            Director, Deutsche Asset Management                               n/a
(1957)
Assistant Treasurer, 2003-present
- -------------------------------------------------------------------------------------------------------------------


^1       Length of time served  represents  the date that each Trustee was first
         elected  to the common  board of  Trustees  which  oversees a number of
         investment  companies,  including the fund, managed by the Advisor. For
         the  Officers of the Trust,  the length of time served  represents  the
         date that each Officer was first  elected to serve as an Officer of any
         fund overseen by the aforementioned common board of Trustees.

^2       As a result of their respective positions held with the Advisor,  these
         individuals are considered  "interested  persons" of the Advisor within
         the meaning of the 1940 Act. Interested persons receive no compensation
         from the Funds.

^3       Address:  345 Park Avenue, New York, New York

^4       Address:  One South Street, Baltimore, Maryland

Officer's Role with Principal Underwriter: Scudder Distributors, Inc.

Caroline Pearson:                          Secretary

Trustees' Responsibilities.  The primary responsibility of the Board of Trustees
is to  represent  the  interests  of the  Fund's  shareholders  and  to  provide
oversight of the management of the Fund. Currently, seven of the Board's members
are  "Independent  Trustees;"  that is, they are not  "interested  persons"  (as
defined in the 1940 Act) of the Trust or the Advisor.

The  Trustees  meet  multiple  times  during the year to review  the  investment
performance of the Fund and other operational  matters,  including  policies and
procedures designed to assure compliance with regulatory and other requirements.
In 2003, the Trustees  conducted 34 meetings to deal with fund issues (including
regular and special board and committee meetings). These meetings were held over
the course of 19 different days. In addition,  various Trustees  participated as
members of the Board's Valuation Committee throughout the year. Furthermore, the
Independent  Trustees review the fees paid to the Advisor and its affiliates for
investment advisory services and other administrative and shareholder  services.
The Trustees have adopted  specific  policies and guidelines  that,  among other
things, seek to further enhance the effectiveness of the Independent Trustees in
performing  their  duties.  Many of these are similar to those  suggested in the
Investment  Company  Institute's  1999  Report  of the  Advisory  Group  on Best
Practices for Fund  Directors.  For example,  the  Independent  Trustees  select
independent  legal  counsel to work with them in  reviewing  fees,  advisory and
other contracts and overseeing  fund matters.  The Trustees are also


                                       53


assisted in this regard by the Fund's  independent  public accountants and other
independent experts retained from time to time for this purpose. The Independent
Trustees  regularly  meet privately  with their counsel and other  advisors.  In
addition,  the Independent Trustees from time to time have appointed task forces
and  subcommittees  from their  members to focus on  particular  matters such as
investment, accounting and shareholders servicing issues.

For a discussion of the factors  considered by the Board in connection  with its
most recent  approval of the  continuation of the Fund's  management  contracts,
please refer to "Management of the Funds -- Board  Considerations  in Connection
with Annual Renewal of Investment Management Agreements."

Board Committees. The Board has the following standing committees:

Audit  Committee:  The  Audit  Committee  makes  recommendations  regarding  the
selection  of  independent  registered  public  accounting  firms  for the Fund,
reviews the  independence of such firm,  reviews the scope of audit and internal
controls,  considers and reports to the Board on matters  relating to the Fund's
accounting and financial reporting  practices,  and performs such other tasks as
the full Board deems  necessary or  appropriate.  The Audit  Committee  receives
annual representations from the independent registered public accounting firm as
to their  independence.  The  members of the Audit  Committee  are Louis E. Levy
(Chair), Jean Gleason Stromberg and Jean C. Tempel. The Audit Committee held six
meetings during the calendar year 2003.

Nominating/Corporate  Governance Committee: The Nominating/Corporate  Governance
Committee  (i)  selects  and  nominates   candidates  to  serve  as  Independent
Trustees*;  (ii) oversees all other fund governance-related  matters,  including
Board  compensation   practices,   retirement   policies,   self-evaluations  of
effectiveness  and allocations of assignments and functions of committees of the
Board. The members of the Nominating/Corporate Governance Committee are Henry P.
Becton,  Jr.,  Dawn-Marie  Driscoll  (Chair),  Keith R. Fox, Louis E. Levy, Jean
Gleason  Stromberg,  Jean C. Tempel and Carl W. Vogt.  The  Nominating/Corporate
Governance Committee (previously known as the Committee on Independent Trustees)
held five meetings during the calendar year 2003.

Valuation  Committee:  The Valuation  Committee oversees fund valuation matters,
reviews Valuation Procedures adopted by the Board,  determines fair value of the
Fund's  securities as needed in accordance  with the Valuation  Procedures  when
actual market values are  unavailable  and performs such other tasks as the full
Board deems necessary.  The members of the Valuation Committee are Keith R. Fox,
Dawn-Marie  Driscoll  and Jean C.  Tempel.  The  Alternate  Valuation  Committee
members are Henry P.  Becton,  Jr. and Jean  Gleason  Stromberg.  The  Valuation
Committee held one meeting during the calendar year 2003.

Investment  Oversight  Committee:  The  Board  has  established  two  Investment
Oversight  Committees,  one  focusing  on funds  primarily  investing  in equity
securities  (the  "Equity  Oversight  Committee")  and  one  focusing  on  funds
primarily  investing in fixed income  securities  (the "Fixed  Income  Oversight
Committee").  These  Committees meet regularly with fund portfolio  managers and
other investment  personnel to review the relevant funds' investment  strategies
and investment  performance.  The members of the Equity Oversight  Committee are
Henry P. Becton,  Jr.  (Chair),  Jean C. Tempel and Carl W. Vogt. The members of
the Fixed Income  Oversight  Committee are  Dawn-Marie  Driscoll,  Keith R. Fox,
Louis E. Levy and Jean Gleason  Stromberg  (Chair).  Each  Investment  Oversight
Committee held four meetings during the calendar year 2003.

Marketing/Shareholder   Service  Committee:  The  Marketing/Shareholder  Service
Committee  oversees (i) the  quality,  costs and types of  shareholder  services
provided to the Funds and their shareholders,  and (ii) the distribution-related
services  provided  to the Fund  and  their  shareholders.  The  members  of the
Shareholder Servicing and Distribution  Committee are Dawn-Marie Driscoll,  Jean
Gleason  Stromberg (Chair) and Carl W. Vogt. The  Marketing/Shareholder  Service
Committee  (previously  known  as the  Shareholder  Servicing  and  Distribution
Committee) held four meetings during the calendar year 2003.

Legal/Regulatory/Compliance Committee: The Legal/Regulatory/Compliance Committee
oversees (i) the significant  legal affairs of the Fund,  including the handling
of pending or threatened litigation or regulatory action involving the Fund, and
(ii)  general  compliance  matters  relating  to the Fund.  The  members  of the
Legal/Regulatory/Compliance  Committee  are  Henry P.  Becton,  Jr.,  Dawn-Marie
Driscoll,  Keith R. Fox and Carl W. Vogt (Chair). This committee was established
on October 12, 2004 and therefore did not meet in 2003.


                                       54


Expense/Operations  Committee: The Expense/Operations Committee (i) monitors the
Fund's  total  operating   expense  levels,   (ii)  oversees  the  provision  of
administrative  services  to the  Funds,  including  the  Fund's  custody,  fund
accounting and insurance  arrangements,  and (iii) reviews the Fund's investment
advisers' brokerage practices, including the implementation of related policies.
The members of the Expense/Operations  Committee are Henry P. Becton, Jr., Keith
R. Fox (Chair), Louis E. Levy and Jean C. Tempel. This committee was established
on October 12, 2004 and therefore did not meet in 2003.

*        Fund  Shareholders  may also submit nominees that will be considered by
the committee when a Board vacancy occurs.  Submissions should be mailed to: c/o
Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33904.

Remuneration.  Each Independent Trustee receives  compensation from the Fund for
his or her services, which includes an annual retainer and an attendance fee for
each meeting  attended.  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  or  service on special
director task forces or subcommittees.  Independent  Trustees do not receive any
employee benefits such as pension or retirement benefits or health insurance.

Members of the Board of  Trustees  who are  officers,  directors,  employees  or
stockholders  of the Advisor or its  affiliates  receive no direct  compensation
from the Fund, although they are compensated as employees of the Advisor, or its
affiliates,  and as a result  may be deemed to  participate  in fees paid by the
Fund. The following table shows  compensation  received by each Trustee from the
Fund and aggregate compensation from all of the funds in the fund complex during
the calendar year 2003.



                                                                           Pension or
                                 Compensation                              Retirement
                                 from Scudder      Compensation from    Benefits Accrued      Total Compensation
           Name of               Large Company     Scudder Capital         as Part of      Paid to Trustee from the
           Trustee                Growth Fund         Growth Fund         Fund Expenses       Fund Complex (3)(4)
           -------                -----------         -----------         -------------       -------------

                                                                                           
Henry P. Becton, Jr.                $2,288              $4,178                 $0                      $163,000
Dawn-Marie Driscoll(1)              $2,498              $4,639                 $0                      $179,780
Keith R. Fox                        $2,371              $4,366                 $0                      $169,780
Louis E. Levy(2)                    $2,293              $4,209                 $0                      $163,000
Jean Gleason Stromberg              $2,288              $4,178                 $0                      $163,000
Jean C. Tempel                      $2,224              $4,042                 $0                      $158,000
Carl W. Vogt                        $2,299              $4,209                 $0                      $162,000



(1)      Includes $10,000 in annual retainer fees in Ms. Driscoll's role as Lead
         Trustee.

(2)      In addition to these payments, Mr. Levy received payments in the amount
         of  $2,569  (representing  amounts  earned  in prior  years and gain or
         interest  thereon)  from  funds  existing  prior to the  Deutsche  Bank
         purchase of Scudder Investments.

(3)      For each Trustee,  total compensation includes compensation for service
         on   the   boards   of   18   trusts/corporations   comprised   of   47
         funds/portfolios.  Each  Trustee  currently  serves on the boards of 19
         DeAM trusts/corporations comprised of 49 funds/portfolios.

(4)      Aggregate  compensation  reflects  amounts  paid  to the  Trustees  for
         special  meetings  in  connection  with  amending  the   administrative
         services agreement and the transfer agency agreement and the delegation
         of certain  fund  accounting  functions  to State Street Bank and Trust
         Company. Such amounts totaled $8,000 for each Trustee,  except Mr. Vogt
         who was paid $7,000. These meeting fees were borne by the Advisor.



                                       55


Trustee Fund Ownership of Independent and Interested Trustees

The  following  sets forth ranges of Trustee  beneficial  share  ownership as of
December 31, 2003.



                                 Dollar Range of              Dollar Range of           Aggregate Dollar Range of
                               Securities Owned in      Securities Owned in Scudder   Securities Owned in All Funds
         Name of              Scudder Large Company               Capital             in the Fund Complex
         Trustee                   Growth Fund                  Growth Fund                Overseen by Trustee
         -------                   -----------                  -----------                -------------------

                                                                                             
Henry P. Becton, Jr.             $10,001-$50,000                    $1,000-$10,000              Over $100,000
Dawn-Marie Driscoll              $1,000-$10,000                     $1,000-$10,000              Over $100,000
Keith R. Fox                          None                               None                   Over $100,000
Louis E. Levy                         None                               None                   Over $100,000
Jean Gleason Stromberg                None                               None                   Over $100,000
Jean C. Tempel                    Over $100,000                     $1,000-$10,000              Over $100,000
Carl W. Vogt                          None                               None                   Over $100,000


Securities Beneficially Owned

As of November 12, 2004,  all Trustees and Officers of the Fund as a group owned
beneficially  (as that  term is  defined  is  section  13(d)  of the  Securities
Exchange Act of 1934) less than 1% of each class of the Funds.

To the best of the Funds' knowledge, as of November 12, 2004, no person owned of
record or beneficially 5% or more of any class of a Fund's  outstanding  shares,
except as noted below:

As of November 12, 2004,  380,351.861 shares in the aggregate,  or 13.72% of the
outstanding shares of Scudder Capital Growth Fund, Class A were held in the name
of Scudder Trust Co. FBO Station  Casinos Inc. 401K Plan  #062930,  Attn:  Asset
Recon P.O. Box 1757, Salem, NH 03079-1143 who may be deemed to be the beneficial
owner of such shares.

As of November 12, 2004,  26,590.012  shares in the  aggregate,  or 6.65% of the
outstanding shares of Scudder Capital Growth Fund, Institutional Class were held
in the name of Jay E. Van Cleave & Julie M. Van  Cleave  JTWROS,  12850  Elmwood
Rd., Elm Grove,  WI 53122-1919 who may be deemed to be the  beneficial  owner of
such shares.

As of  November  12,  2004,  606.145  shares in the  aggregate,  or 7.78% of the
outstanding shares of Scudder Capital Growth Fund, Class R were held in the name
of Lin Software Services 401K,  Jennifer Lin TTEE, FBO Jennifer B. Lin, 23317 SE
14th Ct., Sammamish,  WA 98075-8122 who may be deemed to be the beneficial owner
of such shares.

As of  November  12,  2004,  439.164  shares in the  aggregate,  or 5.64% of the
outstanding shares of Scudder Capital Growth Fund, Class R were held in the name
of Knowledge Rules Inc. 401K, Ronald A. Rock TTEE,  Omnibus Master Account,  900
Cummings  Center Ste 418-T,  Beverly,  MA 01915-6198 who may be deemed to be the
beneficial owner of such shares.

As of November 12, 2004,  1,149.606  shares in the  aggregate,  or 14.75% of the
outstanding shares of Scudder Capital Growth Fund, Class R were held in the name
of All Island Media Inc.  401K,  Rich  Megenedy  TTEE FBO All Island Media Inc.,
2950 Vets Memorial Hwy, Bohemia, NY 11716 who may be deemed to be the beneficial
owner of such shares.

As of  November  12,  2004,  659.510  shares in the  aggregate,  or 8.46% of the
outstanding shares of Scudder Capital Growth Fund, Class R were held in the name
of Waterfront  Group 401K,  Steven Smith TTEE,  FBO  Waterfront  Group,  1 Ferry
Building  Ste 210,  San  Francisco,  CA  94111-4213  who may be deemed to be the
beneficial owner of such shares.



                                       56


As of  November  12,  2004,  461.645  shares in the  aggregate,  or 5.92% of the
outstanding shares of Scudder Capital Growth Fund, Class R were held in the name
of Carters  Courier  Service Inc.  401K,  Matthew  Carter TTEE,  Omnibus  Master
Account,  3965 Hillside Rd.,  Deming,  WA 98244-9605 who may be deemed to be the
beneficial owner of such shares.

As of  November  12,  2004,  651.104  shares in the  aggregate,  or 8.36% of the
outstanding shares of Scudder Capital Growth Fund, Class R were held in the name
of Sterling  Communications  Inc.  401K,  David & Lynne Buskirk  TTEES,  Omnibus
Master  Account,  13204 N.  Macarthur,  Oklahoma  City, OK 73142-3019 who may be
deemed to be the beneficial owner of such shares.

As of November 12, 2004,  354,220.121 shares in the aggregate,  or 88.61% of the
outstanding shares of Scudder Capital Growth Fund, Institutional Class were held
in the  name of  MLPF&S  for the  Sole  Benefit  of its  Customers,  Attn:  Fund
Administration  #97D63,  4800  Deer  Lake  Dr.  East  2nd FL,  Jacksonville,  FL
32246-6484 who may be deemed to be the beneficial owner of such shares.

As of November 12, 2004,  142,815.268  shares in the aggregate,  or 6.36% of the
outstanding shares of Scudder Capital Growth Fund, Class S were held in the name
of Scudder Trust Co. TTEE FBO Archdiocesan Pension Plan for Lay Employees, Attn:
Asset Recon,  P.O. Box 1757,  Salem,  NH 03079-1143  who may be deemed to be the
beneficial owner of such shares.

As of November 12, 2004,  6,804.484  shares in the  aggregate,  or 13.26% of the
outstanding shares of Scudder Growth Fund,  Institutional Class were held in the
name of Scudder Trust  Company  Cust.  IRA R/O Susan  McGrindle  Petrarca,  3041
Candlewood Ct., Flossmoor,  IL 60422-1440 who may be deemed to be the beneficial
owner of such shares.

As of November 12, 2004,  215,938.957 shares in the aggregate,  or 12.02% of the
outstanding  shares of Scudder Large Company  Growth Fund,  Class A were held in
the name of Scudder Trust Co. FBO IBEW Local Union #252,  Contribution/401K Plan
#062962,  Attn:  Asset Recon,  P.O. Box 1757,  Salem,  NH 03079-1143  who may be
deemed to be the beneficial owner of such shares.

As of November 12, 2004,  8,508.856  shares in the  aggregate,  or 44.53% of the
outstanding  shares of Scudder Large Company  Growth Fund,  Class R were held in
the name of Scudder Trust Company FBO Applied  Energy  Solutions LLC, 401K Plan,
Attn: Asset Recon Dept. #063163,  P.O. Box 1757, Salem, NH 03079-1143 who may be
deemed to be the beneficial owner of such shares.

As of November 12, 2004,  2,261.160  shares in the  aggregate,  or 11.83% of the
outstanding  shares of Scudder Large Company  Growth Fund,  Class R were held in
the name of All Island Media Inc. 401K,  Rich Megenedy TTEE FBO All Island Media
Inc.,  2950 Vets  Memorial  Hwy,  Bohemia,  NY 11716 who may be deemed to be the
beneficial owner of such shares.

As of November  12, 2004,  1,196.548  shares in the  aggregate,  or 6.26% of the
outstanding  shares of Scudder Large Company  Growth Fund,  Class R were held in
the name of Sterling  Communications  Inc.  401K,  David & Lynne Buskirk  TTEES,
Omnibus Master Account, 13204 N. Macarthur, Oklahoma City, OK 73142-3019 who may
be deemed to be the beneficial owner of such shares.

As of November  12, 2004,  1,209.508  shares in the  aggregate,  or 6.33% of the
outstanding  shares of Scudder Large Company  Growth Fund,  Class R were held in
the name of  Glentronics  Inc.  401K,  Alan & Barbara  Schulman TTEE FBO Alan M.
Schulman, 3 Fox Tail Ln., Riverwoods,  IL 60015-3509 who may be deemed to be the
beneficial owner of such shares.

As of November 12, 2004,  108,213.808 shares in the aggregate,  or 11.08% of the
outstanding  shares of Scudder Large Company  Growth Fund,  Institutional  Class
were held in the name of State Street Bank & Trust Co. Cust. for Scudder Pathway
Series,  Conservative  Portfolio, 1 Heritage Dr. #P5S, Quincy, MA 02171-2105 who
may be deemed to be the beneficial owner of such shares.



                                       57


As of November 12, 2004,  388,109.032 shares in the aggregate,  or 39.73% of the
outstanding  shares of Scudder Large Company  Growth Fund,  Institutional  Class
were held in the name of State Street Bank & Trust Co. Cust. for Scudder Pathway
Series,  Balanced Portfolio,  1 Heritage Dr. #P5S, Quincy, MA 02171-2105 who may
be deemed to be the beneficial owner of such shares.

As of November 12, 2004,  475,847.603 shares in the aggregate,  or 48.71% of the
outstanding  shares of Scudder Large Company  Growth Fund,  Institutional  Class
were held in the name of State Street Bank & Trust Co. Cust. for Scudder Pathway
Series, Growth Portfolio,  1 Heritage Dr. #P5S, Quincy, MA 02171-2105 who may be
deemed to be the beneficial owner of such shares.

Ownership in Securities of the Advisor and Related Companies

As  reported  to the Fund,  the  information  in the  following  table  reflects
ownership by the  Independent  Trustees and their  immediate  family  members of
certain  securities as of December 31, 2003. An immediate family member can be a
spouse,  children  residing in the same  household  including  step and adoptive
children and any dependents. The securities represent ownership in an investment
advisor or  principal  underwriter  of the Fund and any  persons  (other  than a
registered  investment company) directly or indirectly  controlling,  controlled
by, or under common control with an investment advisor or principal  underwriter
of the Fund (including Deutsche Bank AG).



                                                                                    Value of        Percent of
                                  Owner and                                       Securities on    Class on an
Independent                    Relationship to                                    an Aggregate      Aggregate
Trustee                            Trustee           Company     Title of Class       Basis           Basis
- -------                            -------           -------     --------------       -----           -----
                                                                                       
Henry P. Becton, Jr.                                   None
Dawn-Marie Driscoll                                    None
Keith R. Fox                                           None
Louis E. Levy                                          None
Jean Gleason Stromberg                                 None
Jean C. Tempel                                         None
Carl W. Vogt                                           None


Scudder Growth Trust

The following  table  presents  certain  information  regarding the Trustees and
Officers of Scudder Growth Trust as of December 1, 2004. Each  individual's year
of birth is set forth in  parentheses  after his or her name.  Unless  otherwise
noted, (i) each individual has engaged in the principal  occupation(s)  noted in
the table for at least the most recent five years,  although not  necessarily in
the same capacity, and (ii) the address of each individual is c/o Deutsche Asset
Management,  222 South Riverside Plaza, Chicago, Illinois, 60606. Each Trustee's
term of office  extends  until the next  shareholder's  meeting  called  for the
purpose of electing such Trustee and until the election and  qualification  of a
successor, or until such Trustee sooner dies, retires,  resigns or is removed as
provided in the governing documents of the Trust.


                                       58




Independent Trustees

- -----------------------------------------------------------------------------------------------------------------
Name, Year of Birth,
Position(s) Held with the                                                                       Number of Funds
Trust and Length of Time       Principal Occupation(s) During Past 5 Years and                  in Fund Complex
Served^1                       Other Directorships Held                                         Overseen
- -----------------------------------------------------------------------------------------------------------------
                                                                                                 
Shirley D. Peterson (1941)     Retired; formerly, President, Hood College (1995-2000); prior           87
Chairperson and since 2004,    thereto, Partner, Steptoe & Johnson (law firm); Commissioner,
and Trustee, 1995-present      Internal Revenue Service; Assistant Attorney General (Tax), US
                               Department of Justice. Directorships:  Federal Mogul Corp.
                               (supplier of automotive components and subsystems); AK Steel
                               (steel production); Goodyear Tire & Rubber Co.
                               (April 2004-present); Champion Enterprises, Inc. (manufactured
                               home building) (November 2004-present); Trustee, Bryn Mawr
                               College. Former Directorship:  Bethlehem Steel Corp.
- -----------------------------------------------------------------------------------------------------------------
John W. Ballantine (1946)      Retired; formerly, Executive Vice President and Chief Risk              87
Trustee, 1999-present          Management Officer, First Chicago NBD Corporation/The First
                               National Bank of Chicago (1996-1998); Executive Vice President
                               and Head of International Banking (1995-1996). Directorships:
                               First Oak Brook Bancshares, Inc.; Oak Brook Bank; American
                               Healthways, Inc. (provider of disease and care management
                               services); Portland General Electric (utility company)
- -----------------------------------------------------------------------------------------------------------------
Lewis A. Burnham (1933)        Retired; formerly, Director of Management Consulting, McNulty &         87
Trustee, 1977-present          Company; (1990-1998); prior thereto, Executive Vice President,
                               Anchor Glass Container Corporation
- -----------------------------------------------------------------------------------------------------------------
Donald L. Dunaway (1937)       Retired; formerly, Executive Vice President, A. O. Smith                87
Trustee, 1980-present          Corporation (diversified manufacturer) (1963-1994)
- -----------------------------------------------------------------------------------------------------------------
James R. Edgar (1946)          Distinguished Fellow, University of Illinois, Institute of              87
Trustee, 1999-present          Government and Public Affairs (1999-present); formerly,
                               Governor, State of Illinois (1991-1999). Directorships:  Kemper
                               Insurance Companies; John B. Sanfilippo & Son, Inc.
                               (processor/packager/marketer of nuts, snacks and candy
                               products); Horizon Group Properties, Inc.; Youbet.com (online
                               wagering platform); Alberto-Culver Company (manufactures,
                               distributes and markets health and beauty care products)
- -----------------------------------------------------------------------------------------------------------------
Paul K. Freeman (1950)         President, Cook Street Holdings (consulting); Senior Visiting           87
Trustee, 2002-present          Research Scholar, Graduate School of International Studies,
                               University of Denver; Consultant, World Bank/Inter-American
                               Development Bank; formerly, Project Leader, International
                               Institute for Applied Systems Analysis (1998-2001); Chief
                               Executive Officer, The Eric Group, Inc. (environmental
                               insurance) (1986-1998)
- -----------------------------------------------------------------------------------------------------------------
Robert B. Hoffman (1936)       Retired; formerly, Chairman, Harnischfeger Industries, Inc.             87
Trustee, 1981-present          (machinery for the mining and paper industries) (1999-2000);
                               prior thereto, Vice Chairman and Chief Financial Officer,
                               Monsanto Company (agricultural, pharmaceutical and
                               nutritional/food products) (1994-1999). Directorship:  RCP
                               Advisors, LLC (a private equity investment advisory firm)
- -----------------------------------------------------------------------------------------------------------------



                                       59


- -----------------------------------------------------------------------------------------------------------------
Name, Year of Birth,
Position(s) Held with the                                                                       Number of Funds
Trust and Length of Time       Principal Occupation(s) During Past 5 Years and                  in Fund Complex
Served^1                       Other Directorships Held                                         Overseen
- -----------------------------------------------------------------------------------------------------------------
Fred B. Renwick (1930)         Retired; Professor Emeritus of Finance, New York University,            87
Trustee, 1988-present          Stern School of Business (2001- present); formerly, Professor,
                               New York University Stern School of Business (1965-2001).
                               Directorships:  The Wartburg Foundation; Chairman, Finance
                               Committee of Morehouse College Board of Trustees; formerly,
                               Director of Board of Pensions, Evangelical Lutheran Church in
                               America; member of the Investment Committee of Atlanta
                               University Board of Trustees; Chair of the Investment
                               Committee, American Bible Society Board of Trustees
- -----------------------------------------------------------------------------------------------------------------
John G. Weithers (1933)        Retired; formerly, Chairman of the Board and Chief Executive            87
Trustee, 1993-present          Officer, Chicago Stock Exchange. Directorships:  Federal Life
                               Insurance Company; Chairman of the Members of the Corporation
             and Trustee, DePaul University; formerly, International
                               Federation of Stock Exchanges; Records Management Systems
- -----------------------------------------------------------------------------------------------------------------

Interested Trustee and Officers^2

- -----------------------------------------------------------------------------------------------------------------
Name, Year of Birth,
Position(s) Held with the                                                                       Number of Funds
Trust and Length of Time       Principal Occupation(s) During Past 5 Years and                  in Fund Complex
Served^1                       Other Directorships Held                                         Overseen
- -----------------------------------------------------------------------------------------------------------------
William N. Shiebler^3 (1942)   Chief Executive Officer in the Americas for Deutsche Asset             142
Trustee, 2004-present          Management ("DeAM") and a member of the DeAM Global Executive
                               Committee (since 2002); Vice Chairman of Putnam Investments,
                               Inc. (1999); Director and Senior Managing Director of Putnam
                               Investments, Inc. and President, Chief Executive Officer, and
                               Director of Putnam Mutual Funds Inc. (1990-1999)
- -----------------------------------------------------------------------------------------------------------------
Julian F. Sluyters^4 (1960)    Managing Director, Deutsche Asset Management (since May 2004);         n/a
President and Chief Executive  President and Chief Executive Officer of The Germany Fund,
Officer, 2004-present          Inc., The New Germany Fund, Inc., The Central Europe and Russia
                               Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc.,
                               Scudder Global High Income Fund, Inc. and Scudder New Asia
                               Fund, Inc. (since May 2004); President and Chief Executive
                               Officer, UBS Fund Services (2001-2003); Chief Administrative
                               Officer (1998-2001) and Senior Vice President and Director of
                               Mutual Fund Operations (1991 to 1998) UBS Global Asset
                               Management
- -----------------------------------------------------------------------------------------------------------------
Philip J. Collora (1945)       Director, Deutsche Asset Management                                    n/a
Vice President and Assistant
Secretary, 1986-present
- -----------------------------------------------------------------------------------------------------------------
Kenneth Murphy^5 (1963)        Vice President, Deutsche Asset Management (2000-present);              n/a
Vice President, 2002-present   formerly, Director, John Hancock Signature Services (1992-2000)
- -----------------------------------------------------------------------------------------------------------------
Paul Schubert^4 (1963)         Managing Director, Deutsche Asset Management (2004-present);
Chief Financial Officer,       formerly, Executive Director, Head of Mutual Fund Services and
2004-present                   Treasurer for UBS Global Asset Management's Family of Funds
                               (1994-2004)
- -----------------------------------------------------------------------------------------------------------------



                                       60


- -----------------------------------------------------------------------------------------------------------------
Name, Year of Birth,
Position(s) Held with the                                                                       Number of Funds
Trust and Length of Time       Principal Occupation(s) During Past 5 Years and                  in Fund Complex
Served^1                       Other Directorships Held                                         Overseen
- -----------------------------------------------------------------------------------------------------------------
Charles A. Rizzo^5 (1957)      Managing Director, Deutsche Asset Management (April 2004 to            n/a
Treasurer and Chief Financial  present); formerly, Director, Deutsche Asset Management (April
Officer, 2002-present          2000-March 2004); Vice President and Department Head, BT Alex.
                               Brown Incorporated (now Deutsche Bank Securities Inc.)
                               (1998-1999); Senior Manager, Coopers & Lybrand L.L.P. (now
                               PricewaterhouseCoopers LLP) (1993-1998)
- -----------------------------------------------------------------------------------------------------------------
John Millette^5 (1962)         Director, Deutsche Asset Management                                    n/a
Secretary, 2001-present
- -----------------------------------------------------------------------------------------------------------------
Lisa Hertz^4 (1970)            Assistant Vice President, Deutsche Asset Management                    n/a
Assistant Secretary,
2003-present
- -----------------------------------------------------------------------------------------------------------------
Daniel O. Hirsch^6 (1954)      Managing Director, Deutsche Asset Management (2002-present) and        n/a
Assistant Secretary,           Director, Deutsche Global Funds Ltd. (2002-present); formerly,
2002-present                   Director, Deutsche Asset Management (1999-2002); Principal, BT
                               Alex. Brown Incorporated (now Deutsche Bank
                               Securities Inc.) (1998-1999); Assistant General
                               Counsel, United States Securities and Exchange
                               Commission (1993-1998)
- -----------------------------------------------------------------------------------------------------------------
Caroline Pearson^5 (1962)      Managing Director, Deutsche Asset Management                           n/a
Assistant Secretary,
1998-present
- -----------------------------------------------------------------------------------------------------------------
Kevin M. Gay^5 (1959)          Vice President, Deutsche Asset Management                              n/a
Assistant Treasurer,
2004-present
- -----------------------------------------------------------------------------------------------------------------
Salvatore Schiavone^5 (1965)   Director, Deutsche Asset Management                                    n/a
Assistant Treasurer,
2003-present
- -----------------------------------------------------------------------------------------------------------------
Charles A. Rizzo5 (1957)       Managing Director, Deutsche Asset Management (April 2004 to            n/a
Treasurer and Chief Financial  present); formerly, Director, Deutsche Asset Management (April
Officer, 2002-present          2000-March 2004); Vice President and Department Head, BT Alex.
                               Brown Incorporated (now Deutsche Bank Securities Inc.)
                               (1998-1999); Senior Manager, Coopers & Lybrand L.L.P. (now
                               PricewaterhouseCoopers LLP) (1993-1998)
- -----------------------------------------------------------------------------------------------------------------
Kathleen Sullivan D'Eramo^5    Director, Deutsche Asset Management                                    n/a
(1957)
Assistant Treasurer,
2003-present
- -----------------------------------------------------------------------------------------------------------------


^1        Length of time served  represents the date that each Trustee was first
          elected to the common  board of  Trustees  which  oversees a number of
          investment companies,  including the Fund, managed by the Advisor. For
          the Officers of the Fund,  length of time served  represents  the date
          that each Officer was first elected to serve as an officer of any fund
          overseen by the aforementioned common board of Trustees.

^2       As a result of their respective positions held with the Advisor,  these
         individuals are considered  "interested  persons" of the Advisor within
         the meaning of the 1940 Act. Interested persons receive no compensation
         from the Fund.

^3       Address:  280 Park Avenue, New York, New York

^4       Address:  345 Park Avenue, New York, New York

^5       Address:  Two International Place, Boston, Massachusetts

^6       Address:  One South Street, Baltimore, Maryland



                                       61


Officers' Role with Principal Underwriter:  Scudder Distributors, Inc.

Caroline Pearson:              Secretary
Philip J. Collora:             Assistant Secretary

Trustees'  Responsibilities.  The  officers of the Trust  manage its  day-to-day
operations  under the  direction of the Trust's  Board of Trustees.  The primary
responsibility of the Board is to represent the interests of the shareholders of
the Fund and to provide  oversight of the  management of the Fund. A majority of
the Trust's Board members are not affiliated with the Advisor.

The Board has adopted  its own  Governance  Procedures  and  Guidelines  and has
established  a  number  of  committees,  as  described  below.  For  each of the
following Committees,  the Board has adopted a written charter setting forth the
Committees' responsibilities.

Board Committees:  The Fund's Board has the following committees:

Audit  Committee:  The  Audit  Committee  makes  recommendations  regarding  the
selection  of  independent  registered  public  accounting  firms  for the Fund,
confers  with  the  independent   auditors  registered  public  accounting  firm
regarding  the Fund's  financial  statements,  the results of audits and related
matters,  and  performs  such other tasks as the full Board deems  necessary  or
appropriate.  The  Audit  Committee  receives  annual  representations  from the
auditors as to their independence. The members of the Audit Committee are Donald
L. Dunaway (Chair),  Robert B. Hoffman and Lewis A. Burnham. The Audit Committee
held ten meetings during calendar year 2003.

Nominating and Governance  Committee:  The Nominating and Governance  Committee,
which consists entirely of Independent  Trustees,  seeks and reviews  candidates
for  consideration  as nominees  for  membership  on the Board and  oversees the
administration of the Fund's Governance  Procedures and Guidelines.  The members
of the Nominating and Governance  Committee are Lewis A. Burnham (Chair),  James
R. Edgar and Shirley D. Peterson.  The Nominating and Governance  Committee held
six meetings during calendar year 2003.  Shareholders wishing to submit the name
of a candidate  for  consideration  as a Board  member by the  Committee  should
submit their recommendation(s) and resume to the Secretary of the Trust.

Valuation  Committee:  The  Valuation  Committee  reviews  Valuation  Procedures
adopted by the Board,  determines fair value of the Fund's  securities as needed
in accordance with the Valuation Procedures and performs such other tasks as the
full Board deems necessary.  The members of the Valuation  Committee are John W.
Ballantine (Chair), William N. Shiebler and John G. Weithers.  Alternate members
are Donald L. Dunaway and Lewis A. Burnham. The Trust's Valuation Committee held
two meetings during calendar year 2003.

Equity Oversight  Committee:  The Equity Oversight Committee oversees investment
activities of the Fund, such as investment  performance  and risk,  expenses and
services provided under the investment management agreement.  The members of the
Equity Oversight  Committee are Robert B. Hoffman (Chair),  Lewis A. Burnham and
John G.  Weithers.  The Equity  Oversight  Committee  held four meetings  during
calendar year 2003.

Operations  Committee:  The Operations  Committee oversees the operations of the
Fund,  such  as  reviewing  each  Fund's   administrative   fees  and  expenses,
distribution arrangements,  portfolio transaction policies, custody and transfer
agency  arrangements  and shareholder  services.  Currently,  the members of the
Operations  Committee are John W. Ballantine (Chair),  Paul K. Freeman,  Fred B.
Renwick and John G.  Weithers.  The  Operations  Committee  held seven  meetings
during calendar year 2003.

Fixed-Income Oversight Committee:  The Fixed-Income Oversight Committee oversees
investment  activities of the Funds,  such as investment  performance  and risk,
expenses and services provided under the investment  management  agreement.  The
members of the  Fixed-Income  Oversight  Committee are Paul K. Freeman  (Chair),
Donald L. Dunaway and Shirley D. Peterson.  The Fixed-Income Oversight Committee
held five meetings during calendar year 2003.



                                       62


Money Market Oversight Committee:  The Money Market Oversight Committee oversees
investment  activities  of the Fund,  such as investment  performance  and risk,
expenses and services  provided  under the investment  management  agreement and
portfolio  pricing  procedures.  The  members  of  the  Money  Market  Oversight
Committee are James R. Edgar  (Chair),  John W.  Ballantine and Fred B. Renwick.
The Money Market  Oversight  Committee held three  meetings  during the calendar
year 2003.

Remuneration.  Each Independent  Trustee receives a monthly retainer,  paid on a
quarterly  basis,  and an attendance fee, plus expenses,  for each Board meeting
and Committee meeting  attended.  The Trustees serve as board members of various
other  funds  advised  by  the  Advisor.   The  Advisor  supervises  the  Fund's
investments,  pays the  compensation  and expenses of its personnel who serve as
Trustees and  officers on behalf of the Fund and  receives a management  fee for
its services.

The Board of Trustees of the Fund established a deferred  compensation  plan for
the Independent  Trustees  ("Deferred  Compensation  Plan").  Under the Deferred
Compensation  Plan,  the  Independent  Trustees  may defer  receipt of all, or a
portion,  of the compensation  they earn for their services to the Fund, in lieu
of receiving  current  payments of such  compensation.  Any  deferred  amount is
treated as though an equivalent dollar amount has been invested in shares of one
or more funds advised by the Advisor ("Shadow Shares"). Governor Edgar currently
has elected to defer at least a portion of his fees.  In  addition,  previously,
Mr.  Dunaway  elected to defer fees that were  payable,  which are now  included
under the Deferred Compensation Plan. The equivalent Shadow Shares are reflected
below in the table describing the Trustee's share ownership.

Members of the Board of  Trustees  who are  officers,  directors,  employees  or
stockholders  of the Advisor or its  affiliates  receive no direct  compensation
from the Fund, although they are compensated as employees of the Advisor, or its
affiliates,  and as a result  may be deemed to  participate  in fees paid by the
Fund.  The  Independent  Trustees  are not  entitled to benefits  under any fund
pension or retirement plan. The following table shows  compensation  received by
each  Trustee  from the Fund and  aggregate  compensation  from the fund complex
during the calendar year 2003.



                                                              Pension or Retirement         Total Compensation
                                                                 Benefits Accrued            Paid to Trustee
Name of                            Compensation from                as Part of                  from Fund
Trustee                           Scudder Growth Fund             Fund Expenses               Complex(4)(5)
- -------                           -------------------             -------------               -------------

                                                                                          
John W. Ballantine                         $5,504                       $0                         $218,350
Lewis A. Burnham                           $5,250                       $0                         $209,620
Donald L. Dunaway(1)                       $6,206                       $0                         $239,200
James R. Edgar(2)                          $4,380                       $0                         $175,210
Paul K. Freeman                            $5,056                       $0                         $194,280
Robert B. Hoffman                          $4,647                       $0                         $189,160
Shirley D. Peterson(3)                     $5,375                       $0                         $207,790
Fred B. Renwick                            $4,790                       $0                         $183,940
John G. Weithers                           $4,805                       $0                         $185,380


(1)      Does not include  deferred  fees.  Pursuant to a Deferred  Compensation
         Plan, as discussed  above,  Mr. Dunaway  previously  elected,  in prior
         years,  to defer  fees.  Deferred  amounts  are  treated  as  though an
         equivalent dollar amount has been invested in Shadow Shares (as defined
         above) of funds managed by the Advisor.  Total deferred fees (including
         interest  thereon  and the return from the  assumed  investment  in the
         funds managed by the Advisor) payable from the Trust to Mr. Dunaway are
         $19,153.

(2)      Includes deferred fees.  Pursuant to a Deferred  Compensation  Plan, as
         discussed  above,  deferred amounts are treated as though an equivalent
         dollar amount has been invested in Shadow Shares (as defined  above) of
         funds managed by the Advisor in which  compensation  may be deferred by
         Governor Edgar. Total deferred


                                       63


         fees  (including  interest  thereon  and the  return  from the  assumed
         investment in the funds managed by the Advisor)  payable from the Trust
         to Governor Edgar are $13,140.

(3)      Includes  $19,020 in annual  retainer fees received by Ms.  Peterson as
         Lead Trustee.

(4)      For each Trustee,  total compensation includes compensation for service
         on   the   boards   of   31   trusts/corporations   comprised   of   87
         funds/portfolios.  Each  Trustee  currently  serves on the boards of 31
         DeAM trusts/corporations comprised of 87 funds/portfolios.

(5)      Aggregate  compensation  reflects  amounts  paid  to the  Trustees  for
         special  meetings  in  connection  with  amending  the   administrative
         services agreement and the transfer agency agreement and the delegation
         of certain  fund  accounting  functions  to State Street Bank and Trust
         Company.  Such  amounts  totaled  $15,510  for Messrs.  Ballantine  and
         Dunaway,  $8,560 for Messrs. Freeman,  Hoffman,  Renwick, and Weithers,
         and  $5,170  for  Messrs.  Burnham  and Edgar and Ms.  Peterson.  These
         meeting fees were borne by the Advisor.

Mr. Freeman, prior to his service as Independent Trustee of the Trust, served as
a board member of certain funds in the Deutsche  Bank complex ("DB  Funds").  In
connection  with his  resignation  and the  resignation  of certain  other board
members as  Trustees of the DB Funds on July 30,  2002 (the  "Effective  Date"),
which  was  part of a  restructuring  of the  boards  overseeing  the DB  Funds,
Deutsche Asset Management,  Inc. ("DeAM") agreed to recommend, and, if necessary
obtain,  directors and officers  ("D&O")  liability  insurance  coverage for the
prior board members,  including Mr.  Freeman,  that is at least as equivalent in
scope and amount to the D&O coverage provided to the prior board members for the
six-year  period  following the Effective  Date. In the event that D&O insurance
coverage  is  not  available  in  the  commercial  marketplace  on  commercially
reasonable  terms from a  conventional  third party  insurer,  DeAM reserved the
right to provide substantially equivalent protection in the form of an indemnity
or financial guarantee from an affiliate of DeAM. The D&O policy in effect prior
to the Effective Date provided aggregate  coverage of $25,000,000,  subject to a
$250,000 per claim deductible.

Trustee Fund Ownership.  Under the Trust's Governance Procedures and Guidelines,
the Independent  Trustees have  established  the  expectation  that within three
years, an Independent  Trustee will have invested an amount in those funds he or
she oversees  (which shall  include  amounts held under a deferred fee agreement
that are valued based on "shadow  investments"  in such funds) in the  aggregate
equal to at least one times the amount of the annual retainer received from such
funds, with investments allocated to at least one money market, fixed-income and
equity fund  portfolio,  where such an investment is suitable for the particular
Independent Trustee's personal investment needs. Each interested Trustee is also
encouraged to own an amount of shares (based upon their own individual judgment)
of those  funds  that he or she  oversees  that is  suitable  for his or her own
appropriate  investment  needs.  The following  tables set forth each  Trustee's
share  ownership of the Fund and all funds in the fund complex  overseen by each
Trustee as of December 31, 2003.



                                                                        Aggregate Dollar Range of Securities
                                             Dollar Range of                        Owned in All
                                           Securities Owned in         Funds in the Fund Complex Overseen by
Name of Trustee                            Scudder Growth Fund                        Trustee
- ---------------                            -------------------                        -------


                                                                                 
John W. Ballantine                                None                             Over $100,000
Lewis A. Burnham                                  None                             Over $100,000
Donald L. Dunaway*                            Over $100,000                        Over $100,000
James R. Edgar*                             $50,001-$100,000                       Over $100,000
Paul K. Freeman                               Over $100,000                        Over $100,000
Robert B. Hoffman                              $1-$10,000                          Over $100,000
Shirley D. Peterson                          $10,001-$50,000                       Over $100,000
Fred B. Renwick                                   None                             Over $100,000
William N. Shiebler                               None                             None**
John G. Weithers                             $10,001-$50,000                       Over $100,000



                                       64


*         The dollar range of shares shown includes share equivalents of certain
          Scudder funds in which Mr. Dunaway and Governor Edgar are deemed to be
          invested  pursuant to the Trust's Deferred  Compensation  Plan as more
          fully described above under "Remuneration."

**        Mr.  Shiebler was elected to the Board  effective June 18, 2004. As of
          December 31, 2003,  Mr.  Shiebler  owned over  $100,000 in other funds
          within the Scudder Fund Complex.

As of November 12, 2004,  all Trustees and Officers of the Fund as a group owned
beneficially  (as that  term is  defined  is  section  13(d)  of the  Securities
Exchange Act of 1934) less than 1% of the outstanding securities of the Fund.

To the best of the Fund's knowledge, as of November 12, 2004, no person owned of
record or beneficially 5% or more of any class of the Fund's outstanding shares,
except as noted below:

As of November  12, 2004,  3,332.714  shares in the  aggregate,  or 6.49% of the
outstanding shares of Scudder Growth Fund,  Institutional Class were held in the
name of Scudder Trust Company Cust.  IRA R/O Margaret P. Varney,  24850 W. 191st
St., Gardner, KS 66030-9402 who may be deemed to be the beneficial owner of such
shares.

As of November 12, 2004,  6,583.490  shares in the  aggregate,  or 12.83% of the
outstanding shares of Scudder Growth Fund,  Institutional Class were held in the
name of Scudder Trust Company TTEE Gust M/P Donald L.  Dunaway,  7011  Greentree
Dr., Naples,  FL 34108-7527 who may be deemed to be the beneficial owner of such
shares.

As of November  12, 2004,  2,721.492  shares in the  aggregate,  or 5.30% of the
outstanding shares of Scudder Growth Fund,  Institutional Class were held in the
name of Scudder  Trust  Company  Cust.  IRA R/O Nina S.  Childs,  16413 E. Cogan
Drive,  Independence,  MO 64055 who may be deemed to be the beneficial  owner of
such shares.

As of November 12, 2004,  5,691.801  shares in the  aggregate,  or 11.09% of the
outstanding shares of Scudder Growth Fund,  Institutional Class were held in the
name of Scudder Trust Company  Cust.  IRA R/O Nelson E. Daus,  12512 Lorien Way,
Oklahoma  City, OK 73170-4728  who may be deemed to be the  beneficial  owner of
such shares.

Ownership in Securities of the Advisor and Related Companies

As  reported  to the Fund,  the  information  in the  following  table  reflects
ownership by the  Independent  Trustees and their  immediate  family  members of
certain  securities as of December 31, 2003. An immediate family member can be a
spouse,  children  residing in the same  household  including  step and adoptive
children and any dependents. The securities represent ownership in an investment
advisor or  principal  underwriter  of the Fund and any  persons  (other  than a
registered  investment company) directly or indirectly  controlling,  controlled
by, or under common control with an investment advisor or principal  underwriter
of the Fund (including Deutsche Bank AG).



                                                                                     Value of
                                Owner and                                          Securities on      Percent of
Independent                  Relationship to                                       an Aggregate      Class on an
Trustee                          Trustee            Company      Title of Class        Basis       Aggregate Basis
- -------                          -------            -------      --------------        -----       ---------------

                                                                                            
John W. Ballantine                                    None
Lewis A. Burnham                                      None
Donald L. Dunaway                                     None
James R. Edgar                                        None
Paul K. Freeman                                       None
Robert B. Hoffman                                     None
Shirley D. Peterson                                   None
Fred B. Renwick                                       None
John G. Weithers                                      None




                                       65


Agreement to Advance Certain Independent Trustee Expenses

In connection with litigation or regulatory  action related to possible improper
market timing or other improper trading activity or possible improper  marketing
and sales activity in the Funds,  DeIM has agreed to indemnify and hold harmless
the Funds against any and all loss, damage,  liability and expense, arising from
market timing or marketing and sales matters alleged in any enforcement  actions
brought by  governmental  authorities  involving or  potentially  affecting DeIM
("Enforcement  Actions")  or that are the basis for private  actions  brought by
shareholders of the Funds against the Funds, their directors and officers,  DeIM
and/or  certain other parties  ("Private  Litigation"),  or any  proceedings  or
actions  that  may be  threatened  or  commenced  in the  future  by any  person
(including  governmental  authorities),  arising  from or similar to the matters
alleged in the Enforcement Actions or Private Litigation.  In recognition of its
undertaking  to indemnify the Funds and in light of the  rebuttable  presumption
generally  afforded to independent  directors/trustees  of investment  companies
that  they  have not  engaged  in  disabling  conduct,  DeIM has also  agreed to
indemnify the Independent  Trustees against certain  liabilities the Independent
Trustees  may incur  from the  matters  alleged  in any  Enforcement  Actions or
Private  Litigation  or arising  from or similar to the  matters  alleged in the
Enforcement  Actions or Private  Litigation,  and advance  expenses  that may be
incurred by the Independent  Trustees in connection with any Enforcement Actions
or Private Litigation. DeIM is not, however, required to provide indemnification
and advancement of expenses:  (1) with respect to any proceeding or action which
the Funds' Boards determines that the Independent  Trustee  ultimately would not
be entitled  to  indemnification  or (2) for any  liability  of the  Independent
Trustee  to the Funds or their  shareholders  to which the  Independent  Trustee
would otherwise be subject by reason of willful  misfeasance,  bad faith,  gross
negligence  or  reckless  disregard  of the  Independent  Trustee's  duties as a
trustee of the Funds as  determined  in a final  adjudication  in such action or
proceeding.  The  estimated  amount of any expenses  that may be advanced to the
Independent  Trustees  or  indemnity  that may be  payable  under the  indemnity
agreements  is  currently  unknown.  This  undertaking  by DeIM will survive the
termination of the investment management agreements between DeIM and the Funds.

                               TRUST ORGANIZATION

Organizational  Description.  The  Trustees of each Trust have the  authority to
create  additional Funds and to designate the relative rights and preferences as
between the  different  Funds.  The Trustees  also may authorize the division of
shares of a Fund into different classes,  which may bear different expenses. All
shares issued and outstanding are fully paid and  non-assessable,  transferable,
have no pre-emptive or conversion  rights and are redeemable as described in the
SAI and in the Funds' prospectuses.  Each share has equal rights with each other
share  of the  same  class  of each  Fund as to  voting,  dividends,  exchanges,
conversion  features and liquidation.  Shareholders are entitled to one vote for
each full  share held and  fractional  votes for  fractional  shares  held.  The
Trustees  may also  terminate  any Fund or class by notice  to the  shareholders
without shareholder approval.

Scudder  Capital Growth Fund and Scudder Large Company Growth Fund are series of
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  March 6, 1991,  from Scudder Growth and Income Fund, and on
June 10, 1998 from  Scudder  Investment  Trust.  Investment  Trust is  currently
divided into five series: Scudder Capital Growth Fund, Scudder Growth and Income
Fund,  Scudder Large Company  Growth Fund,  Scudder Small Company Stock Fund and
Scudder S&P 500 Index Fund.

Scudder  Growth  Fund is a series  of  Scudder  Growth  Trust,  a  Massachusetts
business trust  established under a Declaration of Trust dated October 24, 1985,
as amended. The name of the Trust was changed,  effective January 17, 2003, from
Scudder Growth Fund. Scudder Growth Trust has one series: Scudder Growth Fund.

Currently,  Class A, Class B, Class C and  Institutional  Class  shares are each
offered by all funds.

The Funds generally are not required to hold meetings of its shareholders. Under
each Agreement and Declaration of Trust of the Funds  ("Declaration  of Trust"),
however,  shareholder  meetings  will be held in  connection  with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose;  (b) the adoption of any contract for which approval by shareholders is
required by the 1940 Act; (c) any termination or  reorganization  of a Fund or a
class to the extent and as provided  in the  Declaration  of Trust;  (d) certain
material  amendments of the  Declaration of Trust (such as other than amendments
changing the name of a Fund, supplying any omission, curing curing,


                                       66


any  ambiguity or  correcting or  supplementing  any  defective or  inconsistent
provision  thereof);  and (e) such additional matters as may be required by law,
the  Declaration of Trust,  the By-laws of each Fund, or any  registration  of a
Fund  with the SEC or as the  trustees  may  consider  necessary  or  desirable.
Shareholders  also vote upon  changes  in  fundamental  investment  policies  or
restrictions.

The Declarations of Trust for the funds in Massachusetts business trusts provide
that obligations of the Trust are not binding upon the Trustees individually but
only upon the property of the Trust,  that the Trustees and officers will not be
liable for errors of judgment or mistakes of fact or law,  and that a Trust will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection  with  litigation  in which  they may be  involved  because  of their
offices with a Trust except if it is  determined  in the manner  provided in the
Declaration  of Trust that they have not acted in good  faith in the  reasonable
belief that their  actions  were in the best  interests  of the Trust.  However,
nothing in the  Declarations  of Trust protect or indemnify a Trustee or officer
against  any  liability  to which he would  otherwise  be  subject  by reason of
willful misfeasance,  bad faith, gross negligence,  or reckless disregard of the
duties involved in the conduct of their office.

Under Massachusetts law,  shareholders of a Massachusetts  business trust could,
under certain  circumstances,  be held  personally  liable for  obligations of a
Fund. The Declarations of Trust,  however,  disclaim  shareholder  liability for
acts or obligations  of each Fund and require that notice of such  disclaimer be
given in each agreement, obligation, or instrument entered into or executed by a
Fund or the Trust's  Trustees.  Moreover,  the Declarations of Trust provide for
indemnification  out of  Fund  property  for  all  losses  and  expenses  of any
shareholder  held personally  liable for the obligations of a Fund and each Fund
will be  covered  by  insurance  which a  Trustee  considers  adequate  to cover
foreseeable  tort claims.  Thus, the risk of a shareholder  incurring  financial
loss on account of shareholder liability is considered by the Advisor remote and
not  material,  since it is limited to  circumstances  in which a disclaimer  is
inoperative and such Fund itself is unable to meet its obligations.

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.

Each Trustee serves until the next meeting of  shareholders,  if any, called for
the purpose of electing  trustees and until the election and  qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed.

Any of the Trustees may be removed  (provided the  aggregate  number of Trustees
after  such  removal  shall not be less than one) with  cause,  by the action of
two-thirds of the remaining Trustees.  Any Trustee may be removed at any meeting
of shareholders by vote of two-thirds of the  outstanding  shares.  The Trustees
shall promptly call a meeting of the shareholders for the purpose of voting upon
the  question  of removal of any such  Trustee or  Trustees  when  requested  in
writing to do so by the holders of not less than ten percent of the  outstanding
shares,   and  in  that  connection,   the  Trustees  will  assist   shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act.

                             PROXY VOTING GUIDELINES

The Funds have delegated proxy voting  responsibilities to the Advisor,  subject
to each Board's general  oversight.  The Fund have delegated proxy voting to the
Advisor with the  direction  that proxies  should be voted  consistent  with the
Funds' best  economic  interests.  The Advisor has adopted its own Proxy  Voting
Policies and Procedures ("Policies"), and Proxy Voting Guidelines ("Guidelines")
for this  purpose.  The  Policies  address,  among other  things,  conflicts  of
interest that may arise between the interests of the Funds, and the interests of
the Advisor and its affiliates,  including the Funds' principal underwriter. The
Guidelines set forth the Advisor's general position on various  proposals,  such
as:

o        Shareholder  Rights -- The Advisor  generally  votes against  proposals
         that restrict shareholder rights.

o        Corporate  Governance -- The Advisor  generally votes for  confidential
         and cumulative voting and against supermajority voting requirements for
         charter and bylaw amendments.



                                       67


o        Anti-Takeover Matters -- The Advisor generally votes for proposals that
         require shareholder ratification of poison pills or that request boards
         to redeem poison pills,  and votes against the adoption of poison pills
         if  they  are  submitted  for  shareholder  ratification.  The  Advisor
         generally votes for fair price proposals.

o        Compensation  Matters -- The Advisor generally votes for executive cash
         compensation  proposals,  unless they are unreasonably  excessive.  The
         Advisor generally votes against stock option plans that do not meet the
         Advisor's criteria.

o        Routine Matters -- The Advisor  generally votes for the ratification of
         auditors,  procedural matters related to the annual meeting and changes
         in company name, and against bundled proposals and adjournment.

The general provisions described above do not apply to investment companies. The
Advisor generally votes proxies solicited by investment  companies in accordance
with the  recommendations  of an  independent  third  party,  except for proxies
solicited by or with respect to investment companies for which the Advisor or an
affiliate serves as the Advisor or principal underwriter ("affiliated investment
companies"). The Advisor votes affiliated investment company proxies in the same
proportion as the vote of the investment company's other shareholders (sometimes
called  "mirror" or "echo"  voting).  Master fund proxies  solicited from feeder
funds are voted in accordance  with  applicable  requirements  of the Investment
Company Act of 1940.

Although the  Guidelines  set forth the Advisor's  general  voting  positions on
various proposals,  the Advisor may,  consistent with the Funds' best interests,
determine under some circumstances to vote contrary to those positions.

The  Guidelines  on a  particular  issue  may or may  not  reflect  the  view of
individual  members of a Board or of a majority  of a Board.  In  addition,  the
Guidelines may reflect a voting position that differs from the actual  practices
of  the  public  companies  within  the  Deutsche  Bank  organization  or of the
investment  companies for which the Advisor or an affiliate serves as investment
advisor or sponsor.

The  Advisor  may  consider  the views of a portfolio  company's  management  in
deciding how to vote a proxy or in establishing general voting positions for the
Guidelines, but management's views are not determinative.

As mentioned above, the Policies  describe the way in which the Advisor resolves
conflicts  of  interest.  To  resolve  conflicts,   the  advisor,  under  normal
circumstances, votes proxies in accordance with its Guidelines.

If the Advisor departs from the Guidelines with respect to a particular proxy or
if the Guidelines do not specifically  address a certain proxy proposal, a proxy
voting committee  established by the advisor will vote the proxy.  Before voting
any such proxy,  however,  the Advisor's conflicts review committee will conduct
an investigation to determine whether any potential  conflicts of interest exist
in connection  with the  particular  proxy  proposal.  If the  conflicts  review
committee  determines that the Advisor has a material  conflict of interest,  or
certain  individuals  on the  proxy  voting  committee  should be  recused  from
participating  in a  particular  proxy  vote,  it will  inform the proxy  voting
committee.  If notified that the Advisor has a material conflict,  or fewer than
three voting members are eligible to  participate  in the proxy vote,  typically
the Advisor will engage an  independent  third party to vote the proxy or follow
the proxy voting recommendations of an independent third party.

Under certain circumstances,  the Advisor may not be able to vote proxies or the
Advisor  may find that the  expected  economic  costs from voting  outweigh  the
benefits  associated with voting. For example,  the Advisor may not vote proxies
on certain foreign securities due to local restrictions or customs.  The Advisor
generally  does  not vote  proxies  on  securities  subject  to  share  blocking
restrictions.

You may  obtain  information  about  how a fund  voted  proxies  related  to its
portfolio  securities  during the 12-month  period ended June 30 by visiting the
Securities and Exchange  Commission's Web site at www.sec.gov or by visiting our
Web site at:  www.scudder.com  for all other classes (type "proxy voting" in the
search field).



                                       68


                              FINANCIAL STATEMENTS

Scudder Large Company Growth Fund

The financial  statements,  including the  portfolio of  investments  of Scudder
Large Company Growth Fund,  together with the Report of  Independent  Registered
Public Accounting Firm,  Financial  Highlights and notes to financial statements
in the  Annual  Report  to  Shareholders  of the Fund  dated  July 31,  2004 are
incorporated  herein by  reference  and are  hereby  deemed to be a part of this
combined Statement of Additional Information.

Scudder Capital Growth Fund

The financial  statements,  including the  portfolio of  investments  of Scudder
Capital Growth Fund,  together with the Report of Independent  Registered Public
Accounting Firm,  Financial  Highlights and notes to financial statements in the
Annual  Report  to  Shareholders  of the  Fund  dated  September  30,  2004  are
incorporated herein by reference and are attached hereto.

Scudder Growth Fund

The financial  statements,  including the  portfolio of  investments  of Scudder
Growth  Fund,  together  with  the  Report  of  Independent   Registered  Public
Accounting Firm,  Financial  Highlights and notes to financial statements in the
Annual  Report  to  Shareholders  of the  Fund  dated  September  30,  2004  are
incorporated herein by reference and are attached hereto.

                             ADDITIONAL INFORMATION

The CUSIP numbers for each class of Scudder Large Company Growth Fund are:

Class A:                   460965692

Class B:                   460965684

Class C:                   460965676

Class R:                   460965841

Institutional Class:       460965668

Large Company  Growth Fund has a fiscal year ending July 31. On August 10, 1998,
the Board changed the Fund's fiscal year end to July 31 from October 31.

The CUSIP numbers for each class of Scudder Capital Growth Fund are:

Class A:                   460965742

Class B:                   460965734

Class C:                   460965726

Class R:                   460965536

Institutional Class:       460965544

The Fund has a fiscal year ending September 30.



                                       69


The CUSIP numbers for each class of Scudder Growth Fund are:

Class A:                   81115H104

Class B:                   81115H203

Class C:                   81115H302

Institutional Class:       81115H401

The Fund has a fiscal year ending September 30.

This  Statement of Additional  Information  contains the  information of Scudder
Capital Growth Fund,  Scudder Growth Fund and Scudder Large Company Growth Fund.
Each Fund, through its combined  prospectus,  offers only its own share classes,
yet it is  possible  that  one  Fund  might  become  liable  for a  misstatement
regarding the other Fund.  The Trustees of each Fund have  considered  this, and
have approved the use of this Statement of Additional Information.

Information concerning portfolio holdings of a Scudder Fund as of a month-end is
available upon request no earlier than the 16th day after month-end. Please call
Scudder Investments at the number appearing on the front cover of this Statement
of Additional Information to make such a request.

Each Fund's prospectus and this Statement of Additional Information omit certain
information  contained in the  Registration  Statement and its amendments  which
each 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 each  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.


                                       70