Deutsche Asset Management VIT Funds

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          As filed with the Securities and Exchange Commission on March 18, 2003
                                               Securities Act File No. 333-00479
                                       Investment Company Act File No. 811-07507
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933                _______

        Pre-Effective Amendment No.  ___                               _______
        Post-Effective Amendment No.  18                                  X
                                     ----                              -------

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940                                         _______
        Amendment No.  20                                                 X
                      ----                                             -------

                      Deutsche Asset Management VIT Funds
               ---------------------------------------------------
               (Exact Name of Registrant as Specified in Charter)

                               101 Federal Street
                           Boston, Massachusetts 02110
                           ---------------------------
               (Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (617) 535-0532

Name and Address of Agent for Service:                  Copies to:
Daniel O. Hirsch                                        Burton M. Leibert, Esq.
Deutsche Asset Management                               Willkie Farr & Gallagher
One South Street                                        787 Seventh Avenue
Baltimore, MD 21202                                     New York, NY 10019-6099


It is proposed that this filing will become effective:

___  immediately upon filing pursuant to paragraph (b), or
___  on April 30, 2002 pursuant to paragraph (b)
X    60 days after filing pursuant to paragraph (a)(1), or
- ---
___  on April 30, 2002 pursuant to paragraph (a)(1)
___  75 days after filing pursuant to paragraph (a)(2)
___  on April 30, 2002 pursuant to paragraph (a)(2) of Rule 485

Class A Shares

Prospectus

May 1, 2003

Scudder VIT EAFE^® Equity Index Fund

As with all mutual funds, the Securities and Exchange Commission (SEC) does not approve or disapprove these shares or determine whether the information in this prospectus is truthful or complete. It is a criminal offense for anyone to tell you otherwise.

Contents

How the Fund Works

4		The Fund’s Main Investment Strategy

8		The Main Risks of Investing in the Fund

11		The Fund’s Performance History

12		How Much Investors Pay

13		Other Policies and Secondary Risks

15		Financial Highlights

Your Investment in the Fund

17		Policies You Should Know About

17		Calculating the Fund’s Share Price

18		Buying and Selling Fund Shares

20		Performance Information

20		Distributions

21		Taxes

How the Fund Works

On the next few pages, you’ll find information about the Fund’s investment objective, the main strategies it uses to pursue that goal and the main risks that could affect performance.

Whether you are considering investing in the Fund or are already a shareholder, you should look this information over carefully. You may want to keep it on hand for reference as well.

Remember that mutual funds are investments, not bank deposits. They’re not insured or guaranteed by the FDIC or any other government agency. Their share prices will go up and down and you could lose money by investing in them.

Please read this prospectus in conjunction with the prospectus for your variable insured contract, variable annuity contract, or tax-qualified plan.


		Class A

ticker symbol
fund number

Scudder VIT EAFE^® Equity Index Fund

The Fund’s Main Investment Strategy

The Fund seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Morgan Stanley Capital International (‘MSCI’) EAFE^® Index (‘EAFE^® Index’) which emphasizes stocks of companies in major markets in Europe, Australasia and the Far East.

The Fund invests for capital appreciation, not income; any dividend and interest income is incidental to the pursuit of its objective. While we give priority to replicating the EAFE^® Index’s performance, we cannot offer any assurance of achieving this objective. The Fund’s objective is not a fundamental policy. We must notify shareholders before we change it, but we are not required to seek their approval to do so.

Index investing versus active management

Active management involves the investment advisor buying and selling securities based on research and analysis. Unlike a fund that is actively managed, an index fund tries to replicate, as closely as possible, the performance of a target index by holding either all, or a representative sample, of the securities in the index. Indexing appeals to many investors for the following reasons:

indexing provides simplicity because it is a straightforward market-matching strategy;

the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Stocks in the EAFE^® Index are weighted according to their market capitalization (the number of shares outstanding multiplied by the stock’s current price).

4 | Scudder VIT EAFE^® Equity Index Fund — Class A Shares

index funds generally provide diversification by investing in a wide variety of companies and industries;

an index fund’s performance is predictable in that the Fund’s value is expected to move in the same direction, up or down, as the target index;

index funds tend to have lower costs because they do not have many of the expenses of actively managed funds such as research. Also, index funds usually have relatively low trading activity and therefore brokerage commissions tend to be lower; and

index funds generally realize low capital gains.

Strategy

The Fund will pursue its objective by investing primarily in the securities of the companies included in the benchmark and derivative instruments, such as futures contracts and options, relating to the benchmark. The Fund’s investment advisor will use quantitative analysis techniques to structure the Fund to obtain a high correlation to the EAFE^® Index while remaining as fully invested as possible in all market environments. To attempt to replicate the country, industry and risk characteristics of the EAFE^® Index as closely as possible, the Fund invests in a statistically selected sample of the securities found in the EAFE^® Index, using a process known as ‘optimization.’ This process selects stocks for the Fund so that industry weightings, market capitalizations and fundamental characteristics (price-to-book ratios, price-to-earnings ratios, debt-to-asset ratios and dividend yields) closely replicate those of the securities in the EAFE^® Index. Over the long term, the investment advisor seeks a correlation between the performance of the Fund, before expenses, and the EAFE^® Index of 95% or better. A figure of 100% would indicate perfect correlation.

Principal investments

Under normal circumstances, the Fund intends to invest at least 80% of its assets, determined at the time of purchase, in stocks of companies included in the EAFE^® Index and in derivative instru - -

Futures contracts and options are used as a low-cost method of gaining exposure

to a particular securities market without investing directly in those securities.

Scudder VIT EAFE^® Equity Index Fund — Class A Shares | 5

ments, such as futures contracts and options that provide exposure to the stocks of companies in the EAFE^® Index. The Fund’s securities are weighted to attempt to make the Fund’s total investment characteristics similar to those of the EAFE^® Index as a whole. The investment advisor may remove or exclude any EAFE^® stock from the Fund if the investment advisor believes that the stock is illiquid or that the merit of the investment has been impaired by financial conditions or other extraordinary events. At times, the investment advisor may purchase a stock not included in the EAFE^® Index when it is believed to be a cost-efficient way of approximating the Index’s performance, for example, in anticipation of a stock being added to the Index. The Fund may also hold assets in short-term debt securities and money market instruments.

Investment process

In an effort to run an efficient and effective strategy, the Fund uses the process of ‘optimization,’ a statistical sampling technique. First, the Fund buys the stocks that make up the larger portions of the EAFE^® Index’s value in roughly the same proportion as the EAFE^® Index. Second, smaller stocks are analyzed and selected based on liquidity. In selecting smaller stocks, the investment advisor tries to replicate the industry and risk characteristics of all of the smaller companies in the EAFE^® Index without buying all of those stocks. This approach attempts to maximize the Fund’s liquidity and returns while minimizing its costs. Historically, this Fund has had a low portfolio turnover rate.

Information regarding the index

This Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan Stanley makes no representation or warranty, express or implied, to the owners of this Fund or any member of the public regarding the advisability of investing in securities generally, or in this Fund particularly, or the ability of the EAFE^® Index to track general stock market performance.

Portfolio Turnover measures the frequency that the Fund sells and replaces the value of its securities within a given

period. High turnover can increase a fund’s transaction costs, thereby lowering its returns.

6 | Scudder VIT EAFE^® Equity Index Fund — Class A Shares

Morgan Stanley is the licensor of certain trademarks, service marks and trade names of Morgan Stanley and of the EAFE^® Index, which is determined, composed and calculated by Morgan Stanley without regard to the issuer of this Fund, or to this Fund itself. Morgan Stanley has no obligation to take the needs of the issuer of this Fund or the owners of this Fund into consideration in determining, composing or calculating the EAFE^® Index.

Inclusion of a security in the EAFE^® Index in no way implies an opinion by Morgan Stanley as to its attractiveness as an investment. Morgan Stanley is not responsible for and has not participated in the determination of the timing, prices or quantities of this Fund to be issued, or in the determination or calculation of the equation by which this Fund is redeemable for cash. Morgan Stanley has no obligation or liability to owners of this Fund in connection with the administration, marketing or trading of this Fund. This Fund is neither sponsored by nor affiliated with Morgan Stanley.

Although Morgan Stanley shall obtain information for inclusion in or for use in the calculation of the indexes from sources that Morgan Stanley considers reliable, Morgan Stanley does not guarantee the accuracy and/or the completeness of the indexes or any data included therein.

Morgan Stanley makes no warranty, express or implied, as to results to be obtained by licensee, licensee’s customers and counterparties, owners of the products, or any other person or entity from the use of the indexes or any data included therein in connection with the rights licensed hereunder or for any other use. Morgan Stanley makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the indexes or any data included therein.

Without limiting any of the foregoing, in no event shall Morgan Stanley have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Scudder VIT EAFE^® Equity Index Fund — Class A Shares | 7

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the Fund’s performance, cause you to lose money or make the Fund underperform other investments.

The value of the Fund’s shares depends on the value of the stocks and other securities it owns. The market value of the individual securities the Fund owns will go up and down depending on the performance of the companies that issue them, general market and economic conditions and investor confidence.

As with all Funds, at any given time, the value of your shares of the Fund may be more or less than the price you paid. If you sell your shares when the value is less than the price you paid, you will lose money.

The principal risks of investing in the Fund are:

Market Risk. Deteriorating market conditions might cause an overall weakness in the market that reduces the absolute level of stock prices in that market, including stocks held by the Fund.

Tracking Error Risk. There are several reasons that the Fund’s performance may not replicate the EAFE^® Index exactly:

Unlike the EAFE^® Index, the Fund incurs administrative expenses and transaction costs in trading stocks.

The composition of the EAFE^® Index and the stocks held by the Fund may occasionally diverge.

The timing and magnitude of cash inflows from investors buying shares could create balances of uninvested cash. Conversely, the timing and magnitude of cash outflows to investors selling shares could require ready reserves of uninvested cash. Either situation would likely cause the Fund’s performance to deviate from the ‘fully invested’ EAFE^® Index.

Foreign Stock Market Risk. From time to time, foreign capital markets have exhibited more volatility than those in the United States. Trading stocks on some foreign exchanges is inherently more difficult than trading in the United States for reasons including:

Political Risk. Some foreign governments have limited the outflow of profits to investors abroad, extended diplomatic disputes to in - -

8 | Scudder VIT EAFE^® Equity Index Fund — Class A Shares

clude trade and financial relations, and imposed high taxes on corporate profits.

Information Risk. Financial reporting standards for companies based in foreign markets differ from those in the United States and may present an incomplete or misleading picture of a foreign company compared to US standards.

Liquidity Risk. Stocks that trade infrequently or in low volumes can be more difficult or more costly to buy or to sell than more liquid or active stocks. This liquidity risk is a factor of the trading volume of a particular stock, as well as the size and liquidity of the entire local market. On the whole, foreign exchanges are smaller and less liquid than the US market. Relatively small transactions in some instances can have a disproportionately large effect on the price and supply of shares. In certain situations, it may become virtually impossible to sell a stock in an orderly fashion at a price that approaches our estimate of its value.

Regulatory Risk. There is generally less government regulation of foreign markets, companies and securities dealers than in the U.S.

Currency Risk. The Fund invests in foreign securities denominated in foreign currencies. This creates the possibility that changes in foreign exchange rates will affect the value of foreign securities or the US dollar amount of income or gain received on these securities.

Futures and Options Risk. The Fund may invest, to a limited extent, in stock index futures or options, which are types of derivatives. The Fund will not use these derivatives for speculative purposes or as leveraged investments that magnify the gains or losses of an investment. The Fund invests in derivatives to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the stock market. Risks associated with derivatives include:

the risk that the derivative is not well correlated with the security for which it is acting as a substitute;

the risk that derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and

the risk that the Fund cannot sell the derivative because of an illiquid secondary market.

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A secondary risk of investing in the Fund is

Pricing Risk. We value securities in the Fund at their stated market value if price quotations are available and reliable and, if not, by the method that most accurately reflects their fair value under procedures adopted by and under the general supervision of the Board of Trustees. This procedure implies an unavoidable risk that our prices are higher or lower than the prices that the securities might actually command if we sold them. If we have valued the securities too highly, you may end up paying too much for Fund shares when you buy. If we underestimate their price, you may not receive the full market value for your Fund shares when you sell.

There is, of course, no guarantee that the Fund will realize its goal.

10 | Scudder VIT EAFE^® Equity Index Fund — Class A Shares

The Fund’s Performance History

The bar chart and table on this page can help you evaluate the potential risk and rewards of investing in the Fund by showing changes in the Fund’s performance year to year. The bar chart shows the Fund’s actual return for each full calendar year since the Fund began selling Class A shares on August 22, 1997 (its inception date). The table compares the Fund’s Class A shares average annual return with the EAFE^® Index over one year, five years and since the Fund’s inception. The EAFE^® Index is a model, not a portfolio in which you may invest. An index is a group of securities whose overall performance is used as a standard to measure investment performance. It does not factor in the costs of buying, selling and holding stock—costs that are reflected in the Fund’s performance results. These figures also do not include the effect of Contract charges, which would lower the return shown.


Year-by-Year Returns (for each full calendar year since inception)

For the periods shown in the bar chart, the Fund’s highest return in any calendar quarter was 19.68% (fourth quarter 1998) and its lowest quarterly return was –21.10% (third quarter 2002). Past performance offers no indication of how the Fund will perform in the future.


Performance for Period Ended December 31, 2002

Average Annual Returns

	1 Year	5 Year	Since Inception (August 22, 1997)¹


Fund	-21.60%	-5.25%	-6.11%


EAFE^® Index	-15.94%	-2.89%	-3.21%

The performance of the EAFE^® Index is calculated from August 31, 1997.

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How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold Fund shares.

As an investor in the Fund, you would incur various operating costs, including management expenses. You also would incur fees associated with the insurance contract you purchase or qualified tax plan in which you invest. Detailed information about the cost of investing in this Fund is presented in the accompanying Prospectus for the contract or qualified tax plan through which the Fund’s shares are offered to you.


Annual Fees and Expenses

Shareholder Fees, paid directly from your investment		None


Annual Operating Expenses, deducted from Fund assets:


Management Fees		0.45%


Distribution/Service (12b-1) Fee		None


Other Expenses		0.47%


Total Annual Operating Expenses (before fee waivers and/or expense reimbursements)		0.92%


Fee Waivers and/or Expense Reimbursements		0.27%


Net Total Annual Operating Expenses¹		0.65%

Based on the costs above, this example helps you compare the expenses of the Fund shares to those of other mutual funds. This example assumes the expenses above remain the same.

It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different.

Expense Example²

The Advisor has contractually agreed to waive its fees and/or reimburse expenses of the Fund, to the extent necessary, to limit all expenses to 0.65% of the average daily net assets of the Fund until April 30, 2005.

For the first 24 months, the expense example takes into account fee waivers and/or expense reimbursements.

12 | Scudder VIT EAFE^® Equity Index Fund — Class A Shares

Other Policies and Secondary Risks

While the previous pages describe the main points of the Fund’s strategy and risks, there are a few other issues to know about:

Although major changes tend to be infrequent, the Fund’s Board of Trustees could change the Fund’s investment objective without seeking shareholder approval. In the event the Fund’s investment objective is changed, the new objective could differ from the objective the shareholder considered appropriate at the time of making the decision to invest in the Fund. The Fund’s Board will provide shareholders with at least 60 days prior notice to making any material changes to the Fund’s 80% investment policy.

The Fund may trade securities more actively, which could mean high expenses (thus lower returns) and high taxable distributions, if distributions are taxable at all.

The Fund’s Board of Trustees has the ability to terminate the Fund at any time without shareholder approval.

The Fund’s fundamental investment restrictions set forth in the Statement of Additional Information cannot be changed without a vote of the shareholders. The investment objective and all other investment policies of the Fund are not fundamental and may be changed without shareholder approval.

For more information

This prospectus doesn’t tell you about every policy or risk of investing in the Fund.

If you want more information on the Fund’s allowable securities and investment practices and the characteristics and risks of each one, you may want to request a copy of the Statement of Additional Information (the back cover tells you how to do this).

Keep in mind that there is no assurance that any mutual fund will achieve its goal.

The portfolio managers

THE INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management Inc. (‘DeAM, Inc.’), with headquarters at 345 Park

Scudder VIT EAFE^® Equity Index Fund — Class A Shares | 13

Avenue, New York, NY 10017, acts as the Fund’s investment advisor. As investment advisor, DeAM, Inc. makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. received a fee of 0.45% of the Fund’s average daily net assets for its services in the last fiscal year.

Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., DeAM, Inc., Deutsche Bank Securities Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.

DeAM, Inc. provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $90 billion in assets.

DeAM, Inc. is an indirect wholly-owned subsidiary of Deutsche Bank AG, an international commercial and investment banking group. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.

THE SUB-ADVISOR

Northern Trust Investments, Inc. (‘NTI’), with headquarters at 50 South LaSalle Street, Chicago, IL 60675, acts as investment sub-advisor for the Fund. As the Fund’s investment sub-advisor, NTI makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. pays a fee to NTI for acting as sub-advisor to the Fund.

NTI is a subsidiary of The Northern Trust Company. NTI has managed accounts, including registered investment companies, designed to mirror the performance of the same indices as those the Funds seek to replicate. NTI is an Illinois state chartered trust company and an investment advisor registered under the Investment Advisers Act of 1940, as amended. NTI primarily manages assets for defined contribution and benefit plans, investment companies and other institutional investors. As of September 30, 2002, NTI had approximately $126.4 billion of assets under management.

14 | Scudder VIT EAFE^® Equity Index Fund — Class A Shares

Financial Highlights

The table below is intended to help you understand the financial performance of the EAFE^® Equity Index Fund Class A shares since the Fund’s inception. Certain information reflects financial results for a single Class A share of the Fund. The total returns in the table represent the rates of return that an investor would have earned on an investment in the Class A shares of the Fund, assuming reinvestment of all interest income and distributions. This information has been audited by Ernst & Young LLP, whose report, along with the Fund’s financial statements, is included in the Fund’s annual report. The annual report is available free of charge by calling the customer service center at the telephone number shown in the accompanying Contract prospectus.


	For the Year Ended December 31,
	2002		2001		2000		1999		1998

Per share operating performance:


Net asset value, beginning of year	$8.39		$11.14		$13.60		$11.18		$9.34


Income (loss) from investment operations


Net investment income¹	0.11		0.14		0.14		0.15		0.12


Net realized and unrealized gain (loss) on investments, and foreign currencies	(1.92	)	(2.89	)	(2.41	)	2.92		1.89


Total from investment operations	(1.81	)	(2.75	)	(2.27	)	3.07		2.01


Distributions to shareholders


Net investment income	(0.11	)	0.00		0.00		(0.23	)	(0.16	)


Net realized gain from investments and futures transactions	0.00		0.00		(0.19	)	(0.42	)	(0.01	)


Total distributions	(0.11	)	0.00		(0.19	)	(0.65	)	(0.17	)


Net asset value, end of year	$6.47		$8.39		$11.14		$13.60		$11.18


Total investment return²	(21.60	)%	(24.69	)%	(16.66	)%	27.60	%	21.60	%


Supplemental data and ratios:


Net assets, end of year (000s omitted)	$55,26	5	$94,24	2	$80,06	4	$54,49	9	$35,95	6


Ratios to average net assets:


Net investment income	1.45	%	1.38	%	1.17	%	1.37	%	1.20	%


Expenses after waivers and/or reimbursements	0.65	%	0.65	%	0.65	%	0.65	%	0.65	%


Expenses before waivers and/or reimbursements	0.92	%	0.80	%	0.92	%	1.15	%	1.66	%


Portfolio turnover rate	25	%³	19	%	4	%	29	%	7	%

Calculated based on average shares outstanding.

Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period and redemption on the last day of the period. If fees for the advisor and administrator were not waived the total return would have been lower. These figures also do not include the effect of Contract charges, which would lower the return shown.

Portfolio turnover excludes the impact of redemption in kind.

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Your Investment in the Fund

The information in this section may affect anyone who selects this Fund as an investment option in a variable annuity contract or variable life insurance policy that offers the Fund. These contracts and policies are described in separate prospectuses issued by participating insurance companies. The Fund assumes no responsibility for such prospectus.

Policies You Should Know About

The Fund does not sell its shares directly to the public. The Fund sells its shares only to separate accounts of various insurance companies and may also sell to certain tax-qualified plans (the ‘Companies’). Shares are available to the public through the purchase of certain variable annuity contracts, variable life insurance contracts, and to participants in certain tax-qualified plans (the ‘Contract(s)’) issued or sponsored by the Companies. As a Contract owner, your premium payments or plan assets are allocated to the Fund by the Companies in accordance with your Contract. Please see the Contract prospectus or plan document that accompanies this prospectus for a detailed explanation of your Contract.

Please bear in mind that there are important differences between funds available to any investor (a ‘Retail Fund’) and those that are only available through certain financial institutions, such as insurance companies and tax-qualified plans. For Example, Retail Funds, unlike the Fund, are not sold to insurance company separate accounts to support investments in variable insurance contracts. In addition, the investment objectives, policies and strategies of the Fund, while similar to those of a Retail Fund, are not identical. Retail Funds may be smaller or larger than the Fund and have different expense ratios than the Fund. As a result, the performance of the Fund and a Retail Fund will differ.

Technically, the shareholders of the Fund are the Companies that offer the Fund as a choice for holders of certain variable annuity contracts or variable life insurance policies. These Companies effectively pass through voting rights as well. The separate accounts of the Companies place orders to purchase and redeem shares of the Fund.

Calculating the Fund’s Share Price

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Stock Exchange each day the New York Stock Exchange is open for business. On days when the New York Stock Exchange closes early, the Fund will calculate its net asset value at the time of closing.

The Fund calculates a net asset value per share for each of its classes. The formula for calculating the Fund’s net asset value by class calls for deducting all of the liabilities of each class from the total value of its assets—the market value of the securities it holds, plus its cash reserves—and dividing the result by the number of outstanding shares of that class. The Fund values its securities at their stated market value if price quotations are available and reliable. Prices for securities that trade on foreign exchanges can change significantly on days when the New York Stock Exchange is closed and you cannot buy or sell Fund shares. Price changes in securities the Fund owns may ultimately affect the price of Fund shares when the New York Stock Exchange reopens. When price quotations for a particular security are not readily available or may be unreliable, the Fund determines its value by the method that most accurately reflects its fair value under procedures adopted in good faith by and under the general supervision of the Board of Trustees. In such case, the Fund’s value for a security is likely to be different from the last quoted market price.

Buying and Selling Fund Shares

The Fund continuously sells its shares to each Company, without a sales charge, at the next net asset value per share determined after a proper purchase order is placed with the Company. The Company offers Contract owners units in its separate accounts or tax qualified plans which directly correspond to shares in the Fund. Each Company submits purchase and redemption orders to the Fund based on allocation instructions for premium payments, transfer instructions and surrender or partial withdrawal requests for contract owners, as

last Monday in May), Independence Day, Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday in November) and Christmas Day. On days when the New York Stock Exchange closes early the Fund will calculate its net asset value at the time of closing.

18 | Scudder VIT EAFE^® Equity Index Fund — Class A Shares

set forth in the accompanying prospectus for the contracts. Redemption orders are effected at the next net asset value per share determined after a proper redemption order is placed with the Company.

Important information about buying and selling shares

After receiving a contract owner’s order, the Company buys or sells shares at the next price calculated on any day the Fund is open for business.

Unless otherwise instructed, the Fund normally makes payment of the proceeds from the sale of Fund shares the next business day but always within seven calendar days.

The Fund does not issue share certificates.

We reserve the right to reject purchases of Fund shares including exchanges for any reason.

A contract owner’s purchase order may not be accepted if the sale of Fund shares has been suspended or if it is determined that the purchase would be detrimental to the interests of the Fund’s shareholders. In addition, for exchange requests, we may require a contract owner to own shares of the Fund for 15 days before we process the purchase order for the other fund if we believe that the contract owner’s exchanges coincide with a ‘market timing’ strategy. We may also reject or limit purchase orders, for these or other reasons. For these purposes, the Fund may consider, among other factors, trading history in this or affiliated Funds, the Fund’s involved, the amount of this investment and a contract owners background and the background of any other investors on investors invoices.

We reserve the right to reject purchases of Fund shares (including exchanges) or to suspend or postpone redemptions at times when the New York Stock Exchange is closed.

Currently the Fund’s Board of Trustees does not foresee any disadvantages to the holders of variable annuity contracts, variable life insurance contracts or tax-qualified plan policies arising from the fact that the interests of the holders of such contracts and policies may differ. Nevertheless, the Board intends to monitor events in order to identify any material irreconcilable conflicts that may possibly arise and to determine what action, if any, should be taken.

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How to receive account information

If you are a contract owner, you should contact your Company or the organization that provides record keeping services for information about your account.

If you are a Company, you should call 1-800-621-1048 for information about the Fund.

How to buy and sell shares

Each Company has different provisions about how and when their contract owners may buy, sell and exchange Fund shares. The Company is responsible for communicating contract owner’s instructions to the Fund. Contract owners should contact their Company to effect transactions in the Fund.

Performance Information

The Fund’s performance can be used in advertisements that appear in various publications. It may be compared to the performance of various indexes and investments for which reliable performance data is available. The Fund’s performance may also be compared to averages, performance rankings, or other information prepared by recognized mutual fund statistical services.

Distributions

If the Fund earns net investment income or recognizes net long-term or short-term capital gains, it is the Fund’s policy to distribute to the Companies’ Contracts substantially all of that taxable income or capital gain at least annually. The Fund reserves the right to include in the income distribution any short-term capital gains on securities that it sells. The Fund may also pay dividends and capital gains distributions at other times if necessary for the Fund to avoid federal income tax or excise tax. These distributions are automatically made in the form of additional shares of the Fund and not cash, unless a Company elects to have distributions made in cash. The result of automatic reinvestment of distributions is that the Fund’s performance, including the effect of dividends, is reflected in the cash value of the Contracts you own. Please see the Contract prospectus accompanying this Prospectus for more information.

20 | Scudder VIT EAFE^® Equity Index Fund — Class A Shares

Taxes

Because shares of the Fund may be purchased only through Contracts, income dividends or capital gains distributions from the Fund are taxable, if at all, to the participating Companies and will be exempt from current taxation of the Contract owner if left to accumulate within the Contract. Please see the Contract prospectus accompanying this Prospectus for a description of the Fund’s federal tax impact on you as a Contract owner.

Because each investor’s tax circumstances are unique and because the tax laws are subject to change, we recommend that you consult your tax advisor before investing.

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Notes

To Get More Information

Shareholder reports—These include commentary from the Fund’s management team about recent market conditions and the effects of the Fund’s strategies on its performance. They also have detailed performance figures, a list of everything the Fund owns and the Fund’s financial statements. Shareholders get these reports automatically.

Statement of Additional Information—This tells you more about the Fund’s features and policies, including additional risk information. The SAI is incorporated by reference into this document (meaning that it is legally part of this prospectus).

For a free copy of any of these documents or to request other information about the Fund, call the customer service center at the telephone number shown in the accompanying contract prospectus. These documents and other information about the Fund are available from the EDGAR Database on the SEC’s Internet site at www.sec.gov. If you like, you may obtain copies of this information, after paying a copying fee, by e-mailing a request to publicinfo@sec.gov or by writing the SEC at the address listed below. You can also review and copy these documents and other information about the Fund, including the Fund’s SAI, at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (202) 942-8090.

SEC

Public Reference Section

Washington, D.C. 20549-0102

www.sec.gov

(202) 942-8090

EAFE^® Equity Index Fund		AEAFEPRO (5/03)
Class A Shares		811-07507
Scudder Investment VIT Funds

SCUDDER INVESTMENTS

Class B Shares

Prospectus

May 1, 2003

Scudder VIT EAFE^® Equity Index Fund

Contents

How the Fund Works

4		The Fund’s Main Investment Strategy

7		The Main Risks of Investing in the Fund

11		The Fund’s Performance History

12		How Much Investors Pay

13		Other Policies and Secondary Risks

16		Financial Highlights

Your Investment in the Fund

18		Policies You Should Know About

19		Calculating the Fund’s Share Price

19		Buying and Selling Fund Shares

21		Performance Information

21		Distributions

22		Distribution Plan

22		Taxes

How the Fund Works

On the next few pages, you’ll find information about the Fund’s investment objective, the main strategies it uses to pursue that goal and the main risks that could affect performance.

Whether you are considering investing in the Fund or are already a shareholder, you should look this information over carefully. You may want to keep it on hand for reference as well.

Please read this prospectus in conjunction with the prospectus for your variable insured contract, variable annuity contract, or tax-qualified plan.


		Class B

ticker symbol
fund number

Scudder VIT EAFE^® Equity Index Fund

The Fund’s Main Investment Strategy

Index investing versus active management

indexing provides simplicity because it is a straightforward market-matching strategy;

The EAFE^® Index of major markets in Europe, Australasia and the Far East is a widely accepted benchmark of international stock performance. It tracks equity securities in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Stocks in the EAFE^® Index are weighted according to their market capitalization (the number of shares outstanding multiplied by the stock’s current price).

4 | Scudder VIT EAFE^® Equity Index Fund — Class B Shares

index funds generally provide diversification by investing in a wide variety of companies and industries;

an index fund’s performance is predictable in that the Fund’s value is expected to move in the same direction, up or down, as the target index;

index funds generally realize low capital gains.

Strategy

The Fund will pursue its objective by investing primarily in the securities of the companies included in the benchmark and derivative instruments, such as futures contracts and options, relating to the benchmark. The Fund’s investment advisor will use quantitative analysis techniques to structure the Fund to obtain a high correlation to the EAFE^® Index while remaining as fully invested as possible in all market environments. To attempt to replicate the country, industry and risk characteristics of the EAFE^® Index as closely as possible, the Fund invests in a statistically selected sample of the securities found in the EAFE^® Index, using a process known as ‘optimization.’ This process selects stocks for the Fund so that industry weightings, market capitalizations and fundamental characteristics (price-to-book ratios, price-to- earnings ratios, debt-to-asset ratios and dividend yields) closely replicate those of the securities in the EAFE^® Index. Over the long term, the investment advisor seeks a correlation between the performance of the Fund, before expenses, and the EAFE^® Index of 95% or better. A figure of 100% would indicate perfect correlation.

Principal investments

Under normal circumstances, the Fund intends to invest at least 80% of its assets, determined at the time of purchase, in stocks of

Futures contracts and options are used as a low-cost method of gaining exposure to a particular securities market

without investing directly in those securities.

Scudder VIT EAFE^® Equity Index Fund — Class B Shares | 5

companies included in the EAFE^® Index and in derivative instruments, such as futures contracts and options that provide exposure to the stocks of companies in the EAFE^® Index. The Fund’s securities are weighted to attempt to make the Fund’s total investment characteristics similar to those of the EAFE^® Index as a whole. The investment advisor may remove or exclude any EAFE^® stock from the Fund if the investment advisor believes that the stock is illiquid or that the merit of the investment has been impaired by financial conditions or other extraordinary events. At times, the investment advisor may purchase a stock not included in the EAFE^® Index when it is believed to be a cost-efficient way of approximating the Index’s performance, for example, in anticipation of a stock being added to the Index. The Fund may also hold assets in short-term debt securities and money market instruments.

Investment process

Information regarding the index

Portfolio Turnover measures the frequency that the Fund sells and replaces the value of its securities within a given period. High turnover can increase a fund’s transaction costs, thereby lowering its returns.

6 | Scudder VIT EAFE^® Equity Index Fund — Class B Shares

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the Fund’s performance, cause you to lose money or make the Fund underperform other investments.

Scudder VIT EAFE^® Equity Index Fund — Class B Shares | 7

The principal risks of investing in the Fund are:

Market Risk. Deteriorating market conditions might cause an overall weakness in the market that reduces the absolute level of stock prices in that market, including stocks held by the Fund.

Tracking Error Risk. There are several reasons that the Fund’s performance may not replicate the EAFE^® Index exactly:

Unlike the EAFE^® Index, the Fund incurs administrative expenses and transaction costs in trading stocks.

The composition of the EAFE^® Index and the stocks held by the Fund may occasionally diverge.

Political Risk. Some foreign governments have limited the outflow of profits to investors abroad, extended diplomatic disputes to include trade and financial relations, and imposed high taxes on corporate profits.

8 | Scudder VIT EAFE^® Equity Index Fund — Class B Shares

Regulatory Risk. There is generally less government regulation of foreign markets, companies and securities dealers than in the U.S.

the risk that the derivative is not well correlated with the security for which it is acting as a substitute;

the risk that derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and

the risk that the Fund cannot sell the derivative because of an illiquid secondary market.

A secondary risk of investing in the Fund is

Scudder VIT EAFE^® Equity Index Fund — Class B Shares | 9

are higher or lower than the prices that the securities might actually command if we sold them. If we have valued the securities too highly, you may end up paying too much for Fund shares when you buy. If we underestimate their price, you may not receive the full market value for your Fund shares when you sell.

There is, of course, no guarantee that the Fund will realize its goal.

10 | Scudder VIT EAFE^® Equity Index Fund — Class B Shares

The Fund’s Performance History

The bar chart and table on this page can help you evaluate the potential risk and rewards of investing in the Fund by showing changes in the Fund’s performance year to year. Because Class B shares do not have a full year of operating history, the bar chart shows the Fund’s actual return for each full calendar year since the Fund began selling Class A shares on August 22, 1997 (its inception date). The table compares the Fund’s Class A shares average annual return adjusted for Class B expenses with the EAFE^® Index over one year, five years and since the Fund’s inception. The EAFE^® Index is a model, not a portfolio in which you may invest. An index is a group of securities whose overall performance is used as a standard to measure investment performance. It does not factor in the costs of buying, selling and holding stock—costs that are reflected in the Fund’s performance results. These figures also do not include the effect of Contract charges, which would lower the return shown.

Year-by-Year Returns (for each full calendar year since inception)

LOGO

For the periods shown in the bar chart, the Fund’s highest return in any calendar quarter was 19.68% (fourth quarter 1998) and its lowest quarterly return was -21.10% (third quarter 2002). Past performance offers no indication of how the Fund will perform in the future.


Performance for Period Ended December 31, 2002

Average Annual Returns

	1 Year	5 Year	Since Inception (August 22, 1997)¹


Fund	-21.85%	-5.50%	-6.36%


EAFE^® Index	-15.94%	-2.89%	-3.21%

The performance of the EAFE^® Index is calculated from August 31, 1997.

Scudder VIT EAFE^® Equity Index Fund — Class B Shares | 11

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold Fund shares.


Annual Fees and Expenses

Shareholder Fees, paid directly from your investment		None


Annual Operating Expenses, deducted from Fund assets:


Management Fees		0.45%


Distribution/Service (12b-1) Fee		0.25%


Other Expenses		0.60%


Total Annual Operating Expenses (before fee waivers and/or expense reimbursements)		1.30%


Fee Waivers and/or Expense Reimbursements		0.40%


Net Total Annual Operating Expenses¹		0.90%

Based on the costs above, this example helps you compare the expenses of the Fund shares to those of other mutual funds. This example assumes the expenses above remain the same.

It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different

Expense Example²

The Advisor has contractually agreed to waive its fees and/or reimburse expenses of the Fund, to the extent necessary, to limit all expenses to 0.90% of the average daily net assets of the Fund until April 30, 2005.

For the first 24 months, the expense example takes into account fee waivers and/or expense reimbursements

12 | Scudder VIT EAFE^® Equity Index Fund — Class B Shares

Other Policies and Secondary Risks

While the previous pages describe the main points of the Fund’s strategy and risks, there are a few other issues to know about:

The Fund may trade securities more actively, which could mean high expenses (thus lower returns) and high taxable distributions, if distributions are taxable at all.

The Fund’s Board of Trustees has the ability to terminate the Fund at any time without shareholder approval.

For more information

This prospectus doesn’t tell you about every policy or risk of investing in the Fund.

Keep in mind that there is no assurance that any mutual fund will achieve its goal.

Scudder VIT EAFE^® Equity Index Fund — Class B Shares | 13

The portfolio managers

THE INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management Inc. (‘DeAM, Inc.’), with headquarters at 345 Park Avenue, New York, NY 10017, acts as the Fund’s investment advisor. As investment advisor, DeAM, Inc. makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. received a fee of 0.45% of the Fund’s average daily net assets for its services in the last fiscal year.

DeAM, Inc. provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $90 billion in assets.

THE SUB-ADVISOR

NTI is a subsidiary of The Northern Trust Company. NTI has managed accounts, including registered investment companies, designed to mirror the performance of the same indices as those the

14 | Scudder VIT EAFE^® Equity Index Fund — Class B Shares

Funds seek to replicate. NTI is an Illinois state chartered trust company and an investment advisor registered under the Investment Advisers Act of 1940, as amended. NTI primarily manages assets for defined contribution and benefit plans, investment companies and other institutional investors. As of September 30, 2002, NTI had approximately $126.4 billion of assets under management.

Scudder VIT EAFE^® Equity Index Fund — Class B Shares | 15

Financial Highlights

The table below is intended to help you understand the financial performance of the EAFE^® Equity Index Fund Class B shares since the Fund’s inception. Certain information reflects financial results for a single Class B share of the Fund. The total returns in the table represent the rates of return that an investor would have earned on an investment in the Class B shares of the Fund, assuming reinvestment of all in

terest income and distributions. This information has been audited by Ernst & Young LLP, whose report, along with the Fund’s financial statements, is included in the Fund’s annual report. The annual report is available free of charge by calling the customer service center at the telephone number shown in the accompanying Contract prospectus.


	*For the Period April 30, 2002 through December 31, 2002**

Per Share Operating Performance:


Net Asset Value, Beginning of Period	$8.33


Income (Loss) From Investment Operations


Net investment income¹	0.06


Net realized and unrealized gain (loss) on investments and foreign currencies	(1.83	)


Total from investment operations	(1.77	)


Distributions to Shareholders


Net investment income	(0.09	)


Net realized gain from investment and futures transactions	0.00


Total distributions	(0.09	)


Net Asset Value, End of Period	$6.47


Total Investment Return²	(21.17	)%


Supplemental Data and Ratios


Net assets, end of period (000s omitted)	$260


Ratios to average net assets:


Net investment income	1.26	%³


Expenses after waivers and/or reimbursements	0.90	%³


Expenses before waivers and/or reimbursements	1.30	%³


Portfolio turnover rate	25	%⁴

Commencement of operations for Class B shares

Calculated based on average shares outstanding.

Annualized

⁴

Portfolio turnover excludes the impact of redemption in kind

16 | Scudder VIT EAFE^® Equity Index Fund — Class B Shares

Your Investment in the Fund

Policies You Should Know About

18 | Scudder VIT EAFE^® Equity Index Fund — Class B Shares

Calculating the Fund’s Share Price

The Fund calculates the price of its shares (also known as the ‘Net Asset Value’ or ‘NAV’) in accordance with the standard formula for valuing mutual fund shares as described below. The Fund calculates its net asset value as of the close of regular trading on the New York Stock Exchange each day the New York Stock Exchange is open for business. On days when the New York Stock Exchange closes early, the Fund will calculate its net asset value at the time of closing.

Buying and Selling Fund Shares

The Fund continuously sells its shares to each Company, without a sales charge, at the next net asset value per share determined after a

Typically, the New York Stock Exchange is open every week, Monday through Friday, except when the following holidays are celebrated: New Year’s Day, Martin Luther King, Jr. Day (the third Monday in January), Presidents’ Day (the third Monday in February), Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday in November) and Christmas Day. On days when the New York Stock Exchange closes early the Fund will calculate its net asset value at the time of closing.

Scudder VIT EAFE^® Equity Index Fund — Class B Shares | 19

proper purchase order is placed with the Company. The Company offers Contract owners units in its separate accounts or tax qualified plans which directly correspond to shares in the Fund. Each Company submits purchase and redemption orders to the Fund based on allocation instructions for premium payments, transfer instructions and surrender or partial withdrawal requests for contract owners, as set forth in the accompanying prospectus for the contracts. Redemption orders are effected at the next net asset value per share determined after a proper redemption order is placed with the Company.

Important information about buying and selling shares

After receiving a contract owner’s order, the Company buys or sells shares at the next price calculated on any day the Fund is open for business.

Unless otherwise instructed, the Fund normally makes payment of the proceeds from the sale of Fund shares the next business day but always within seven calendar days.

The Fund does not issue share certificates.

We reserve the right to reject purchases of Fund shares including exchanges for any reason.

We reserve the right to reject purchases of Fund shares (including exchanges) or to suspend or postpone redemptions at times when the New York Stock Exchange is closed.

20 | Scudder VIT EAFE^® Equity Index Fund — Class B Shares

How to receive account information

If you are a contract owner, you should contact your Company or the organization that provides record keeping services for information about your account.

If you are a Company, you should call 1-800-621-1048 for information about the Fund.

How to buy and sell shares

Performance Information

Distributions

Scudder VIT EAFE^® Equity Index Fund — Class B Shares | 21

tributions at other times if necessary for the Fund to avoid federal income tax or excise tax. These distributions are automatically made in the form of additional shares of the Fund and not cash, unless a Company elects to have distributions made in cash. The result of automatic reinvestment of distributions is that the Fund’s performance, including the effect of dividends, is reflected in the cash value of the Contracts you own. Please see the Contract prospectus accompanying this Prospectus for more information.

Distribution Plan

The Fund has adopted a Distribution (12b-1) Plan that allows it to pay distribution and service fees for the sale and distribution of Class B shares and for services provided to shareholders. The plan permits the Fund to pay the Fund’s distributor an annual fee, not to exceed 0.25% of the average daily net assets of the Fund. The distributor may use this fee as well as other assets of the distributor to compensate sponsoring insurance companies for shares. Payments may also be made to financial institutions, industry professionals and broker-dealers for providing distribution assistance and other shareholder services relating to the sale of the Funds’ shares. Because these fees are paid out of each Fund’s assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

Taxes

Because each investor’s tax circumstances are unique and because the tax laws are subject to change, we recommend that you consult your tax advisor before investing.

22 | Scudder VIT EAFE^® Equity Index Fund — Class B Shares

Notes

To Get More Information

Shareholder reports — These include commentary from the Fund’s management team about recent market conditions and the effects of the Fund’s strategies on its performance. They also have detailed performance figures, a list of everything the Fund owns and the Fund’s financial statements. Shareholders get these reports automatically.

Statement of Additional Information — This tells you more about the Fund’s features and policies, including additional risk information. The SAI is incorporated by reference into this document (meaning that it is legally part of this prospectus).

LOGO

SEC

Public Reference Section

Washington, D.C. 20549-0102

www.sec.gov

(202) 942-8090

EAFE^® Equity Index Fund		BEAFEPRO (5/03)
Class B Shares		811-07507
Scudder Investment VIT Funds

SCUDDER INVESTMENTS

Class A Shares

Prospectus

May 1, 2003

Scudder VIT Equity 500 Index Fund

Contents

How the Fund Works

4		The Fund’s Main Investment Strategy

8		The Main Risks of Investing in the Fund

10		The Fund’s Performance History

11		How Much Investors Pay

12		Other Policies and Secondary Risks

15		Financial Highlights

Your Investment in the Fund

17		Policies You Should Know About

17		Calculating the Fund’s Share Price

18		Buying and Selling Fund Shares

20		Performance Information

20		Distributions

21		Taxes

How the Fund Works

On the next few pages, you’ll find information about the Fund’s investment objective, the main strategies it uses to pursue that goal and the main risks that could affect performance.

Whether you are considering investing in the Fund or are already a shareholder, you should look this information over carefully. You may want to keep it on hand for reference as well.

Please read this prospectus in conjunction with the prospectus for your variable insured contract, variable annuity contract, or tax-qualified plan.


		Class A

ticker symbol
fund number

Scudder VIT Equity 500 Index Fund

The Fund’s Main Investment Strategy

The Fund seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Standard & Poors 500 Composite Stock Price Index (the ‘S&P 500 Index’) which emphasizes stocks of large US companies.

The Fund invests for capital appreciation, not income; any dividend and interest income is incidental to the pursuit of its objective. While we give priority to replicating the S&P 500 Index’s performance, we cannot offer any assurance of achieving this objective. The Fund’s objective is not a fundamental policy. We must notify shareholders before we change it, but we are not required to seek their approval to do so.

Index investing versus active management

indexing provides simplicity because it is a straightforward market-matching strategy;

index funds generally provide diversification by investing in a wide variety of companies and industries;

The S&P 500 Index is a well-known stock market index that includes common stocks of 500 companies from several industrial sectors representing a significant portion of the market value of all stocks publicly traded in the United States. Stocks in the S&P 500 Index are weighted according to their market capitalization (the number of shares outstanding multiplied by the stock’s current price).

4 | Scudder VIT Equity 500 Index Fund — Class A Shares

an index fund’s performance is predictable in that the Fund’s value is expected to move in the same direction, up or down, as the target index;

index funds generally realize low capital gains.

Strategy

The Fund will pursue its objective by investing primarily in the securities of the companies included in the benchmark and derivative instruments, such as futures contracts and options, relating to the benchmark. The Fund’s investment advisor will use quantitative analysis techniques to structure the Fund to obtain a high correlation to the S&P 500 Index, while remaining as fully invested as possible in all market environments. To attempt to replicate the risk and return characteristics of the S&P 500 Index as closely as possible, the Fund invests in a statistically selected sample of the securities found in the S&P 500 Index, using a process known as ‘optimization.’ This process selects stocks for the Fund so that industry weightings, market capitalizations and fundamental characteristics (price-to-book ratios, price-to-earnings ratios, debt-to-asset ratios and dividend yields), closely replicate those of the securities in the S&P 500

Index. Over the long term, the investment advisor seeks a correlation between the performance of the Fund, before expenses, and the S&P 500 Index of 98% or better. A figure of 100% would indicate perfect correlation.

Principal investments

Under normal circumstances, the Fund will invest at least 80% of its assets, determined at the time of purchase, in stocks of companies included in the S&P 500 Index and in derivative instruments, such as futures contracts and options, that provide exposure to the stocks of companies in the S&P 500 Index. The Fund’s securities are

Futures contracts and options are used as a low-cost method of gaining exposure to a particular securities market without investing directly in those securities.

Scudder VIT Equity 500 Index Fund — Class A Shares | 5

weighted to attempt to make the Fund’s total investment characteristics similar to those of the S&P 500 Index as a whole. The investment advisor may exclude or remove any S&P stock from the Fund if the investment advisor believes that the stock is illiquid or that the merit of the investment has been impaired by financial conditions or other extraordinary events. At times, the investment advisor may purchase a stock not included in the S&P 500 Index when it is believed to be a cost-efficient way of approximating the Index’s performance, for example, in anticipation of a stock being added to the Index. The Fund may also hold assets in short-term debt securities and money market instruments.

Investment process

In an effort to run an efficient and effective strategy, the Fund uses the process of ‘optimization,’ a statistical sampling technique. First, the Fund buys the stocks that make up the larger portions of the S&P 500 Index’s value in roughly the same proportion as the S&P 500 Index. Second, smaller stocks are analyzed and selected based on liquidity. In selecting smaller stocks, the investment advisor tries to replicate the industry and risk characteristics of all of the smaller companies in the S&P 500 Index without buying all of those stocks. This approach attempts to maximize the Fund’s liquidity and returns while minimizing its costs. Historically, this Fund has had a low portfolio turnover rate.

Information regarding the index

The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor’s, a division of McGraw-Hill, Inc. (‘S&P’). S&P makes no representation or warranty, express or implied, to the owners of this Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P’s only relationship to this Fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index,

6 | Scudder VIT Equity 500 Index Fund — Class A Shares

which is determined, composed and calculated by S&P without regard to the Fund.

S&P has no obligation to take the needs of the Fund or the owners of the Fund into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the Fund to be issued or in the determination or calculation of the equation by which the Fund is to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Fund.

S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index or any data included therein and S&P shall have no liability for any errors, omissions or interruptions therein. S&P makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Fund, or any other person or entity from the use of the S&P 500 Index or any data included therein. S&P makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the S&P 500 Index or any data included therein. Without limiting any of the foregoing, in no event shall S&P have any liability for any special, punitive, indirect or consequential damages (including lost profits), even if notified of the possibility of such damages.

Scudder VIT Equity 500 Index Fund — Class A Shares | 7

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the Fund’s performance, cause you to lose money or make the Fund underperform other investments.

The principal risks of investing in the Fund are:

Market Risk. Deteriorating market conditions might cause an overall weakness in the market that reduces the absolute level of stock prices in that market, including stocks held by the Fund.

Tracking Error Risk. There are several reasons that the Fund’s performance may not replicate the S&P 500 Index exactly:

Unlike the S&P 500 Index, the Fund incurs administrative expenses and transaction costs in trading stocks.

The composition of the S&P 500 Index and the stocks held by the Fund may occasionally diverge.

Futures and Options Risk. The Fund may invest, to a limited extent, in stock index futures or options, which are types of derivatives. The Fund will not use these derivatives for speculative purposes or as leveraged investments that magnify the gains or losses of an investment. The Fund invests in derivatives to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the stock market. Risks associated with derivatives include:

8 | Scudder VIT Equity 500 Index Fund — Class A Shares

the risk that the derivative is not well correlated with the security for which it is acting as a substitute;

the risk that derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and

the risk that the Fund cannot sell the derivative because of an illiquid secondary market.

A secondary risk of investing in the Fund is

Pricing Risk. We value securities in the Fund at their stated market value if price quotations are available and reliable and, if not, by the method that most accurately reflects their fair value under procedures adopted by and under the general supervision of the Board of Trustees. This procedure implies an unavoidable risk that our prices are higher or lower than the prices that the securities might actually command if we sold them. If we have valued the securities too highly, you may end up paying too much for Fund shares when you buy. If we underestimate their price, you may not receive the full market value for your Fund shares when you sell.

There is, of course, no guarantee that the Fund will realize its goal.

This Fund is designed for investors interested in capital appreciation over the long term; exposure to the US equity market as represented by larger companies; and investment returns that track the performance of the S&P 500 Index.

Scudder VIT Equity 500 Index Fund — Class A Shares | 9

The Fund’s Performance History

The bar chart and table on this page can help you evaluate the potential risk and rewards of investing in the Fund by showing changes in the Fund’s performance year to year. The bar chart shows the Fund’s actual return for each full calendar year since the Fund began selling Class A shares on October 1, 1997 (its inception date). The table compares the Fund’s Class A shares average annual return with the S&P 500 Index over one year, five years and since the Fund’s inception. The S&P 500 Index is a model, not a portfolio in which you may invest. An index is a group of securities whose overall performance is used as a standard to measure investment performance. It does not factor in the costs of buying, selling and holding stock—costs that are reflected in the Fund’s performance results. These figures also do not include the effect of Contract charges, which would lower the return shown.

Year-by-Year Returns (for each full calendar year since inception)

For the periods shown in the bar chart, the Fund’s highest return in any calendar quarter was 21.22% (fourth quarter 1998) and its lowest quarterly return was -17.24% (third quarter 2002). Past performance offers no indication of how the Fund will perform in the future.


Performance for Period Ended December 31, 2002

Average Annual Returns

	1 Year	5 Year	Since Inception (October 1, 1997)¹


Fund	-22.31%	-0.82%	-0.43%


S&P 500 Index	-22.10%	-0.59%	-0.02%

The performance of the S&P 500 Index is calculated from September 30, 1997.

10 | Scudder VIT Equity 500 Index Fund — Class A Shares

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold Fund shares.


Annual Fees and Expenses

Shareholder Fees, paid directly from your investment		None


Annual Operating Expenses, deducted from Fund assets:


Management Fees		0.20%


Distribution/Service (12b-1) Fee		None


Other Expenses		0.12%


Total Annual Operating Expenses (before fee waivers and/or expense reimbursements)		0.32%


Fee Waivers and/or Expense Reimbursements		0.02%


Net Total Annual Operating Expenses*		0.30%

Based on the costs above, this example helps you compare the expenses of the Fund shares to those of other mutual funds. This example assumes the expenses above remain the same.

It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different

Expense Example**

* The Advisor has contractually agreed to waive its fees and/or reimburse expenses of the Fund, to the extent necessary, to limit all expenses to 0.30% of the average daily net assets of the Fund until April 30, 2005.

** For the first 24 months, the expense example takes into account fee waivers and/or expense reimbursements

Scudder VIT Equity 500 Index Fund — Class A Shares | 11

Other Policies and Secondary Risks

While the previous pages describe the main points of the Fund’s strategy and risks, there are a few other issues to know about:

The Fund may trade securities more actively, which could mean high expenses (thus lower returns) and high taxable distributions, if distributions are taxable at all.

The Fund’s Board of Trustees has the ability to terminate the Fund at any time without shareholder approval.

For more information

This prospectus doesn’t tell you about every policy or risk of investing in the Fund.

Keep in mind that there is no assurance that any mutual fund will achieve its goal.

12 | Scudder VIT Equity 500 Index Fund — Class A Shares

The portfolio managers

THE INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management Inc. (‘DeAM, Inc.’), with headquarters at 345 Park Avenue, New York, NY 10017, acts as the Fund’s investment advisor. As investment advisor, DeAM, Inc. makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. received a fee of 0.20% of the Fund’s average daily net assets for its services in the last fiscal year.

DeAM, Inc. provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $90 billion in assets.

THE SUB-ADVISOR

Northern Trust Investments, Inc. (“NTI”), with headquarters at 50 South LaSalle Street, Chicago, IL 60675, acts as investment sub-advisor for the Fund. As the Fund’s investment sub-advisor, NTI makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. pays a fee to NTI for acting as sub-advisor to the Fund.

NTI is a subsidiary of The Northern Trust Company. NTI has managed accounts, including registered investment companies, designed to mirror the performance of the same indices as those the

Scudder VIT Equity 500 Index Fund — Class A Shares | 13

14 | Scudder VIT Equity 500 Index Fund — Class A Shares

Financial Highlights

The table below is intended to help you understand the financial performance of the Equity 500 Index Fund Class A shares since the Fund’s inception. Certain information reflects financial results for a single Class A share of the Fund. The total returns in the table represent the rates of return that an investor would have earned on an investment in the Class A shares of the Fund, assuming reinvestment of all interest income and distributions. This information has been audited by Ernst & Young LLP, whose report, along with the Fund’s financial statements, is included in the Fund’s annual report. The annual report is available free of charge by calling the customer service center at the telephone number shown in the accompanying Contract prospectus.


	For the Year Ended December 31,
	2002		2001		2000		1999		1998

Per share operating performance:


Net asset value, beginning of year	$11.98		$13.77		$15.18		$12.73		$10.19


Income (loss) from investment operations:


Net investment income¹	0.14		0.09		0.13		0.05		0.07


Net realized and unrealized gain (loss) on investments and futures contracts	(2.81	)	(1.77	)	(1.53	)	2.55		2.84


Total from investment operations	(2.67	)	(1.68	)	(1.40	)	2.60		2.91


Distributions to shareholders


Net investment income	(0.11	)	(0.10	)	0.00		(0.10	)	(0.05	)


Net realized gain on investment and futures transactions	0.00		(0.01	)	(0.01	)	(0.05	)	(0.32	)


Total distributions	(0.11	)	(0.11	)	(0.01	)	(0.15	)	(0.37	)


Net asset value, end of year	$9.20		$11.98		$13.77		$15.18		$12.73


Total investment return²	(22.31	)%	(12.18	)%	(9.24	)%	20.39	%	28.71	%


Supplemental data and ratios


Net assets, end of period (000s omitted)	$394,96	4	$465,83	6	$427,85	5	$288,53	1	$49,69	1


Ratios to average net assets:


Net investment income	1.33	%	1.06	%	1.00	%	1.16	%	1.37	%


Expenses after waivers and/or reimbursements	0.30	%	0.30	%	0.30	%	0.30	%	0.30	%


Expenses before waivers and/or reimbursements	0.32	%	0.31	%	0.34	%	0.43	%	1.19	%


Portfolio turnover rate	10	%	2	%	3	%	2	%	36	%

Based on average shares outstanding.

Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period and redemption on the last day of the period. Total return calculated for a period of less than one year is not annualized. If fees for the advisor and administrator were not waived the total return would have been lower. These figures also do not include the effect of contract charges, which would lower the return shown.

Scudder VIT Equity 500 Index Fund — Class A Shares | 15

Your Investment in the Fund

Policies You Should Know About

Calculating the Fund’s Share Price

Scudder VIT Equity 500 Index Fund — Class A Shares | 17

Buying and Selling Fund Shares

18 | Scudder VIT Equity 500 Index Fund — Class A Shares

set forth in the accompanying prospectus for the contracts. Redemption orders are effected at the next net asset value per share determined after a proper redemption order is placed with the Company.

Important information about buying and selling shares

After receiving a contract owner’s order, the Company buys or sells shares at the next price calculated on any day the Fund is open for business.

Unless otherwise instructed, the Fund normally makes payment of the proceeds from the sale of Fund shares the next business day but always within seven calendar days.

The Fund does not issue share certificates.

We reserve the right to reject purchases of Fund shares including exchanges for any reason.

We reserve the right to reject purchases of Fund shares (including exchanges) or to suspend or postpone redemptions at times when the New York Stock Exchange is closed.

Scudder VIT Equity 500 Index Fund — Class A Shares | 19

How to receive account information

If you are a contract owner, you should contact your Company or the organization that provides record keeping services for information about your account.

If you are a Company, you should call 1-800-621-1048 for information about the Fund.

How to buy and sell shares

Performance Information

Distributions

20 | Scudder VIT Equity 500 Index Fund — Class A Shares

Taxes

Because each investor’s tax circumstances are unique and because the tax laws are subject to change, we recommend that you consult your tax advisor before investing.

Scudder VIT Equity 500 Index Fund — Class A Shares | 21

Notes

To Get More Information

Shareholder reports — These include commentary from the Fund’s management team about recent market conditions and the effects of the Fund’s strategies on its performance. They also have detailed performance figures, a list of everything the Fund owns and the Fund’s financial statements. Shareholders get these reports automatically.

Statement of Additional Information — This tells you more about the Fund’s features and policies, including additional risk information. The SAI is incorporated by reference into this document (meaning that it is legally part of this prospectus).

LOGO

SEC

Public Reference Section

Washington, D.C. 20549-0102

www.sec.gov

(202) 942-8090

Equity 500 Index Fund		AE500PRO (5/03)
Class A Shares		811-07507
Scudder Investment VIT Funds

SCUDDER INVESTMENTS

Class B Shares

Prospectus

May 1, 2003

Scudder VIT Equity 500 Index Fund

Contents

How the Fund Works

4		The Fund’s Main Investment Strategy

7		The Main Risks of Investing in the Fund

10		The Fund’s Performance History

11		How Much Investors Pay

12		Other Policies and Secondary Risks

15		Financial Highlights

Your Investment in the Fund

17		Policies You Should Know About

17		Calculating the Fund’s Share Price

18		Buying and Selling Fund Shares

20		Performance Information

20		Distributions

21		Distribution Plan

21		Taxes

How the Fund Works

On the next few pages, you’ll find information about the Fund’s investment objective, the main strategies it uses to pursue that goal and the main risks that could affect performance.

Whether you are considering investing in the Fund or are already a shareholder, you should look this information over carefully. You may want to keep it on hand for reference as well.

Please read this prospectus in conjunction with the prospectus for your variable insured contract, variable annuity contract, or tax-qualified plan.


		Class B

ticker symbol
fund number

Scudder VIT Equity 500 Index Fund

The Fund’s Main Investment Strategy

Index investing versus active management

indexing provides simplicity because it is a straightforward market-matching strategy;

index funds generally provide diversification by investing in a wide variety of companies and industries;

4 | Scudder VIT Equity 500 Index Fund — Class B Shares

an index fund’s performance is predictable in that the Fund’s value is expected to move in the same direction, up or down, as the target index;

index funds generally realize low capital gains.

Strategy

The Fund will pursue its objective by investing primarily in the securities of the companies included in the benchmark and derivative instruments, such as futures contracts and options, relating to the benchmark. The Fund’s investment advisor will use quantitative analysis techniques to structure the Fund to obtain a high correlation to the S&P 500 Index, while remaining as fully invested as possible in all market environments. To attempt to replicate the risk and return characteristics of the S&P 500 Index as closely as possible, the Fund invests in a statistically selected sample of the securities found in the S&P 500 Index, using a process known as ‘optimization.’ This process selects stocks for the Fund so that industry weightings, market capitalizations and fundamental characteristics (price-to-book ratios, price-to-earnings ratios, debt-to-asset ratios and dividend yields), closely replicate those of the securities in the S&P 500 Index. Over the long term, the investment advisor seeks a correlation between the performance of the Fund, before expenses, and the S&P 500 Index of 98% or better. A figure of 100% would indicate perfect correlation.

Principal investments

Scudder VIT Equity 500 Index Fund — Class B Shares | 5

Investment process

In an effort to run an efficient and effective strategy, the Fund uses the process of ‘optimization,’ a statistical sampling technique. First, the Fund buys the stocks that make up the larger portions of the S&P 500 Index’s value in roughly the same proportion as the S&P 500 Index. Second, smaller stocks are analyzed and selected based on liquidity. In selecting smaller stocks, the investment advisor tries to replicate the industry and risk characteristics of all of the smaller companies in the S&P 500 Index without buying all of those stocks. This approach attempts to maximize the Fund’s liquidity and returns while minimizing its costs. Historically, this Fund has had a low portfolio turnover rate.

Information regarding the index

6 | Scudder VIT Equity 500 Index Fund — Class B Shares

which is determined, composed and calculated by S&P without regard to the Fund.

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the Fund’s performance, cause you to lose money or make the Fund underperform other investments.

Scudder VIT Equity 500 Index Fund — Class B Shares | 7

The principal risks of investing in the Fund are:

Market Risk. Deteriorating market conditions might cause an overall weakness in the market that reduces the absolute level of stock prices in that market, including stocks held by the Fund.

Tracking Error Risk. There are several reasons that the Fund’s performance may not replicate the S&P 500 Index exactly:

Unlike the S&P 500 Index, the Fund incurs administrative expenses and transaction costs in trading stocks.

The composition of the S&P 500 Index and the stocks held by the Fund may occasionally diverge.

the risk that the derivative is not well correlated with the security for which it is acting as a substitute;

the risk that derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and

the risk that the Fund cannot sell the derivative because of an illiquid secondary market.

8 | Scudder VIT Equity 500 Index Fund — Class B Shares

A secondary risk of investing in the Fund is

There is, of course, no guarantee that the Fund will realize its goal.

Scudder VIT Equity 500 Index Fund — Class B Shares | 9

The Fund’s Performance History

The bar chart and table on this page can help you evaluate the potential risk and rewards of investing in the Fund by showing changes in the Fund’s performance year to year. Because Class B shares do not have a full year of operating history, the bar chart shows the Fund’s actual return for each full calendar year since the Fund began selling Class A shares on October 1, 1997 (its inception date). The table compares the Fund’s Class A shares average annual return adjusted for Class B expenses with the S&P 500 Index over one year, five years and since the Fund’s inception. The S&P 500 Index is a model, not a portfolio in which you may invest. An index is a group of securities whose overall performance is used as a standard to measure investment performance. It does not factor in the costs of buying, selling and holding stock—costs that are reflected in the Fund’s performance results. These figures also do not include the effect of Contract charges, which would lower the return shown.


Year-by-Year Returns (for each full calendar year since inception)


Performance for Period Ended December 31, 2002

Average Annual Returns

	1 Year	5 Year	Since Inception (October 1, 1997)¹


Fund	-22.56%	-1.07%	-0.68%


S&P 500 Index	-22.10%	-0.59%	-0.02%

The performance of the S&P 500 Index is calculated from September 30, 1997.

10 | Scudder VIT Equity 500 Index Fund — Class B Shares

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold Fund shares.


Annual Fees and Expenses

Shareholder Fees, paid directly from your investment		None


Annual Operating Expenses, deducted from Fund assets:


Management Fees		0.20%


Distribution/Service (12b-1) Fee		0.25%


Other Expenses		0.10%


Total Annual Operating Expenses (before fee waivers and/or expense reimbursements)		0.55%


Fee Waivers and/or Expense Reimbursements		0.00%


Net Total Annual Operating Expenses¹		0.55%

Based on the costs above, this example helps you compare the expenses of the Fund shares to those of other mutual funds. This example assumes the expenses above remain the same.

It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different

Expense Example²

The Advisor has contractually agreed to waive its fees and/or reimburse expenses of the Fund, to the extent necessary, to limit all expenses to 0.55% of the average daily net assets of the Fund until April 30, 2005.

For the first 24 months, the expense example takes into account fee waivers and/or expense reimbursements

Scudder VIT Equity 500 Index Fund — Class B Shares | 11

Other Policies and Secondary Risks

While the previous pages describe the main points of the Fund’s strategy and risks, there are a few other issues to know about:

The Fund may trade securities more actively, which could mean high expenses (thus lower returns) and high taxable distributions, if distributions are taxable at all.

The Fund’s Board of Trustees has the ability to terminate the Fund at any time without shareholder approval.

For more information

This prospectus doesn’t tell you about every policy or risk of investing in the Fund.

Keep in mind that there is no assurance that any mutual fund will achieve its goal.

12 | Scudder VIT Equity 500 Index Fund — Class B Shares

The portfolio managers

THE INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management Inc. (‘DeAM, Inc.’), with headquarters at 345 Park Avenue, New York, NY 10017, acts as the Fund’s investment advisor. As investment advisor, DeAM, Inc. makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. received a fee of 0.20% of the Fund’s average daily net assets for its services in the last fiscal year.

DeAM, Inc. provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $90 billion in assets.

THE SUB-ADVISOR

NTI is a subsidiary of The Northern Trust Company. NTI has managed accounts, including registered investment companies, designed to mirror the performance of the same indices as those the

Scudder VIT Equity 500 Index Fund — Class B Shares | 13

14 | Scudder VIT Equity 500 Index Fund — Class B Shares

Financial Highlights

The table below is intended to help you understand the financial performance of the Equity 500 Index Fund Class B shares since the Fund’s inception. Certain information reflects financial results for a single Class B share of the Fund. The total returns in the table represent the rates of return that an investor would have earned on an investment in the Class B shares of the Fund, assuming reinvestment of all interest income and distributions. This information has been audited by Ernst & Young LLP, whose report, along with the Fund’s financial statements, is included in the Fund’s annual report. The annual report is available free of charge by calling the customer service center at the telephone number shown in the accompanying Contract prospectus.


	For the Period April 30, 2002* through December 31, 2002

Per share operating performance


Net asset value, beginning of period	$11.27


Income (loss) from investment operations


Net investment income¹	0.09


Net realized and unrealized gain (loss) on investments and futures contracts	(2.07	)


Total from investment operations	(1.98	)


Distributions to shareholders


Net investment income	(0.09	)


Net realized gain on investment and futures transactions	0.00


Total distributions	(0.09	)


Net asset value, end of period	$9.20


Total investment return²	(17.56	)%


Supplemental data and ratios


Net assets, end of period (000s omitted)	$2,82	9


Ratios to average net assets:


Net Investment Income	1.45	%³


Expenses after waivers and/or reimbursements	0.55	%³


Expenses before waivers and/or reimbursements	0.55	%³


Portfolio turnover rate	10	%

Commencement of operations for Class B shares

Based on average shares outstanding.

Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period and redemption on the last day of the period. Total return calculated for a period of less than one year is not annualized. If fees for the advisor and administrator were not waived the total return would have been lower. These figures also do not include the effect of contract charges, which would lower the return shown.

Annualized

Scudder VIT Equity 500 Index Fund — Class B Shares | 15

Your Investment in the Fund

Policies You Should Know About

Calculating the Fund’s Share Price

Scudder VIT Equity 500 Index Fund — Class B Shares | 17

Buying and Selling Fund Shares

18 | Scudder VIT Equity 500 Index Fund — Class B Shares

in the accompanying prospectus for the contracts. Redemption orders are effected at the next net asset value per share determined after a proper redemption order is placed with the Company.

Important information about buying and selling shares

After receiving a contract owner’s order, the Company buys or sells shares at the next price calculated on any day the Fund is open for business.

Unless otherwise instructed, the Fund normally makes payment of the proceeds from the sale of Fund shares the next business day but always within seven calendar days.

The Fund does not issue share certificates.

We reserve the right to reject purchases of Fund shares including exchanges for any reason.

We reserve the right to reject purchases of Fund shares (including exchanges) or to suspend or postpone redemptions at times when the New York Stock Exchange is closed.

Scudder VIT Equity 500 Index Fund — Class B Shares | 19

How to receive account information

If you are a contract owner, you should contact your Company or the organization that provides record keeping services for information about your account.

If you are a Company, you should call 1-800-621-1048 for information about the Fund.

How to buy and sell shares

Performance Information

Distributions

20 | Scudder VIT Equity 500 Index Fund — Class B Shares

Distribution Plan

Because these fees are paid out of each Fund’s assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

Taxes

Because each investor’s tax circumstances are unique and because the tax laws are subject to change, we recommend that you consult your tax advisor before investing.

Scudder VIT Equity 500 Index Fund — Class B Shares | 21

Notes

To Get More Information

LOGO

SEC

Public Reference Section

Washington, D.C. 20549-0102

www.sec.gov

(202) 942-8090

Equity 500 Index Fund		BE500PRO (5/03)
Class B Shares		811-07507
Scudder Investment VIT Funds

Class A Shares

Prospectus

May 1, 2003

Scudder VIT Small Cap Index Fund

Contents

How the Fund Works

4		The Fund’s Main Investment Strategy

6		The Main Risks of Investing in the Fund

9		The Fund’s Performance History

10		How Much Investors Pay

11		Other Policies and Secondary Risks

13		Financial Highlights

Your Investment in the Fund

15		Policies You Should Know About

16		Calculating the Fund’s Share Price

16		Buying and Selling Fund Shares

18		Performance Information

18		Distributions

19		Taxes

How the Fund Works

On the next few pages, you’ll find information about the Fund’s investment objective, the main strategies it uses to pursue that goal and the main risks that could affect performance.

Whether you are considering investing in the Fund or are already a shareholder, you should look this information over carefully. You may want to keep it on hand for reference as well.

Please read this prospectus in conjunction with the prospectus for your variable insured contract, variable annuity contract, or tax-qualified plan.


		Class A

ticker symbol
fund number

Scudder VIT Small Cap Index Fund

The Fund’s Main Investment Strategy

The Fund seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Russell 2000 Small Stock Index (the ‘Russell 2000 Index’) which emphasizes stocks of small US companies.

The Fund invests for capital appreciation, not income; any dividend and interest income is incidental to the pursuit of its objective. While we give priority to replicating the Russell 2000 Index’s performance, we cannot offer any assurance of achieving this objective. The Fund’s objective is not a fundamental policy. We must notify shareholders before we change it, but we are not required to seek their approval to do so.

Index investing versus active management

indexing provides simplicity because it is a straightforward market-matching strategy;

index funds generally provide diversification by investing in a wide variety of companies and industries;

capitalization. Stocks in the Russell 2000 Index are weighted according to their market capitalization (the number of shares outstanding multiplied by the stock’s current price).

4 | Scudder VIT Small Cap Index Fund — Class A Shares

an index fund’s performance is predictable in that the Fund’s value is expected to move in the same direction, up or down, as the target index;

index funds generally realize low capital gains.

Strategy

The Fund will pursue its objective by investing primarily in the securities of the companies included in the benchmark and derivative instruments, such as futures contracts and options, relating to the benchmark. The Fund’s investment advisor will use quantitative analysis techniques to structure the Fund to obtain a high correlation to the Russell 2000 Index while remaining as fully invested as possible in all market environments. To attempt to replicate the risk and return characteristics of the Russell 2000 Index as closely as possible, the Fund invests in a statistically selected sample of the securities found in the Russell 2000 Index, using a process known as ‘optimization.’ This process selects stocks for the Fund so that industry weightings, market capitalizations and fundamental characteristics (price-to-book ratios, price-to-earnings ratios, debt-to-asset ratios and dividend yields) closely replicate those of the securities in the Russell 2000 Index. Over the long term, the investment advisor seeks a correlation between the performance of the Fund, before expenses, and the Russell 2000 Index of 95% or better. A figure of 100% would indicate perfect correlation.

Principal investments

Under normal circumstances, the Fund will invest at least 80% of its assets, determined at the time of purchase, in stocks of companies included in the Russell 2000 Index and in derivative instruments, such as futures contracts and options, that provide exposure to the stocks of companies in the Russell 2000 Index. The Fund’s securities are weighted to attempt to make the Fund’s total investment charac - -

Futures contracts and options are used as a low-cost method of gaining exposure

to a particular securities market without investing directly in those securities.

Scudder VIT Small Cap Index Fund — Class A Shares | 5

teristics similar to those of the Russell 2000 Index as a whole. The investment advisor may exclude or remove any Russell 2000 stock from the Fund if the investment advisor believes that the stock is illiquid or has impaired financial conditions brought on by extraordinary events. At times, the investment advisor may purchase a stock not included in the Russell 2000 Index when it is believed to be a cost-efficient way of approximating the Index’s performance, for example, in anticipation of a stock being added to the Index. The Fund may also hold assets in short-term debt securities and money market instruments.

Investment process

In an effort to run an efficient and effective strategy, the Fund uses the process of ‘optimization,’ a statistical sampling technique. First, the Fund buys the stocks that make up the larger portions of the Russell 2000 Index’s value in roughly the same proportion as the Russell 2000 Index. Second, smaller stocks are analyzed and selected based on liquidity. In selecting smaller stocks, the investment advisor tries to replicate the industry and risk characteristics of all of the smaller companies in the Russell 2000 Index without buying all of those stocks. This approach attempts to maximize the Fund’s liquidity and returns while minimizing its costs. Historically, this Fund has had a low portfolio turnover rate.

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the Fund’s performance, cause you to lose money or make the Fund underperform other investments.

Portfolio Turnover measures the frequency that the Fund sells and replaces the value of its securities within a given

period. High turnover can increase a fund’s transaction costs, thereby lowering its returns.

6 | Scudder VIT Small Cap Index Fund — Class A Shares

The principal risks of investing in the Fund are:

Market Risk. Deteriorating market conditions might cause an overall weakness in the market that reduces the absolute level of stock prices in that market, including stocks held by the Fund.

Tracking Error Risk. There are several reasons that the Fund’s performance may not replicate the Russell 2000 Index exactly:

Unlike the Russell 2000 Index, the Fund incurs administrative expenses and transaction costs in trading stocks.

The composition of the Russell 2000 Index and the stocks held by the Fund may occasionally diverge.

Small Company Risk. Small company stocks tend to experience steeper fluctuations in price—down as well as up—than the stocks of larger companies. A shortage of reliable information—the same information gap that creates opportunity in small company investing—can also pose added risk. Industry wide reversals have had a greater impact on small companies, since they lack a large company’s financial resources to deal with setbacks. Finally, small company stocks are typically less liquid than large company stocks: when things are going poorly, it is harder to find a buyer for a small company’s shares.

Scudder VIT Small Cap Index Fund — Class A Shares | 7

shareholder redemptions or other needs while maintaining exposure to the stock market. Risks associated with derivatives include:

the risk that the derivative is not well correlated with the security for which it is acting as a substitute;

the risk that derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and

the risk that the Fund cannot sell the derivative because of an illiquid secondary market.

A secondary risk of investing in the Fund is

This Fund is designed for investors interested in capital appreciation over the long term; exposure to the US equity market as represented by smaller companies; and investment returns that track the performance of the Russell 2000 Index.

There is, of course, no guarantee that the Fund will realize its goal.

8 | Scudder VIT Small Cap Index Fund — Class A Shares

The Fund’s Performance History

The bar chart and table on this page can help you evaluate the potential risk and rewards of investing in the Fund by showing changes in the Fund’s performance year to year. The bar chart shows the Fund’s actual return for each full calendar year since the Fund began selling Class A shares on August 22, 1997 (its inception date). The table compares the Fund’s Class A shares average annual return with the Russell 2000 Index over one year, five years and since the Fund’s inception. The Russell 2000 Index is a model, not a portfolio in which you may invest. An index is a group of securities whose overall performance is used as a standard to measure investment performance. It does not factor in the costs of buying, selling and holding stock—costs that are reflected in the Fund’s performance results. These figures also do not include the effect of Contract charges, which would lower the return shown.

Year-by-Year Returns (for each full calendar year since inception)

For the periods shown in the bar chart, the Fund’s highest return in any calendar quarter was 20.92% (fourth quarter 2001) and its lowest quarterly return was -21.37% (third quarter 2002). Past performance offers no indication of how the Fund will perform in the future.


Performance for Period Ended December 31, 2002

Average Annual Returns

	1 Year	5 Year	Since Inception (August 22, 1997)¹


Fund	-20.58%	-1.74%	-0.71%


Russell 2000 Index	-20.48%	-1.36%	-0.59%

The performance of the Russell 2000 Index is calculated from August 31, 1997.

Scudder VIT Small Cap Index Fund — Class A Shares | 9

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold Fund shares.


Annual Fees and Expenses

Shareholder Fees, paid directly from your investment		None


Annual Operating Expenses, deducted from Fund assets:


Management Fees		0.35%


Distribution/Service (12b-1) Fee		None


Other Expenses		0.26%


Total Annual Operating Expenses (before fee waivers and/or expense reimbursements)		0.61%


Fee Waivers and/or Expense Reimbursements		0.16%


Net Total Annual Operating Expenses¹		0.45%

Based on the costs above, this example helps you compare the expenses of the Fund shares to those of other mutual funds. This example assumes the expenses above remain the same.

It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different.

Expense Example²

The Advisor has contractually agreed to waive its fees and/or reimburse expenses of the Fund, to the extent necessary, to limit all expenses to 0.45% of the average daily net assets of the Fund until April 30, 2005.

For the first 24 months, the expense example takes into account fee waivers and/or expense reimbursements.

10 | Scudder VIT Small Cap Index Fund — Class A Shares

Other Policies and Secondary Risks

While the previous pages describe the main points of the Fund’s strategy and risks, there are a few other issues to know about:

The Fund may trade securities more actively, which could mean high expenses (thus lower returns) and high taxable distributions, if distributions are taxable at all.

The Fund’s Board of Trustees has the ability to terminate the Fund at any time without shareholder approval.

For more information

This prospectus doesn’t tell you about every policy or risk of investing in the Fund.

Keep in mind that there is no assurance that any mutual fund will achieve its goal.

The portfolio managers

THE INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management Inc. (‘DeAM, Inc.’), with headquarters at 345 Park

Scudder VIT Small Cap Index Fund — Class A Shares | 11

Avenue, New York, NY 10017, acts as the Fund’s investment advisor. As investment advisor, DeAM, Inc. makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. received a fee of 0.35% of the Fund’s average daily net assets for its services in the last fiscal year.

DeAM, Inc. provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $90 billion in assets.

THE SUB-ADVISOR

12 | Scudder VIT Small Cap Index Fund — Class A Shares

Financial Highlights

The table below is intended to help you understand the financial performance of the Small Cap Index Fund Class A shares since the Fund’s inception. Certain information reflects financial results for a single Class A share of the Fund. The total returns in the table represent the rates of return that an investor would have earned on an investment in the Class A shares of the Fund, assuming reinvestment of all interest income and distributions. This information has been audited by Ernst & Young LLP, whose report, along with the Fund’s financial statements, is included in the Fund’s annual report. The annual report is available free of charge by calling the customer service center at the telephone number shown in the accompanying Contract prospectus.


	For the Year Ended December 31,

	2002		2001		2000		1999		1998

Per share operating performance net asset value, beginning of year	$10.73		$11.10		$11.61		$10.06		$10.51


Income (loss) from investment operations


Net investment income¹	0.10		0.06		0.10		0.09		0.06


Net realized and unrealized gain (loss) on investments and futures contracts	(2.31	)	0.16		(0.55	)	1.92		(0.30	)


Total from investment operations	(2.21	)	0.22		(0.45	)	2.01		(0.24	)


Distributions to shareholders:


Net investment income	(0.06	)	(0.06	)	0.00		(0.12	)	(0.05	)


Net realized gain on investment and futures transactions	(0.01	)	(0.53	)	(0.06	)	(0.34	)	(0.16	)


Total distributions	(0.07	)	(0.59	)	(0.06	)	(0.46	)	(0.21	)


Net asset value, end of year	$8.45		$10.73		$11.10		$11.61		$10.06


Total investment return²	(20.58	)%	2.07	%	(3.87	)%	20.16	%	(2.18	)%


Supplemental data and ratios


Net assets, end of period (000s omitted)	$143,8	47	$151,7	42	$104,0	95	$55,55	9	$36,74	4


Ratios to average net assets:


Net investment income	1.09	%	1.07	%	1.13	%	1.14	%	1.18	%


Expenses after waivers and/or reimbursements	0.45	%	0.45	%	0.45	%	0.45	%	0.45	%


Expenses before waivers and/or reimbursements	0.61	%	0.63	%	0.69	%	1.18	%	1.58	%


Portfolio turnover rate	40	%	44	%	51	%	68	%	30	%

Based on average shares outstanding.

Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period and redemption on the last day of the period. Total return calculated for a period of less than one year is not annualized. If fees for the advisor and administrator were not waived the total return would have been lower. These figures also do not include the effect of Contract charges, which would lower the return shown.

Scudder VIT Small Cap Index Fund — Class A Shares | 13

Your Investment in the Fund

Policies You Should Know About

Scudder VIT Small Cap Index Fund — Class A Shares | 15

Calculating the Fund’s Share Price

Buying and Selling Fund Shares

The Fund continuously sells its shares to each Company, without a sales charge, at the next net asset value per share determined after a proper purchase order is placed with the Company. The Company

16 | Scudder VIT Small Cap Index Fund — Class A Shares

offers Contract owners units in its separate accounts or tax qualified plans which directly correspond to shares in the Fund. Each Company submits purchase and redemption orders to the Fund based on allocation instructions for premium payments, transfer instructions and surrender or partial withdrawal requests for contract owners, as set forth in the accompanying prospectus for the contracts. Redemption orders are effected at the next net asset value per share determined after a proper redemption order is placed with the Company.

Important information about buying and selling shares

After receiving a contract owner’s order, the Company buys or sells shares at the next price calculated on any day the Fund is open for business.

Unless otherwise instructed, the Fund normally makes payment of the proceeds from the sale of Fund shares the next business day but always within seven calendar days.

The Fund does not issue share certificates.

We reserve the right to reject purchases of Fund shares including exchanges for any reason.

We reserve the right to reject purchases of Fund shares (including exchanges) or to suspend or postpone redemptions at times when the New York Stock Exchange is closed.

Scudder VIT Small Cap Index Fund — Class A Shares | 17

How to receive account information

If you are a contract owner, you should contact your Company or the organization that provides record keeping services for information about your account.

If you are a Company, you should call 1-800-621-1048 for information about the Fund.

How to buy and sell shares

Performance Information

Distributions

18 | Scudder VIT Small Cap Index Fund — Class A Shares

Taxes

Because each investor’s tax circumstances are unique and because the tax laws are subject to change, we recommend that you consult your tax advisor before investing.

Scudder VIT Small Cap Index Fund — Class A Shares | 19

To Get More Information

LOGO

SEC

Public Reference Section

Washington, D.C. 20549-0102

www.sec.gov

(202) 942-8090

Small Cap Index Fund		ASMALLPRO (5/03)
Class A Shares		811-07507
Scudder Investment VIT Funds

SCUDDER INVESTMENTS

Class B Shares

Prospectus

May 1, 2003

Scudder VIT Small Cap Index Fund

Contents

How the Fund Works

4		The Fund’s Main Investment Strategy

6		The Main Risks of Investing in the Fund

9		The Fund’s Performance History

10		How Much Investors Pay

11		Other Policies and Secondary Risks

14		Financial Highlights

Your Investment in the Fund

16		Policies You Should Know About

16		Calculating the Fund’s Share Price

17		Buying and Selling Fund Shares

19		Performance Information

19		Distributions

20		Distribution Plan

20		Taxes

How the Fund Works

On the next few pages, you’ll find information about the Fund’s investment objective, the main strategies it uses to pursue that goal and the main risks that could affect performance.

Whether you are considering investing in the Fund or are already a shareholder, you should look this information over carefully. You may want to keep it on hand for reference as well.

Please read this prospectus in conjunction with the prospectus for your variable insured contract, variable annuity contract, or tax-qualified plan.


		Class B

ticker symbol
fund number

Scudder VIT Small Cap Index Fund

The Fund’s Main Investment Strategy

The Fund seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Russell 2000 Small Stock Index (the ‘Russell 2000 Index’) which emphasizes stocks of small US companies.

Index investing versus active management

indexing provides simplicity because it is a straightforward market-matching strategy;

index funds generally provide diversification by investing in a wide variety of companies and industries;

The Russell 2000 Index is a widely accepted benchmark of small company stock performance. It is a subset of the Russell 3000 Index, which measures the performance of the 3,000 largest US companies based on total market capitalization. Stocks in the Russell 2000 Index are weighted according to their market capitalization (the number of shares outstanding multiplied by the stock’s current price).

4 | Scudder VIT Small Cap Index Fund — Class B Shares

an index fund’s performance is predictable in that the Fund’s value is expected to move in the same direction, up or down, as the target index;

index funds generally realize low capital gains.

Strategy

The Fund will pursue its objective by investing primarily in the securities of the companies included in the benchmark and derivative instruments, such as futures contracts and options, relating to the benchmark. The Fund’s investment advisor will use quantitative analysis techniques to structure the Fund to obtain a high correlation to the Russell 2000 Index while remaining as fully invested as possible in all market environments. To attempt to replicate the risk and return characteristics of the Russell 2000 Index as closely as possible, the Fund invests in a statistically selected sample of the securities found in the Russell 2000 Index, using a process known as ‘optimization.’ This process selects stocks for the Fund so that industry weightings, market capitalizations and fundamental characteristics (price-to-book ratios, price-to-earnings ratios, debt-to-asset ratios and dividend yields) closely replicate those of the securities in the Russell 2000 Index. Over the long term, the investment advisor seeks a correlation between the performance of the Fund, before expenses, and the Russell 2000 Index of 95% or better. A figure of 100% would indicate perfect correlation.

Principal investments

Under normal circumstances, the Fund will invest at least 80% of its assets, determined at the time of purchase, in stocks of companies included in the Russell 2000 Index and in derivative instruments, such as futures contracts and options, that provide exposure to the stocks of companies in the Russell 2000 Index. The Fund’s securities to a particular securities market without investing directly in those securities.

Scudder VIT Small Cap Index Fund — Class B Shares | 5

are weighted to attempt to make the Fund’s total investment characteristics similar to those of the Russell 2000 Index as a whole. The investment advisor may exclude or remove any Russell 2000 stock from the Fund if the investment advisor believes that the stock is illiquid or has impaired financial conditions brought on by extraordinary events. At times, the investment advisor may purchase a stock not included in the Russell 2000 Index when it is believed to be a cost-efficient way of approximating the Index’s performance, for example, in anticipation of a stock being added to the Index. The Fund may also hold assets in short-term debt securities and money market instruments.

Investment process

In an effort to run an efficient and effective strategy, the Fund uses the process of ‘optimization,’ a statistical sampling technique. First, the Fund buys the stocks that make up the larger portions of the Russell 2000 Index’s value in roughly the same proportion as the Russell 2000 Index. Second, smaller stocks are analyzed and selected based on liquidity. In selecting smaller stocks, the investment advisor tries to replicate the industry and risk characteristics of all of the smaller companies in the Russell 2000 Index without buying all of those stocks. This approach attempts to maximize the Fund’s liquidity and returns while minimizing its costs. Historically, this Fund has had a low portfolio turnover rate.

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the Fund’s performance, cause you to lose money or make the Fund underperform other investments.

6 | Scudder VIT Small Cap Index Fund — Class B Shares

The principal risks of investing in the Fund are:

Market Risk. Deteriorating market conditions might cause an overall weakness in the market that reduces the absolute level of stock prices in that market, including stocks held by the Fund.

Tracking Error Risk. There are several reasons that the Fund’s performance may not replicate the Russell 2000 Index exactly:

Unlike the Russell 2000 Index, the Fund incurs administrative expenses and transaction costs in trading stocks.

The composition of the Russell 2000 Index and the stocks held by the Fund may occasionally diverge.

Scudder VIT Small Cap Index Fund — Class B Shares | 7

shareholder redemptions or other needs while maintaining exposure to the stock market. Risks associated with derivatives include:

the risk that the derivative is not well correlated with the security for which it is acting as a substitute;

the risk that derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and

the risk that the Fund cannot sell the derivative because of an illiquid secondary market.

A secondary risk of investing in the Fund is

There is, of course, no guarantee that the Fund will realize its goal.

8 | Scudder VIT Small Cap Index Fund — Class B Shares

The Fund’s Performance History

The bar chart and table on this page can help you evaluate the potential risk and rewards of investing in the Fund by showing changes in the Fund’s performance year to year. Because Class B shares do not have a full year of operating history, the bar chart shows the Fund’s actual return for each full calendar year since the Fund began selling Class A shares on August 22, 1997 (its inception date). The table compares the Fund’s Class A shares average annual return adjusted for Class B expenses with the Russell 2000 Index over one year, five years and since the Fund’s inception. The Russell 2000 Index is a model, not a portfolio in which you may invest. An index is a group of securities whose overall performance is used as a standard to measure investment performance. It does not factor in the costs of buying, selling and holding stock—costs that are reflected in the Fund’s performance results. These figures also do not include the effect of Contract charges, which would lower the return shown.

Year-by-Year Returns (for each full calendar year since inception)


Performance for Period Ended December 31, 2002

Average Annual Returns
	1 Year	5 Year	Since Inception (August 22, 1997)¹


Fund	-20.83%	-1.99%	-0.96%


Russell 2000 Index	-20.48%	-1.36%	-0.59%

The performance of the Russell 2000 Index is calculated from August 31, 1997.

Scudder VIT Small Cap Index Fund — Class B Shares | 9

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold Fund shares.


Annual Fees and Expenses

Shareholder Fees, paid directly from your investment		None


Annual Operating Expenses, deducted from Fund assets:


Management Fees		0.35%


Distribution/Service (12b-1) Fee		0.25%


Other Expenses		0.28%


Total Annual Operating Expenses (before fee waivers and/or expense reimbursements)		0.88%


Fee Waivers and/or Expense Reimbursements		0.18%


Net Total Annual Operating Expenses¹		0.70%

Based on the costs above, this example helps you compare the expenses of the Fund shares to those of other mutual funds. This example assumes the expenses above remain the same.

It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different

Expense Example²

The Advisor has contractually agreed to waive its fees and/or reimburse expenses of the Fund, to the extent necessary, to limit all expenses to 0.70% of the average daily net assets of the Fund until April 30, 2005

For the first 24 months, the expense example takes into account fee waivers and/or expense reimbursements

10 | Scudder VIT Small Cap Index Fund — Class B Shares

Other Policies and Secondary Risks

While the previous pages describe the main points of the Fund’s strategy and risks, there are a few other issues to know about:

The Fund may trade securities more actively, which could mean high expenses (thus lower returns) and high taxable distributions, if distributions are taxable at all.

The Fund’s Board of Trustees has the ability to terminate the Fund at any time without shareholder approval.

For more information

This prospectus doesn’t tell you about every policy or risk of investing in the Fund.

Keep in mind that there is no assurance that any mutual fund will achieve its goal.

Scudder VIT Small Cap Index Fund — Class B Shares | 11

The portfolio managers

THE INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management Inc. (‘DeAM, Inc.’), with headquarters at 345 Park Avenue, New York, NY 10017, acts as the Fund’s investment advisor. As investment advisor, DeAM, Inc. makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. received a fee of 0.35% of the Fund’s average daily net assets for its services in the last fiscal year.

DeAM, Inc. provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $90 billion in assets.

THE SUB-ADVISOR

NTI is a subsidiary of The Northern Trust Company. NTI has managed accounts, including registered investment companies, designed to mirror the performance of the same indices as those the

12 | Scudder VIT Small Cap Index Fund — Class B Shares

Scudder VIT Small Cap Index Fund — Class B Shares | 13

Financial Highlights

The table below is intended to help you understand the financial performance of the Small Cap Index Fund Class B shares since the Fund’s inception. Certain information reflects financial results for a single Class B share of the Fund. The total returns in the table represent the rates of return that an investor would have earned on an investment in the Class A shares of the Fund, assuming reinvestment of all interest income and distributions. This information has been audited by Ernst & Young LLP, whose report, along with the Fund’s financial statements, is included in the Fund’s annual report. The annual report is available free of charge by calling the customer service center at the telephone number shown in the accompanying Contract prospectus.


	For the Period April 30, 2002* through December 31, 2002

Per share operating performance:


Net asset value, Beginning of period	$11.23


Income (loss) from investment operations


Net investment income¹	0.06


Net realized and unrealized gain (loss) on investments and futures contracts	(2.79	)


Total from investment operations	(2.73	)


Distributions to shareholders


Net investment income	(0.05	)


Net realized gain on investments	(0.01	)


Total distributions	(0.06	)


Net asset value, end of period	$8.44


Total investment return²	(24.34	)%


Supplemental data and ratios:


Net assets, end of period (000s omitted)	$2,16	7


Ratios to average net assets:


Net Investment Income	1.11	%³


Expenses after waivers and/or reimbursements	0.70	%³


Expenses before waivers and/or reimbursements	0.88	%³


Portfolio turnover rate	40	%

Commencement of Operations.

Based on average shares outstanding.

Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period and redemption on the last day of the period. Total return calculated for a period of less than one year is not annualized. If fees for the advisor and administrator were not waived the total return would have been lower. These figures also do not include the effect of Contract charges, which would lower the return shown.

Annualized.

14 | Scudder VIT Small Cap Index Fund — Class B Shares

Your Investment in the Fund

Policies You Should Know About

Calculating the Fund’s Share Price

16 | Scudder VIT Small Cap Index Fund — Class B Shares

Buying and Selling Fund Shares

Scudder VIT Small Cap Index Fund — Class B Shares | 17

in the accompanying prospectus for the contracts. Redemption orders are effected at the next net asset value per share determined after a proper redemption order is placed with the Company.

Important information about buying and selling shares

After receiving a contract owner’s order, the Company buys or sells shares at the next price calculated on any day the Fund is open for business.

Unless otherwise instructed, the Fund normally makes payment of the proceeds from the sale of Fund shares the next business day but always within seven calendar days.

The Fund does not issue share certificates.

We reserve the right to reject purchases of Fund shares including exchanges for any reason.

We reserve the right to reject purchases of Fund shares (including exchanges) or to suspend or postpone redemptions at times when the New York Stock Exchange is closed.

Currently the Fund’s Board of Trustees does not foresee any disadvantages to the holders of variable annuity contracts variable life insurance contracts or tax-qualified plan policies arising from the fact that the interests of the holders of such contracts and policies may differ. Nevertheless, the Board intends to monitor events in order to identify any material irreconcilable conflicts that may possibly arise and to determine what action, if any, should be taken.

18 | Scudder VIT Small Cap Index Fund — Class B Shares

How to receive account information

If you are a contract owner, you should contact your Company or the organization that provides record keeping services for information about your account.

If you are a Company, you should call X-XXX-XXX-XXXX for information about the Fund.

How to buy and sell shares

Performance Information

Distributions

Scudder VIT Small Cap Index Fund — Class B Shares | 19

Distribution Plan

Taxes

Because each investor’s tax circumstances are unique and because the tax laws are subject to change, we recommend that you consult your tax advisor before investing.

20 | Scudder VIT Small Cap Index Fund — Class B Shares

Notes

To Get More Information

Shareholder reports — These include commentary from the Fund’s management team about recent market conditions and the effects of the Fund’s strategies on its performance. They also have detailed performance figures, a list of everything the Fund owns and the Fund’s financial statements. Shareholders get these reports automatically.

Statement of Additional Information — This tells you more about the Fund’s features and policies, including additional risk information. The SAI is incorporated by reference into this document (meaning that it is legally part of this prospectus).

LOGO

SEC

Public Reference Section

Washington, D.C. 20549-0102

www.sec.gov

(202) 942-8090

Small Cap Index Fund		BSMALLPRO (5/03)
Class B Shares		811-07507
Scudder Investment VIT Funds

LOGO

Class A Shares

Prospectus

May 1, 2003

Scudder VIT Nasdaq-100 Index Fund

Contents

How the Fund Works

4		The Fund’s Main Investment Strategy

7		The Main Risks of Investing in the Fund

11		The Fund’s Performance History

12		How Much Investors Pay

13		Other Policies and Secondary Risks

15		Financial Highlights

Your Investment in the Fund

17		Policies You Should Know About

17		Calculating the Fund’s Share Price

18		Buying and Selling Fund Shares

20		Performance Information

21		Distributions

21		Taxes

How the Fund Works

On the next few pages, you’ll find information about the Fund’s investment objective, the main strategies it uses to pursue that goal and the main risks that could affect performance.

Whether you are considering investing in the Fund or are already a shareholder, you should look this information over carefully. You may want to keep it on hand for reference as well.

Please read this prospectus in conjunction with the prospectus for your variable insured contract, variable annuity contract, or tax-qualified plan.


		Class A

ticker symbol
fund number

Scudder VIT Nasdaq-100 Index Fund

The Fund’s Main Investment Strategy

The Fund seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Nasdaq-100 Index.

The Fund invests for capital appreciation, not income; any dividend and interest income is incidental to the pursuit of its objective. While we give priority to replicating the Nasdaq-100 Index’s performance, we cannot offer any assurance of achieving this objective. The Fund’s objective is not a fundamental policy. We must notify shareholders before we change it, but we are not required to seek their approval to do so.

Index investing versus active management

indexing provides simplicity because it is a straightforward market-matching strategy;

index funds generally provide diversification by investing in a wide variety of companies and industries;

an index fund’s performance is predictable in that the Fund’s value is expected to move in the same direction, up or down, as the target index;

The Nasdaq-100 Index is a modified capitalization-weighted index composed of equity securities of 100 of the largest non-financial domestic and international companies listed on The Nasdaq Stock Market, Inc. It is a model, not an actual portfolio.

4 | Scudder VIT Nasdaq-100 Index Fund — Class A Shares

index funds generally realize low capital gains.

Strategy

The Nasdaq-100 Index Fund will pursue its objective by investing primarily in the securities of the companies included in the benchmark and derivative instruments, such as futures contracts and options, relating to the benchmark. The Fund’s investment advisor will use quantitative analysis techniques to structure the Fund to obtain a high correlation to the Nasdaq-100 Index, while remaining as fully invested as possible in all market environments. To attempt to match the risk and return characteristics of the Nasdaq-100 Index as closely as possible, the Fund may invest in a statistically selected sample of the securities found in the Nasdaq-100 Index, using a process known as ‘optimization.’ This process selects stocks for the Fund so that industry weightings, market capitalizations and fundamental characteristics (price-to-book ratios, price-to-earnings ratios, debt-to-asset ratios and dividend yields) closely match those of the securities in the Nasdaq-100 Index. Over the long term, the investment advisor seeks a high correlation between the performance of the Fund, before expenses, and the Nasdaq-100 Index. The Fund may also hold assets in short-term debt securities and money market instruments. The correlation of the Fund’s performance to that of the Nasdaq-100 Index should increase as the Fund grows.

Principal investments

Under normal circumstances, the Fund intends to invest at least 80% of its assets, determined at the time of purchase, in stocks of companies included in the Nasdaq-100 Index and in derivative instruments, such as futures contracts and options, that provide ex - -

Generally, a derivative is a financial arrangement that derives its value from a traditional security (like a stock or bond), asset or index.

Futures contracts and options are used as a low-cost method of gaining exposure to a particular securities market without investing directly in those securities.

Scudder VIT Nasdaq-100 Index Fund — Class A Shares | 5

posure to the stocks of companies in the Nasdaq-100 Index. The Fund’s securities are weighted to attempt to make the Fund’s total investment characteristics similar to those of the Nasdaq-100 Index as a whole. The investment advisor may remove or exclude any security from the Fund if the investment advisor believes that the stock is illiquid or that the merit of the investment has been impaired by financial conditions or other extraordinary events. At times, the investment advisor may purchase a stock not included in the Nasdaq-100 Index when it is believed to be a cost-efficient way of approximating the Index’s performance, for example, in anticipation of a stock being added to the Index. The Fund may also hold assets in short-term debt securities and money market instruments.

Investment process

In an effort to run an efficient and effective strategy, the Fund uses the process of ‘optimization,’ a statistical sampling technique. First, the Fund buys the stocks that make up the larger portions of the Nasdaq-100 Index’s value in roughly the same proportion as the Nasdaq-100 Index. Second, smaller stocks are analyzed and selected based on liquidity. In selecting smaller stocks, the investment advisor tries to replicate the industry and risk characteristics of all of the smaller companies in the Nasdaq-100 Index without buying all of those stocks. This approach attempts to maximize the Fund’s liquidity and returns while minimizing its costs. It is anticipated that this Fund will have a low portfolio turnover rate.

Information regarding the index

The Fund is not sponsored, endorsed, sold or promoted by The Nasdaq Stock Market, Inc. (including its affiliates) (Nasdaq, with its affiliates, are referred to as the Corporations). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Fund. The Corporations make no representation or warranty, express or implied to the owners of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund period. High turnover can increase a fund’s transaction costs, thereby lowering its returns.

particularly, or the ability of the Nasdaq-100 Index^® to track general stock market performance. The Corporations’ only relationship to Deutsche Asset Management, Inc. (Licensee) is in the licensing of the Nasdaq-100^®, Nasdaq-100 Index^®, and Nasdaq^® trademarks or service marks, and certain trade names of the Corporations and the use of the Nasdaq-100 Index^® which is determined, composed and calculated by Nasdaq without regard to Licensee or the Fund.

Nasdaq has no obligation to take the needs of the Licensee or the owners of the Fund into consideration in determining, composing or calculating the Nasdaq-100 Index^®. The Corporations are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of the Fund to be issued or in the determination or calculation of the equation by which the Fund is to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of the Fund.

THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE NASDAQ-100 INDEX^® OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ-100 INDEX^® OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ-100 INDEX^® OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the Fund’s performance, cause you to lose money or make the Fund underperform other investments.

Scudder VIT Nasdaq-100 Index Fund — Class A Shares | 7

The principal risks of investing in the Fund are:

Market Risk. Deteriorating market conditions might cause an overall weakness in the market that reduces the absolute level of stock prices in that market, including stocks held by the Fund.

Tracking Error Risk. There are several reasons that the Fund’s performance may not replicate the Nasdaq-100 Index exactly:

Unlike the Nasdaq-100 Index, the Fund incurs administrative expenses and transaction costs in trading stocks.

The composition of the Nasdaq-100 Index and the stocks held by the Fund may occasionally diverge.

Concentration Risk. The Fund concentrates its investments in securities that comprise the Nasdaq-100 Index. Thus, to the extent the Index is at any time heavily concentrated in an industry or sector, the Fund will likely also be heavily concentrated in the industry or sector. For instance, the stocks that currently make up the Index are heavily weighted in the technology sector and stocks of companies in this sector will represent a correspondingly large component of the Fund’s investment assets. As a result, market price movements, regulatory or technological changes, or economic conditions affecting companies in this sector will have a significant impact on the Fund’s performance.

8 | Scudder VIT Nasdaq-100 Index Fund — Class A Shares

Growth Company Risk. The prices of growth companies held by the Fund may fall to a greater extent than the overall equity markets because of changing economic, political or market factors. Growth company securities tend to be more volatile in terms of price swings and trading volume. Growth companies, especially technology related companies, have in the past seen dramatic rises in stock valuations. The Fund may have the risk that the market may deem the stock prices of these companies overvalued, which could cause steep and/or volatile price swings. Also, since investors buy these stocks because of their expected superior earnings growth, earnings disappointments often result in price declines.

Non-Diversification Risk. The Fund is non-diversified. This means that it may invest in securities of a relatively limited number of issuers. Thus, the overall performance of one or a small number of portfolio holdings could affect the overall performance more than if the Fund were diversified.

the risk that the derivative is not well correlated with the security for which it is acting as a substitute;

the risk that derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and

the risk that the Fund cannot sell the derivative because of an illiquid secondary market.

Some secondary risks of investing in the Fund are:

Scudder VIT Nasdaq-100 Index Fund — Class A Shares | 9

command if we sold them. If we have valued the securities too highly, you may end up paying too much for Fund shares when you buy. If we underestimate their price, you may not receive the full market value for your Fund shares when you sell.

Medium-Sized Company Risk. To the extent that the Fund invests in medium-sized companies, it will be more susceptible to share price fluctuations—down as well as up—than stocks of larger companies. A shortage of reliable information—the same information gap that creates opportunity—can also pose added risk. Industry-wide reversals may have a greater impact on medium-sized companies since they lack a large company’s financial resources. Finally, stocks of medium-sized companies are typically less liquid than stocks of large companies. Particularly when they are performing poorly, a medium size company’s shares may be more difficult to sell.

Credit Risk. Credit risk is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives contract or a securities loan, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. Since the Fund may invest in derivatives, it is subject to such risks.

This Fund is designed for investors interested in capital appreciation over the long term; exposure to the equity market as represented by companies in the US; and investment returns that track the performance of the Nasdaq-100 Index.

Liquidity Risk. Liquidity risk exists when particular investments are difficult to sell. The Fund may not be able to sell these illiquid securities at the best prices. Investments in derivatives and securities involving small market capitalization, substantial market risk and /or substantial credit risk tend to involve greater liquidity risk.

Leveraging Risk. If the Fund borrows money or otherwise leverages its portfolio, the value of an investment in the Fund will be more volatile and all other risks will tend to be compounded. The Fund may take on leveraging risk by investing collateral from securities loans, by using derivatives and by borrowing money to repurchase shares or to meet redemption requests.

There is, of course, no guarantee that the Fund will realize its goal.

10 | Scudder VIT Nasdaq-100 Index Fund — Class A Shares

The Funds Performance History

The Fund does not have a full year of operating history to report.

The table below shows the year-end value and the total return of the Nasdaq-100 Index for each of the ten years ended December 2002.

Investors should note that the figures below represent past performance of the Nasdaq-100 Index and not the Nasdaq-100 Index’s future performance or the performance of the Fund, which would include certain fees and expenses. These fees and expenses will be reflected in the Fund’s results. Past performance is not a guarantee of future results.

An index is an unmanaged group of securities whose overall performance is used as a standard to measure the investment performance of a particular market. An index is a passive measure of stock market returns. It does not factor in the costs of buying, selling and holding stocks. An index fund has operating expenses and transaction costs that the index does not have and these costs are reflected in the index fund’s results. Therefore, while the Fund will attempt to track the Nasdaq-100 Index as closely as possible, it is unlikely to match its performance exactly.


Performance

Year	Year-End Index Value¹	Annual Returns²

1993	398.28	10.58%


1994	404.27	1.50%


1995	576.23	12.54%


1996	821.36	42.54%


1997	990.80	20.63%


1998	1,836.01	85.31%


1999	3,707.83	101.95%


2000	2,341.70	-36.84%


2001	1,577.05	-32.65%


2002

Adjusted to reflect that the Nasdaq-100 Index level was halved on January 3, 1994 and does not reflect reinvestment of dividends.

Calculated from the year-end values and does not reflect reinvestment of dividends.

Scudder VIT Nasdaq-100 Index Fund — Class A Shares | 11

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold Fund shares.


Annual Fees and Expenses

Shareholder Fees, paid directly from your investment		None


Annual Operating Expenses, deducted from Fund assets:


Management Fees		0.30%


Distribution/Service (12b-1) Fee		None


Other Expenses


Total Annual Operating Expenses (before fee waivers and/or expense reimbursements)


Fee Waivers and/or Expense Reimbursements


Net Total Annual Operating Expenses*

Based on the costs above, this example helps you compare the expenses of the Fund shares to those of other mutual funds. This example assumes the expenses above remain the same.

It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different

Expense Example

The net total annual operating expenses are an estimate and expenses may vary from this example

12 | Scudder VIT Nasdaq-100 Index Fund — Class A Shares

Other Policies and Secondary Risks

While the previous pages describe the main points of the Fund’s strategy and risks, there are a few other issues to know about:

The Fund may trade securities more actively, which could mean high expenses (thus lower returns) and high taxable distributions, if distributions are taxable at all.

The Fund’s Board of Trustees has the ability to terminate the Fund at any time without shareholder approval.

For more information

This prospectus doesn’t tell you about every policy or risk of investing in the Fund.

Keep in mind that there is no assurance that any mutual fund will achieve its goal.

The portfolio managers

THE INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management Inc. (‘DeAM, Inc.’), with headquarters at 345 Park

Scudder VIT Nasdaq-100 Index Fund — Class A Shares | 13

Avenue, New York, NY 10017, acts as the Fund’s investment advisor. As investment advisor, DeAM, Inc. makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. is entitled to receive a fee of 0.30% of the Fund’s average daily net assets for its services in the last fiscal year.

DeAM, Inc. provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $90 billion in assets.

THE SUB-ADVISOR

14 | Scudder VIT Nasdaq-100 Index Fund — Class A Shares

other institutional investors. As of September 30, 2002, NTI had approximately $126.4 billion of assets under management.

Financial Highlights

The fund does not have a full calendar year of operating performance to report.

Scudder VIT Nasdaq-100 Index Fund — Class A Shares | 15

Your Investment in the Fund

Policies You Should Know About

The Fund does not sell its shares directly to the public. The Fund sells its shares only to separate accounts of various insurance companies and may also sell to certain tax-qualified plans (the “Companies”). Shares are available to the public through the purchase of certain variable annuity contracts, variable life insurance contracts, and to participants in certain tax-qualified plans (the “Contract(s)”) issued or sponsored by the Companies. As a Contract owner, your premium payments or plan assets are allocated to the Fund by the Companies in accordance with your Contract. Please see the Contract prospectus or plan document that accompanies this prospectus for a detailed explanation of your Contract.

Please bear in mind that there are important differences between funds available to any investor (a “Retail Fund”) and those that are only available through certain financial institutions, such as insurance companies and tax-qualified plans. For Example, Retail Funds, unlike the Fund, are not sold to insurance company separate accounts to support investments in variable insurance contracts. In addition, the investment objectives, policies and strategies of the Fund, while similar to those of a Retail Fund, are not identical. Retail Funds may be smaller or larger than the Fund and have different expense ratios than the Fund. As a result, the performance of the Fund and a Retail Fund will differ.

Calculating the Fund’s Share Price

Scudder VIT Nasdaq-100 Index Fund — Class A Shares | 17

Buying and Selling Fund Shares

The Fund continuously sells its shares to each Company, without a sales charge, at the next net asset value per share determined after a proper purchase order is placed with the Company. The Company offers Contract owners units in its separate accounts or tax qualified plans which directly correspond to shares in the Fund. Each Company submits purchase and redemption orders to the Fund based on allocation instructions for premium payments, transfer instructions Independence Day, Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday in November) and Christmas Day. On days when the New York Stock Exchange closes early the Fund will calculate its net asset value at the time of closing.

18 | Scudder VIT Nasdaq-100 Index Fund — Class A Shares

and surrender or partial withdrawal requests for contract owners, as set forth in the accompanying prospectus for the contracts. Redemption orders are effected at the next net asset value per share determined after a proper redemption order is placed with the Company.

Important information about buying and selling shares

After receiving a contract owner’s order, the Company buys or sells shares at the next price calculated on any day the Fund is open for business.

Unless otherwise instructed, the Fund normally makes payment of the proceeds from the sale of Fund shares the next business day but always within seven calendar days.

The Fund does not issue share certificates.

We reserve the right to reject purchases of Fund shares including exchanges for any reason.

Scudder VIT Nasdaq-100 Index Fund — Class A Shares | 19

We reserve the right to reject purchases of Fund shares (including exchanges) or to suspend or postpone redemptions at times when the New York Stock Exchange is closed.

How to receive account information

If you are a contract owner, you should contact your Company or the organization that provides record keeping services for information about your account.

If you are a Company, you should call 1-800-621-1048 for information about the Fund.

How to buy and sell shares

Performance Information

20 | Scudder VIT Nasdaq-100 Index Fund — Class A Shares

Distributions

Taxes

Because each investor’s tax circumstances are unique and because the tax laws are subject to change, we recommend that you consult your tax advisor before investing.

Scudder VIT Nasdaq-100 Index Fund — Class A Shares | 21

Notes

To Get More Information

LOGO

SEC

Public Reference Section

Washington, D.C. 20549-0102

www.sec.gov

(202) 942-8090

Nasdaq-100 Index Fund Class A Shares		ANASDAQPRO (5/03)
Scudder Investment VIT Funds		811-07507

Class B Shares

Prospectus

May 1, 2003

Scudder VIT Nasdaq-100 Index Fund

Contents

How the Fund Works

4		The Fund’s Main Investment Strategy

7		The Main Risks of Investing in the Fund

11		The Fund’s Performance History

12		How Much Investors Pay

13		Other Policies and Secondary Risks

15		Financial Highlights

Your Investment in the Fund

17		Policies You Should Know About

17		Calculating the Fund’s Share Price

18		Buying and Selling Fund Shares

20		Performance Information

20		Distributions

21		Distribution Plan

21		Taxes

How the Fund Works

On the next few pages, you’ll find information about the Fund’s investment objective, the main strategies it uses to pursue that goal and the main risks that could affect performance.

Whether you are considering investing in the Fund or are already a shareholder, you should look this information over carefully. You may want to keep it on hand for reference as well.

Remember that mutual funds are investments, not bank deposits. They’re not insured or guaranteed by the FDIC or any other government agency. Their share prices will go up and down and you could lose money by investing in them.

Please read this prospectus in conjunction with the prospectus for your variable insured contract, variable annuity contract, or tax-qualified plan.


		Class B

ticker symbol
fund number

Scudder VIT Nasdaq - 100 Index Fund

The Fund’s Main Investment Strategy

The Fund seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Nasdaq-100 Index.

Index investing versus active management

indexing provides simplicity because it is a straightforward market-matching strategy;

index funds generally provide diversification by investing in a wide variety of companies and industries;

an index fund’s performance is predictable in that the Fund’s value is expected to move in the same direction, up or down, as the target index;

4 | Scudder VIT Nasdaq-100 Index Fund — Class B Shares

index funds generally realize low capital gains.

Strategy

Principal investments

Generally, a derivative is a financial arrangement that derives its value from a traditional security (like a stock or bond), asset or index.

Futures contracts and options are used as a low-cost method of gaining exposure to a particular securities market without investing directly in those securities.

Scudder VIT Nasdaq-100 Index Fund — Class B Shares | 5

Fund’s securities are weighted to attempt to make the Fund’s total investment characteristics similar to those of the Nasdaq-100 Index as a whole. The investment advisor may remove or exclude any security from the Fund if the investment advisor believes that the stock is illiquid or that the merit of the investment has been impaired by financial conditions or other extraordinary events. At times, the investment advisor may purchase a stock not included in the Nasdaq-100 Index when it is believed to be a cost-efficient way of approximating the Index’s performance, for example, in anticipation of a stock being added to the Index. The Fund may also hold assets in short-term debt securities and money market instruments.

Investment process

In an effort to run an efficient and effective strategy, the Fund uses the process of ‘optimization,’ a statistical sampling technique. First, the Fund buys the stocks that make up the larger portions of the Nasdaq-100 Index’s value in roughly the same proportion as the Nasdaq-100 Index. Second, smaller stocks are analyzed and selected based on liquidity. In selecting smaller stocks, the investment advisor tries to replicate the industry and risk characteristics of all of the smaller companies in the Nasdaq-100 Index without buying all of those stocks. This approach attempts to maximize the Fund’s liquidity and returns while minimizing its costs. It is anticipated that this Fund will have a low portfolio turnover rate.

Information regarding the index

The Fund is not sponsored, endorsed, sold or promoted by The Nasdaq Stock Market, Inc. (including its affiliates) (Nasdaq, with its affiliates, are referred to as the Corporations). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Fund. The Corporations make no representation or warranty, express or implied to the owners of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly, or the ability of the Nasdaq-100 Index^® to track general

Portfolio Turnover measures the frequency that the Fund sells and replaces the value of its securities within a given

period. High turnover can increase a fund’s transaction costs, thereby lowering its returns.

6 | Scudder VIT Nasdaq-100 Index Fund — Class B Shares

stock market performance. The Corporations’ only relationship to Deutsche Asset Management, Inc. (Licensee) is in the licensing of the Nasdaq-100^®, Nasdaq-100 Index^®, and Nasdaq^® trademarks or service marks, and certain trade names of the Corporations and the use of the Nasdaq-100 Index^® which is determined, composed and calculated by Nasdaq without regard to Licensee or the Fund.

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the Fund’s performance, cause you to lose money or make the Fund underperform other investments.

Scudder VIT Nasdaq-100 Index Fund — Class B Shares | 7

The principal risks of investing in the Fund are:

Market Risk. Deteriorating market conditions might cause an overall weakness in the market that reduces the absolute level of stock prices in that market, including stocks held by the Fund.

Tracking Error Risk. There are several reasons that the Fund’s performance may not replicate the Nasdaq-100 Index exactly:

Unlike the Nasdaq-100 Index, the Fund incurs administrative expenses and transaction costs in trading stocks.

The composition of the Nasdaq-100 Index and the stocks held by the Fund may occasionally diverge.

8 | Scudder VIT Nasdaq-100 Index Fund — Class B Shares

Futures and Options Risks. The Fund may invest, to a limited extent, in stock index futures or options, which are types of derivatives. The Fund will not use these derivatives for speculative purposes or as leveraged investments that magnify the gains or losses of an investment. The Fund invests in derivatives to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the stock market. Risks associated with derivatives include:

the risk that the derivative is not well correlated with the security for which it is acting as a substitute;

the risk that derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and

the risk that the Fund cannot sell the derivative because of an illiquid secondary market.

Some secondary risks of investing in the Fund are:

Scudder VIT Nasdaq-100 Index Fund — Class B Shares | 9

that our prices are higher or lower than the prices that the securities might actually command if we sold them. If we have valued the securities too highly, you may end up paying too much for Fund shares when you buy. If we underestimate their price, you may not receive the full market value for your Fund shares when you sell.

There is, of course, no guarantee that the Fund will realize its goal.

10 | Scudder VIT Nasdaq-100 Index Fund — Class B Shares

The Fund’s Performance History

The Fund does not have a full year of operating history to report.

The table below shows the year-end value and the total return of the Nasdaq-100 Index for each of the ten years ended December 2002.


Performance

Year	Year-End Index Value¹	Annual Returns²

1993	398.28	10.58%


1994	404.27	1.50%


1995	576.23	12.54%


1996	821.36	42.54%


1997	990.80	20.63%


1998	1,836.01	85.31%


1999	3,707.83	101.95%


2000	2,341.70	-36.84%


2001	1,577.05	-32.65


2002

Adjusted to reflect that the Nasdaq-100 Index level was halved on January 3, 1994 and does not reflect reinvestment of dividends.

Calculated from the year-end values and does not reflect reinvestment of dividends.

Scudder VIT Nasdaq-100 Index Fund — Class B Shares | 11

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold Fund shares.


Annual Fees and Expenses

Shareholder Fees, paid directly from your investment		None


Annual Operating Expenses, deducted from Fund assets:


Management Fees		0.30%


Distribution/Service (12b-1) Fee		0.25%


Other Expenses


Total Annual Operating Expenses (before fee waivers and/or expense reimbursements)


Fee Waivers and/or Expense Reimbursements


Net Total Annual Operating Expenses¹

Based on the costs above, this example helps you compare the expenses of the Fund shares to those of other mutual funds. This example assumes the expenses above remain the same.

It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different.

Expense Example

The net total annual operating expenses are an estimate and expenses may vary from this example.

12 | Scudder VIT Nasdaq-100 Index Fund — Class B Shares

Other Policies and Secondary Risks

While the previous pages describe the main points of the Fund’s strategy and risks, there are a few other issues to know about:

The Fund may trade securities more actively, which could mean high expenses (thus lower returns) and high taxable distributions, if distributions are taxable at all.

The Fund’s Board of Trustees has the ability to terminate the Fund at any time without shareholder approval.

For more information

This prospectus doesn’t tell you about every policy or risk of investing in the Fund.

Keep in mind that there is no assurance that any mutual fund will achieve its goal.

The portfolio managers

THE INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management Inc. (‘DeAM, Inc.’), with headquarters at 345 Park

Scudder VIT Nasdaq-100 Index Fund — Class B Shares | 13

Avenue, New York, NY 10017, acts as the Fund’s investment advisor. As investment advisor, DeAM, Inc. makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. is entitled to receive a fee of 0.30% of the Fund’s average daily net assets for its services in the last fiscal year.

DeAM, Inc. provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $90 billion in assets.

THE SUB-ADVISOR

14 | Scudder VIT Nasdaq-100 Index Fund — Class B Shares

Financial Highlights

The fund does not have a full calendar year of operating performance to report.

Scudder VIT Nasdaq-100 Index Fund — Class B Shares | 15

Your Investment in the Fund

Policies You Should Know About

The Fund does not sell its shares directly to the public. The Fund sells its shares only to separate accounts of various insurance companies and may also sell to certain tax-qualified plans (the “Companies”). Shares are available to the public through the purchase of certain variable annuity contracts, variable life insurance contracts, and to participants in certain tax-qualified plans (the “Contract(s)”) issued or sponsored by the Companies. As a Contract owner, your premium payments or plan assets are allocated to the Fund by the Companies in accordance with your Contract. Please see the Contract prospectus or plan document that accompanies this prospectus for a detailed explanation of your Contract.

Calculating the Fund’s Share Price

Scudder VIT Nasdaq-100 Index Fund — Class B Shares | 17

Buying and Selling Fund Shares

18 | Scudder VIT Nasdaq-100 Index Fund — Class B Shares

demption orders are effected at the next net asset value per share determined after a proper redemption order is placed with the Company.

Important information about buying and selling shares

After receiving a contract owner’s order, the Company buys or sells shares at the next price calculated on any day the Fund is open for business.

Unless otherwise instructed, the Fund normally makes payment of the proceeds from the sale of Fund shares the next business day but always within seven calendar days.

The Fund does not issue share certificates.

We reserve the right to reject purchases of Fund shares including exchanges for any reason.

We reserve the right to reject purchases of Fund shares (including exchanges) or to suspend or postpone redemptions at times when the New York Stock Exchange is closed.

Scudder VIT Nasdaq-100 Index Fund — Class B Shares | 19

How to receive account information

If you are a contract owner, you should contact your Company or the organization that provides record keeping services for information about your account.

If you are a Company, you should call 1-800-621-1048 for information about the Fund.

How to buy and sell shares

Performance Information

Distributions

20 | Scudder VIT Nasdaq-100 Index Fund — Class B Shares

Distribution Plan

Taxes

Because each investor’s tax circumstances are unique and because the tax laws are subject to change, we recommend that you consult your tax advisor before investing.

Scudder VIT Nasdaq-100 Index Fund — Class B Shares | 21

Notes

To Get More Information

LOGO

SEC

Public Reference Section

Washington, D.C. 20549-0102

www.sec.gov

(202) 942-8090

Nasdaq-100 Index Fund

Class B Shares

BNASDAQPRO (5/03)

Scudder Investment VIT Funds

811-07507

Prospectus

May 1, 2003

Scudder VIT US Bond Index Fund

Contents

How the Fund Works

4		The Fund’s Main Investment Strategy

6		The Main Risks of Investing in the Fund

9		The Fund’s Performance History

10		How Much Investors Pay

11		Other Policies and Secondary Risks

13		Financial Highlights

Your Investment in the Fund

15		Policies You Should Know About

15		Calculating the Fund’s Share Price

16		Buying and Selling Fund Shares

18		Performance Information

18		Distributions

19		Taxes

How the Fund Works

On the next few pages, you’ll find information about the Fund’s investment objective, the main strategies it uses to pursue that goal and the main risks that could affect performance.

Whether you are considering investing in the Fund or are already a shareholder, you should look this information over carefully. You may want to keep it on hand for reference as well.

Please read this prospectus in conjunction with the prospectus for your variable insured contract, variable annuity contract, or tax-qualified plan.




ticker symbol
fund number

Scudder VIT US Bond Index Fund

The Fund’s Main Investment Strategy

The Fund seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Lehman Brothers Aggregate Bond Index (the ‘Lehman Bond Index’) which emphasizes government mortgage-backed securities and corporate investment grade debt securities.

While we give priority to replicating the Lehman Bond Index’s performance, we cannot offer any assurance of achieving this objective. The Fund’s objective is not a fundamental policy. We must notify shareholders before we change it, but we are not required to seek their approval to do so.

Index investing versus active management

indexing provides simplicity because it is a straightforward market-matching strategy;

index funds generally provide diversification by investing in a wide variety of companies and industries;

The Lehman Brothers Aggregate Bond Index is one of the most widely accepted benchmarks of bond market total return. It is a model, not an actual portfolio in which you may invest. It includes more than 6,000 taxable securities, divided into four classes: US Treasury and agency securities, corporate bonds, bonds issued outside the United States but payable in US dollars, and mortgage-backed securities. All of the bonds on the Index have maturities of one year or more at the time of their issue.

4 | Scudder VIT US Bond Index Fund

an index fund’s performance is predictable in that the Fund’s value is expected to move in the same direction, up or down, as the target index;

index funds generally realize low capital gains.

Strategy

To attempt to replicate the investment performance of the Lehman Bond Index over time, the Fund invests in a statistically selected sample of the securities in the Lehman Bond Index. Over the long term, we seek a correlation between the performance of the Fund, before expenses, and the Lehman Bond Index of 95% or better. A figure of 100% would indicate perfect correlation.

Principal investments

Under normal circumstances, the Fund intends to invest at least 80% of its assets, determined at the time of purchase, in securities included in the Lehman Bond Index and derivative instruments, such as futures contracts and options, that provide exposure to the securities in the Lehman Bond Index. The Fund’s securities are weighted to attempt to make the Fund’s total investment characteristics similar to those of the Lehman Bond Index as a whole. We may exclude or remove any security from the Fund, if we believe that the security is illiquid or that the merit of the investment has been impaired by financial conditions or other extraordinary events. At times, the investment advisor may purchase a security not included in the Lehman Bond Index when it is believed to be a cost-efficient way of approximating the Index’s performance, for example, in anticipation of a security being added to the Lehman Bond Index. The Fund may also hold short-term debt securities and money market instruments.

Investment Process

The Fund invests in a representative sample of the securities that make up the Lehman Bond Index, which tracks six major classes of

Scudder VIT US Bond Index Fund | 5

investment grade fixed-income securities. The chart below shows the proportion, as of December 31, 2002, that each class has recently constituted of the Lehman Bond Index. The Fund also attempts to replicate the Index’s duration, an intermediate term. We anticipate that the Fund will have a low portfolio turnover rate.


Class of Securities		Percent of Market Value of Index

US Treasury and agency securities (debentures)		34%


Mortgage-backed securities (agency credit)		35%


Commercial Mortgage-backed Securities		2%


Corporate Bonds		24%


Bonds issued outside the US but payable in US Dollars		3%


Asset-backed securities		1%

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the Fund’s performance, cause you to lose money or make the Fund perform less well than other investments.

Duration measures the sensitivity of bond prices to changes in interest rates. The longer the duration of a bond, the longer it will take to repay the principal and interest obligations and the more sensitive it is to changes in interest rates. Investors in longer-duration bonds face more risk as interest rates rise—but also are more likely to receive more income from their investment to compensate for the risk.

6 | Scudder VIT US Bond Index Fund

The principal risks of investing in the Fund are:

Interest Rate Risk. Interest rate risk is the risk that fixed-income securities will decline in value because of changes in interest rates. Generally, investments subject to interest rate risk will decrease in value when interest rates rise and increase in value when interest rates decline.

Tracking Error Risk. There are several reasons that the Fund’s performance may not replicate the Index exactly:

Unlike the Lehman Bond Index, the Fund incurs administrative expenses and transaction costs in trading bonds.

The composition of the Lehman Bond Index and the bonds held by the Fund may occasionally diverge.

Credit Risk. An investor purchasing bonds faces the risk that the creditworthiness of the issuer may decline, causing the value of its bonds to decline. In addition, the issuers may not be able to make timely payments on the interest and principal on the bonds they have issued.

Prepayment Risk. When a bond issuer, such as an issuer of mortgage-backed securities, retains the right to pay off a high-yielding bond before it comes due, the Fund may have no choice but to reinvest the proceeds at lower interest rates. Thus, prepayment may reduce the Fund’s income. It may also create a capital gains tax liability, because bond issuers usually pay a premium for the right to pay off bonds early.

Market Risk. Deteriorating market conditions might cause an overall weakness in the market that reduces the absolute level of securities prices in that market. Developments in a particular class of bonds or the stock market could also adversely affect the Fund by reducing the relative attractiveness of bonds as an investment. Investment grade debt securities similar to those held in the Fund have experienced a moderate level of short-term price fluctuation.

Scudder VIT US Bond Index Fund | 7

Futures and Options Risk. The Fund may invest, to a limited extent, in securities index futures or options, which are types of derivatives. The Fund will not use these derivatives for speculative purposes or as leveraged investments that magnify the gains or losses of an investment. The Fund invests in derivatives to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the bond market. Risks associated with derivatives include:

the risk that the derivative is not well correlated with the security for which it is acting as a substitute;

the risk that derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and

the risk that the Fund cannot sell the derivative because of an illiquid secondary market.

8 | Scudder VIT US Bond Index Fund

The Fund’s Performance History

The Fund has no operating history prior to the date of this Prospectus.

Scudder VIT US Bond Index Fund | 9

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold Fund shares.


Annual Fees and Expenses

Shareholder Fees, paid directly from your investment		None


Annual Operating Expenses, deducted from Fund assets:


Management Fees		0.10%


Distribution/Service (12b-1) Fee		None


Other Expenses


Total Annual Operating Expenses (before fee waivers and/or expense reimbursements)


Fee Waivers and/or Expense Reimbursements


Net Total Annual Operating Expenses¹

Based on the costs above, this example helps you compare the expenses of the Fund shares to those of other mutual funds. This example assumes the expenses above remain the same.

It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different

Expense Example

The net total annual operating expenses are an estimate and expenses may vary from this example.

10 | Scudder VIT US Bond Index Fund

Other Policies and Secondary Risks

While the previous pages describe the main points of the Fund’s strategy and risks, there are a few other issues to know about.

Other policies

The Fund may trade securities more actively. This could raise transaction costs (thus lowering return) and could mean higher taxable distributions if distributions are taxable at all.

The Fund’s Board of Trustees has the ability to terminate the Fund at any time without shareholder approval.

Secondary risk

Pricing Risk. At times, market conditions might make it hard to value some investments. For example, if a fund has valued its securities too highly, you may end up paying too much for fund shares when you buy into a fund. If a fund underestimates its price, you may not receive the full market value for your fund shares when you sell.

For more information

This prospectus doesn’t tell you about every policy or risk of investing in the Fund.

If you want more information on the Fund’s allowable securities and investment practices and the characteristics and risks of each one,

Scudder VIT US Bond Index Fund | 11

you may want to request a copy of the Statement of Additional Information (the back cover tells you how to do this).

Keep in mind that there is no assurance that any mutual fund will achieve its goal.

The portfolio managers

THE INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management Inc. (‘DeAM, Inc.’), with headquarters at 345 Park Avenue, New York, NY 10017, acts as the Fund’s investment advisor. DeAM, Inc. is responsible for supervising the activities of the sub-advisor. DeAM, Inc. is entitled to receive a fee of 0.10% of the Fund’s average daily net assets for its services.

DeAM, Inc. provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $90 billion in assets.

THE SUB-ADVISOR

12 | Scudder VIT US Bond Index Fund

Financial Highlights

Because the Fund has not yet commenced operations, it has no financial performance information to present to you in this Prospectus.

Scudder VIT US Bond Index Fund | 13

Your Investment in the Fund

Policies You Should Know About

The Fund does not sell its shares directly to the public. The Fund sells its shares only to separate accounts of various insurance companies and may also sell to certain tax-qualified plans (the “Companies”). Shares are available to the public through the purchase of certain variable annuity contracts, variable life insurance contracts, and to participants in certain tax-qualified plans (the “Contract(s)”) issued or sponsored by the Companies. As a contract owner, your premium payments or plan assets are allocated to the Fund by the Companies in accordance with your contract. Please see the contract prospectus or plan document that accompanies this prospectus for a detailed explanation of your contract.

Technically, the shareholders of the Fund are the insurance companies that offer the Fund as a choice for holders of certain variable annuity contracts or variable life insurance policies. These insurance companies effectively pass through voting rights as well. The separate accounts of the participating insurance companies place orders to purchase and redeem shares of the Fund.

Calculating the Fund’s Share Price

Scudder VIT US Bond Index Fund | 15

Buying and Selling Fund Shares

16 | Scudder VIT US Bond Index Fund

demption orders are effected at the next net asset value per share determined after a proper redemption order is placed with the Company.

Important information about buying and selling shares

After receiving a contract owner’s order, the Company buys or sells shares at the next price calculated on any day the Fund is open for business.

Unless otherwise instructed, the Fund normally makes payment of the proceeds from the sale of Fund shares the next business day but always within seven calendar days.

The Fund does not issue share certificates.

We reserve the right to reject purchases of Fund shares including exchanges for any reason.

We reserve the right to reject purchases of Fund shares (including exchanges) or to suspend or postpone redemptions at times when the New York Stock Exchange is closed.

Scudder VIT US Bond Index Fund | 17

How to receive account information

If you are a contract owner, you should contact your Company or the organization that provides record keeping services for information about your account.

If you are a Company, you should call 1-800-621-1048 for information about the Fund.

How to buy and sell shares

Performance Information

Distributions

18 | Scudder VIT US Bond Index Fund

Taxes

Because shares of the Fund may be purchased only through contracts, income dividends or capital gains distributions from the Fund are taxable, if at all, to the participating Companies and will be exempt from current taxation of the contract owner if left to accumulate within the contract. Please see the Contract prospectus accompanying this Prospectus for a description of the Fund’s federal tax impact on you as a Contract owner.

Because each investor’s tax circumstances are unique and because the tax laws are subject to change, we recommend that you consult your tax advisor before investing.

Scudder VIT US Bond Index Fund | 19

To Get More Information

LOGO

SEC

Public Reference Section

Washington, D.C. 20549-0102

www.sec.gov

(202) 942-8090

US Bond Index Fund		VITBONDPRO (05/03)
Scudder Investment VIT Funds		811-07507

Prospectus

May 1, 2003

Scudder VIT Global Biotechnology Fund

Contents

How the Fund Works

4		The Fund’s Main Investment Strategy

6		The Main Risks of Investing in the Fund

7		The Fund’s Performance History

8		How Much Investors Pay

9		Other Policies and Secondary Risks

14		Financial Highlights

Your Investment in the Fund

16		Policies You Should Know About

16		Calculating the Fund’s Share Price

17		Buying and Selling Fund Shares

19		Performance Information

19		Distributions

20		Taxes

How the Fund Works

On the next few pages, you’ll find information about the Fund’s investment objective, the main strategies it uses to pursue that goal and the main risks that could affect performance.

Whether you are considering investing in the Fund or are already a shareholder, you should look this information over carefully. You may want to keep it on hand for reference as well.

Please read this prospectus in conjunction with the prospectus for your variable insured contract, variable annuity contract, or tax-qualified plan.




ticker symbol
fund number

Scudder VIT Global Biotechnology Fund

The Fund’s Main Investment Strategy

The Fund invests to maximize total return.

The Fund seeks to maximize total return by investing primarily in equity securities of companies that the Advisors expect will benefit from their involvement in the biotechnology industry. Under normal market conditions, the Fund intends to invest at least 80% of its assets, as determined at the time of purchase, in equity or equity-related securities of biotechnology companies. Equity or equity-related securities include common stocks, preferred stocks, American Depositary Receipts and Global Depositary Receipts.

Biotechnology companies engage in the research, development, provision and/or manufacture of biotechnological products, services and processes. Such companies generally employ genetic engineering to develop new products and apply new and innovative processes. For example, such processes could be used to discover and develop diagnostic and therapeutic products and services. The biotechnology industry currently includes pharmaceutical, biochemical, medical/surgical, human health-care, and agricultural- and industrial-oriented companies. Because of the rapid developments in the biotechnology industry, companies with new and different products and strategies will likely be included in the industry over time.

These companies may be located in the US and abroad and may have operations in more than one country. Substantially all of the Fund’s investments abroad will be in developed countries. The Fund considers a company or issuer to be of a particular country if it is headquartered or has its primary operations in that country.

Other investments The fund may also invest in various instruments commonly known as derivatives to protect its assets .

or increase exposure to an asset class. The fund primarily uses futures, options and forward currency transactions

4 | Scudder VIT Global Biotechnology Fund

The Fund may invest in companies of varying market capitalizations. The Fund generally expects that its holdings will include securities of 40-60 companies, but the Fund is not limited in the number of its holdings.

The Fund uses both fundamental research and due diligence in looking for attractive investment opportunities in the global biotechnology sector. The Fund’s fundamental research seeks to identify attractive companies for investment by considering a variety of factors, including whether such companies appear to be poised to develop and exploit new technologies or participate in growth markets, or have a clear strategy, a focus on profitability, or an established brand name. The Fund also will assess factors such as company management, market position, and quality of scientific research and clinical trials underlying the company’s products or services. No one characteristic or factor is determinative, and the analysis may differ by company and region. The Fund’s due diligence includes reviewing publicly available scientific and clinical data underlying the company’s products or services and interviewing physicians and scientific experts on such subjects.

The Fund seeks to identify and invest early in promising opportunities within the biotechnology sector. For example, the Fund may invest in a company even before its product has been approved by applicable regulators, such as the US Food and Drug Administration, or is available for sale.

Generally, the Fund pursues a ‘buy and hold’ investment strategy. However, the Fund will consider selling all or part of a security holding in circumstances the Advisors deem a sale is appropriate including:

the stock has reached an intermediate-term price objective, its outlook no longer seems sufficiently promising and a relatively more attractive stock emerges;

the issuer is experiencing deteriorating fundamentals or its fundamentals have changed substantially;

the company has experienced a fundamental shift in its core business processes and objectives, or

the Fund’s portfolio needs to be rebalanced.

Scudder VIT Global Biotechnology Fund | 5

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the Fund’s performance, cause you to lose money or make the Fund underperform other investments.

Stock Market Risk. As with most stock funds, the most important factor with this Fund is how stock markets perform — in this case, the pharmaceutical sector. Because a stock represents ownership in its issuer, stock prices can be hurt by poor management, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. In addition, movements in financial markets may adversely affect a stock’s price, regardless of how well the company performs. The market as a whole may not favor the types of investments the Fund makes and the fund may not be able to get an attractive price for them.

Foreign Investing Risk. Foreign stocks tend to be more volatile than their US counterparts, for reasons ranging from political and economic uncertainties, to a higher risk that essential information may be incomplete or wrong. Foreign accounting and reporting standards differ from those in the US and could convey less complete information when compared to information typically provided by US companies. On the whole, foreign exchanges are smaller and less liquid than the US market. Relatively small transactions in some instances can have a disproportionately large effect on the price and supply of shares. In addition, changing currency rates could add to the fund’s investment losses or reduce its investment gain.

This Fund is designed for investors who can accept the above-average risks of sector specific investment and who are interested in exposure to the biotechnology sector.

Non-Diversification Risk. The Fund is non-diversified; it invests in relatively few issuers. Thus, the performance of each portfolio holding may have a bigger impact on performance than a fund with more holdings.

Concentration Risk. The Fund concentrates its investments in biotechnology companies. As a result, market price movements, regulatory or technological changes, or economic conditions affecting companies in this field will have a significant impact on the Fund’s performance.

6 | Scudder VIT Global Biotechnology Fund

Other factors that could affect performance include:

the managers could be wrong in their analysis of industries, companies, economic trends, the relative attractiveness of different sizes of stocks, geographic trends or other matters

growth stocks mat be out of favor for certain periods.

at times, market conditions might make it hard to value some investments or to get an attractive price for them

derivatives could produce disproportionate losses (see “Secondary Risks” for more information)

The Fund’s Performance History

The Fund has no operating history prior to the date of this Prospectus. However, the Fund’s investment objective and policies are substantially similar to those of DWS Biotech-Atkien Typ O (‘DWS Biotech-Atkien Typ O’ or the ‘German fund’), a mutual fund organized in Germany and managed by the same portfolio managers who manage the Fund. Performance information for the German fund is included in the “Additional Performance Information —Similar Fund” section of this prospectus.

Scudder VIT Global Biotechnology Fund | 7

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold Fund shares.


Annual Fees and Expenses

Shareholder Fees, paid directly from your investment		None


Annual Operating Expenses, deducted from Fund assets:


Management Fees		0.85%


Distribution/Service (12b-1) Fee		None


Other Expenses


Total Annual Operating Expenses (before fee waivers and/or expense reimbursements)


Fee Waivers and/or Expense Reimbursements


Net Total Annual Operating Expenses¹

Based on the costs above, this example helps you compare the expenses of the Fund shares to those of other mutual funds. This example assumes the expenses above remain the same.

It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different.

Expense Example

The net annual operating expenses are an estimate and actual expenses may vary.

8 | Scudder VIT Global Biotechnology Fund

Other Policies and Secondary Risks

While the previous pages describe the main points of the Fund’s strategy and risks, there are a few other issues to know about:

Other policies

The Fund may trade securities more actively, which could mean high expenses (thus lower returns) and high taxable distributions, if distributions are taxable at all.

As a temporary defensive measure, the Fund could shift up to 100% of assets into investments such as money market securities. This could prevent losses, but would also mean that the Fund would not be pursuing its goal.

The Fund’s equity investments are mainly common stocks, but may also include other types of equities such as preferred or convertible stock.

The Fund’s Board of Trustees has the ability to terminate the Fund at any time without shareholder approval.

Secondary risks

Derivatives Risk. Although not one of its principal investments, the Fund may invest in certain types of derivatives. Risks associated with derivatives include: the derivative is not well correlated with the security, index or currency for which it is acting as a substitute; derivatives used for risk management may not have the intended effects

Scudder VIT Global Biotechnology Fund | 9

and may result in losses or missed opportunities; the risk that the Fund cannot sell the derivative because of an illiquid secondary market; and the risk that the derivatives transaction could expose the Fund to the effect of leverage, which could increase the Fund’s exposure to the market and potential losses that it could have if it had not entered into these transactions. There is no guarantee that derivatives activities will be employed or that they will work, and their use could cause lower returns or even losses to the Fund.

IPO Risk. IPOs may be very volatile, rising and falling rapidly based, among other reasons, on investor perceptions rather than economic reasons. Additionally, IPOs may have a magnified effect on the performance of the Fund so long as the Fund has a small asset base. The Fund may not experience a similar impact on its performance as its assets grow because it is unlikely the Fund will be able to obtain proportionately larger IPO allocations.

For more information

This prospectus doesn’t tell you about every policy or risk of investing in the Fund.

Keep in mind that there is no assurance that any mutual fund will achieve its goal.

The portfolio managers

THE INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management Inc. (‘DeAM, Inc.’), with headquarters at 345 Park Avenue, New York, NY 10017, acts as the Fund’s investment advi - -

10 | Scudder VIT Global Biotechnology Fund

sor. As investment advisor, DeAM, Inc. makes the Fund’s investment decisions. It buys and sells securities for the Fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. is responsible for supervising and managing all of the Fund’s operations, including overseeing the activities of the sub-advisor.

DeAM, Inc. provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $90 billion in assets.

THE SUB-ADVISOR

Deutsche Asset Management International GmbH (‘DeAM International’) is the sub-advisor to the Fund. As investment sub-advisor, DeAM International makes the Fund’s investment decisions. It buys and sells securities for the fund and conducts the research that leads to the purchase and sale decisions. DeAM, Inc. pays a fee to DeAM International for acting as sub-advisor to the Fund.

DeAM International provides a full range of international investment advisory services to institutional and retail clients, and as of December 31, 2002, managed approximately $ billion in assets.

Scudder VIT Global Biotechnology Fund | 11

Portfolio managers

The following portfolio managers at DeAM International share primary responsibility for the day-to-day management of the Fund:

Michael Sistenich

nHead of Healthcare Equities, DeAM International and Lead Manager of the Fund.

nJoined the sub-advisor in 1997.

nOver 4 years investment industry experience.

nBSc. in Biochemistry from Oxford University (UK), with research in areas of Cancer and Multi-drug resistance.

Klaus Kaldemorgen

nHead of International Equities, DeAM International and Co-Manager of the Fund.

nJoined the Sub-advisor in 1982.

nOver 20 years of investment industry experience.

nGraduate degree in Economics from Johannes Gutenburg University (Germany).

Chi-Tran Brändli

nFund Manager, DeAM International and Co-Manager of the Fund.

nJoined the Sub-advisor in 2000.

nPrior to that, Financial Analyst, Parnassus Investment in San Francisco, 1998.

nBA in Microbiology and Immunology, University of California-Berkeley.

nMasters Degree in Economics/Finance, University of St. Gallen (Switzerland).

nResearch in Molecular Biology, University of California-San Francisco, Stanford University, and the Swiss Federal Institute of Technology.

Dr. Sebastian Virchow

nFund Manager, DeAM International and Co-Manager of the Fund.

nJoined the Sub-advisor in 2000.

nDr. Med., Ludwig-Maximilian-University, Munich (Germany).

n7 years research experience in Pharmacology and Urology, University of Essen (Germany).

Additional performance information — similar fund

In managing the Fund, the sub-advisor will employ substantially the same investment policies and strategies as DWS Biotech-Atkien Typ O (‘DWS Biotech-Atkien Typ O’ or the ‘German fund’), a mutual fund organized in Germany and managed by the same portfolio managers who manage the Fund.

The performance data below lists the prior performance of DWS Biotech-Atkien Typ O, not the prior performance of the Fund. This performance should not be considered an indication of future performance of the Fund. DWS Biotech-Atkien Typ O has substantially the same investment objective and policies as the Fund.

12 | Scudder VIT Global Biotechnology Fund

The data presented represents past performance results. Past performance does not guarantee future results.


Annualized Rates of Return for period ended December 31, 2002

Performance as of 12/31/02	1 Year	Since Inceptions*

DWS Biotech-Atkien Type O (USD) (unaudited)	%	%


Index 1	%	%


Index 2	%	%


Index 3	%	%

Index 1: MSCI World Index is an unmanaged index of over 1,500 stocks traded in approximately 23 developed world markets. The index does not factor in the costs of buying, selling and holding securities—costs which are reflected in the Fund’s results.

Index 2: NASDAQ Biotechnology Index a modified capitalization weighted index designed to measure the performance of all NASDAQ stocks in the biotechnology sector.**

Index 3: MSCI World Biotech Select Index is an unmanaged index composed of 40 of the largest biotech securities that have annual average daily trading volume of at least $10 million (USD). The index does not factor in the costs of buying, selling and holding securities—costs which are reflected in the Fund’s results.**

Date of inception is 8/31/1999.

On December 17, 2002, the Board of Directors approved replacing the MSCI Biotechnology Select Index with the NASDAQ Biotechnology Index as the fund’s secondary benchmark. The NASDAQ Biotechnology Index provides shareholders with better information to assess the performance of the fund since it more closely corresponds to the fund’s investment strategy.

The performance information shown has been calculated in accordance with the Securities and Exchange Commission’s standardized formula, but excludes the impact of any Contract charges. If Contract charges were reflected, performance would have been lower.

The performance information shown for DWS Biotech-Atkien Typ O is net of advisory fees and other expenses (after fee waivers and/or expense reimbursements) of the Fund. Additionally, the performance results reflect reinvestment of dividends and other earnings. Performance figures do not reflect expenses incurred from

investing through an insurance company separate account which funds certain variable annuity and variable life insurance contracts.

To the extent that the German fund is not a registered investment company under the laws of the United States, it is not subject to certain investment limitations, diversification requirements and other

Scudder VIT Global Biotechnology Fund | 13

restrictions imposed by the Investment Company Act of 1940 and the Internal Revenue Code. The German fund, however, is subject to certain limitations and requirements imposed by German law.

Further, the German fund may hedge against currency risks applicable to German investors, while the Fund may hedge against currency risks applicable to US investors. Requiring the German fund to operate under the same circumstances applicable to the Fund may have affected the German fund’s performance results.

Financial Highlights

Because the Fund has not yet commenced operations, it has no financial performance information to present to you in this Prospectus.

14 | Scudder VIT Global Biotechnology Fund

Your Investment in the Fund

Policies You Should Know About

The Fund does not sell its shares directly to the public. The Fund sells its shares only to separate accounts of various insurance companies and may also sell to certain tax-qualified plans (the “Companies”). Shares are available to the public through the purchase of certain variable annuity contracts, variable life insurance contracts, and to participants in certain tax-qualified plans (the “Contract(s)”) issued or sponsored by the Companies. As a Contract owner, your premium payments or plan assets are allocated to the Fund by the Companies in accordance with your Contract. Please see the Contract prospectus or plan document that accompanies this prospectus for a detailed explanation of your Contract.

Calculating the Fund’s Share Price

16 | Scudder VIT Global Biotechnology Fund

Buying and Selling Fund Shares

Scudder VIT Global Biotechnology Fund | 17

set forth in the accompanying prospectus for the contracts. Redemption orders are effected at the next net asset value per share determined after a proper redemption order is placed with the Company.

Important information about buying and selling shares

After receiving a contract owner’s order, the Company buys or sells shares at the next price calculated on any day the Fund is open for business.

Unless otherwise instructed, the Fund normally makes payment of the proceeds from the sale of Fund shares the next business day but always within seven calendar days.

The Fund does not issue share certificates.

We reserve the right to reject purchases of Fund shares including exchanges for any reason.

We reserve the right to reject purchases of Fund shares (including exchanges) or to suspend or postpone redemptions at times when the New York Stock Exchange is closed.

18 | Scudder VIT Global Biotechnology Fund

possibly arise and to determine what action, if any, should be taken.

How to receive account information

If you are a contract owner, you should contact your Company or the organization that provides record keeping services for information about your account.

If you are a Company, you should call 1-800-621-1048 for information about the Fund.

How to buy and sell shares

Performance Information

Distributions

Scudder VIT Global Biotechnology Fund | 19

ance, including the effect of dividends, is reflected in the cash value of the Contracts you own. Please see the Contract prospectus accompanying this Prospectus for more information.

Taxes

Because each investor’s tax circumstances are unique and because the tax laws are subject to change, we recommend that you consult your tax advisor before investing.

20 | Scudder VIT Global Biotechnology Fund

Notes

To Get More Information

LOGO

SEC

Public Reference Section

Washington, D.C. 20549-0102

www.sec.gov

(202) 942-8090

Global Biotechnology Fund		VITBIOPRO (5/03)
Scudder Investment VIT Funds		811-07507


                       STATEMENT OF ADDITIONAL INFORMATION

                                                                  April 30, 2003

SCUDDER VIT FUNDS

..    Equity 500 Index Fund

..    US Bond Index Fund

..    Small Cap Index Fund

..    EAFE(R) Equity Index Fund

..    Nasdaq-100 Index Fund

Scudder VIT Funds is the marketing name for Deutsche Asset Management VIT Funds
(the 'Trust'). The Trust is comprised of several funds. The funds listed above
(each, a 'Fund' and together the 'Funds') are each a series of the Trust. This
Statement of Additional Information describes the Funds' Shares.

The Funds sell shares only to separate accounts of various insurance companies
and may also sell to certain tax qualified plans (the 'Companies'). Shares of
the Funds are available to the public only through the purchase of certain
variable annuity, variable life insurance contracts and tax qualified plans
('Contract(s)') issued by the Companies. The investment advisor of the Funds is
Deutsche Asset Management, Inc. (the 'Advisor' or 'DeAM, Inc.'). Northern Trust
Investments, Inc. ("NTI") is the sub-advisor to the Funds. DeAM, Inc. and NTI
collectively are referred to as the "Advisors." The distributor of the Funds'
shares is PFPC Distributors, Inc. (the 'Distributor').

The Prospectus for each Fund, dated May 1, 2003, provides the basic information
investors should know before investing. This Statement of Additional Information
('SAI'), which is not a Prospectus, is intended to provide additional
information regarding the activities and operations of the Trust and should be
read in conjunction with the Prospectuses. You may request a copy of a
Prospectus or a paper copy of this SAI, if you have received it electronically,
free of charge by calling the Customer Service Center at the telephone number
shown in the Contract prospectus. This SAI is not an offer of any Fund which can
be made only with a Prospectus. Capitalized terms not otherwise defined in this
Statement of Additional Information have the meanings accorded to them in each
Fund's Prospectus. The financial statements for each Fund (other than US Bond
Index Fund which has not commenced operations as of the date of this SAI and the
Nasdaq-100 Index Fund which was not operational as of the date of this SAI) for
the fiscal year ended December 31, 2002, are incorporated herein by reference to
the Annual Report to shareholders for each Fund dated December 31, 2002. A copy
of each Fund's Annual Report may be obtained without charge by calling the
Customer Service Center at the telephone number shown in the Contract
prospectus.

                         DEUTSCHE ASSET MANAGEMENT, INC.
                         INVESTMENT ADVISOR OF EACH FUND

                        NORTHERN TRUST INVESTMENTS, INC.
                       INVESTMENT SUB-ADVISOR OF THE FUND

                             PFPC DISTRIBUTORS, INC.
                                   DISTRIBUTOR
                                 760 MOORE ROAD
                       KING OF PRUSSIA, PENNSYLVANIA 19406


                                TABLE OF CONTENTS

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................3

   Investment Objectives................................................3
   Investment Policies..................................................7
   Equity Securities....................................................7
   Fixed Income Securities and Money Market Instruments................10
   Mortgage-Backed and Asset-Backed Securities.........................12
   Derivative Securities...............................................15
   Futures Contracts and Options on Futures Contracts..................22
   Other Investments...................................................27
   Additional Risk Factors.............................................29
   Investment Restrictions.............................................30
   Additional Restrictions.............................................31
   Portfolio Turnover..................................................33
   Portfolio Transactions and Brokerage Commissions....................33

PERFORMANCE INFORMATION................................................35

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND.............37

MANAGEMENT OF THE TRUST................................................39

   Trustees and Officers...............................................40
   Committees..........................................................42
   Security and Other Interests........................................43
   Board Consideration of the Advisory Contract........................43
   Compensation........................................................44
   Control Persons and Principal Shareholders of the Trust.............44
   Code of Ethics......................................................46
   Investment Advisor..................................................47
   Administrator.......................................................48
   Distributor.........................................................48
   Custodian and Transfer Agent........................................49
   Expenses............................................................49
   Counsel and Independent Auditors....................................49

ORGANIZATION OF THE TRUST..............................................50

TAXATION...............................................................50

FINANCIAL STATEMENTS...................................................52

APPENDIX...............................................................53

                                        2


                INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
                              INVESTMENT OBJECTIVES

The following is a description of each Fund's investment objective. There can,
of course, be no assurance that any Fund will achieve its investment
objective(s).

Equity 500 Index Fund seeks to replicate, as closely as possible, before
expenses, the performance of the Standard & Poor's 500 Composite Stock Price
Index (the 'S&P 500'), which emphasizes stocks of large US companies. Under
normal circumstances, the Fund will invest at least 80% of its assets,
determined at the time of purchase, in stocks of companies included in the S&P
500 Index and in derivative instruments, such as futures contracts and options,
that provide exposure to the stocks of companies in the S&P 500 Index.

US Bond Index Fund seeks to replicate, as closely as possible, before expenses,
the performance of the Lehman Brothers Aggregate Bond Index (the 'Lehman Bond
Index'), which emphasizes government and corporate investment grade debt
securities. Under normal circumstances, the Fund intends to invest at least 80%
of its assets, determined at the time of purchase, in securities included in the
Lehman Bond Index and derivative instruments, such as futures contracts and
options, that provide exposure to the securities in the Lehman Bond Index.

Small Cap Index Fund seeks to replicate, as closely as possible, before
expenses, the performance of the Russell 2000 Small Stock Index (the 'Russell
2000'), which emphasizes stocks of small US companies. Under normal
circumstances, the Fund will invest at least 80% of its assets, determined at
the time of purchase, in stocks of companies included in the Russell 2000 Index
and in derivative instruments, such as futures contracts and options, that
provide exposure to the stocks of companies in the Russell 2000 Index.

EAFE(R) Equity Index Fund seeks to replicate, as closely as possible, before
expenses, the performance of the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE(R)) Index (the 'EAFE(R) Index'), which emphasizes
stocks of companies in major markets in Europe, Australasia and the Far East.
Under normal circumstances, the Fund intends to invest at least 80% of its
assets, determined at the time of purchase, in stocks of companies included in
the EAFE(R) Index and in derivative instruments, such as futures contracts and
options that provide exposure to the stocks of companies in the EAFE(R) Index.

Nasdaq-100 Index(R) Fund seeks to replicate, as closely as possible, before
expenses, the performance of the NASDAQ Stock Market, Inc.'s Nasdaq-100 Index,
which comprises 100 of the largest non-financial domestic and international
issuers listed on The NASDAQ Stock Market. The Fund is classified as
non-diversified within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act'). Under normal circumstances, the Fund intends to invest
at least 80% of its assets, determined at the time of purchase, in stocks of
companies included in the Nasdaq-100 Index and in derivative instruments, such
as futures contracts and options, that provide exposure to the stocks of
companies in the Nasdaq-100 Index.

The following is a discussion of the various types of securities and investment
strategies employed by each Fund. Unless otherwise indicated, the Funds are not
obligated to pursue any of the following strategies and do not represent that
these techniques are available now or will be available at any time in the
future. If the Funds' investment in a particular type of security is limited to
a certain percentage of the Funds' assets, that percentage limitation is listed
in the chart. Following the chart, there is a description of how each type of
security and investment strategy may be used by the Funds.

                                        3


                         SUMMARY OF INVESTMENT PRACTICES

- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE                                US BOND      SMALL CAP     EQUITY 500   EAFE(R)EQUITY    NASDAQ-100
                                                  INDEX FUND    INDEX FUND    INDEX FUND    INDEX FUND     INDEX FUND
- -----------------------------------------------------------------------------------------------------------------------

KEY TO TABLE:

[ ]  Permitted without stated limit
+    Permitted without stated limited, but not expected to be used to a
     significant extent
X    Not permitted

20% Italic type (e.g. 20%) represents an investment limitation as a percentage
of net fund assets; does not indicate actual use

20% Roman type (e.g. 20%) represents an investment limitation as a percentage of
total fund assets; does not indicate actual use
- -----------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES
- -----------------------------------------------------------------------------------------------------------------------
Common Stock                                          X           [ ]           [ ]           [ ]            [ ]
- -----------------------------------------------------------------------------------------------------------------------
Warrants Listed on NYSE & ASE                         X             5%            X             5%             5%
- -----------------------------------------------------------------------------------------------------------------------
Warrants Not Listed on NYSE & ASE                     X             2%            X             2%             2%
- -----------------------------------------------------------------------------------------------------------------------
Preferred Stock                                       X           [ ]           [ ]           [ ]            [ ]
- -----------------------------------------------------------------------------------------------------------------------
Convertible Securities                              [ ]           [ ]           [ ]           [ ]            [ ]
- -----------------------------------------------------------------------------------------------------------------------
Small Capitalization Stocks                           X          At least         X                            X
- --------------------------------------------------------------     80%       -------------                -------------
                                                                                            At least
                                                                                                80%
Medium Capitalization Stocks                          X             X                                        [ ]
- ----------------------------------------------------------------------------  At least
                                                                                 80%
- -----------------------------------------------------------------------------------------------------------------------
Large Capitalization Stocks                           X             X
                                                                                                          At least 80%
- -----------------------------------------------------------------------------------------------------------------------
SECURITIES OF NON-U.S. ISSUERS
- -----------------------------------------------------------------------------------------------------------------------
Foreign Corporate Debt Securities                     X             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Foreign Government Debt Securities                    X             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Investments in Emerging Markets                       X             X             X             +              X
- -----------------------------------------------------------------------------------------------------------------------
FIXED INCOME SECURITIES & MONEY MARKET INSTRUMENTS
- -----------------------------------------------------------------------------------------------------------------------
Short-Term Instruments                              [ ]             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Obligations of Banks and Other Financial              +             +             +             +              +
Institutions
- -----------------------------------------------------------------------------------------------------------------------
Certificates of Deposit and Banker's                  +             +             +             +              +
Acceptances
- -----------------------------------------------------------------------------------------------------------------------
Commercial Paper                                      +             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Variable Rate Securities                              +             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government Securities                          [ ]             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Custodial Receipts                                  [ ]             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Zero Coupon Securities and Deferred Interest          +             X             X              X             X
Bonds
- -----------------------------------------------------------------------------------------------------------------------
Inverse Floating Rate Securities                      +             +             +             +
- -----------------------------------------------------------------------------------------------------------------------
Lower-Rated Debt Securities                           +             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------

                                        4


- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE                                US BOND      SMALL CAP     EQUITY 500   EAFE(R)EQUITY    NASDAQ-100
                                                  INDEX FUND    INDEX FUND    INDEX FUND    INDEX FUND     INDEX FUND
- -----------------------------------------------------------------------------------------------------------------------

KEY TO TABLE:

[ ]   Permitted without stated limit
+    Permitted without stated limited, but not expected to be used to a
     significant extent
X    Not permitted

20% Italic type (e.g. 20%) represents an investment limitation as a percentage
of net fund assets; does not indicate actual use

20% Roman type (e.g. 20%) represents an investment limitation as a percentage of
total fund assets; does not indicate actual use
Registered Loans                                      +
- -----------------------------------------------------------------------------------------------------------------------
Put Bonds                                             +             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Other Debt Obligations                                +             X             X              X             X
- -----------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
- -----------------------------------------------------------------------------------------------------------------------
Government Guaranteed Mortgage-Backed               [ ]             X             X              X             X
Securities
- -----------------------------------------------------------------------------------------------------------------------
Ginnie Mae Certificates                             [ ]             X             X              X             X
- -----------------------------------------------------------------------------------------------------------------------
Fannie Mae Certificates                             [ ]             X             X              X             X
- -----------------------------------------------------------------------------------------------------------------------
Freddie Mac Certificates                            [ ]             X             X              X             X
- -----------------------------------------------------------------------------------------------------------------------
Multi-Class Mortgage-Backed Securities (CMOs        [ ]             X             X              X             X
and REMICs)
- -----------------------------------------------------------------------------------------------------------------------
Private Issued Mortgage -Backed Securities          [ ]             X             X              X             X
- -----------------------------------------------------------------------------------------------------------------------
Mortgage Pass-Through Securities                    [ ]             X             X              X             X
- -----------------------------------------------------------------------------------------------------------------------
Stripped-Mortgage Backed Securities                 [ ]             X             X              X             X
- -----------------------------------------------------------------------------------------------------------------------
Adjustable Rate Mortgages                           [ ]             X             X              X             X
- -----------------------------------------------------------------------------------------------------------------------
Asset-Backed Securities                             [ ]             X             X              X             X
- -----------------------------------------------------------------------------------------------------------------------
DERIVATIVE SECURITIES (OPTIONS)
- -----------------------------------------------------------------------------------------------------------------------
Options on Securities                                 +             +             +              +             +
- -----------------------------------------------------------------------------------------------------------------------
Options on Securities Indices                        15%           15%           15%            [ ]           15%
- -----------------------------------------------------------------------------------------------------------------------
Options on Non-US Securities Indices                  X             X             X              +             X
- -----------------------------------------------------------------------------------------------------------------------
Spreadlocks                                           +             +             X             +              +
- -----------------------------------------------------------------------------------------------------------------------
DERIVATIVE SECURITIES (FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS)
- -----------------------------------------------------------------------------------------------------------------------
Futures Contracts                                     +             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Futures Contracts on Securities Indices             5% Net        5% Net        5% Net        5% Net         5% Net
- -----------------------------------------------------------------------------------------------------------------------
Options on Futures Contracts (including             5% Net        5% Net        5% Net        5% Net         5% Net
Contracts on Security Indices)
- -----------------------------------------------------------------------------------------------------------------------
Purchase protective puts                              +             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
DERIVATIVE SECURITIES
- -----------------------------------------------------------------------------------------------------------------------
Swaps                                                10%           10%            X             10%           10%
- -----------------------------------------------------------------------------------------------------------------------

                                        5

- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE                                US BOND      SMALL CAP     EQUITY 500   EAFE(R)EQUITY    NASDAQ-100
                                                  INDEX FUND    INDEX FUND    INDEX FUND    INDEX FUND     INDEX FUND
- -----------------------------------------------------------------------------------------------------------------------

KEY TO TABLE:

[ ]  Permitted without stated limit
+    Permitted without stated limited, but not expected to be used to a
     significant extent
X    Not permitted

20% Italic type (e.g. 20%) represents an investment limitation as a percentage
of net fund assets; does not indicate actual use

20% Roman type (e.g. 20%) represents an investment limitation as a percentage of
total fund assets; does not indicate actual use
Hedging Strategies                                    +             +             +             +              +
- -------------------------------------------------------------------------- --------------------------------------------
CURRENCY MANAGEMENT
- -----------------------------------------------------------------------------------------------------------------------
Currency Exchange Transactions                        +             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Forward Currency Exchange Contracts                   +             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies                         X             X             X             +              X
- -----------------------------------------------------------------------------------------------------------------------
OTHER INVESTMENTS AND INVESTMENT PRACTICES
- -----------------------------------------------------------------------------------------------------------------------
Illiquid Securities                                  15%           15%           15%            15%           15%
- -----------------------------------------------------------------------------------------------------------------------
TBA Commitments                                                                                                +
- -----------------------------------------------------------------------------------------------------------------------
When-Issued and Delayed Delivery Securities          15%           15%           15%            15%           15%
- -----------------------------------------------------------------------------------------------------------------------
Repurchase Agreements                                 +             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements                         +             +             +             +              +
- -----------------------------------------------------------------------------------------------------------------------
Lending of Portfolio Securities                      30%           30%           30%            30%           33%
- -----------------------------------------------------------------------------------------------------------------------
Other Investment Companies                           10%           10%           10%            10%           10%
- -----------------------------------------------------------------------------------------------------------------------
Temporary Defensive Investments                       X             X             X              X             X
- -----------------------------------------------------------------------------------------------------------------------
Russell 200 Index                                                At least                                      X
                                                                   80%
- -----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International EAFE(R)                                                   At least
Index                                                                                             80%
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index               At least
                                                     80%
- -----------------------------------------------------------------------------------------------------------------------
S&P 500 Index                                                                  At least
                                                                                 80%
- -----------------------------------------------------------------------------------------------------------------------
NASDAQ 100 Index                                                                                            At least
                                                                                                              80%
- -----------------------------------------------------------------------------------------------------------------------

                                        6


                               INVESTMENT POLICIES

The following is a discussion of the various investments of and techniques
employed by each Fund. Unless otherwise indicated, each Fund is permitted, but
not obligated, to engage in the following investment strategies, subject to any
percentage limitations set forth below.

                                EQUITY SECURITIES

General. With the exception of the US Bond Index Fund, each Fund invests in
equity securities listed on any domestic or foreign securities exchange or
traded in the over-the-counter market as well as certain restricted or unlisted
securities. As used herein, 'equity securities' are defined as common stock,
preferred stock, trust or limited partnership interests, rights and warrants to
subscribe to or purchase such securities, sponsored or unsponsored ADRs, EDRs,
GDRs, and convertible securities, consisting of debt securities or preferred
stock that may be converted into common stock or that carry the right to
purchase common stock.

Common Stocks. Common stocks, the most familiar type, represent an equity (i.e.,
ownership) interest in a corporation. They may or may not pay dividends or carry
voting rights. Common stock occupies the most junior position in a company's
capital structure. Although equity securities have a history of long-term growth
in value, their prices fluctuate based on changes in a company's financial
condition as well as changes in overall market and economic conditions. This
affects the value of the shares of each Fund and thus the value of your
investment. Smaller companies are especially sensitive to these factors.

Preferred Stock. Preferred stock has a preference (i.e., ranks higher) in
liquidation (and generally dividends) over common stock but is subordinated
(i.e., ranks lower) in liquidation to fixed income securities. Dividends on
preferred stock may be cumulative, and in such cases, all cumulative dividends
usually must be paid prior to dividend payments to common stockholders. Because
of this preference, preferred stocks generally entail less risk than common
stocks. As a general rule the market value of preferred stocks with fixed
dividend rates and no conversion rights moves inversely with interest rates and
perceived credit risk, with the price determined by the dividend rate. Some
preferred stocks are convertible into other securities (e.g., common stock) at a
fixed price and ratio or upon the occurrence of certain events. The market price
of convertible preferred stocks generally reflects an element of conversion
value. Because many preferred stocks lack a fixed maturity date, these
securities generally fluctuate substantially in value when interest rates
change; such fluctuations often exceed those of long-term bonds of the same
issuer. Some preferred stocks pay an adjustable dividend that may be based on an
index, formula, auction procedure or other dividend rate reset mechanism. In the
absence of credit deterioration, adjustable rate preferred stocks tend to have
more stable market values than fixed rate preferred stocks.

All preferred stocks are also subject to the same types of credit risks as
corporate bonds. In addition, because preferred stock is subordinate to debt
securities and other obligations of an issuer, deterioration in the credit
rating of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similar yield characteristics.
Preferred stocks may be rated by Standard & Poor's Ratings Group ('S&P') and
Moody's Investors Service, Inc. ('Moody's') although there is no minimum rating
which a preferred stock must have to be an eligible investment for the Funds.
Generally, however, the preferred stocks in which the Funds invests will be
rated at least CCC by S&P or Caa by Moody's or, if unrated, of comparable
quality in the opinion of the Advisor. Preferred stocks rated CCC by S&P are
regarded as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations and represent the highest degree of speculation
among securities rated between BB and CCC; preferred stocks rated Caa by Moody's
are likely to be in arrears on dividend payments. Moody's rating with respect to
preferred stocks does not purport to indicate the future status of payments of
dividends.

Warrants. All equity index funds except the Equity 500 Index Fund may invest in
warrants with respect to 5% of its assets (2% with respect to warrants not
listed on the New York Stock Exchange or American Stock Exchange). Warrants are
securities that give the holder the right but not the obligation to buy a
specified number of shares of common stock at a specified price, which is often
higher than the market price at the time of issuance, for a specified period (or
in perpetuity). Warrants may be issued in units with other securities or
separately, and may be freely transferable and traded on exchanges. Investing in
warrants can provide a greater potential for profit or loss than an equivalent
investment in the underlying security, and, thus is a speculative investment. At
the time of issue, the cost of a warrant is substantially less than the cost of
the underlying security itself, and price movements in the underlying security
are generally magnified in the price movements of the warrant. This leveraging
effect enables the investor

                                        7


to gain exposure to the underlying security with a relatively low capital
investment. This leveraging increases an investor's risk, however, in the event
of a decline in the value of the underlying security and can result in a
complete loss of the amount invested in the warrant.

While the market value of a warrant tends to be more volatile than that of the
securities underlying the warrant, changes in the market value of a warrant may
not necessarily correlate with that of the underlying security. A warrant ceases
to have value if it is not exercised prior to the expiration date, if any, to
which the warrant is subject. The purchase of warrants involves a risk that a
Fund could lose the purchase value of a warrant if the right to subscribe to
additional shares is not exercised prior to the warrant's expiration. Also, the
purchase of warrants involves the risk that the effective price paid for the
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security. The value of a warrant may
decline because of a decline in the value of the underlying security, the
passage of time, changes in interest rates or in the dividend or other policies
of the company whose equity underlies the warrant or a change in the perception
as to the future price of the underlying security, or any combination thereof.
Also, warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company.

Convertible Securities. A convertible security is a bond or preferred stock
which may be converted at a stated price within a specific period of time into a
specified number of shares of common stock of the same or different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure, but usually are subordinated to non-convertible debt securities.
While providing a fixed income stream--generally higher in yield than the income
derived from a common stock but lower than that afforded by a non-convertible
debt security--a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation of
common stock into which it is convertible.

The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of convertible preferred stock, the holders' claims on assets and
earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.

In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.

Medium- and Small-Capitalization Stocks. The Small Cap Index Fund invests in
medium- and small- capitalization stocks and the Nasdaq-100 Index Fund invests
in medium-capitalization stocks. Historically, medium- and small-capitalization
stocks have been more volatile in price than the larger-capitalization stocks
included in the 'S&P 500'. Among the reasons for the greater price volatility of
these securities are the less certain growth prospects of smaller firms, the
lower degree of liquidity in the markets for such stocks, and the greater
sensitivity of medium- and small-size companies to changing economic conditions.
In addition to exhibiting greater volatility, medium- and small-size company
stocks may fluctuate independently of larger company stocks. Medium- and
small-size company stocks may decline in price as larger company stocks rise, or
rise in prices as large company stock decline.

                                NON-US SECURITIES

General. The value of each Fund's investments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax regulations in
those foreign countries. In addition, changes in government administrations or
economic or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Fund's operations. Furthermore, the economies of
individual foreign nations may differ from the US economy,

                                        8


whether favorably or unfavorably, in areas such as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position; it may also be more difficult to obtain and
enforce a judgment against a foreign issuer. In general, less information is
publicly available with respect to non-US issuers than is available with respect
to US companies. Most foreign companies are also not subject to the uniform
accounting and financial reporting requirements applicable to issuers in the
United States. Any foreign investments made by the Fund must be made in
compliance with US and foreign currency restrictions and tax laws restricting
the amounts and types of foreign investments.

Because non-US securities generally are denominated and pay dividends or
interest in foreign currencies, and the Fund may hold various foreign currencies
from time to time, the value of the net assets of a Fund as measured in US
dollars will be affected favorably or unfavorably by changes in exchange rates.
Generally, a Fund's currency exchange transactions will be conducted on a spot
(i.e., cash) basis at the spot rate prevailing in the currency exchange market.
The cost of a Fund's currency exchange transactions will generally be the
difference between the bid and offer spot rate of the currency being purchased
or sold. In order to protect against uncertainty in the level of future foreign
currency exchange rates, each Fund is authorized to enter into certain foreign
currency exchange transactions.

In addition, while the volume of transactions effected on foreign securities
exchanges has increased in recent years, in most cases it remains appreciably
below that of The New York Stock Exchange, Inc. (the 'NYSE'). Accordingly, the
Fund's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities of US issuers. Moreover, the
settlement periods for non-US securities, which are often longer than those for
securities of US issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, the Fund normally pays fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.

Investments in American, European, Global and International Depository Receipts.
The Funds may invest in non-US securities in the form of American Depositary
Receipts ('ADRs'), European Depositary Receipts ('EDRs'), Global Depositary
Receipts ('GDRs') and International Depository Receipts ('IDRs') or other
similar securities representing ownership of securities of non-US issuers held
in trust by a bank or similar financial institution. ADRs are receipts typically
issued by a US bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs and IDRs are receipts issued in
Europe typically by non-US banking and trust companies that evidence ownership
of either foreign or US securities. GDRs are receipts issued by either a US or
non-US banking institution evidencing ownership of the underlying non-US
securities . Generally, ADRs, in registered form, are designed for use in US
securities markets and EDRs, GDRs and IDRs, in bearer form, are designed for use
in European and international securities markets. An ADR, EDR, GDR or IDR may be
denominated in a currency different from the currency in which the underlying
foreign security is denominated. ADRs, EDRs, GDRs and IDRs are alternatives to
the purchase of the underlying securities in their national markets and
currencies, but are subject to the same risks as the non-US securities to which
they relate.

Foreign Securities: Special Considerations Concerning the Pacific Basin. Many
Asian countries may be subject to a greater degree of social, political and
economic instability than is the case in the United States and European
countries. Such instability may result from (i) authoritarian governments or
military involvement in political and economic decision-making; (ii) popular
unrest associated with demands for improved political, economic and social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection.

The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.

The securities markets in Asia are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by a Fund.

                                        9


Similarly, volume and liquidity in the bond markets in Asia are less than in the
United States and, at times, price volatility can be greater than in the United
States. A limited number of issuers in Asian securities markets may represent a
disproportionately large percentage of market capitalization and trading value.
The limited liquidity of securities markets in Asia may also affect a Fund's
ability to acquire or dispose of securities at the price and time it wishes to
do so. The EAFE(R) Equity Index Fund's inability to dispose fully and promptly
of positions in declining markets will cause the Fund's net asset value to
decline as the value of the unsold positions is marked to lower prices. In
addition, the Asian securities markets are susceptible to being influenced by
large investors trading significant blocks of securities.

Many stock markets are undergoing a period of growth and change which may result
in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.

The EAFE(R) Equity Index Fund invests in securities denominated in currencies of
Asian countries. Accordingly, changes in the value of these currencies against
the US dollar will result in corresponding changes in the US dollar value of the
Fund's assets denominated in those currencies.

              FIXED INCOME SECURITIES AND MONEY MARKET INSTRUMENTS

General. (The US Bond Index Fund may only invest in domestic fixed income
securities) The Funds may invest in a broad range of domestic and foreign fixed
income (debt) securities. Fixed income securities, including (but not limited
to) bonds, are used by issuers to borrow money from investors. The issuer pays
the investor a fixed or variable rate of interest, and must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest, but are purchased at a discount from their face values.

The value of fixed income securities in the Fund generally varies inversely with
changes in interest rates. Prices of fixed income securities with longer
effective maturities are more sensitive to interest rate changes than those with
shorter effective maturities.

In periods of declining interest rates, the yield (the income generated over a
stated period of time) of the Fund that invests in fixed income securities may
tend to be higher than prevailing market rates, and in periods of rising
interest rates, the yield of the Fund may tend to be lower. Also, when interest
rates are falling, the inflow of net new money to a Fund from the continuous
sale of its shares will likely be invested in Fund instruments producing lower
yields than the balance of the Fund, thereby reducing the yield of the Fund. In
periods of rising interest rates, the opposite can be true. The net asset value
of the Fund investing in fixed income securities can generally be expected to
change as general levels of interest rates fluctuate.

Short-Term Instruments. When a Fund experiences large cash inflows through the
sale of securities and desirable equity securities, that are consistent with the
Fund's investment objective, which are unavailable in sufficient quantities or
at attractive prices, the Fund may hold short-term investments (or shares of
money market mutual funds) for a limited time pending availability of such
equity securities. Short-term instruments consist of foreign and domestic: (i)
short-term obligations of sovereign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated AA or higher by Standard & Poor's Ratings Group ('S&P') or
Aa or higher by Moody's Investors Service, Inc. ('Moody's') or, if unrated, of
comparable quality in the opinion of the Advisor; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and banker's acceptances; and (v) repurchase agreements. At the time the Fund
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated AA or higher by
S&P or Aa or higher by Moody's or outstanding commercial paper or bank
obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of the
Advisor. These instruments may be denominated in US dollars or in foreign
currencies.

Obligations of Banks and Other Financial Institutions. At the time the Funds
invest in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated AA or higher by
S&P or Aa or higher by Moody's or outstanding commercial paper or bank
obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of the
Advisor. These instruments may be denominated in US dollars or in foreign
currencies.

                                       10


The Funds may invest in US dollar-denominated fixed rate or variable rate
obligations of US or foreign financial institutions, including banks.
Obligations of domestic and foreign financial institutions in which the Funds
may invest include (but are not limited to) certificates of deposit, bankers'
acceptances, bank time deposits, commercial paper, and other US
dollar-denominated instruments issued or supported by the credit of US or
foreign financial institutions, including banks.

For purposes of the Funds' investment policies with respect to bank obligations,
the assets of a bank will be deemed to include the assets of its domestic and
foreign branches. Obligations of foreign branches of US banks and foreign banks
may be general obligations of the parent bank in addition to the issuing bank or
may be limited by the terms of a specific obligation and by government
regulation. If the Advisor deems the instruments to present minimal credit risk,
the Funds may invest in obligations of foreign banks or foreign branches of US
banks, which include banks located in the United Kingdom, Grand Cayman Island,
Nassau, Japan and Canada.

Investments in these obligations may entail risks that are different from those
of investments in obligations of US domestic banks because of differences in
political, regulatory and economic systems and conditions. These risks include
future political and economic developments, currency blockage, the possible
imposition of withholding taxes on interest payments, possible seizure or
nationalization of foreign deposits, difficulty or inability of pursuing legal
remedies and obtaining judgments in foreign courts, possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
that might affect adversely the payment of principal and interest on bank
obligations. Foreign branches of US banks and foreign banks may also be subject
to less stringent reserve requirements and to different accounting, auditing,
reporting and record keeping standards that those applicable to domestic
branches of US banks.

Certificates of Deposit and Bankers' Acceptances. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then 'accepted' by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.

Commercial Paper. Each Fund may invest in commercial paper. The Funds may invest
in fixed rate or variable rate commercial paper, issued by US or foreign
entities. Commercial paper consists of short-term (usually up to one year)
unsecured promissory notes issued by US or foreign corporations in order to
finance their current operations. Any commercial paper issued by a foreign
entity corporation and purchased by the Funds must be US dollar-denominated and
must not be subject to foreign withholding tax at the time of purchase.

Commercial paper when purchased by the Funds must be rated in the highest
short-term rating category by any two NRSROs (or one NRSRO if that NRSRO is the
only such NRSRO which rates such security) or, if not so rated, must be believed
by the Advisor to be of comparable quality. Investing in foreign commercial
paper generally involves risks similar to those described above relating to
obligations of foreign banks or foreign branches and subsidiaries of US and
foreign banks.

Each Fund may also invest in variable rate master demand notes. A variable
amount master demand note (which is a type of commercial paper) represents a
direct borrowing arrangement involving periodically fluctuating rates of
interest under a letter agreement between a commercial paper issuer and an
institutional lender pursuant to which the lender may determine to invest
varying amounts.

For a description of commercial paper ratings, see Appendix A to this SAI.

At the time the Funds invest in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding
debt rated AA or higher by S&P or Aa or higher by Moody's or outstanding

                                       11


commercial paper or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or,
if no such ratings are available, the instrument must be of comparable quality
in the opinion of the Advisor. These instruments may be denominated in US
dollars or in foreign currencies.

US Government Securities. Each Fund may invest in obligations issued or
guaranteed by the US government and that are direct obligations of the US
Treasury. Included among direct obligations of the US are Treasury Bills,
Treasury Notes and Treasury Bonds, which differ in terms of their interest
rates, maturities and dates of issuance. Treasury Bills have maturities of less
than one year, Treasury Notes have maturities of one to 10 years and Treasury
Bonds generally have maturities of greater than 10 years at the date of
issuance.

Each Fund may also invest in separately traded principal and interest component
of securities guaranteed or issued by the US government or its agencies,
instrumentalities or sponsored enterprises if such components trade
independently under the Separate Trading of Registered Interest and Principal of
Securities program ('STRIPS') or any similar program sponsored by the US
government. STRIPS are sold as zero coupon securities. See 'Zero Coupon
Securities.'

Zero Coupon Securities and Deferred Interest Bonds. (For US Bond Index only) The
Fund may invest in zero coupon securities and deferred interest bonds. Zero
coupon and deferred interest bonds are debt obligations which are issued at a
significant discount from face value. The original discount approximates the
total amount of interest the bonds will accrue and compound over the period
until maturity or the first interest accrual date at a rate of interest
reflecting the market rate of the security at the time of issuance. Zero coupon
securities are redeemed at face value at their maturity date without interim
cash payments of interest or principal. The amount of this discount is accrued
over the life of the security, and the accrual constitutes the income earned on
the security for both accounting and tax purposes. Because of these features,
the market prices of zero coupon securities are generally more volatile than the
market prices of securities that have similar maturity but that pay interest
periodically.

While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds generally provide for a period of delay before the
regular payment of interest begins. Although this period of delay is different
for each deferred interest bond, a typical period is approximately one-third of
the bond's term to maturity. Such investments benefit the issuer by mitigating
its initial need for cash to meet debt service, but some also provide a higher
rate of return to attract investors who are willing to defer receipt of such
cash.

The Fund will accrue income on such investments for tax and accounting purposes,
as required, which is distributable to shareholders and which, because no cash
is generally received at the time of accrual, may require the liquidation of
other portfolio securities to satisfy the Fund's distribution obligations. See
'Taxation'

Fixed Income Security Risk. Fixed income securities expose the Fund to five
types of risk: (1) Interest rate risk is the potential for fluctuations in bond
prices due to changing interest rates; (2) Income risk is the potential for a
decline in a Fund's income due to falling market interest rates; (3) Credit risk
is the possibility that a bond issuer will fail to make timely payments of
either interest or principal to a Fund; (4) Prepayment risk or call risk is the
likelihood that, during period of falling interest rates, securities with high
stated interest rates will be prepaid (or 'called') prior to maturity, requiring
a Fund to invest the proceeds at generally lower interest rates and (5)
extension risk (the likelihood that as interest rates increase, slower than
expected principal payments may extend the average life of fixed income
securities, which will have the effect of locking in a below-market interest
rate, increasing the securities duration and reducing the value of the
security).

                   MORTGAGE-BACKED AND ASSET-BACKED SECURITIES

General Characteristics. (US Bond Index only) The Fund may invest in
mortgage-backed securities. A mortgage-backed security consists of a pool of
mortgage loans evidenced by promissory notes secured by first mortgages or first
deeds of trust or other similar security instruments creating a first lien on
owner occupied and non-owner occupied one-unit to four-unit residential
properties, multifamily (i.e., five or more) properties, agriculture properties,
commercial properties and mixed use properties.

                                       12


The investment characteristics of adjustable and fixed rate mortgage-backed
securities differ from those of traditional fixed-income securities. The major
differences include the payment of interest and principal on mortgage-backed
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional
fixed-income securities. As a result, if the Fund purchases mortgage-backed
securities at a premium, a faster than expected prepayment rate will decrease
both the market value and the yield to maturity from those which were
anticipated. A prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity and market value. Conversely, if
the Fund purchases mortgage-backed securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
decrease yield to maturity and market values. To the extent that they invest in
mortgage-backed securities, the Advisor may seek to manage these potential risks
by investing in a variety of mortgage-backed securities and by using certain
hedging techniques.

Government Guaranteed Mortgage-Backed Securities. (US Bond Index only) The
Fund's investments in mortgage-backed securities may include securities issued
or guaranteed by the US government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, such as Ginnie Mae, Fannie Mae and
Freddie Mac. There are several types of guaranteed mortgage-backed securities
currently available, including guaranteed mortgage pass-through certificates and
multiple class securities, which include guaranteed Real Estate Mortgage
Investment Conduit Certificates ('REMIC Certificates'), collateralized mortgage
obligations and stripped mortgage-backed securities. The Fund is permitted to
invest in other types of mortgage-backed securities that may be available in the
future to the extent consistent with its investment policies and objective.

Ginnie Mae Certificate. (US Bond Index Fund only)The Government National
Mortgage Association ('Ginnie Mae') is a wholly-owned corporate instrumentality
of the United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the 'Housing Act'), authorizes Ginnie
Mae to guarantee the timely payment of the principal of and interest on
certificates that are based on and backed by a pool of mortgage loans insured by
the Federal Housing Administration under the Housing Act, or Title V of the
Housing Act of 1949 ('FHA Loans'), or guaranteed by the Department of Veterans
Affairs under the Servicemen's Readjustment Act of 1944, as amended ('VA
Loans'), or by pools of other eligible mortgage loans. The Housing Act provides
that the full faith and credit of the US government is pledged to the payment of
all amounts that may be required to be paid under any Ginnie Mae guaranty. In
order to meet its obligations under such guaranty, Ginnie Mae is authorized to
borrow from the US Treasury with no limitations as to amount.

The Ginnie Mae Certificates in which the US Bond Index Fund will invest will
represent a pro rata interest in one or more pools of the following types of
mortgage loans: (i) fixed-rate level payment mortgage loans; (ii) fixed-rate
graduated payment mortgage loans; (iii) fixed-rate growing equity mortgage
loans; (iv) fixed-rate mortgage loans secured by manufactured (mobile) homes;
(v) mortgage loans on multifamily residential properties under construction;
(vi) mortgage loans on completed multifamily projects; (vii) fixed-rate mortgage
loans as to which escrowed funds are used to reduce the borrower's monthly
payments during the early years of the mortgage loans ('buydown' mortgage
loans); (viii) mortgage loans that provide for adjustments in payments based on
periodic changes in interest rates or in other payment terms of the mortgage
loans; and (ix) mortgage-backed serial notes. All of these mortgage loans will
be FHA Loans or VA Loans and, except as otherwise specified above, will be
fully-amortizing loans secured by first liens on one- to four-family housing
units.

Fannie Mae Certificates. (US Bond Index Fund only) The Federal National Mortgage
Association ('Fannie Mae') is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. The obligations of Fannie Mae are not backed by
the full faith and credit of the US government.

Each Fannie Mae Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed-rate level payment mortgage loans; (ii) fixed-rate
growing equity mortgage loans; (iii) fixed-rate graduated payment mortgage
loans; (iv) variable rate mortgage loans; (v) other adjustable rate mortgage
loans; and (vi) fixed-rate and adjustable mortgage loans secured by multifamily
projects.

                                       13


Freddie Mac Certificates. (US Bond Index Fund only) The Federal Home Loan
Mortgage Corporation ('Freddie Mac') is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the 'FHLMC Act'). The obligations of Freddie Mac are obligations solely
of Freddie Mac and are not backed by the full faith and credit of the US
government.

Freddie Mac Certificates represent a pro rata interest in a group of mortgage
loans (a 'Freddie Mac Certificate group') purchased by Freddie Mac. The mortgage
loans underlying the Freddie Mac Certificates will consist of fixed-rate or
adjustable rate mortgage loans with original terms to maturity of between ten
and thirty years, substantially all of which are secured by first liens on one-
to four-family residential properties or multifamily projects. Each mortgage
loan must meet the applicable standards set forth in the FHLMC Act. A Freddie
Mac Certificate group may include whole loans, participating interests in whole
loans and undivided interests in whole loans and participations comprising
another Freddie Mac Certificate group.

Other US government securities that US Bond Index Fund may invest in include
(but are not limited to) securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the US,
Small Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association.
Because the US government is not obligated by law to provide support to an
instrumentality it sponsors, the Fund will invest in obligations issued by such
an instrumentality only if the Advisor determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable for
investment by the Fund.

Stripped Mortgage-Backed Securities. (US Bond Index Fund only) The cash flows
and yields on Interest Only ('IO') and Principal Only ('PO') classes are
extremely sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage assets. For example, a rapid or slow rate of
principal payments may have a material adverse effect on the yield to maturity
of IOs or POs, respectively. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, an investor may fail to
recoup fully its initial investment in an IO class of a stripped mortgage-backed
security, even if the IO class is rated AAA or Aaa. Conversely, if the
underlying mortgage assets experience slower than anticipated prepayments of
principal, the yield on a PO class will be affected more severely than would be
the case with a traditional mortgage-backed security.

Adjustable Rate Mortgages - Interest Rate Indices. (US Bond Index Fund only)
Adjustable rate mortgages in which the US Bond Index Fund invests may be
adjusted on the basis of one of several indices. The One Year Treasury Index is
the figure derived from the average weekly quoted yield on US Treasury
securities adjusted to a constant maturity of one year. The Cost of Funds Index
reflects the monthly weighted average cost of funds of savings and loan
associations and savings banks whose home offices are located in Arizona,
California and Nevada (the 'FHLB Eleventh District') that are member
institutions of the Federal Home Loan Bank of San Francisco (the 'FHLB of San
Francisco'), as computed from statistics tabulated and published by the FHLB of
San Francisco. The FHLB of San Francisco normally announces the Cost of Funds
Index on the last working day of the month following the month in which the cost
of funds was incurred.

A number of factors affect the performance of the Cost of Funds Index and may
cause the Cost of Funds Index to move in a manner different from indices based
upon specific interest rates, such as the One Year Treasury Index. Because of
the various origination dates and maturities of the liabilities of members of
the FHLB Eleventh District upon which the Cost of Funds Index is based, among
other things, at any time the Cost of Funds Index may not reflect the average
prevailing market interest rates on new liabilities of similar maturities. There
can be no assurance that the Cost of Funds Index will necessarily move in the
same direction or at the same rate as prevailing interest rates since as longer
term deposits or borrowings mature and are renewed at market interest rates, the
Cost of Funds Index will rise or fall depending upon the differential between
the prior and the new rates on such deposits and borrowings. In addition,
dislocations in the thrift industry in recent years have caused and may continue
to cause the cost of funds of thrift institutions to change for reasons
unrelated to changes in general interest rate levels. Furthermore, any movement
in the Cost of Funds Index as compared to other indices based upon specific
interest rates may be affected by changes instituted by the FHLB of San
Francisco in the method used to calculate the Cost of Funds Index. To the extent
that the Cost of Funds Index may reflect interest changes on a more delayed
basis than other indices, in a period of rising interest rates, any increase may
produce a higher yield later than would be produced by such other indices, and
in a period of declining interest rates, the Cost of Funds Index may remain

                                       14


higher than other market interest rates which may result in a higher level of
principal prepayments on mortgage loans which adjust in accordance with the Cost
of Funds Index than mortgage loans which adjust in accordance with other
indices.

LIBOR, the London interbank offered rate, is the interest rate that the most
creditworthy international banks dealing in US dollar-denominated deposits and
loans charge each other for large dollar-denominated loans. LIBOR is also
usually the base rate for large dollar-denominated loans in the international
market. LIBOR is generally quoted for loans having rate adjustments at one,
three, six or twelve month intervals.

Asset-Backed Securities. (US Bond Index Fund only) The asset-backed securities
in which the US Bond Index Fund may invest are limited to those which are
readily marketable, dollar-denominated and rated BBB or higher by S&P or Baa or
higher by Moody's. Asset-backed securities present certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same type of security interest in the related collateral.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which give such debtors the right to avoid payment of certain amounts owed on
the credit cards, thereby reducing the balance due. Most issuers of automobile
receivables permit the servicer to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the related automobile receivables. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.

Mortgage-Backed Securities and Asset-Backed Securities--Types of Credit Support.
(US Bond Index Fund only) The mortgage-backed securities in which the US Bond
Index Fund may invest are limited to those relating to residential mortgages.
Mortgage-backed securities and asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties. To
lessen the effect of failure by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two categories: (i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The US Bond Index Fund will not pay any additional fees for such
credit support, although the existence of credit support may increase the price
of a security.

The ratings of mortgage-backed securities and asset-backed securities for which
third-party credit enhancement provides liquidity protection or protection
against losses from default are generally dependent upon the continued
creditworthiness of the provider of the credit enhancement. The ratings of such
securities could be subject to reduction in the event of deterioration in the
creditworthiness of the credit enhancement provider even in cases where the
delinquency and loss experience on the underlying pool of assets is better than
expected.

Examples of credit support arising out of the structure of the transaction
include 'senior-subordinated securities' (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of 'reserve
funds' (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and 'over-collateralization' (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such a security.

                              DERIVATIVE SECURITIES

General. Each Fund may invest in various instruments that are commonly known as
'derivatives.' Generally, a derivative is a financial arrangement, the value of
which is based on, or 'derived' from, a traditional security, asset,

                                       15


or market index. Some derivatives such as mortgage-related and other
asset-backed securities are in many respects like any other investment, although
they may be more volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many different ways
to use them. There are a range of risks associated with those uses. Futures and
options are commonly used for traditional hedging purposes to attempt to protect
a fund from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Advisor will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Fund and when consistent with the
Fund's investment objective and policies. The use of derivatives for non-hedging
purposes may be considered speculative.

The Funds' investment in options, futures or forward contracts, swaps and
similar strategies (collectively, 'derivatives') depends on the Advisor's
judgment as to the potential risks and rewards of different types of strategies.
Derivatives can be volatile investments and may not perform as expected. If the
Advisor applies a hedge at an inappropriate time or judges price trends
incorrectly, derivative strategies may lower the Funds' return. A Fund could
also experience losses if the prices of its derivative positions were poorly
correlated with its other investments, or if it could not close out its
positions because of an illiquid secondary market. Options and futures traded on
foreign exchanges generally are not regulated by US authorities, and may offer
less liquidity and less protection to a Fund in the event of default by the
other party to the contract.

                         DERIVATIVE SECURITIES: OPTIONS

Options on Securities. Each Fund may write (sell) covered call and put options
to a limited extent on its portfolio securities ('covered options') in an
attempt to increase income through the premiums it receives for writing the
option(s). However, in return for the premium, a Fund may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Fund. All
options written by the Funds are 'covered.'

A call option written by a Fund is 'covered' if the Fund owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds a call option on the same security and in the same principal amount as the
written call option where the exercise price of the call option so held (a) is
equal to or less than the exercise price of the written call option or (b) is
greater than the exercise price of the written call option if the difference is
segregated by the Fund in cash or liquid securities.

When a Fund writes a covered call option, it gives the purchaser of the option
the right to buy the underlying security at the price specified in the option
(the 'exercise price') by exercising the option at any time during the option
period. If the option expires unexercised, the Fund will realize income in an
amount equal to the premium received for writing the option. If the option is
exercised, a decision over which the Fund has no control, the Fund must sell the
underlying security to the option holder at the exercise price. By writing a
covered call option, the Fund forgoes, in exchange for the premium less the
commission ('net premium'), the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price.

A put option written by a Fund is 'covered' when, among other things, cash or
liquid securities are placed in a segregated account to fulfill the obligations
undertaken. When a Fund writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Fund at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Fund will realize income in the amount of the premium
received for writing the option. If the put option is exercised, a decision over
which the Fund has no control, the Fund must purchase the underlying security
from the option holder at the exercise price. By writing a covered put option,
the Fund, in exchange for the net premium received, accepts the risk of a
decline in the market value of the underlying security below the exercise price.
A Fund will only write put options involving securities for which a
determination is made at the time the option is written that the Fund wishes to
acquire the securities at the exercise price.

                                       16


A Fund may terminate its obligation as the writer of a call or put option by
purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a 'closing purchase
transaction.' A Fund will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, a Fund may make a 'closing sale
transaction' which involves liquidating the Fund's position by selling the
option previously purchased. Where the Fund cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.

When a Fund writes an option, an amount equal to the net premium received by the
Fund is included in the liability section of the Fund's Statement of Assets and
Liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked to market to reflect the current market value of the option
written. The current market value of a traded option is the last sale price or,
in the absence of a sale, the mean between the closing bid and asked price. If
an option expires on its stipulated expiration date or if a Fund enters into a
closing purchase transaction, the Fund will realize a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when the option
was sold), and the deferred credit related to such option will be eliminated. If
a call option is exercised, the Fund will realize a gain or loss from the sale
of the underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Fund.

A Fund may purchase call and put options on any securities in which it may
invest. A Fund would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Fund, in exchange for the premium paid, to purchase a security
at a specified price during the option period. A Fund would ordinarily have a
gain if the value of the securities increased above the exercise price
sufficiently to cover the premium and would have a loss if the value of the
securities remained at or below the exercise price during the option period.

A Fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ('protective puts') or securities of
the type in which it is permitted to invest. The purchase of a put option would
entitle a Fund, in exchange for the premium paid, to sell a security, which may
or may not be held in the Fund's portfolio, at a specified price during the
option period. The purchase of protective puts is designed merely to offset or
hedge against a decline in the market value of the Fund's portfolio securities.
Put options also may be purchased by a Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which the Fund does not
own. A Fund would ordinarily recognize a gain if the value of the securities
decreased below the exercise price sufficiently to cover the premium and would
recognize a loss if the value of the securities remained at or above the
exercise price. Gains and losses on the purchase of protective put options would
tend to be offset by countervailing changes in the value of underlying portfolio
securities.

The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.

Each Fund may enter into closing transactions in order to offset an open option
position prior to exercise or expiration by selling an option it has purchased
or by entering into an offsetting option. If a Fund cannot effect closing
transactions, it may have to retain a security in its portfolio it would
otherwise sell or deliver a security it would otherwise retain. The Funds may
purchase and sell options traded on recognized foreign exchanges. The Funds may
also purchase and sell options traded on US exchanges and, to the extent
permitted by law, options traded over-the-counter.

A Fund may engage in over-the-counter options transactions with broker-dealers
who make markets in these options. The ability to terminate over-the-counter
option positions is more limited than with exchange-traded option positions
because the predominant market is the issuing broker rather than an exchange,
and may involve the risk that broker-dealers participating in such transactions
will not fulfill their obligations. To reduce this risk, a Fund will purchase
such options only from broker-dealers who are primary government securities
dealers recognized by the

                                       17


Federal Reserve Bank of New York and who agree to (and are expected to be
capable of) entering into closing transactions, although there can be no
guarantee that any such option will be liquidated at a favorable price prior to
expiration. The Advisor will monitor the creditworthiness of dealers with whom a
Fund enters into such options transactions under the general supervision of the
Fund's Trustees. Unless the Board of Trustees conclude otherwise, each Fund
intends to treat OTC options as not readily marketable and therefore subject to
each Fund's 15% limit on investments in illiquid securities.

Options on Securities Indices. Each Fund may also purchase and write
exchange-listed and OTC put and call options on securities indices. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indices may also be based on a particular industry or market segment.

Options on securities indices are similar to options on securities except that
(1) the expiration cycles of securities index options are monthly, while those
of securities options are currently quarterly, and (2) the delivery requirements
are different. Instead of giving the right to take or make delivery of
securities at a specified price, an option on a securities index gives the
holder the right to receive a cash 'exercise settlement amount' equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed 'index
multiplier.' Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
index and the exercise price of the option times a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Securities index options may be offset by entering into
closing transactions as described above for securities options.

Each Fund will not purchase such options unless the Advisor believes the market
is sufficiently developed such that the risk of trading such options is no
greater than the risk of trading options on securities.

As discussed in 'Options on Securities,' a Fund would normally purchase a call
option in anticipation of an increase in the market value of the relevant index.
The purchase of a call option would entitle a Fund, in exchange for the premium
paid, to receive upon exercise a cash payment based on the level of the index on
the exercise date. A Fund would ordinarily have a gain if the value of the index
increased above the exercise price sufficiently to cover the premium and would
have a loss if the value of the index remained at or below the exercise price
during the option period.

As discussed in 'Options on Securities,' a Fund would normally purchase
'protective puts' in anticipation of a decline in the market value of the
relevant index. The purchase of a put option would entitle a Fund, in exchange
for the premium paid, to receive upon exercise a cash payment based on the level
of the index on the exercise date. The purchase of protective puts is generally
designed to offset or hedge against a decline in the market value of the index.
A Fund would ordinarily recognize a gain if the value of the index decreased
below the exercise price sufficiently to cover the premium and would recognize a
loss if the value of the index remained at or above the exercise price. Gains
and losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of the index.

EAFE(R) Equity Index Fund may, to the extent allowed by Federal and state
securities laws, invest in securities indices instead of investing directly in
individual foreign securities.

Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although a Fund
generally will only purchase or write such an option if the Advisor believes the
option can be closed out.

Use of options on securities indices also entails the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted. A Fund will not purchase such options unless the Advisor
believes the market is sufficiently developed such that the risk of trading in
such options is no greater than the risk of trading in options on securities.

Price movements in a Fund's portfolio may not correlate precisely with movements
in the level of an index and,

                                       18


therefore, the use of options on indices cannot serve as a complete hedge.
Because options on securities indices require settlement in cash, the Advisor
may be forced to liquidate portfolio securities to meet settlement obligations.
Each Fund's activities in index options may also be restricted by the
requirements of the Code for qualification as a regulated investment company.

In addition, the hours of trading for options on the securities indices may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying securities markets that cannot be reflected in the option markets. It
is impossible to predict the volume of trading that may exist in such options,
and there can be no assurance that viable exchange markets will develop or
continue.

Spreadlocks. The Fund may enter into spreadlocks. A spreadlock is a form of swap
contract that involves an exchange of a one time cash payment based on a
specific financial index between the Fund and another party. A spreadlock allows
an interest rate swap user to lock in the forward differential between the
interest rate swap rate and the yield of the government bond underlying the
swap. Essentially, a spreadlock allows the investor to buy or sell the spread
forward by entering into a forward contract on the swap spread (i.e., the spread
between the government yield and the swap rate (or yield)) for a given maturity.
The price of a spreadlock is determined by the yield spread between a forward
starting fixed/floating swap and a forward transaction in a government bond. The
value of the swap is adjusted daily and the change in value is recorded as
unrealized appreciation or depreciation until the agreement matures, at which
time the cash payment, based on the value of the swap on the maturity date, is
exchanged between the two parties.

                               CURRENCY MANAGEMENT

General. In connection with a Fund's investments denominated in foreign
currencies, the Advisor may choose to utilize a variety of currency management
(hedging) strategies. The Advisor seeks to take advantage of different yield,
risk and return characteristics that different currency; currency denominations
and countries can provide to US investors. In doing so, the Advisor will
consider such factors as the outlook for currency relationships; current and
anticipated interest rates; levels of inflation within various countries;
prospects for relative economic growth; and government policies influencing
currency exchange rates and business conditions. Although the Advisor may
attempt to manage currency exchange rate risks, there is no assurance that the
Advisor will do so, or do so at an appropriate time or that the Advisor will be
able to predict exchange rates accurately.

Currency Exchange Transactions. Because each Fund may buy and sell securities
denominated in currencies other than the US dollar and receives interest,
dividends and sale proceeds in currencies other than the US dollar, each Fund
from time to time may enter into currency exchange transactions to convert to
and from different currencies and to convert currencies to and from the US
dollar. A Fund either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the currency exchange market or uses
forward contracts to purchase or sell foreign currencies.

Forward Currency Exchange Contracts. A forward currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract. Forward
currency exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks and brokerages) and their
customers. A forward currency exchange contract may not have a deposit
requirement and may be traded at a net price without commission. Each Fund
maintains with its custodian a segregated account of high grade liquid assets in
an amount at least equal to its obligations under each forward currency exchange
contract. Neither spot transactions nor forward currency exchange contracts
eliminate fluctuations in the prices of the Fund's securities or in exchange
rates, or prevent loss if the prices of these securities should decline.

Each Fund may enter into currency hedging transactions in an attempt to protect
against changes in currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in currency exchange rates
that would adversely affect a Fund's position or an anticipated investment
position. Since consideration of the prospect for currency parities will be
incorporated into the Advisor's long-term investment decisions, a Fund will not
routinely enter into currency hedging transactions with respect to security
transactions; however, the Advisor believes that it is important to have the
flexibility to enter into currency hedging transactions when it determines that
the transactions would be in the Fund's best interest. Although these
transactions tend to

                                       19


minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of the hedged currency increase. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of such
securities between the date the forward contract is entered into and the date it
matures. The projection of currency market movements is extremely difficult, and
the successful execution of a hedging strategy is highly uncertain.

While these contracts are not presently regulated by the Commodity Futures
Trading Commission (the 'CFTC'), the CFTC may in the future assert authority to
regulate forward contracts. In such event a Fund's ability to utilize forward
contracts may be restricted. Forward contracts may reduce the potential gain
from a positive change in the relationship between the US dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
The use of currency forward contracts may not eliminate fluctuations in the
underlying US dollar equivalent value of the prices of or rates of return on a
Fund's foreign currency denominated portfolio securities and the use of such
techniques will subject a Fund to certain risks.

The matching of the increase in value of a forward contract and the decline in
the US dollar equivalent value of the foreign currency denominated asset that is
the subject of the hedge generally will not be precise. In addition, a Fund may
not always be able to enter into currency forward contracts at attractive prices
and this will limit the Fund's ability to use such contract to hedge or
cross-hedge its assets. Also, with regard to a Fund's use of cross-hedges, there
can be no assurance that historical correlations between the movement of certain
foreign currencies relative to the US dollar will continue. Thus, at any time
poor correlation may exist between movements in the exchange rates of the
foreign currencies underlying a Fund's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Fund's assets that are the
subject of such cross-hedges are denominated.

Options on Foreign Currencies. (EAFE(R) Equity Index Fund only)The EAFE(R)
Equity Index Fund may purchase and write options on foreign currencies for
hedging purposes in a manner similar to that in which futures contracts on
foreign currencies, or forward contracts, will be utilized. For example, a
decline in the dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Fund may purchase put
options on the foreign currency. If the value of the currency does decline, the
Fund will have the right to sell such currency for a fixed amount in dollars and
will thereby offset, in whole or in part, the adverse effect on its portfolio
which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the EAFE(R) Equity Index Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.

The EAFE(R) Equity Index Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund anticipates a
decline in the dollar value of foreign currency denominated securities due to
adverse fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the options will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the EAFE(R) Equity
Index Fund could write a put option on the relevant currency which, if rates
move in the manner projected, will expire unexercised and allow the Fund to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Fund also may be required to
forego all or a portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.

                                       20


The EAFE(R) Equity Index Fund may write covered call options on foreign
currencies. A call option written on a foreign currency by the Fund is 'covered'
if the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its Custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Fund has a call on
the same foreign currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash or liquid
securities in a segregated account with its custodian.

The EAFE(R) Equity Index Fund also may write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is designed to
provide a hedge against a decline in the US dollar value of a security which the
Fund owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the exchange rate. In such
circumstances, the Fund collateralizes the option by maintaining in a segregated
account with its custodian, cash or liquid securities in an amount not less than
the value of the underlying foreign currency in US dollars marked to market
daily.

Swap Agreements. Each Fund (except the Equity 500 Index Fund) may enter into
swap agreements to the extent that obligations under such agreements represent
not more than 10% of the Fund's total assets. Swap agreements are contracts
entered into by two parties, primarily institutional investors, for periods
ranging from a few weeks to more than one year. In a standard swap transaction,
two parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments. The
gross returns to be exchanged or swapped between the parties are calculated with
respect to a notional amount, i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a particular
foreign currency, or in a basket of securities representing a particular index.
The notional amount of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. A Fund's obligations (or rights) under a swap agreement will generally
be equal only to the net amount to be paid or received under the agreement based
on the relative values of the positions held by each party to the agreement (the
'net amount'). A Fund's obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the Fund) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by the maintenance of a
segregated account consisting of cash, US Government securities, or high grade
debt obligations, to avoid any potential leveraging of the Fund's portfolio.

Whether the use of swap agreements will be successful in furthering its
investment objective will depend on the Advisor's ability to correctly predict
whether certain types of investments are likely to produce greater returns than
other investments. Swap agreements may be considered to be illiquid because they
are two party contracts and because they may have terms of greater than seven
days. Moreover, a Fund bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a
swap agreement counterparty. A Fund will minimize this risk by entering into
agreements that mark to market no less frequently than quarterly. In addition, a
Fund will enter into swap agreements only with counterparties that would be
eligible for consideration as repurchase agreement counterparties under the
Fund's repurchase agreement guidelines. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements. Swap agreements also bear the risk that a Fund
will not be able to meet its obligation to the counterparty. This risk will be
mitigated by investing the Fund in the specific asset for which it is obligated
to pay a return.

Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act (the 'CEA') and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations approved by
the CFTC. To qualify for this exemption, a swap agreement must be entered into
by eligible participants, which includes the following, provided the
participant's total assets exceed established levels: a bank or trust company,
savings association or credit union, insurance company, investment company
subject to regulation under the 1940 Act, commodity pool, corporation,
partnership, proprietorship, organization, trust or other entity, employee
benefit plan, governmental entity, broker-dealer, futures commission merchant,
natural person, or regulated foreign person. To be eligible, natural persons and
most other entities must have total assets exceeding $10 million; commodity
pools and employee benefit plans must have assets exceeding $5 million. In
addition, an

                                       21


eligible swap transaction must meet three conditions. First, the swap agreement
may not be part of a fungible class of agreements that are standardized as to
their material economic terms. Second, the creditworthiness of parties with
actual or potential obligations under the swap agreement must be a material
consideration in entering into or determining the terms of the swap agreement,
including pricing, cost or credit enhancement terms. Third, swap agreements may
not be entered into and traded on or through a multilateral transaction
execution facility.

This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a 'safe harbor' for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that: (i) have
individually tailored terms; (ii) lack exchange style offset and the use of a
clearing organization or margin system; (iii) are undertaken in conjunction with
a line of business; and (iv) are not marketed to the public.

   DERIVATIVE SECURITIES: FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

General. Each Fund may enter into futures contracts on securities, securities
indices, foreign currencies and interest rates, and purchase and write (sell)
options thereon which are traded on exchanges designated by the CFTC or, if
consistent with CFTC regulations, on foreign exchanges. These futures contracts
are standardized contracts for the future delivery of, among other things, a
commodity, a non-US currency, an interest rate sensitive security or, in the
case of index futures contracts or certain other futures contracts, a cash
settlement with reference to a specified multiplier times the change in the
index. 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.

Each Fund will engage in futures and related options transactions only for bona
fide hedging or other non-hedging purposes as permitted by CFTC regulations
which permit principals of an investment company registered under the 1940 Act
to engage in such transactions without registering as commodity pool operators.
The Funds may, for example, enter into futures contracts and options on futures
contracts on securities, securities indices and currencies to manage its
exposure to changing interest rates, security prices and currency exchange rates
or as an efficient means of managing allocations between asset classes. All
futures contracts entered into by the Funds are traded on US exchanges or boards
of trade that are licensed and regulated by the CFTC or on foreign exchanges
approved by the CFTC. The Funds will determine that the price fluctuations in
the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities or instruments held by
the Funds or securities or instruments which they expect to purchase. Aggregate
initial margin and premiums required to establish positions other than those
considered by the CFTC to be 'bona fide hedging' will not exceed 5% of a Fund's
net asset value, after taking into account unrealized profits and unrealized
losses on any such contracts.

Each Fund's futures transactions may be entered into for traditional hedging
purposes--i.e., futures contracts will be sold to protect against a decline in
the price of securities (or the currency in which they are denominated) that the
Fund owns or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are
denominated) that the Fund intends to purchase. As evidence of this hedging
intent, the Funds expect that, on 75% or more of the occasions on which they
take a long futures or option position (involving the purchase of futures
contracts), the Funds will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities (or assets denominated in
the related currency) in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for the Funds to do so, a long futures position may be terminated
or an option may expire without the corresponding purchase of securities or
other assets. Each Fund may not invest more than 25% of its total assets in
purchased protective put options.

The successful use of futures contracts and options thereon draws upon the
Advisor's skill and experience with respect to such instruments and are subject
to special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the securities or currency in the Funds. Successful use of futures
or options contracts is further dependent on the Advisor's ability to predict
correctly movements in the securities or foreign currency markets and no
assurance can be given that its judgment will be correct.

The Board of Trustees has adopted the requirement that futures contracts and
options on futures contracts be used as a hedge and, the Funds may also use
stock index futures on a continual basis to equitize cash so that the Funds may

                                       22


maintain 100% equity exposure.

Futures Contracts. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. US futures contracts have been designed by exchanges which have
been designated 'contracts markets' by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchanges and
clear through their clearing corporations. Each Fund may enter into contracts
for the purchase or sale for future delivery of fixed-income securities, foreign
currencies, or financial indices including any index of US Government
securities, foreign government securities or corporate debt securities. Each
Fund may enter into futures contracts which are based on debt securities that
are backed by the full faith and credit of the US government, such as long-term
US Treasury Bonds, Treasury Notes, Ginnie Mae modified pass-through
mortgage-backed securities and three-month US Treasury Bills. A Fund may also
enter into futures contracts which are based on bonds issued by governments
other than the US government. Futures contracts on foreign currencies may be
used to hedge against securities that are denominated in foreign currencies.

At the same time a futures contract is entered into, a Fund must allocate cash
or securities as a deposit payment ('initial margin'). Daily thereafter, the
futures contract is valued and the payment of 'variation margin' may be
required, since each day the Fund would provide or receive cash that reflects
any decline or increase in the contract's value.

At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.

Although futures contracts (other than those that settle in cash such as index
futures) by their terms call for the actual delivery or acquisition of the
instrument underlying the contract, in most cases the contractual obligation is
fulfilled by offset before the date of the contract without having to make or
take delivery of the instrument underlying the contract. The offsetting of a
contractual obligation is accomplished by entering into an opposite position in
the identical futures contract on the commodities exchange on which the futures
contract was entered into (or a linked exchange). Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the instrument underlying the contract. Since all transactions in
the futures market are made, offset or fulfilled through a clearinghouse
associated with the exchange on which the contracts are traded, a Fund will
incur brokerage fees when it enters into futures contracts.

One purpose of the acquisition or sale of a futures contract, in the case of a
Fund which holds or intends to acquire fixed-income securities, is to attempt to
protect the Fund from fluctuations in interest or foreign exchange rates without
actually buying or selling fixed-income securities or foreign currencies. For
example, if interest rates were expected to increase, a Fund might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the debt securities owned by
the Fund. If interest rates did increase, the value of the debt security in the
Fund would decline, but the value of the futures contracts to the Fund would
increase at approximately the same rate, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. A Fund could
accomplish similar results by selling debt securities and investing in bonds
with short maturities when interest rates are expected to increase. However,
since the futures market is more liquid than the cash market, the use of futures
contracts as an investment technique allows a Fund to maintain a defensive
position without having to sell its portfolio securities.

Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Fund could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund could then buy debt securities on the
cash market. The assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such futures contracts will consist of cash
or securities acceptable to the broker from its portfolio in an amount equal to
the difference between the fluctuating market value of such futures contracts
and the aggregate value of the initial and variation margin payments made by the
Fund with respect to such futures contracts.

The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets,

                                       23


are subject to distortions. First, all participants in the futures market are
subject to initial deposit and variation margin requirements. Rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on most participants entering into offsetting
transactions rather than making or taking delivery. To the extent that many
participants decide to make or take delivery, liquidity in the futures market
could be reduced, thus producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate or currency exchange rate trends by the Advisor may still not
result in a successful transaction.

In addition, futures contracts entail risks. Although the Advisor believes that
use of such contracts will benefit the Funds, if the Advisor's investment
judgment about the general direction of interest rates is incorrect, a Fund's
overall performance would be poorer than if it had not entered into any such
contract. For example, if a Fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price of debt
securities held in its portfolio and interest rates decrease instead, the Fund
will lose part or all of the benefit of the increased value of its debt
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if a Fund has insufficient
cash, it may have to sell debt securities from its portfolio to meet daily
variation margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising market. A Fund may
have to sell securities at a time when it may be disadvantageous to do so.

Futures Contracts on Securities Indices. The Funds may also enter into futures
contracts providing for the making and acceptance of a cash settlement based
upon changes in the value of an index of US or non-US securities. Index futures
may be used for speculative purposes, as a low-cost method of gaining exposure
to a particular securities market without investing directly in those securities
or to hedge against anticipated future changes in general market prices which
otherwise might either adversely affect the value of securities held by the
Funds or adversely affect the prices of securities which are intended to be
purchased at a later date for the Funds or as an efficient means of managing
allocation between asset classes. An index futures contract may also be entered
into to close out or offset an existing futures position.

When used for hedging purposes, each transaction in futures contracts on a
securities index involves the establishment of a position which, the Advisor
believes, will move in a direction opposite to that of the investment being
hedged. If these hedging transactions are successful, the futures positions
taken for a Fund will rise in value by an amount which approximately offsets the
decline in value of the portion of the Fund's investments that are being hedged.
Should general market prices move in an unexpected manner, the full anticipated
benefits of futures contracts may not be achieved or a loss may be realized.

Options on Futures Contracts (Including Futures Contracts on Securities
Indices). Each Fund may purchase and write (sell) options on futures contracts
for speculative or hedging purposes. For example, as with the purchase of
futures contracts, when a Fund is not fully invested, it may purchase a call
option on an interest rate sensitive futures contract to hedge against a
potential price increase on debt securities due to declining interest rates.

The purchase of a call option on a futures contract is similar in some respects
to the purchase of a call option on an index or individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities.

The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of the underlying portfolio securities which are
the same as or correlate with the security or foreign currency futures contract
that is deliverable upon exercise of the option on that futures contract. If the
futures price at expiration of the option is below the exercise price specified
in the option, a Fund will retain the full amount of the net premium (the
premium received for writing the option less any commission), which provides a
partial hedge against any decline that may have occurred in a Fund's holdings.

The writing of a put option on an index futures contract may constitute a
partial hedge against increasing prices of the underlying securities or foreign
currency that are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, a
Fund will retain the full amount of the option net

                                       24


premium, which provides a partial hedge against any increase in the price of
securities that the Fund intends to purchase.

If a put or call option a Fund has written is exercised, the Fund will incur a
loss that will be reduced by the amount of the net premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, a Fund's
losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.

The purchase of a call or put option on a futures contract with respect to an
index is similar in some respects to the purchase of a call or protective put
option on an index. For example, a Fund may purchase a put option on an index
futures contract to hedge against the risk of declining securities values.

The amount of risk a Fund assumes when it purchases an option on an index
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of
such an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased.

Additional Risks Related to Transactions in Options, Futures Contracts, Options
on Futures Contracts, Swaps and Forward Foreign Currency Exchange Contracts. The
Funds' management techniques involve (1) liquidity risk (contractual positions
cannot be easily closed out in the event of market changes or generally in the
absence of a liquid secondary market), (2) correlation risk (changes in the
value of hedging positions may not match the securities market and foreign
currency fluctuations intended to be hedged), and (3) market risk (an incorrect
prediction of securities prices or exchange rates by the Advisor may cause the
Fund to perform worse than if such positions had not been taken). In addition,
the ability to terminate OTC derivatives is more limited than with exchange
traded derivatives and may involve the risk that the counterparty to the option
will not fulfill its obligations.

Asset Coverage. The Funds will comply with the segregation or coverage
guidelines established by the SEC and other applicable regulatory bodies with
respect to certain transactions, including (but not limited to) options written
on securities and indexes; currency, interest rate and security index futures
contracts and options on these futures contracts; forward currency contracts;
and swaps, caps, floors and collars. These guidelines may, in certain instances,
require segregation by the Fund of cash or liquid securities to the extent the
Fund's obligations with respect to these strategies are not otherwise covered
through ownership of the underlying security or financial instrument, by other
portfolio positions or by other means consistent with applicable regulatory
policies. Unless the transaction is covered, the segregated assets must at all
times equal or exceed the Fund's obligations with respect to these strategies.
Segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. As a
result, there is a possibility that segregation of a large percentage of the
Fund's assets could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.

The Board of Trustees of the Funds has adopted the requirement that futures
contracts and options on futures contracts be used as a hedge and may also use
stock index futures on a continual basis to equitize cash so that the Fund may
maintain 100% equity exposure. In compliance with current CFTC regulations, the
Fund will not enter into any futures contracts or options on futures contracts
if immediately thereafter the amount of margin deposits on all the futures
contracts of the Fund and premiums paid on outstanding options on futures
contracts owned by the Fund (other than those entered into for bona fide hedging
purposes) would exceed 5% of the Fund's net asset value, after taking into
account unrealized profits and unrealized losses on any such contracts.

For example, a call option written on securities may require a Fund to hold the
securities subject to the call (or securities convertible into the securities
without additional consideration) or to segregate assets (as described above)
sufficient to purchase and deliver the securities if the call is exercised. A
call option written on an index may require the Fund to own portfolio securities
that correlate with the index or to segregate assets (as described above) equal
to the excess of the index value over the exercise price on a current basis. A
put option written by the Fund may require the Fund to segregate assets (as
described above) equal to the exercise price. The Fund could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Fund. If the Fund holds a futures contract,
the Fund could purchase a put option on the same futures contract with a strike

                                       25


price as high or higher than the price of the contract held. The Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.

The use of derivatives is a highly specialized activity which involves
investment techniques and risks that are different from those associated with
ordinary portfolio transactions. Gains and losses on these derivatives depend on
the Advisor's ability to predict the direction of stock prices, interest rates,
currency movements and other economic factors. The loss that may be incurred by
the Fund in entering into futures contracts, written options, forward currency
contracts and certain swaps is potentially unlimited. There is no assurance that
higher than anticipated trading activity or other unforeseen events might not,
at times, render certain facilities of an options clearing entity or other
entity performing the regulatory and liquidity functions of an options clearing
entity inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders. Most futures exchanges limit the amount of fluctuation permitted in a
futures contract's prices during a single trading day. Once the limit has been
reached no further trades may be made that day at a price beyond the limit. The
price limit will not limit potential losses, and may in fact prevent the prompt
liquidation of futures positions, ultimately resulting in further losses.
Options and futures traded on foreign exchanges generally are not regulated by
US authorities, and may offer less liquidity and less protection to the Fund in
the event of default by the other party to the contract.

Except as set forth above under 'Derivative Securities: Futures Contracts and
Options on Futures Contracts', there is no limit on the percentage of the assets
of a Fund that may be at risk with respect to futures contracts and related
options or forward currency contracts. Each Fund's transactions in options,
forward currency contracts, futures contracts, options on futures contracts and
swaps may be limited by the requirements for qualification of the Fund as a
regulated investment company for tax purposes. See 'Taxes.' There can be no
assurance that the use of these portfolio strategies will be successful.

                    DERIVATIVE SECURITIES: HEDGING STRATEGIES

Hedging Strategies. Each Fund may use certain strategies designed to adjust the
overall risk of its investment portfolio. These 'hedging' strategies involve
derivative contracts, including (but not limited to) futures contracts and
exchange-traded put and call options on such futures contracts. New financial
products and risk management techniques continue to be developed and may be used
if consistent with the Fund's investment objective and policies. Among other
purposes, these hedging strategies may be used to effectively maintain a desired
portfolio duration or to protect against market risk should the Fund change its
investments among different types of securities.

Each Fund might not use any hedging strategies, and there can be no assurance
that any strategy used will succeed. If the Advisor is incorrect in its judgment
on market values, interest rates, currency rates or other economic factors in
using a hedging strategy, the Fund may have lower net income and a net loss on
the investment. Each of these strategies involves certain risks, which include:

..    the fact that the skills needed to use hedging instruments are different
     from those needed to select securities for the Fund;
..    the possibility of imperfect correlation, or even no correlation, between
     the price movements of hedging instruments and price movements of the
     securities or currencies being hedged;
..    possible constraints placed on the Fund's ability to purchase or sell
     portfolio investments at advantageous times due to the need for the Fund to
     maintain 'cover' or to segregate securities; and
..    the possibility that the Fund will be unable to close out or liquidate its
     hedged position.

A hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time; however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of derivative transactions for hedging purposes
could limit any potential gain from an increase in the value of the position
hedged. With respect to futures contracts, since the value of portfolio
securities will generally far exceed the value of the futures contracts sold by
the Fund, an increase in the value of the futures contracts could only mitigate,
but not totally offset, the decline in the value of the Fund's assets.

                                       26


In hedging transactions based on an index, whether the Fund will realize a gain
or loss depends upon movements in the level of securities prices in the
securities market generally or, in the case of certain indexes, in an industry
or market segment, rather than movements in the price of a particular security.
The risk of imperfect correlation increases as the composition of the Fund's
portfolio varies from the composition of the index. In an effort to compensate
for imperfect correlation of relative movements in the hedged position and the
hedge, the Fund's hedge positions may be in a greater or lesser dollar amount
than the dollar amount of the hedged position. Such 'over hedging' or 'under
hedging' may adversely affect the Fund's net investment results if market
movements are not as anticipated when the hedge is established.

Securities index futures transactions may be subject to additional correlation
risks. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions that would distort the normal relationship between the securities
index and futures markets. Secondly, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
Because of the possibility of price distortions in the futures market and the
imperfect correlation between movements in a securities index and movements in
the price of securities index futures, a correct forecast of general market
trends by the Advisor still may not result in a successful hedging transaction.

To the extent that a Fund engages in the strategies described above, the Fund
may experience losses greater than if these strategies had not been utilized. In
addition to the risks described above, these instruments may be illiquid and/or
subject to trading limits and the Fund may be unable to close out a position
without incurring substantial losses, if at all. Each Fund is also subject to
the risk of default by a counterpart to an off-exchange transaction. See
'Illiquid Securities.'

                                OTHER INVESTMENTS

Illiquid Securities. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the '1933 Act'),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

A large institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities, municipal securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on an issuer's ability to honor a
demand for repayment. The fact that there are contractual or legal restrictions
on resale of such investments to the general public or to certain institutions
may not be indicative of their liquidity.

The Securities and Exchange Commission (the 'SEC') has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
'safe harbor' from the registration requirements of the 1933 Act of resales of
certain securities to qualified institutional buyers. The Advisor anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.

Rule 144A Securities are securities in the United States that are not registered
for sale under federal securities laws

                                       27


but which can be resold to institutions under SEC Rule 144A. Provided that a
dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from each Fund's 15% limit on
illiquid securities. Under the supervision of the Board of Trustees of the
Funds, the Advisor determines the liquidity of restricted securities and,
through reports from the Advisor, the Board will monitor trading activity in
restricted securities. If institutional trading in restricted securities were to
decline, the liquidity of the Funds could be adversely affected.

In reaching liquidity decisions, the Advisor will consider, among other things,
the following factors: (i) the frequency of trades and quotes for the security;
(ii) the number of dealers and other potential purchasers wishing to purchase or
sell the security; (iii) dealer undertakings to make a market in the security
and (iv) the nature of the security and of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).

When-Issued and Delayed Delivery Securities. Each Fund may purchase securities
on a when-issued or delayed delivery basis. Delivery of and payment for these
securities can take place a month or more after the date of the purchase
commitment. The purchase price and the interest rate payable, if any, on the
securities are fixed on the purchase commitment date or at the time the
settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to a Fund until settlement takes place. At
the time a Fund makes the commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction, reflect the value each
day of such securities in determining its net asset value and, if applicable,
calculate the maturity for the purposes of average maturity from that date. At
the time of settlement a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, each Fund identifies, as part
of a segregated account, cash or liquid securities, in an amount at least equal
to such commitments. On delivery dates for such transactions, each Fund will
meet its obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If a Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition, it could, as
with the disposition of any other portfolio obligation, incur a gain or loss due
to market fluctuation. It is the current policy of each Fund not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.

Repurchase Agreements. Each Fund may engage in repurchase agreement transactions
with member banks of the Federal Reserve System, certain non-US banks and
certain non-bank dealers, including governmental securities dealers. Under the
terms of a typical repurchase agreement, a Fund would acquire any underlying
security for a relatively short period (usually not more than one week), subject
to an obligation of the seller to repurchase, and the Fund to resell, the
obligation at an agreed price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period. The
value of the underlying securities will be at least equal at all times to the
total amount of the repurchase obligations, including interest. The Funds bears
a risk of loss in the event of default by or bankruptcy of the other party to a
repurchase agreement. The Funds may be delayed in, or prevented from, exercising
its rights to dispose of the collateralized securities. To the extent that, in
the meantime, the value of the securities repurchased had decreased or the value
of the securities had increased, the Funds could experience a loss. The Advisor
reviews the creditworthiness of those banks and dealers with which a Fund enters
into repurchase agreements and monitors on an ongoing basis the value of the
securities subject to repurchase agreements to ensure that it is maintained at
the required level. A repurchase agreement is considered to be a loan under the
1940 Act.

Reverse Repurchase Agreements. The Funds may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption requests,
and not for leverage, by among other things, agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed date and price (a 'reverse repurchase
agreement'). At the time a Fund enters into a reverse repurchase agreement it
will place in a segregated custodial account cash, US Government Obligations or
high-grade debt obligations having a value equal to the repurchase price,
including accrued interest. The segregated assets will be marked-to-market daily
and additional assets will be segregated on any day in which the assets fall
below the repurchase price (plus accrued interest). A Fund's liquidity and
ability to manage its assets might be affected when it sets aside cash or
portfolio securities to cover such commitments. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the repurchase price of those securities. . In

                                       28


the event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce a Fund's obligation
to repurchase the securities, and the Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
Reverse repurchase agreements are considered to be borrowings by a Fund.

Lending of Portfolio Securities. Each Fund has the authority to lend up to 30%
(the Nasdaq-100 Index Fund may lend up to 33.3%) of the total value of its
portfolio securities to brokers, dealers and other financial organizations. The
Funds will not lend securities to the Advisor, the Distributor or their
affiliates, except as may be permitted by the 1940 Act or an order from the SEC.
The Board of Trustees will make a determination that the fee paid to the placing
broker is reasonable. These loans must be collateralized by cash or liquid
securities at least equal to the market value of the securities loaned plus
accrued income. By lending its securities, a Fund may increase its income by
continuing to receive payments in respect of dividends and interest on the
loaned securities as well as by either investing the cash collateral in
short-term securities or obtaining yield in the form of interest paid by the
borrower when irrevocable letters of credit and US government obligations are
used as collateral. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Funds. From time to time, the Funds may return a part of the interest earned
from the investment of collateral received for securities loaned to the borrower
and/or a third party that is unaffiliated with the Funds and that is acting as a
'finder'.

The Funds will adhere to the following conditions whenever its securities are
loaned: (1) the Funds must receive at least 100% collateral consisting of cash
or equivalent securities of the type discussed above at least equal to the
market value of the securities loaned plus accrued interest from the borrower;
(2) the borrower must increase this collateral whenever the market value of the
securities including accrued interest rises above the level of the collateral;
(3) the Funds must be able to terminate the loan at any time; (4) the Funds must
receive reasonable interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities; (5) the Funds may pay only
reasonable custodian fees in connection with the loan; and (6) voting rights on
the loaned securities may pass to the borrower; provided, however, that if a
material event adversely affecting the investment occurs, the Funds must retain
the right to terminate the loan and recall and vote the securities.

During the term of the loan, the Funds continue to bear the risk of fluctuations
in the price of the loaned securities. In lending securities to brokers, dealers
and other organizations, the Funds are subject to risks which, like those
associated with other extensions of credit, include delays in receiving
additional collateral, in recovery of the securities or even loss of rights in
the collateral should the borrower of the securities fail financially. Default
by or bankruptcy of a borrower would expose the Funds to possible loss because
of adverse market action, expenses and/or delays in connection with the
disposition of the underlying securities. The Funds are a party to an exemptive
order from the SEC which allows cash collateral to be invested in a money market
fund managed by the Advisor (or one of its affiliates) and the Advisor (or one
of its affiliates) may serve as the Funds' lending agent and may share in
revenue received from securities lending transactions as compensation for this
service.

                             ADDITIONAL RISK FACTORS

In addition to the risks discussed above, the Funds' investments may be subject
to the following risk factors:

Diversification. The EAFE(R) Equity Index Fund, Equity 500 Index Fund, Small Cap
Index Fund and US Bond Index Fund are 'diversified' under the 1940 Act and are
also subject to issuer diversification requirements imposed on regulated
investment companies by Subchapter M of the Code. The Nasdaq-100 Index Fund is
'non-diversified' under the 1940 Act, which means that the Fund is not limited
by the 1940 Act in the proportion of its assets that it may invest in the
obligations of a single issuer. As a non-diversified investment company, the
Fund may invest a greater proportion of its assets in the obligations of a small
number of issuers and, as a result, may be subject to greater risk with respect
to portfolio securities. To the extent that the Fund assumes large positions in
the securities of a small number of issuers, its return may fluctuate to a
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers.

The Nasdaq-100 Index Fund is subject to certain federal tax diversification
requirements and to the policies adopted by the Advisor. To qualify as a
'regulated investment company,' the Fund will comply with certain requirements,

                                       29


including limiting its investments so that at the close of each quarter of the
taxable year (i) not more than 25% of the market value of its total assets will
be invested in the securities of a single issuer, and (ii) with respect to 50%
of the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer, and the
Fund will not own more than 10% of the outstanding voting securities of a single
issuer. These federal tax diversification requirements are subject to certain
qualifications and exceptions.

Rating Services. The ratings of Moody's and S&P represent their opinions as to
the quality of the Municipal Obligations and other securities that they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. Although these ratings
are an initial criterion for selection of portfolio investments, the Advisor
also makes its own evaluation of these securities, subject to review by the
Board of Trustees. After purchase by a Fund, an obligation may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Fund. Neither event would require a Fund to eliminate the obligation from its
portfolio, but the Advisor will consider such an event in its determination of
whether a Fund should continue to hold the obligation. A description of the
ratings categories of Moody's and S&P is set forth in the Appendix to this SAI.

                             INVESTMENT RESTRICTIONS

Fundamental Policies. The following investment restrictions are 'fundamental
policies' of each Fund and may not be changed with respect to a Fund without the
approval of a 'majority of the outstanding voting securities' of the Fund.
'Majority of the outstanding voting securities' under the 1940 Act, and as used
in this SAI, means, with respect to each Fund, the lesser of (i) 67% or more of
the outstanding voting securities of the Fund present at a meeting, if the
holders of more than 50% of the outstanding voting securities of the Fund are
present or represented by proxy or (ii) more than 50% of the outstanding voting
securities of the Fund.

As a matter of fundamental policy, EAFE(R) Equity Index Fund, Equity 500 Index
Fund, Small Cap Index Fund and Nasdaq-100 Index Fund may not:

         (1) borrow money or mortgage or hypothecate assets of the Fund, except
         that in an amount not to exceed 1/3 of the current value of the Fund's
         net assets, it may borrow money as a temporary measure for
         extraordinary or emergency purposes and enter into reverse repurchase
         agreements or dollar roll transactions, and except that it may pledge,
         mortgage or hypothecate not more than 1/3 of such assets to secure such
         borrowings (it is intended that money would be borrowed only from banks
         and only either to accommodate requests for the withdrawal of
         beneficial interests (redemption of shares) while effecting an orderly
         liquidation of portfolio securities or to maintain liquidity in the
         event of an unanticipated failure to complete a portfolio security
         transaction or other similar situations) or reverse repurchase
         agreements, provided that collateral arrangements with respect to
         options and futures, including deposits of initial deposit and
         variation margin, are not considered a pledge of assets for purposes of
         this restriction (as an operating policy, the Funds may not engage in
         dollar roll transactions);

         (2) underwrite securities issued by other persons except insofar as the
         Trust or the Fund may technically be deemed an underwriter under the
         1933 Act in selling a portfolio security;

         (3) make loans to other persons except: (a) through the lending of the
         Fund's portfolio securities and provided that any such loans not exceed
         30% (33.3% for the Nasdaq-100 Index Fund) of the Fund's total assets
         (taken at market value); or (b) through the use of repurchase
         agreements or the purchase of short-term obligations;

         (4) purchase or sell real estate (including limited partnership
         interests but excluding securities secured by real estate or interests
         therein), interests in oil, gas or mineral leases, commodities or
         commodity contracts (except futures and option contracts) in the
         ordinary course of business (except that the Trust may hold and sell,
         for the Fund's portfolio, real estate acquired as a result of the
         Fund's ownership of securities);

         (5) concentrate its investments in any particular industry (excluding
         US Government securities), but if it is deemed appropriate for the
         achievement of the Fund's investment objective(s), up to 25% of its
         total assets may be invested in any one industry;

                                       30


         (6) issue any senior security (as that term is defined in the 1940 Act)
         if such issuance is specifically prohibited by the 1940 Act or the
         rules and regulations promulgated thereunder (except to the extent
         permitted in investment restriction No. 1), provided that collateral
         arrangements with respect to options and futures, including deposits of
         initial deposit and variation margin, are not considered to be the
         issuance of a senior security for purposes of this restriction; and

         (7) (except for the Nasdaq-100 Index Fund) purchase the securities of
         any one issuer if as a result more than 5% of the value of its total
         assets would be invested in the securities of such issuer or the Fund
         would own more than 10% of the outstanding voting securities of such
         issuer, except that up to 25% of the value of its total assets may be
         invested without regard to these 5% limitation and provided that there
         is no limitation with respect to investments in US Government
         securities.

         As a matter of fundamental policy , US Bond Index Fund may not:

         (1) borrow money or mortgage or hypothecate assets of the Fund, except
         that in an amount not to exceed 1/3 of the current value of the Fund's
         net assets, it may borrow money as a temporary measure for
         extraordinary or emergency purposes and enter into reverse repurchase
         agreements or dollar roll transactions, and except that it may pledge,
         mortgage or hypothecate not more than 1/3 of such assets to secure such
         borrowings (it is intended that money would be borrowed only from banks
         and only either to accommodate requests for the withdrawal of
         beneficial interests (redemption of shares) while effecting an orderly
         liquidation of portfolio securities or to maintain liquidity in the
         event of an unanticipated failure to complete a portfolio security
         transaction or other similar situations) or reverse repurchase
         agreements, provided that collateral arrangements with respect to
         options and futures, including deposits of initial deposit and
         variation margin, are not considered a pledge of assets for purposes of
         this restriction and except that assets may be pledged to secure
         letters of credit solely for the purpose of participating in a captive
         insurance company sponsored by the Investment Company Institute; for
         additional related restrictions, see clause (i) under the caption
         'Additional Restrictions' below (as an operating policy, the Funds may
         not engage in dollar roll transactions);

         (2) underwrite securities issued by other persons except insofar as the
         Trust or the Fund may technically be deemed an underwriter under the
         1933 Act in selling a portfolio security;

         (3) make loans to other persons except: (a) through the lending of the
         Fund's portfolio securities and provided that any such loans not exceed
         30% of the Fund's net assets (taken at market value); (b) through the
         use of repurchase agreements or the purchase of short-term obligations;
         or (c) by purchasing a portion of an issue of debt securities of types
         distributed publicly or privately;

         (4) purchase or sell real estate (including limited partnership
         interests but excluding securities secured by real estate or interests
         therein), interests in oil, gas or mineral leases, commodities or
         commodity contracts (except futures and option contracts) in the
         ordinary course of business (except that the Trust may hold and sell,
         for the Fund's portfolio, real estate acquired as a result of the
         Fund's ownership of securities);

         (5) concentrate its investments in any particular industry (excluding
         US Government securities), but if it is deemed appropriate for the
         achievement of the Fund's investment objective(s), up to 25% of its
         total assets may be invested in any one industry;

         (6) issue any senior security (as that term is defined in the 1940 Act)
         if such issuance is specifically prohibited by the 1940 Act or the
         rules and regulations promulgated thereunder (except to the extent
         permitted in investment restriction No. 1), provided that collateral
         arrangements with respect to options and futures, including deposits of
         initial deposit and variation margin, are not considered to be the
         issuance of a senior security for purposes of this restriction; and

                                       31


         (7) purchase the securities of any one issuer if as a result more than
         5% of the value of its total assets would be invested in the securities
         of such issuer or the Fund would own more than 10% of the outstanding
         voting securities of such issuer, except that up to 25% of the value of
         its total assets may be invested without regard to these 5% limitation
         and provided that there is no limitation with respect to investments in
         US Government Securities.

                             ADDITIONAL RESTRICTIONS

In order to comply with certain statutes and policies, the EAFE(R) Equity Index
Fund, Equity 500 Index Fund, Small Cap Index Fund and Nasdaq-100 Index Fund will
not, as a matter of operating policy (except such policies may be changed by the
Board of Trustees):

         (i) purchase any security or evidence of interest therein on margin,
         except that such short-term credit as may be necessary for the
         clearance of purchases and sales of securities may be obtained and
         except that deposits of initial deposit and variation margin may be
         made in connection with the purchase, ownership, holding or sale of
         futures;

         (ii) invest for the purpose of exercising control or management;

         (iii) purchase for the Fund securities of any investment company if
         such purchase at the time thereof would cause: (a) more than 10% of the
         Fund's total assets (taken at the greater of cost or market value) to
         be invested in the securities of such issuers; (b) more than 5% of the
         Fund's total assets (taken at the greater of cost or market value) to
         be invested in any one investment company; or (c) more than 3% of the
         outstanding voting securities of any such issuer to be held for the
         Fund; or

         (iv) invest more than 15% of the Fund's net assets (taken at the
         greater of cost or market value) in securities that are illiquid or not
         readily marketable not including (a) Rule 144A securities that have
         been determined to be liquid by the Board of Trustees; and (b)
         commercial paper that is sold under section 4(2) of the 1933 Act which
         is not traded flat or in default as to interest or principal.


In order to comply with certain statutes and policies, the US Bond Index Fund
will not, as a matter of operating policy (except such policies may be changed
by the Board of Trustees):

         (i) purchase any security or evidence of interest therein on margin,
         except that such short-term credit as may be necessary for the
         clearance of purchases and sales of securities may be obtained and
         except that deposits of initial deposit and variation margin may be
         made in connection with the purchase, ownership, holding or sale of
         futures;

         (ii) sell securities it does not own such that the dollar amount of
         such short sales at any one time exceeds 25% of the net equity of the
         Fund, and the value of securities of any one issuer in which the Fund
         is short exceeds the lesser of 2.0% of the value of the Fund's net
         assets or 2.0% of the securities of any class of any US issuer and,
         provided that short sales may be made only in those securities which
         are fully listed on a national securities exchange (This provision does
         not include the sale of securities where the Fund contemporaneously
         owns or has the right to obtain securities equivalent in kind and
         amount to those sold, i.e., short sales against the box.) (the Fund has
         no current intention to engage in short selling);

         (iii) invest for the purpose of exercising control or management;

         (iv) purchase securities issued by any investment company except by
         purchase in the open market where no commission or profit to a sponsor
         or dealer results from such purchase other than the customary broker's
         commission, or except when such purchase, though not made in the open
         market, is part of a plan of merger or consolidation; provided,
         however, that securities of any investment company will not be
         purchased for the Fund if such purchase at the time thereof would
         cause: (a) more than 10% of the Fund's total assets (taken at the
         greater of cost or market value) (except the Fund may exceed the
         applicable percentage limits

                                       32


         to the extent permitted by an exemptive order of the SEC)to be invested
         in the securities of such issuers; (b) more than 5% of the Fund's total
         assets (taken at the greater of cost or market value) (except the Fund
         may exceed the applicable percentage limits to the extent permitted by
         an exemptive order of the SEC) to be invested in any one investment
         company; or (c) more than 3% of the outstanding voting securities of
         any such issuer to be held for the Fund; provided further that, except
         in the case of a merger or consolidation, the Fund shall not purchase
         any securities of any open-end investment company unless the Fund (1)
         waives the investment advisory fee with respect to assets invested in
         other open-end investment companies and (2) incurs no sales charge in
         connection with the investment;

         (v) invest more than 10% of the Fund's total assets (taken at the
         greater of cost or market value) in securities that are restricted as
         to resale under the 1933 Act (other than Rule 144A securities deemed
         liquid by the Fund's Board of Trustees);

         (vi) invest more than 15% of the Fund's net assets (taken at the
         greater of cost or market value) in securities that are illiquid or not
         readily marketable not including (a) Rule 144A securities that have
         been determined to be liquid by the Board of Trustees; and (b)
         commercial paper that is sold under section 4(2) of the 1933 Act which
         is not traded flat or in default as to interest or principal;

         (vii) invest in warrants (other than warrants acquired by the Fund as
         part of a unit or attached to securities at the time of purchase) if,
         as a result, the investments (valued at the lower of cost or market)
         would exceed 5% of the value of the Fund's net assets or if, as a
         result, more than 2% of the Fund's net assets would be invested in
         warrants not listed on a recognized United States stock exchange, to
         the extent permitted by applicable state securities laws.

There will be no violation of any investment restrictions or policies (except
with respect to fundamental investment restriction (1) above) if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in the market value of an investment, in net or
total assets, or in the change of securities rating of the investment, or any
other later change.

                               PORTFOLIO TURNOVER

Although the Funds do not intend to invest for the purpose of seeking short-term
profits, securities in the Funds may be sold whenever the Advisor believes it is
appropriate to do so in light of the investment objective of the Funds without
regard to the length of time a particular security may have been held. A 100%
annual turnover rate would occur, for example, if all portfolio securities
(excluding short-term obligations) were replaced once in a period of one year,
or if 10% of the portfolio securities were replaced ten times in one year.

The rate of portfolio turnover of the Nasdaq-100 Index Fund may exceed that of
certain other mutual funds with the same investment objective. The amount of
brokerage commissions tends to increase as the level of portfolio activity
increases.

Each Fund's annual portfolio turnover rate (the lesser of the value of the
purchases or sales for the year divided by the average monthly market value of
the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions.

                PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

Subject to the general supervision of the Board of Trustees, the Advisor makes
decisions with respect to, and places orders for all purchases and sales of
portfolio securities for the Funds. In executing portfolio transactions, the
Advisor seeks to obtain the best net results for the Funds, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), size of the order, difficulty of execution and operational facilities
of the firm involved. Commission rates, being a component of price, are
considered together with such factors. Where transactions are effected on a
foreign securities exchange, the Funds employ brokers, generally at fixed
commission rates. Commissions on transactions on U.S. securities exchanges are
subject to negotiation. Where transactions are effected in the over-the-counter
market or third-party market, the Funds deal with the primary market

                                       33


makers unless a more favorable result is obtainable elsewhere. Fixed income
securities purchased or sold on behalf of the Funds normally will be traded in
the over-the-counter market on a net basis (i.e. without a commission) through
dealers acting for their own account and not as brokers or otherwise through
transactions directly with the issuer of the instrument. Some fixed income
securities are purchased and sold on an exchange or in over-the-counter
transactions conducted on an agency basis involving a commission.

Pursuant to the investment advisory agreement, the Advisor selects
broker-dealers in accordance with guidelines established by the Trust's Board of
Trustees from time to time and in accordance with Section 28(e) of the
Securities Exchange Act of 1934, as amended. In assessing the terms available
for any transaction, the Advisor considers all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In addition, the investment advisory agreement authorizes
the Advisor, subject to the periodic review of the Trust's Board of Trustees, to
cause the Funds to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker-dealer for effecting the same transaction, provided that the Advisor
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of the Advisor to the Funds. Such brokerage and research
services may consist of pricing information, reports and statistics on specific
companies or industries, general summaries of groups of bonds and their
comparative earnings and yields, or broad overviews of the securities markets
and the economy.

Supplemental research information utilized by the Advisor is in addition to, and
not in lieu of, services required to be performed by the Advisor and does not
reduce the advisory fees payable to the Advisor. The Trustees will periodically
review the commissions paid by the Funds to consider whether the commissions
paid over representative periods of time appear to be reasonable in relation to
the benefits inuring to the Funds. It is possible that certain of the
supplemental research or other services received will primarily benefit one or
more other investment companies or other accounts of the Advisor for which
investment discretion is exercised. Conversely, the Funds may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.

Investment decisions for the Fund and for other investment accounts managed by
the Advisor are made independently of each other in the light of differing
conditions. However, the same investment decision may be made for two or more of
such accounts. In such cases, simultaneous transactions are inevitable.
Purchases or sales are then averaged as to price and allocated as to amount in a
manner deemed equitable to each such account. While in some cases this practice
could have a detrimental effect on the price or value of the security as far as
the Fund is concerned, in other cases it is believed to be beneficial to the
Funds. To the extent permitted by law, the Advisor may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for other
investment companies or accounts in executing transactions.

Pursuant to procedures determined by the Trustees and subject to the general
policies of the Funds and Section 17(e) of the 1940 Act, the Advisor may place
securities transactions with brokers with whom it is affiliated ("Affiliated
Brokers").

Section 17(e) of the 1940 Act limits to "the usual and customary broker's
commission" the amount which can be paid by a Fund to an Affiliated Broker
acting as broker in connection with transactions effected on a securities
exchange. The Board, including a majority of the Trustees who are not
"interested persons," as such term is defined in the 1940 Act, of the Trust or
the Advisor, has adopted procedures designed to comply with the requirements of
Section 17(e) of the 1940 Act and Rule 17e-1 promulgated thereunder to ensure
that the broker's commission is "reasonable and fair compared to the commission,
fee or other remuneration received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time...."

A transaction would not be placed with an Affiliated Broker if a Fund would have
to pay a commission rate less favorable than its contemporaneous charges for
comparable transactions for its other most favored, but unaffiliated, customers,
except for accounts for which it acts as a clearing broker and any of their
customers determined, by a

                                       34


majority of the Trustees who are not "interested persons" of the Funds or the
Advisor, not to be comparable to the Funds. With regard to comparable customers,
in isolated situations, subject to the approval of a majority of the Trustees
who are not "interested persons" of the Trust or the Advisor, exceptions may be
made. Since the Advisor, as investment advisor to the Funds, has the obligation
to provide management, which includes elements of research and related skills,
such research and related skills will not be used by them as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria. The Funds will not engage in principal transactions with
Affiliated Brokers. When appropriate, however, orders for the account of a Fund
placed by Affiliated Brokers are combined with orders of their respective
clients, in order to obtain a more favorable commission rate. When the same
security is purchased for two or more Portfolios or customers on the same day,
each Fund or customer pays the average price and commissions paid are allocated
in direct proportion to the number of shares purchased.

Affiliated Brokers furnish to the Trust at least annually a statement setting
forth the total amount of all compensation retained by them or any of their
associated persons in connection with effecting transactions for the account of
the Funds, and the Board reviews and approves all such portfolio transactions on
a quarterly basis and the compensation received by Affiliated Brokers in
connection therewith.

Affiliated Brokers do not knowingly participate in commissions paid by the Funds
to other brokers or dealers and do not seek or knowingly receive any reciprocal
business as the result of the payment of such commissions. In the event that an
Affiliated Broker learns at any time that it has knowingly received reciprocal
business, it will so inform the Board.

For the fiscal years ended December 31, 2002, December 31, 2001, and December
31, 2000, Equity 500 Index Fund paid brokerage commissions in the amount of
$95,844, $74,761, and $61,267, and respectively. During the fiscal year ended
December 31, 2002, none of these brokerage commissions were paid to an
affiliate.

For the fiscal years ended December 31, 2002, December 31, 2001, and December
31, 2000, the Small Cap Index Fund paid brokerage commissions in the amount of
$98,170, $100,375, and $69,516, respectively. During the fiscal year ended
December 31, 2002, none of these brokerage commissions were paid to an
affiliate.

For the fiscal years ended December 31, 2002, December 31, 2001, and December
31, 2000, the EAFE(R) Equity Index Fund paid brokerage commissions in the amount
of $22,891, $73,073, and $57,931, respectively. During the fiscal year ended
December 31, 2002, none of these brokerage commissions were paid to an
affiliate.

For the fiscal year ended December 31, 2001, the Nasdaq-100 Index Fund paid
brokerage commissions in the amount of $1,308. None of these commissions were
paid to an affiliate.

                             PERFORMANCE INFORMATION

                        STANDARD PERFORMANCE INFORMATION

From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. Mutual fund performance
is commonly measured as total return and/or yield. Each Fund's performance is
affected by its expenses. These performance figures are calculated in the
following manner:

Yield: Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. Yields for a Fund
used in advertising are computed by dividing the Fund's interest and dividend
income for a given 30-day or one-month period, net of expenses, by the average
number of shares entitled to receive distributions during the period, dividing
this figure by the Fund's net asset value per share at the end of the period,
and annualizing the result (assuming compounding of income) in order to arrive
at an annual percentage rate. Income is calculated for purpose of yield
quotations in accordance with standardized methods applicable to all stock and
bond mutual funds. Dividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purpose of yield calculations. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and

                                       35


losses generally are excluded from the calculation.

Income calculated for the purposes of calculating a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distributions of the Fund paid over the same period or the rate of income
reported in the Fund's financial statements. This difference may be significant
for a Fund whose investments are denominated in foreign currencies.

Total return: Total return is the change in value of an investment in a Fund
over a given period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
return calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for the rest of
the year. A Fund's average annual total return is calculated for certain periods
by determining the average annual compounded rates of return over those periods
that would cause an investment of $1,000 (made at the maximum public offering
price with all distributions reinvested) to reach the value of that investment
at the end of the periods. A Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year performance.

Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of a Fund will vary depending upon
interest rates, the current market value of the securities held by the
corresponding Fund and changes in the expenses of the Fund. In addition, during
certain periods for which total return may be provided, the Advisor may have
voluntarily agreed to waive portions of its fees, or reimburse certain operating
expenses of a Fund, on a month-to-month basis. Such waivers will have the effect
of increasing such Fund's net income (and therefore its yield and total return)
during the period such waivers are in effect.

Average Annual Total Return is calculated according to the following formula:

                           P (1 + T)[POWER OF n] = ERV

Where:

         P = a hypothetical initial payment of $1,000,
         T = average annual total return, and
         n = number of years.
         erv = ending redeemable value

In calculating the above, it is assumed that the maximum sales load (or other
charges deducted from payments) is deducted from the initial $1,000 payment, all
dividends and distributions are reinvested at the price stated in the
prospectus, and all recurring fees that are charged to all shareholder accounts
are included.

Average Annual Total Returns - Class A Shares

                               1 Year    Since Inception

Equity 500 Index Fund         (22.31%)      0.43%*

Small Cap Index Fund          (20.58)%      0.71%**

EAFE(R)Equity Index Fund      (21.60%)     (6.11%)**

* October 1, 1997
** August 22, 1997

Average Annual Total Returns - Class B Shares (un-annualized)

                                       36


                              Since Inception*

Equity 500 Index Fund           (17.56)%

Small Cap Index Fund            (24.34)%

EAFE(R)Equity Index Fund        (21.17)%

* April 30, 2002

US Bond Index Fund has not commenced operations as of the date of this SAI and
the Nasdaq-100 Index Fund was not operational as of December 31, 2002.

Performance Results: Total returns and yields are based on past results and are
not an indication of future performance. Any total return quotation provided for
a Fund should not be considered as representative of the performance of the Fund
in the future since the net asset value and public offering price of shares of
the Fund will vary based not only on the type, quality and maturities of the
securities held in the corresponding Fund, but also on changes in the current
value of such securities and on changes in the expenses of the Fund. These
factors and possible differences in the methods used to calculate total return
should be considered when comparing the total return of a Fund to total returns
published for other investment companies or other investment vehicles. Total
return reflects the performance of both principal and income.

When we advertise total return information for Class B shares we may present
actual returns for the class as well as returns for the class with the longest
performance history adjusted to reflect the appropriate maximum sales charges,
if any, and expenses for these periods dating back to the inception date of the
class with the longest performance history.

                         COMPARISON OF FUND PERFORMANCE

Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.

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

Evaluations of a Fund's performance made by independent sources may also be used
in advertisements concerning the Fund. Sources for the Funds' performance
information could include local, national or foreign publications.

                         ECONOMIC AND MARKET INFORMATION

Advertising and sales literature of a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect the Funds. In addition, advertising and sales literature may quote
statistics and give general information about the mutual fund industry,
including the growth of the industry, from sources such as the Investment
Company Institute ('ICI').

           VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND

                             VALUATION OF SECURITIES

Each Fund is open for business each day the New York Stock Exchange, Inc.
('NYSE') is open (a 'Valuation Day'). Each Fund's net asset value ('NAV') per
share is calculated as of the close of regular trading on the NYSE, which is
currently 4:00 p.m., Eastern time (the 'Valuation Time'). The Funds calculate a
net asset value per share for each class. The formula for calculating the Fund's
net asset value by class calls for deducting all of the liabilities of each
class from the total value of its assets--the market value of the securities it
holds, plus its cash reserves--and dividing the result by the number of
outstanding shares of that class as of the time of valuation.

                                       37


Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Such market valuations may represent
the last quoted price on the securities major trading exchange or may be
determined through use of matrix pricing. In matrix pricing, pricing services
may use various pricing models, involving comparable securities, historic
relative price movements, economic factors and dealer quotations.
Over-the-counter securities will normally be valued at the bid price. Short-term
debt obligations and money market securities maturing in 60 days or less are
valued at amortized cost, which approximates market.

When valuing securities for which market quotations are not readily available or
for which the market quotations that are available are considered unreliable,
the Fund determines a fair value in good faith under procedures established by
and under the general supervision of the Board of Trustees. The Fund may use
these procedures to establish the fair value of securities when, for example, a
significant event occurs between the time the market closes and the time the
Fund values its investments. After consideration of various factors, the Fund
may value the securities at their last reported price or at some other value. It
is generally agreed that securities for which market quotations are not readily
available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.

The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
('FRR 1' (formerly Accounting Series Release No. 113)) which concludes that
there is 'no automatic formula' for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:

         type of security involved, financial statements, cost at date of
         purchase, size of holding, discount from market value of unrestricted
         securities of the same class at the time of purchase, special reports
         prepared by analysts, information as to any transactions or offers with
         respect to the security, existence of merger proposals or tender offers
         affecting the security, price and extent of public trading in similar
         securities of the issuer or comparable companies, and other relevant
         matters.

To the extent that a Fund purchases securities which are restricted as to resale
or for which current market quotations are not available, the Advisor, under the
supervision of the Board of Trustees, will value such securities based upon all
relevant factors as outlined in FRR 1.

                        PURCHASE AND REDEMPTION OF SHARES

Shares of each Fund will be continuously offered to each Company's separate
accounts at the net asset value per share next determined after a proper
purchase request has been received by the Company. The Company then offers to
Contract owners units in its separate accounts which directly correspond to
shares in the Fund. Each Company submits purchase and redemption orders to the
Fund based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the Company by such Contract owners. Contract owners can send such instructions
and requests to the Companies by first class mail, overnight mail or express
mail sent to the address set forth in the relevant Company's offering memorandum
included with each Fund's prospectus. Each Fund and the Distributor reserve the
right to reject any purchase order for shares of a Fund.

Each investor in a Fund may add to or reduce its investment in the Fund on each
day the Fund determines its net asset value. At the close of each such business
day, the value of each investor's beneficial interest in the Fund will be
determined by multiplying the net asset value of the Fund by the percentage,
effective for that day, which represents that investor's share of the aggregate
beneficial interests in the Fund. Any additions or withdrawals which are to be
effected as of the close of business on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the Fund will
then be recomputed as the percentage equal to the fraction (i) the numerator of
which is the value of such investor's investment in the Fund as of the close of
business on such day plus or minus, as the case may be, the amount of net
additions to or withdrawals from the investor's investment in the Fund effected
as of the close of business on such day, and (ii) the denominator of which is
the aggregate net asset value of the Fund as of the close of business on such
day plus or minus, as the case may be, the amount of net additions to or
withdrawals from the aggregate investments in the Fund by all investors in the
Fund. The percentage so determined will then be

                                       38


applied to determine the value of the investor's interest in the Fund as the
close of business on the following business day.

Payment for redeemed shares will ordinarily be made within seven (7) business
days after a Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contract owner's request in proper form.

Each Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.

The prospectus for the Company's variable annuity or variable life insurance
policy describes the allocation, transfer and withdrawal provisions of such
annuity or policy.

                        REDEMPTIONS AND PURCHASES IN KIND

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

Each Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under 'Valuation of Securities' as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Fund. In addition, securities accepted in payment for shares
must: (i) meet the investment objective and policies of the acquiring Fund; (ii)
be acquired by the applicable Fund for investment and not for resale; (iii) be
liquid securities which are not restricted as to transfer either by law or
liquidity of market; and (iv) if stock, have a value which is readily
ascertainable as evidenced by a listing on a stock exchange, over-the-counter
market or by readily available market quotations from a dealer in such
securities. When securities are used as payment for shares or as a redemption in
kind from the fund, the transaction fee will not be assessed. However, the
shareholder will be charged the costs associated with receiving or delivering
the securities. These costs include security movement costs and taxes and
registration costs. Each Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.

                          TRADING IN FOREIGN SECURITIES

With respect to the EAFE(R) Equity Index Fund, trading in foreign cities may be
completed at times which vary from the closing of the NYSE. In computing the net
asset values, the Funds value foreign securities at the latest closing price on
the exchange on which they are traded immediately prior to the closing of the
NYSE. Similarly, foreign securities quoted in foreign currencies are translated
into US dollars at the foreign exchange rates.

Occasionally, events that affect values and exchange rates may occur between the
times at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued under procedures adopted by and under the supervision of the Board of
Trustees, although the actual calculation may be done by others.

                             MANAGEMENT OF THE TRUST

The Trust is governed by a Board of Trustees which is responsible for protecting
the interests of investors. None of the executive officers of the Trust or the
Funds devotes full time to the affairs of the Trust or the Funds.

The Board of Trustees is comprised of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Funds. In
addition, the Trustees review contractual arrangements with companies that
provide services to the Funds and review the Funds' performance.

                                       39


The Trustees and officers of the Trust, their birth dates, their principal
occupations during the past five years, and addresses are set forth below. Their
titles may have varied during that period. The Interested Trustee is considered
to be an interested person as defined by the 1940 Act because of his employment
with either the Funds' advisors and/or underwriter or their affiliates. Each
Trustee shall serve as Trustee until his resignation or termination as provided
in the Trust's Declaration of Trust Unless otherwise indicated, the address of
each Trustee and officer with respect to the Funds is One South Street ,
Baltimore, MD 21202.

                                       40


                              TRUSTEES AND OFFICERS

Name, Date of Birth,          Business Experience and Directorships During Past 5 Years                       Number of
Position(s) with the Trust,                                                                                   Portfolios
and Length of Time Served                                                                                     in Fund Complex
/1/,/2/                                                                                                       Overseen
INDEPENDENT TRUSTEES
Richard R. Burt               Chairman, IEP Advisors, Inc. (July 1998 to present); Chairman of the Board,     67
2/3/47                        Weirton Steel Corporation/3/(April 1996 to present); Member of the Board,
Trustee since 2002            Hollinger International, Inc./3/ (publishing) (1995 to present), HCL
                              Technologies Limited (information technology) (April 1999 to present),
                              UBS Mutual Funds (formerly known as Brinson and Mitchell Hutchins
                              families of funds) (1995 to present) (registered
                              investment companies); and Member, Textron Inc./3/ International Advisory
                              Council (July 1996 to present). Formerly, Partner, McKinsey & Company
                              (consulting) (1991-1994) and US Chief Negotiator in Strategic Arms
                              Reduction Talks (START) with former Soviet Union and US Ambassador to the
                              Federal Republic of Germany (1985-1991); Member of
                              the Board, Homestake Mining/3/ (mining and exploration) (1998-February 2001),
                              Archer Daniels Midland Company/3/ (agribusiness operations) (October 1996-June
                              2001) and Anchor Gaming (gaming software and equipment) (March 1999-December
                              2001).

S. Leland Dill                Trustee, Phoenix Zweig Series Trust (since September 1989), Phoenix Euclid      65
3/28/30                       Market Neutral Funds (since May 1998) (registered investment companies);
Trustee since 2002            Retired (since 1986). Formerly, Partner, KPMG Peat Marwick (June 1956-June
                              1986); Director, Vintners International Company Inc. (June 1989-May 1992),
                              Coutts (USA) International (January 1992-March 2000), Coutts Trust Holdings
                              Ltd., Coutts Group (March 1991-March 1999) and General Partner, Pemco
                              (investment company) (June 1979-June 1986).

Martin J. Gruber              Nomura Professor of Finance, Leonard N. Stern School of Business, New York      66
7/13/37                       University (since 1964); Trustee, CREF (since 2000); Director, S.G. Cowen
Trustee since 2002            Mutual(1985-2001), Japan Equity Fund, Inc. (since 1992), Thai Capital Fund,
                              Inc. (2000 to present) and Singapore Fund, Inc. (since 2000) (registered
                              investment companies).

Joseph R. Hardiman            Jacob Safra Professor of International Banking and Professor, Finance           65
5/27/37                       Department, The Wharton School, University of Pennsylvania (since 1972);
Trustee since 2002            Director, Lauder Institute of International Management Studies (since
                              2000); Co-Director, Wharton Financial Institutions Center (since 2000) and
                              Vice Dean and Director, Wharton Undergraduate Division (1995-2000).

                                       41


Richard J. Herring            Private Equity Investor (1997 to present); Director, Soundview Technology       65
2/18/46                       Group Inc. (investment banking) (July 1998 to present), Corvis Corporation/3/
Trustee since 2002            (optical networking equipment) (July 2000 to present), Brown Investment
                              Advisory & Trust Company (investment advisor) (February 2001 to present),
                              The Nevis Fund (registered investment company) (July 1999 to present), and
                              ISI Family of Funds (registered investment companies) (March 1998 to
                              present). Formerly, Director, Circon Corp. /3/ (medical instruments)
                              (November 1998-January 1999); President and Chief Executive Officer, The
                              National Association of Securities Dealers, Inc. and The NASDAQ Stock
                              Market, Inc. (1987-1997); Chief Operating Officer of Alex. Brown & Sons
                              Incorporated (now Deutsche Bank Securities Inc.) (1985-1987) and General
                              Partner, Alex. Brown & Sons Incorporated (now Deutsche Bank Securities
                              Inc.) (1976-1985).

Graham E. Jones               Senior Vice President, BGK Properties, Inc. (commercial real estate) (since     65
1/31/33                       1995); Trustee, 8 open-end mutual funds managed by Weiss, Peck & Greer
Trustee since 2002            (since 1985) and Trustee of 22 open-end mutual funds managed by Sun Capital
                              Advisers, Inc. (since 1998).

Rebecca W. Rimel              President and Chief Executive Officer, The Pew Charitable Trusts                65
4/10/51                       (charitable foundation) (1994 to present). Formerly, Executive Director,
Trustee since 2002            The Pew Charitable Trusts (1988 to 1994); Director, ISI Family of Funds
                              (registered investment companies) (1997 to 1999);
                              and Director and Executive Vice President, The
                              Glenmede Trust Company (investment trust and
                              wealth management) (1994 to 2000).

Philip Saunders, Jr.          Principal, Philip Saunders Associates (Economic and Financial Consulting)       65
10/11/35                      (since 1998). Formerly, Director, Financial Industry Consulting, Wolf &
Trustee since 2002            Company (1987-1988); President, John Hancock Home Mortgage Corporation
                              (1984-1986); Senior Vice President of Treasury and Financial Services, John
                              Hancock Mutual Life Insurance Company, Inc. (1982-1986).

William N. Searcy             Pension & Savings Trust Officer, Sprint Corporation/3/ (telecommunications)     65
9/3/46                        (since 1989); Trustee of 22 open-end mutual funds managed by Sun Capital
Trustee since 2002            Advisers, Inc. (since 1998).

Robert H. Wadsworth           President, Robert H. Wadsworth Associates, Inc. (consulting firm) (1982 to      68
1/29/40                       present); President and Director, Trust for Investment Managers (registered
Trustee since 2002            investment company) (1999 to present).  Formerly, President, Investment
                              Company Administration, L.L.C. (1992*-July 2001); President, Treasurer and
                              Director, First Fund Distributors, Inc. (1990-January 2002); Vice
                              President, Professionally Managed Portfolios (1999-2002) and Advisors
                              Series Trust (1997-2002) (registered investment companies); and President,
                              Guinness Flight Investment Funds, Inc. (registered investment companies).
                              * Inception date of the corporation which was the predecessor to the LLC.

INTERESTED TRUSTEE

                                       42


Richard T. Hale/4/            Managing Director, Deutsche Bank Securities Inc. (formerly President since      199
7/17/45                       2000. Deutsche Banc Alex. Brown Inc.) and Deutsche Asset Management (1999
Trustee since 2002 and        to present); Director and President, Investment Company Capital Corp.
Chairman since 2002           (registered investment advisor) (1996 to present); President, DB Hedge
                              Strategies Fund LLC (registered investment company) (June 2002 to present);
                              Director, Deutsche Global Funds, Ltd. (2000 to present), CABEI Fund (2000
                              to present), North American Income Fund (2000 to present) (registered
                              investment companies); Vice President, Deutsche Asset Management, Inc.
                              (2000 to present). Chartered Financial Analyst. Formerly, Director, ISI
                              Family of Funds (registered investment companies) (1992-1999).

Name, Date of Birth,
Position(s) with the Trust,   Business Experience and Directorships During Past 5 Years
and Length of Time Served
/1/,/2/

OFFICERS
William F. Glavin, Jr./5/     Managing Director of Deutsche Asset Management, Inc., Vice President and
8/30/58                       Director of Scudder Distributors, Inc., Trustee, Crossroads for Kinds, Inc.
President since 2002          (serves at risk children).

Kenneth Murphy/5/             Vice President, Deutsche Asset Management (2000-present).  Formerly,
10/13/63                      Director, John Hancock Signature Services (1992-2001); Senior Manager,
Vice President and            Prudential Mutual Fund Services (1987-1992).
Anti-Money Laundering
Compliance Officer since
2002

Charles A. Rizzo/5/           Director, Deutsche Asset Management (April 2000 to present); Certified
8/5/57                        Public Accountant; Certified Management Accountant. Formerly, Vice
Treasurer since 2002          President and Department Head, BT Alex. Brown Incorporated (Deutsche Bank
                              Securities Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P.
                              (PricewaterhouseCoopers LLP) (1993-1998).

Daniel O. Hirsch              Managing Director, Deutsche Asset Management (2002 to present) and
3/27/54                       Director, Global Funds Ltd. (2002 to present).  Formerly, Director,
Secretary since 1999          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).

   (1)   Unless otherwise indicated, the mailing address of each Director and
         Officer with respect to fund operations is One South Street, Baltimore,
         MD21202.
   (2)   Length of time served represents the date each Trustee or Officer first
         began serving in that position with Deutsche Asset Management VIT
         Funds, a trust of which these funds are a series.
   (3)   A publicly held company with securities registered pursuant to
         Section 12 of the Exchange Act.
   (4)   Mr. Hale is a Trustee who is an 'interested person' within the meaning
         of Section 2(a)(19) of the 1940 Act. Mr. Hale is Vice President of
         DeAM, Inc. and a Managing Director of Deutsche Asset Management, the US
         asset management unit of Deutsche Bank and its affiliates.
   (5)   Address: Two International Place, Boston, Massachusetts.

                                       43


                                   COMMITTEES

The Board has an Audit Committee consisting of all of the independent Trustees.
All of the members of the Audit Committee are independent as defined in the 1940
Act. The Audit Committee reviews the scope and results of the Fund's annual
audit with the Fund's independent accountants and recommends the engagement of
such accountants. The Audit Committee met twice during the fiscal year ended
December 31, 2002.

The Board has a Nominating Committee consisting of             . which is
responsible for considering candidates for election to the Board of Trustees in
the event a position is vacated or created. The Nominating Committee meets as
necessary, but did not meet during the fiscal year ended December 31, 2002. The
Funds have not contemplated accepting nominations from shareholders.

The Board has a Pricing Committee consisting of           . The Pricing
Committee has responsibility for determine a valuation methodology for fund
assets and, if the use of a calculated value of a security would result in a
change to the NAV of more than one cent per share, to determine a fair value for
that security. The Pricing Committee met once during the fiscal year ended
December 31, 2002.

The Board has a Valuation Committee consisting of           . The Valuation
Committee has responsibility for valuing illiquid securities, if any. The
Valuation Committee of the Trust did not meet during the fiscal year ended
December 31, 2002.

                                       44

SECURITY AND OTHER INTERESTS

The table below sets forth the dollar range of equity securities beneficially
owned by each Trustee in each portfolio of the Trust and in all registered
investment companies overseen by the Trustee within the Trust's family of
investment companies, as of December 31, 2002.

AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY TRUSTEE IN FAMILY OF INVESTMENT
NAME OF TRUSTEE SECURITIES IN THE FUND (1) COMPANIES
- --------------------------------- ----------------------------------- --------------------------------
INDEPENDENT TRUSTEES
Richard R. Burt None None
S. Leland Dill None None
Martin J. Gruber None None
Joseph R. Hardiman None None
Richard J. Herring None None
Graham E. Jones None None
Rebecca W. Rimel None None
Philip Saunders, Jr. None None
William N. Searcy None None
Robert H. Wadsworth None None
INTERESTED TRUSTEE
Richard T. Hale None None

(1) Securities beneficially owned as defined under the Securities Exchange Act
of 1934 (the '1934 Act') include direct and or indirect ownership of securities
where the trustee's economic interest is tied to the securities, employment
ownership and securities when the trustee can exert voting power and when the
trustee has authority to sell the securities. The dollar ranges are: None,
$1-$10,000, $10,001-$50,000, $50,001-$100,000, $100,001 plus.

As of December 31, 2002, none of the non-interested trustees, or their immediate
family members owned, beneficially or of record, any securities in the advisor
or principal underwriter of the Trust, or in a person (other than a registered
investment company) directly or indirectly controlling, controlled by or under
common control with the advisor or principal underwriter of the Trust.

BOARD CONSIDERATION OF THE ADVISORY CONTRACT

The Board of Trustees, in considering the approval of the Investment Management
Agreement for the Funds, reviewed the nature and quality of the service provided
by the advisor. The Trustees considered the size and experience of the staff of
the advisor, the global capabilities of the advisor, the performance of the
Funds and the leadership in the field of indexing.

The Trustees reviewed a profitability analysis for the Funds. The Board
considered the revenues, expenses, gross and net income, fee waivers, and the
profit margin of the advisor with respect to each Fund and determined the
advisory fees to be reasonable in relation to the services rendered. The
Trustees reviewed an independent report from Lipper Inc. designed to compare
contractual and actual management fees, operating expense components and total
return performance of the Funds to funds with similar strategies. Each of the
Funds was compared to a universe of seven to ten peers and they each ranked
below average for management fees and administrative fees. The Board also noted
information received at regular meetings throughout the year related to Fund
performance and advisor services, and benefits potentially accruing to the
advisor and its affiliates from securities lending, administrative and brokerage
relationships with affiliates of the advisor, as well as research services
provided by the advisor from broker-dealers which execute transactions on behalf
of the Funds.

The Board was satisfied that DeAM, Inc. possesses and will continue to maintain
the organizational capabilities and financial resources to provide the Funds
with the appropriate quality of service. The Board did not, however, identify
any particular factor as the primary factor in its decision to approve the
Investment Management Agreement.

The Investment Management Agreement is dated April 30, 2001 and has an initial
term of two years and continues in effect thereafter from year to year if such
continuance is specifically approved at least annually by the Fund's Board of
Trustees or by a majority of the outstanding voting securities of the Fund, and
in either event, by a majority of the Independent Trustees of the Fund's Board
who have no direct or indirect financial interest in such agreements, with such
Independent Trustees casting votes in person at a meeting called for such
purpose, . The Agreement may be terminated by the Trust or the Advisor with 60
days written notice. The Agreement will terminate automatically in the event of
an assignment.

COMPENSATION

No director, officer or employee of the Advisor or PFPC Distributors, Inc. or
any of its affiliates will receive any compensation from the Trust for serving
as an officer or Trustee of the Trust.

The Trust typically pays its Independent Trustees an annual retainer and a per
meeting fee and reimburses them for their expenses. The aggregate amount of
compensation paid to each current Trustee by the Trust for the fiscal year ended
December 31, 2002, was as follows*:

PENSION OR RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED AS ESTIMATED ANNUAL FROM REGISTRANT AND
NAME OF PERSON, COMPENSATION PART OF BENEFITS FUND COMPLEX
POSITION FROM TRUST** TRUST EXPENSES UPON RETIREMENT
INDEPENDENT TRUSTEES
Richard R. Burt
N/A N/A
S. Leland Dill
N/A N/A
Martin J. Gruber
N/A N/A
Joseph R. Hardiman
N/A N/A
Richard J. Herring
N/A N/A
Graham E. Jones
N/A N/A
Rebecca W. Rimel
N/A N/A
Philip Saunders, Jr.
N/A N/A
William N. Searcy
N/A N/A
Robert H. Wadsworth
N/A N/A

* Former Trustees of the Trust (prior to July 30, 2002) were Robert R. Coby,
Desmond G. Fitzgerald, James S. Pasman, Jr., Edward C. Schmults, William E.
Small and Werner Walbroel. Between January 1, 2002 and July 30, 2002 such
Trustees were paid a total of $_________.
** Amount does not include reimbursed expenses for attending Board meetings.

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS OF THE TRUST

As of April 1, 2003 the Trustees and officers of the Trust owned in the
aggregate less than 1% of the shares of the


any Fund or the Trust (all series taken together).

Through their separate accounts, the Companies are the Funds' sole stockholders
of record. Listed in the tables below are shareholders deemed to be control
persons or principal owners of a Fund, as defined in the 1940 Act. Control
persons are presumed to control a Fund for purposes of voting on matters
submitted to a vote of shareholders due to their beneficial ownership of 25% or
more of the outstanding voting securities of a Fund. Principal holders own of
record or beneficially 5% or more of a Fund's outstanding voting securities.

As of April 11, 2003, the shareholders of record owned 5% or more of the
outstanding shares of Class A of the Equity 500 Index Fund:

             NAME AND ADDRESS            PERCENTAGE OWNED


As of April 11, 2003, the shareholders of record owned 5% or more of the
outstanding shares of Class B of the Equity 500 Index Fund:

             NAME AND ADDRESS            PERCENTAGE OWNED


As of April 11, 2003, the following shareholders of record owned 5% or more of
the outstanding Shares of Class A of the Small Cap Index Fund:

             NAME AND ADDRESS            PERCENTAGE OWNED


As of April 11, 2003, the following shareholders of record owned 5% or more of
the outstanding Shares of Class B of the Small Cap Index Fund:

             NAME AND ADDRESS            PERCENTAGE OWNED


As of April 11, 2003, the following shareholders of record owned 5% or more of
the outstanding Shares of Class A of the EAFE(R) Equity Index Fund:

             NAME AND ADDRESS            PERCENTAGE OWNED


As of April 11, 2003, the following shareholders of record owned 5% or more of
the outstanding Shares of Class B of the EAFE(R) Equity Index Fund:

             NAME AND ADDRESS            PERCENTAGE OWNED

As of April 11, 2003, there were no shareholders of record of the Nasdaq-100
Index Fund

                                 CODE OF ETHICS

The Board of Trustees of the Funds has adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act. The Funds' Code of Ethics permits Fund personnel to
invest in securities that may be purchased or held by the Funds for their own
accounts, but requires compliance with the Code's pre-clearance requirements
(with certain exceptions). In addition, the Funds' Code of Ethics provides for
trading 'blackout periods' that prohibit trading by Fund personnel within
periods when the Funds are trading in a particular security. The Funds' Code of
Ethics also prohibits short term trading profits and personal investment in
initial public offerings. The Code requires prior approval with respect to
purchases of securities in private placements.

                                       47


The Fund's advisor and its affiliates have each adopted a Code of Ethics
pursuant to Rule 17j-1 under the 1940 Act ('Consolidated Code'). The
Consolidated Code permits access persons to trade in securities that may be
purchased or held by the Fund for their own accounts, subject to compliance with
the Consolidated Code's preclearance requirements. In addition, the Consolidated
Code also provides for trading 'blackout periods' that prohibit trading by
personnel within periods of trading by the Fund in the same security. The
Consolidated Code also prohibits short-term trading profits and personal
investment in initial public offerings and requires prior approval with respect
to purchases of securities in private placements.

                               INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management, Inc.,
with headquarters at 280 Park Avenue, New York, NY 10017, acts as the Funds'
Investment Advisor. The Advisor is an indirect wholly-owned subsidiary of
Deutsche Bank AG ('Deutsche Bank'), an international commercial and investment
banking group. Deutsche Bank is a major global banking institution that is
engaged in a wide range of financial services, including investment management,
mutual funds, retail, private and commercial banking, investment banking and
insurance.

The Advisor or its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations which may be purchased on
behalf of the Funds, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
persons issue, deal, trade and invest in securities for their own accounts and
are among the leading market participants with respect to various types of such
securities. The Advisor has informed the Funds that, in making its investment
decisions, it does not obtain or use material inside information in its
possession or in the possession of any of its affiliates. In making investment
recommendations for the Funds, the Advisor will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by a
Fund is a customer of the Advisor, its parent or its subsidiaries or affiliates
and, in dealing with its customers, the Advisor, its parent, subsidiaries and
affiliates will not inquire or take into consideration whether securities of
such customers are held by any fund managed by the Advisor or any such
affiliate.

The Advisor, subject to the supervision and direction of the Board of Trustees
of the Trust, manages the Fund in accordance with the Fund's investment
objective and stated investment policies, makes investment decisions for the
Fund, places orders to purchase and sell securities and other financial
instruments on behalf of the Fund and employs professional investment managers
and securities analysts who provide research services to the Fund. The Advisor
may utilize the expertise of any of its worldwide subsidiaries and affiliates to
assist it in its role as investment advisor. All orders for investment
transactions on behalf of the Fund are placed by the Advisor with brokers,
dealers and other financial intermediaries that it selects, including those
affiliated with the Advisor An Advisor affiliate will be used in connection with
a purchase or sale of an investment for the Fund only if the Advisor believes
that the affiliate's charge for the transaction does not exceed usual and
customary levels. The Fund will not invest in obligations for which the Advisor
or any of its affiliates is the ultimate obligor or accepting bank. The Fund
may, however, invest in the obligations of correspondents or customers of the
Advisor.

The Investment Management Agreements provide for each Fund to pay the Advisor a
fee, accrued daily and paid monthly, equal on an annual basis to 0.15% of the
average daily net assets of the US Bond Index Fund, 0.20% of the average daily
net assets of the Equity 500 Index Fund, 0.35% of the average daily net assets
of the Small Cap Index Fund, 0.45% of the average daily net assets of the
EAFE(R) Equity Index Fund and 0.30% of the average daily net assets of the
Nasdaq-100 Index Fund. The Advisor has voluntarily undertaken to waive the fees
and to reimburse the Funds for certain expenses so that Class A Shares of the
Equity 500 Index Fund, Small Cap Index Fund and EAFE(R) Equity Index Fund total
operating expenses will not exceed 0.30%, 0.45%, and 0.65%, respectively and
Class B Shares of the Equity 500 Index Fund, Small Cap Index Fund and EAFE(R)
Equity Index Fund total operating expenses will not exceed 0.55%, 0.70%, and
0.90%, respectively. Effective May 1, 2002, the Advisor may recoup any of its
waived investment advisory fees within the following three years if the Fund is
able to make the repayment without exceeding its current expense limits. Such
waivers by the Advisor are voluntary and may be discontinued with 30 days
notice. Prior to May 1, 2001, Bankers Trust Company (now Deutsche Bank Trust
Company Americas) served as investment advisor.

                                       48


For the fiscal years ended December 31, 2002, December 31, 2001, and December
31, 2000 the Advisor earned $833,823, $861,030, and $781,372, respectively, as
compensation for investment advisory services provided to the Equity 500 Index
Fund. During the same periods, the Advisor reimbursed $87,630, $33,862, and
$121,859, respectively, to the Fund to cover expenses.

For the fiscal years ended December 31, 2002, December 31, 2001, and December
31, 2000 the Advisor earned $546,060, $413,463, and $294,195, respectively, for
investment advisory services provided to the Small Cap Index Fund. During the
same periods, the Advisor reimbursed $252,303, $210,221, and $186,151,
respectively, to the Fund to cover expenses.

For the fiscal years ended December 31, 2002, December 31, 2001, and December
31, 2000, the Advisor earned $402,337, $456,144, and $311,690, respectively, for
investment advisory services provided to the EAFE(R) Equity Index Fund. During
the same periods, the Advisor reimbursed $240,640, $155,907, and $169,518,
respectively, to the Fund to cover expenses.

For the fiscal year ended December 31, 2001, the Advisor earned $66,241, for
investment advisory services provided to the Nasdaq-100 Index Fund. During the
same period, the Advisor reimbursed $47,992, to the Fund to cover expenses.

On September 27, 2002, Deutsche Bank AG agreed to the sale of its global passive
equity, enhanced equity and passive fixed income businesses to Northern Trust
Investments, Inc. ("NTI"), a subsidiary of Northern Trust Company. Under this
agreement, it is proposed that Deutsche Asset Management, Inc. ("DeAM, Inc.")
would continue as investment advisor of each of the above-referenced funds and
that NTI would become a sub-advisor to the funds, subject to Board and
shareholder approval and satisfaction of certain other conditions, within three
to six months from the date of closing of the transaction. From the date of the
closing of the transaction (on or about January 31, 2003) until the shareholders
of the Funds approve the sub-advisory agreements with NTI, the investment
advisory personnel who provide services to each of the above-referenced funds
will be employees of NTI but will be seconded (leased) from NTI to DeAM, Inc.
and will continue to manage the funds pursuant to current advisory agreements.
After the shareholders approve the new sub-advisory agreements, the employees
will no longer be leased to DeAM, Inc., but are expected to continue to provide
services to the funds under the sub-advisory agreements as employees of NTI.

                                  ADMINISTRATOR

PFPC Inc. ('PFPC') serves as Administrator to the Funds. PFPC is a
majority-owned subsidiary of PNC Bank Corp. As Administrator, PFPC, 760 Moore
Road, King of Prussia, PA 19406, is obligated on a continuous basis to provide
such administrative services as the Board of Trustees of the Trust reasonably
deems necessary for the proper administration of the Fund. PFPC will generally
assist in all aspects of the Fund's operations; supply and maintain office
facilities (which may be in PFPC's own offices), statistical and research data,
data processing services, clerical, accounting, bookkeeping and recordkeeping
services (including without limitation the maintenance of such books and records
as are required under the 1940 Act and the rules thereunder, except as
maintained by other agents), internal auditing, executive and administrative
services, and stationery and office supplies; prepare reports to shareholders or
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filings with the SEC and various state Blue
Sky authorities; supply supporting documentation for meetings of the Board of
Trustees; provide monitoring reports and assistance regarding compliance with
the Declaration of Trust, by-laws, investment objectives and policies and with
Federal and state securities laws; arrange for appropriate insurance coverage;
calculate net asset values, net income and realized capital gains or losses, and
negotiate arrangements with, and supervise and coordinate the activities of,
agents and others to supply services.

As compensation for PFPC's services under the Administration Agreement, PFPC is
entitled to receive from the Trust a monthly administration fee.

For the fiscal years ended December 31, 2002, December 31, 2001, and December
31, 2000, Equity 500 Index Fund paid PFPC $155,382, $144,530, and $143,132
respectively, for administrative and other services provided to the Equity 500
Index Fund.

For the fiscal years ended December 31, 2002, December 31, 2001, and December
31, 2000, Small Cap Index Fund

                                       49


paid PFPC $103,203, $91,822, and $67,250, respectively as compensation for
administrative and other services provided to Small Cap Index Fund.

For the fiscal years ended December 31, 2002, December 31, 2001, and December
31, 2000, EAFE(R) Equity Index Fund paid PFPC $89,882, $85,272, and $67,526,
respectively, as compensation for administrative and other services provided to
EAFE(R) Equity Index Fund.

For the fiscal year ended December 31, 2001, Nasdaq-100 Index Fund paid PFPC
$18,071 as compensation for administrative and other services provided to
Nasdaq-100 Index Fund.

                                   DISTRIBUTOR

PFPC Distributors, Inc. (the 'Distributor') serves as the distributor of the
Funds' shares to separate accounts of the Companies, for which it receives no
separate fee from the Funds. The principal address of the Distributor is 760
Moore Road, King of Prussia, PA 19406

Distribution Plan. The Trust has adopted a distribution plan on behalf of the
Class B shares of the EAFE(R) Equity Index Fund, Equity 500 Index Fund, the
Small Cap Index Fund and the Nasdaq-100 Index Fund (the "Plan") in accordance
with Rule 12b-1 under the 1940 Act. The Plan permits the Funds to pay the
Distributor for remittance directly or indirectly to a participating dealer,
shareholder servicing agent, life insurance company or other applicable party a
fee in an amount not to exceed 0.25% of the average daily net assets of such
Fund under a Fund Participation Agreement, Service Agreement, Sub-Distribution
Agreement, or other similar agreement which provides for investment in Class B
shares.

The Distributor is authorized, pursuant to the Plan, to pay for anything
reasonably designed to enhance sales or retention of shareholders and for the
provision of services to shareholders of the Trust, including but not limited
to: purchase advertising for the Shares, pay for promotional or sales literature
and make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares.

The Distributor provides the Trustees for their review, on a quarterly basis, a
written report of the amounts expended under the Plan.

The Plan is subject to annual approval by the Trustees. The Plan is terminable
at any time, without penalty, by a vote of a majority of the non-interested
Trustees or by vote of a majority of the outstanding shares of each of the
Funds. The Plan may not be amended to increase materially the amount that may be
spent for distribution by a Fund without the approval of a majority of the
outstanding voting securities of that Fund. Once terminated, no further payments
shall be made under the Plan notwithstanding the existence of any unreimbursed
current or carried forward distribution expenses.

The Plan was adopted because of its anticipated benefit to the Funds. These
anticipated benefits include increased promotion and distribution of the Funds'
shares, an enhancement in the Funds' ability to maintain accounts and improve
asset retention and increased stability of net assets for the Funds. For the
fiscal year ended December 31, 2002, the Class B Shares of the Funds paid fees
under the Plan according to the table below.

                               Shareholder Servicing Fees
- ---------------------------------------------------------
Equity 500 Index Fund                    $  1,418
Small Cap Index Fund                     $  2,141
EAFE(R) Equity Index Fund                $    282

                                       50


                          CUSTODIAN AND TRANSFER AGENT

Deutsche Bank Trust Company Americas (formerly Bankers Trust Company), 100 Plaza
One, Jersey City, New Jersey 07311, serves as custodian for the Funds. As
custodian, it holds the Funds' assets. Deutsche Bank Trust Company Americas is
an indirect wholly-owned subsidiary of Deutsche Bank and an affiliate of the
Advisor. Deutsche Bank Trust Company Americas will comply with the
self-custodian provisions of Rule 17f-2 under the 1940 Act.

On November 5, 2002 Deutsche Bank AG ("DBAG") agreed to sell its Global
Securities Services business to State Street Bank, Inc. ("State Street"). This
sale included U.S. custody, securities lending, and other processing services
located in Europe, Asia, and the Americas and is expected to close on or about
January 31, 2003 (the "Closing Date"). The actual transition and migration of
assets, technology, and infrastructure will take more than a year to complete.
Deutsche Bank Trust Company Americas ("DBT Co.") currently is the custodian to
the Funds. DBT Co.'s custody business is one of the businesses affected by the
transaction with State Street. Since many of DBT Co.'s employees will become
State Street employees on the Closing Date, the Funds' Board approved on
December 16, 2002 an interim outsourcing arrangement that allows State Street to
provide custodial services to the Funds, subject to DBT Co. oversight.
Furthermore, certain of the Funds currently use DBT Co. and DBAG, NY
("Deutsche") as its securities lending agent. Therefore, in connection with the
transaction, the Board on January 13, 2003 approved an interim outsourcing
arrangement that allows a State Street subsidiary to perform certain aspects of
securities lending services for all Funds authorized to participate in
securities lending, subject to oversight from Deutsche. On or about February 24,
2003 the Board will consider whether to appoint State Street as the Funds'
permanent custodian. At a later date, Deutsche Asset Management will make
recommendations to the Funds' Board regarding its securities lending program,
but Deutsche will remain as securities lending agent until such time as the
Board approves a new securities lending agent for the Funds.

PFPC serves as transfer agent of the Trust. Under its transfer agency agreement
with the Trust, PFPC maintains the shareholder account records for the Funds,
handles certain communications between shareholders and the Funds and causes to
be distributed any dividends and distributions payable by the Funds.

Deutsche Bank Trust Company Americas and PFPC may be reimbursed by the Funds for
out-of-pocket expenses.

                                    EXPENSES

In addition to the fees of the Advisor, the Funds are responsible for the
payment of all other expenses incurred in the operation of each Fund, which
include, among other things, expenses for legal and independent auditor's
services, charges of each Fund's custodian and transfer agent, SEC fees, a pro
rata portion of the fees of the Trust's unaffiliated trustees and officers,
accounting costs for reports sent to Contract owners, each Fund's pro rata
portion of membership fees in trade organizations, a pro rata portion of the
fidelity bond coverage for the Trust's officers, interest, brokerage and other
trading costs, taxes, all expenses of computing each Fund's net asset value per
share, expenses involved in registering and maintaining the registration of the
Funds' shares with the SEC and qualifying each Fund for sale in various
jurisdictions and maintaining such qualification, litigation and other
extraordinary or non-recurring expenses. However, other typical Fund expenses
such as Contract owner servicing, distribution of reports to Contract owners and
prospectus printing and postage will be borne by the relevant Company.

                        COUNSEL AND INDEPENDENT AUDITORS

Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trust and the Funds. Ernst & Young LLP, 2001 Market
Street, Philadelphia, Pennsylvania 19103 acts as Independent Auditors of the
Trust and each Fund.

                                       51


                            ORGANIZATION OF THE TRUST

The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. Effective April 30, 2000, the Trust's name changed from BT
Insurance Funds Trust to Deutsche Asset Management VIT Funds. The Funds are
separate series of the Trust. The Trust offers shares of beneficial interest of
the Funds and the Trust's other series, par value $0.001 per share. The shares
of some of the other series of the Trust are offered through separate
Prospectuses. No series of shares has any preference over any other series. All
shares, when issued, will be fully paid and nonassessable. The Trust's Board of
Trustees has the authority to create additional series without obtaining
shareholder approval. The EAFE(R) Equity Index Fund, Equity 500 Index Fund, the
Small Cap Index Fund and the Nasdaq-100 Index Fund offer two classes of shares:
Class A and Class B

The Trust is an entity of the type commonly known as a 'Massachusetts business
trust.' Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligation.

Through its separate accounts, the Companies are the Funds' sole stockholders of
record. Therefore under the 1940 Act, Companies owning 25% or more of the
outstanding securities of a Fund are deemed to be in control of the Fund.
Nevertheless, when a shareholders' meeting occurs, each Company solicits and
accepts voting instructions from its Contract owners who have allocated or
transferred monies for an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contract owners' interests in the Funds in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the prospectuses for its variable annuities and variable
life insurance policies.

Each share of the Funds is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.

The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.

Each Fund is only available to owners of variable annuity or variable life
insurance policies issued by the Companies through their respective separate
accounts and may also be sold to certain tax qualified plans. Each Fund does not
currently foresee any disadvantages to Contract owners arising from offering its
shares to variable annuity and variable life insurance policy separate accounts
simultaneously, and the Board of Trustees monitors events for the existence of
any material irreconcilable conflict between or among Contract owners. If a
material irreconcilable conflict arises, one or more separate accounts may
withdraw their investment in a Fund. This could possibly force a Fund to sell
portfolio securities at disadvantageous prices. Each Company will bear the
expenses of establishing separate portfolios for its variable annuity and
variable life insurance separate accounts if such action becomes necessary;
however, ongoing expenses that are ultimately borne by Contract owners will
likely increase due to the loss of economies of scale benefits that can be
provided to mutual funds with substantial assets.

                                    TAXATION

                              TAXATION OF THE FUNDS

Each Fund intends to qualify or continue to qualify annually as a regulated
investment company under the Internal revenue Code of 1986, as amended (the
'Code'). As a regulated investment company, each Fund will not be subject to US
Federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to shareholders. Each Fund intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains, and therefore does not
anticipate incurring a Federal income tax liability. The Funds also do not
anticipate paying any excise taxes. The Funds' dividends and distributions will
not qualify for the dividends-received deduction for corporations.

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). In such event, dividend
distributions would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.

                                       52


A Fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency, forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax rules. All
section 1256 contracts held by a Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized gain or loss on
those positions will be included in the Fund's income as if each position had
been sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized by the
Fund from positions in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were not part of a
'hedging transaction' nor part of a 'straddle,' 60% of the resulting net gain or
loss will be treated as long-term capital gain or loss, and 40% of such net gain
or loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the Fund.

The Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferred benefits
provided by the variable contracts which are offered in connection with such
separate accounts. The Advisor intends to diversify the Fund's investments in
accordance with those requirements. The prospectus for each Company's variable
annuities and variable life insurance policies describe the federal income tax
treatment of distributions from such contracts.

To comply with regulations under Section 817(h) of the Code, each Fund will be
required to diversify its investments so that on the last day of each calendar
quarter no more than 55% of the value of its assets is represented by any one
investment, no more than 70% is represented by any two investments, no more than
80% is represented by any three investments and no more than 90% is represented
by any four investments. Generally, all securities of the same issuer are
treated as a single investment. For the purposes of Section 817(h) of the Code,
obligations of the US Treasury and each US Government instrumentality are
treated as securities of separate issuers. The Treasury Department has indicated
that it may issue future pronouncements addressing the circumstances in which a
variable annuity contract owner's control of the investments of a separate
account may cause the variable contract owner, rather than the separate
account's sponsoring insurance company, to be treated as the owner of the assets
held by the separate account. If the variable annuity contract owner is
considered the owner of the securities underlying the separate account, income
and gains produced by those securities would be included currently in the
variable annuity contract owner's gross income. It is not known what standards
will be set forth in such pronouncements or when, if at all, these
pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Fund will be able to operate as
described currently in the Prospectus or that the Fund will not have to change
its investment policies or goals.

The foregoing is only a brief summary of important tax law provisions that
affect each Fund. Other Federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from a
Fund should consult a qualified tax advisor.

                                  DISTRIBUTIONS

Each Fund distributes substantially all of its net income and recognized long
term and short term capital gains to shareholders each year. Each Fund (except
the US Bond Index Fund) distributes income dividends annually. US Bond Index
Fund declares income dividends daily and distributes such dividends monthly. In
addition, each Fund will distribute net long term and short term capital gains,
if any, at least annually and may make additional capital gains distributions at
other times, if required, to remain in compliance with the applicable tax
regulations. Unless a shareholder instructs the Trust to pay such dividends and
distributions in cash, they will be automatically reinvested in additional
shares of the Fund that paid the dividend or distribution. The prospectus for a
Company's variable annuity or variable life insurance policies describe the
frequency of distributions to Contract owners and the federal income tax
treatment of distributions from such contracts to Contract owners.

                                 OTHER TAXATION

The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor any Fund is

                                       53


liable for any income or franchise tax in the Commonwealth of Massachusetts,
provided that the Fund continues to qualify as a regulated investment company
under Subchapter M of the Code.

                            FOREIGN WITHHOLDING TAXES

Income received by a Fund from investments in foreign securities may be subject
to withholding and other taxes imposed by foreign countries.

                              FINANCIAL STATEMENTS

The financial statements for the Funds for the year ended December 31, 2002
(other than US Bond Index Fund which has not commenced operations as of the date
of this SAI and the Nasdaq-100 Index Fund which was not operational as of
December 31, 2002), are incorporated herein by reference to the Funds' Annual
Reports dated December 31, 2002. Class B shares of the Funds have not commenced
operation as of the date of this SAI. A copy of a Fund's Annual Report may be
obtained without charge by contacting the Customer Service Center at the
telephone number shown in the contract Prospectus.

                                       54


                                    APPENDIX

BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of ratings which represent opinions as to the
quality of long-term securities. It should be emphasized, however, that ratings
are relative and subjective and are not absolute standards of quality.

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as 'gilt edge.'
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered as medium-grade obligations, i.e. they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such, bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both (good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.

B - Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.

C - Bonds rated C are the lowest-rated class of bonds and issued so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through Caa in its corporate bond system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.

                                       55


DESCRIPTION OF S&P's Corporate Bond Ratings:

AAA - Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher-rated categories.

BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.

B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.

CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.

CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.

C -The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.

CI - The rating CI is reserved for income bonds on which no interest is being
paid.

D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

PLUS (+) or MINUS (-) - The ratings from "AA" through "CC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

                                       56


                         INVESTMENT ADVISOR OF EACH FUND
                         DEUTSCHE ASSET MANAGEMENT, INC.

                                  ADMINISTRATOR
                                    PFPC INC.

                                   DISTRIBUTOR
                             PFPC DISTRIBUTORS, INC.

                                    CUSTODIAN
                      DEUTSCHE BANK TRUST COMPANY AMERICAS

                                 TRANSFER AGENT
                                    PFPC INC.

                              INDEPENDENT AUDITORS
                                ERNST & YOUNG LLP

                                     COUNSEL
                            WILLKIE FARR & GALLAGHER

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

          No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its
Statements of Additional Information or the Trust's official sales literature in
connection with the offering of the Trust's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. Neither the Prospectuses nor this SAI constitutes an
offer in any state in which, or to any person to whom, such offer may not
lawfully be made.

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


                       STATEMENT OF ADDITIONAL INFORMATION

                                                                     May 1, 2003

SCUDDER VIT FUNDS

..    Global Biotechnology

The Scudder VIT Funds is the marketing name for Deutsche Asset Management VIT
Funds (the "Trust"). The Trust is comprised of several funds. The Global
Biotechnology Fund (the "Fund") is a series of the Trust. This Statement of
Additional Information describes the Fund's Shares.

Shares of the Fund are available to the public only through the purchase of
certain variable annuity and variable life insurance contracts ("Contract(s)")
issued by various insurance companies (the "Companies") and may also be
purchased by certain tax qualified plans. The investment advisor of the Fund is
Deutsche Asset Management, Inc. ("DeAM, Inc."). Deutsche Asset Management
International GmbH ('DeAM International') is the sub-advisor to the Fund. DeAM,
Inc. and DeAM International collectively are referred to as the "Advisors." The
distributor of the Fund's shares is PFPC, Inc. (the "Distributor").

The Prospectus for the Fund, dated April 30, 2002, provides the basic
information investors should know before investing. This Statement of Additional
Information ("SAI"), which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of the Trust and
should be read in conjunction with the Prospectus. You may request a copy of the
Prospectus or a paper copy of this SAI, if you have received it electronically,
free of charge by calling the Customer Service Center at the telephone number
shown in the Contract prospectus. This SAI is not an offer of any Fund for which
an investor has not received a Prospectus. Capitalized terms not otherwise
defined in this Statement of Additional Information have the meanings accorded
to them in the Fund's Prospectus. A copy of the Fund's Annual Report may be
obtained without charge by calling the Customer Service Center at the telephone
number shown in the Contract prospectus.

                         DEUTSCHE ASSET MANAGEMENT, INC.
                         Investment Advisor of the Fund

                  DEUTSCHE ASSET MANAGEMENT INTERNATIONAL GMBH
                       Investment Sub-Advisor of the Fund

                             PFPC DISTRIBUTORS, INC.
                                   Distributor
                                 760 Moore Drive
                       King of Prussia, Pennsylvania 19406


                                TABLE OF CONTENTS
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS.................................................................1

INVESTMENT OBJECTIVE AND POLICIES...............................................................................25

PORTFOLIO TURNOVER..............................................................................................27

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS................................................................27

PERFORMANCE INFORMATION.........................................................................................28

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND......................................................30

MANAGEMENT OF THE TRUST.........................................................................................32

ORGANIZATION OF THE TRUST.......................................................................................40

TAXATION........................................................................................................40

FINANCIAL STATEMENTS............................................................................................42

APPENDIX........................................................................................................43

                                       -i-


                INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

GLOBAL BIOTECHNOLOGY FUND

The Global Biotechnology Fund invests to maximize total return. While we give
priority to seeking the Fund's objective, we cannot offer any assurance that the
Fund will achieve its objective.

The Fund seeks to achieve its goal by investing primarily in equity securities
of companies that the Fund expects will benefit from their involvement in the
biotechnology industry. These companies may be located in the US and abroad and
may have operations in more than one country. Investments abroad will be
substantially in developed countries. The biotechnology industry currently
includes pharmaceutical, biochemical, medical/surgical, human health care and
agricultural- and industrial-oriented companies.

The Fund uses both fundamental research and due diligence in looking for
attractive investment opportunities in the biotechnology sector. The Fund seeks
to identify and invest early in promising opportunities within the sector and
generally pursues a 'buy and hold' investment strategy.

While the principal investment policies and strategies for seeking to achieve
the objective is described in the Fund's Prospectus, the Fund may from time to
time also use the securities, instruments, policies and principal and
non-principal strategies described below in seeking to achieve their objectives.
The Fund may not be successful in achieving its objective and you could lose
money.

SECURITIES IN WHICH THE FUND INVESTS

Following is a table that indicates which types of securities are a:
.. P = PRINCIPAL investment of a Fund; (shaded in chart)
.. A = ACCEPTABLE (but not principal) investment of a Fund; or
.. N = NOT AN ACCEPTABLE investment of a Fund.

                                             GLOBAL BIOTECHNOLOGY
                                                     FUND
- -----------------------------------------------------------------
EQUITY SECURITIES
- -----------------------------------------------------------------
   Common Stocks                                      P
- -----------------------------------------------------------------
   Initial Public Offerings (IPOs)                    A
- -----------------------------------------------------------------
   Preferred Stocks                                   P
- -----------------------------------------------------------------
   Private Equity                                     A
- -----------------------------------------------------------------
   Stock Baskets                                      A
- -----------------------------------------------------------------
   Warrants or Rights                                 A
- -----------------------------------------------------------------
FIXED INCOME SECURITIES
- -----------------------------------------------------------------
   Treasury Securities                                A
- -----------------------------------------------------------------
   Agency Securities                                  A
- -----------------------------------------------------------------
   Corporate Debt Securities                          A
- -----------------------------------------------------------------
   Demand Instruments                                 A
- -----------------------------------------------------------------
   Insurance Contracts                                A
- -----------------------------------------------------------------
   Zero Coupon Securities                             A
- -----------------------------------------------------------------
   Variable Rate Securities                           A
- -----------------------------------------------------------------
SHORT-TERM INSTRUMENTS
- -----------------------------------------------------------------
Short-Term Obligations of Sovereign
Governments                                           A
- -----------------------------------------------------------------
Short-Term Debt Securities                            A
- -----------------------------------------------------------------
Commercial Paper                                      A
- -----------------------------------------------------------------
Bank Obligations                                      A
- -----------------------------------------------------------------
FOREIGN SECURITIES
- -----------------------------------------------------------------
   Direct Investments                                 A
- -----------------------------------------------------------------


- -----------------------------------------------------------------
   American Depositary Receipts                       P
- -----------------------------------------------------------------
   Global Depositary Receipts                         P
- -----------------------------------------------------------------
DERIVATIVE SECURITIES
- -----------------------------------------------------------------
   Options                                            A
- -----------------------------------------------------------------
   Options on Securities Indexes                      A
- -----------------------------------------------------------------
   Options on Foreign Securities Indices              A
- -----------------------------------------------------------------
   Foreign Currency Forward                           A
- -----------------------------------------------------------------
   Contracts
- -----------------------------------------------------------------
   Futures Contracts                                  A
- -----------------------------------------------------------------
   Futures Contracts on Securities
   Indices                                            A
- -----------------------------------------------------------------
   Warrants of Futures Contracts                      A
- -----------------------------------------------------------------
   Options on Futures Contracts                       A
- -----------------------------------------------------------------
   Options on Foreign Currencies                      A
- -----------------------------------------------------------------
SPECIAL TRANSACTIONS
- -----------------------------------------------------------------
   Borrowing                                          A
- -----------------------------------------------------------------
   Repurchase Agreements                              A
- -----------------------------------------------------------------
   Reverse Repurchase
   Agreements                                         A
- -----------------------------------------------------------------
   When-Issued or Delayed
   Delivery Transactions                              A
- -----------------------------------------------------------------
   Securities Lending                                 A
- -----------------------------------------------------------------
   Currency Hedges                                    A
- -----------------------------------------------------------------
INVESTING IN SECURITIES OF OTHER
INVESTMENT COMPANIES
- -----------------------------------------------------------------
   Exchange Traded Funds (ETFs)                       A
- -----------------------------------------------------------------

EQUITY SECURITIES

The Fund may invest in the equity securities of domestic and foreign issuers to
the extent consistent with its investment objective and policies. As used
herein, "equity securities" include common stock, preferred stock, trust or
limited partnership interests, rights and warrants (to subscribe to or purchase
such securities) and convertible securities (consisting of debt securities or
preferred stock that may be converted into common stock or that carry the right
to purchase common stock.)

Common Stock. Common stocks, the most familiar type of equity securities,
represent an equity (i.e., ownership) interest in a corporation. They may or may
not pay dividends or carry voting rights. Common stock occupies the most junior
position in a company's capital structure. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial condition, as well as, changes in overall market and
economic conditions. This affects the value of the shares of the Fund, and thus
the value of your investment. Smaller companies are more sensitive to these
factors than larger companies.

Warrants. The Fund may purchase warrants in value of up to 10% of the Fund's net
assets. Warrants are securities that give the Fund the right but not the
obligation to buy a specified number of shares of common stock at a specified
price, which is often higher than the market price at the time of issuance, for
a specified period (or in perpetuity). Warrants may be issued in units with
other securities or separately, and may be freely transferable and traded on
exchanges. Investing in warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and thus, is a
speculative investment. At the time of issue, the cost of a warrant is
substantially less than the cost of the underlying security itself, and price
movements in the underlying security are generally magnified in the price
movements of the warrant. This leveraging effect enables the investor to gain
exposure to the underlying security with a relatively low capital investment.
This leveraging increases an investor's risk, however, in the event of a decline
in the value of the underlying security and can result in a complete loss of the
amount invested in the warrant.

                                       -2-


While the market value of a warrant tends to be more volatile than that of the
securities underlying the warrant, changes in the market value of a warrant may
not necessarily correlate with that of the underlying security. A warrant ceases
to have value if it is not exercised prior to the expiration date, if any, to
which the warrant is subject. The purchase of warrants involves a risk that a
Fund could lose the purchase value of a warrant if the right to subscribe to
additional shares is not exercised prior to the warrant's expiration. Also, the
purchase of warrants involves the risk that the effective price paid for the
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security. The value of the warrant may
decline because of a decline in the value of the underlying security, the
passage of time, changes in the interest rates or dividend or other policies of
the company whose equity underlies the warrant or a change in the perception as
to the future price of the underlying security, or any combination thereof. Also
warrants do not entitle the holder to dividends or voting rights with respect to
the underlying securities and do not represent any rights in the assets of the
issuing company.

Preferred Stocks Preferred stock has a preference (i.e., ranks higher) in
liquidation (and generally dividends) over common stock but is subordinated
(i.e., ranks lower) in liquidation than fixed income securities. Dividends on
preferred stocks may be cumulative, and in such cases, all cumulative dividends
usually must be paid prior to dividend payments to common stockholders. Because
of this preference, preferred stocks generally entail less risk than common
stocks. As a general rule, the market value of preferred stocks with fixed
dividend rates and no conversion rights moves inversely with interest rates and
perceived credit risk, with the price determined by the dividend rate. Some
preferred stocks are convertible into other securities (e.g., common stock) at a
fixed price and ratio upon the occurrence of certain events. The market price of
convertible preferred stocks generally reflects an element of conversion value.
Because many preferred stocks lack a fixed maturity date, these securities
generally fluctuate substantially in value when interest rates change; such
fluctuations often exceed those of long-term bonds of the same issuer. Some
preferred stocks pay an adjustable dividend that may be based on an index,
formula, auction procedure or other dividend rate reset mechanism. In the
absence of credit deterioration, adjustable rate preferred stocks tend to have
more stable market values than fixed rate preferred stocks.

All preferred stocks are subject to the same types of credit risks as corporate
bonds. In addition, because preferred stock is subordinate to debt securities
and other obligations of an issuer, deterioration in the credit rating of an
issuer will cause greater changes in the value of a preferred stock than in a
more senior debt security with similar yield characteristics. Preferred stocks
may be rated by Standard & Poor's Ratings Services ("S&P") and Moody's Investors
Service, Inc. ("Moody's") although there is no minimum rating which a preferred
stock must have to be an eligible instrument of a Fund. Generally, however, the
preferred stocks in which the Fund invests will be rated at least CCC by S&P or
Caa by Moody's or, if unrated, of comparable quality in the opinion of the
Advisors. Preferred stocks rated CCC by S&P are regarded as predominately
speculative with respect to the issuer's capacity to pay preferred stock
obligations and represent the highest degree of speculation among rated
securities between BB and CCC; preferred stocks rated Caa by Moody's are likely
to be in arrears on dividend payments. Moody's ratings with respect to preferred
stocks do not purport to indicate the future status of payment of dividends.

Convertible Securities A convertible security is a bond or preferred stock which
may be converted at a stated price within a specific period of time into a
specified number of shares of common stock of the same or a different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure, but are generally subordinate to non-convertible debt securities.
While providing a fixed income stream, generally higher in yield than the income
derived from a common stock but lower than that afforded by a non-convertible
debt security, a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation of
common stock in to which it is convertible. The option allows the Fund to
realize additional returns if the market price of the equity securities exceeds
the conversion price. For example, the Fund may hold fixed income securities
that are convertible into shares of common stock at a conversion price of $10
per share. If the market value of the shares of common stock reached $12, the
Fund could realize an additional $2 per share by converting its fixed income
securities.

The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of convertible preferred stock, the holders' claim on assets and
earnings are subordinated to the claims of all creditors and senior to the
claims of common shareholders.

                                       -3-


In general, the market value of a convertible security is the greater of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
as the market value of the underlying stock declines. Investments in convertible
securities generally entail less risk than investments in the common stock of
the same issuer.

Initial Public Offerings ("IPOs"). The Fund may invest in IPOs. IPOs may be very
volatile, rising and falling rapidly based on, among other reasons, investor
perceptions rather than economic reasons. Additionally, IPOs may have a
magnified performance effect on a portfolio with a small asset base. A Fund may
not experience a similar impact on its performance as its assets grow, as it is
unlikely that the Fund will be able to obtain proportionately larger IPO
allocations.

STOCK BASKETS
The Fund may invest in stock baskets. A stock basket is a group of stocks that
is formed with the intention of either being bought or sold all at once, usually
to perform index arbitrage (an investment/trading strategy which exploits
divergence between actual and theoretical futures prices) or a hedging program.

PRIVATE EQUITY
Private Equity is equity capital that is made available to companies or
investors but not quoted on a stock market. The funds raised through private
equity can be used to develop new products and technologies, to expand working
capital, to make acquisitions, or to strengthen a company's balance sheet.

EXCHANGE TRADED FUNDS
The Fund may be invested in shares of Exchange Traded Funds (ETFs). ETFs are
mutual funds that trade like stocks.

FIXED INCOME SECURITIES

Fixed income securities, including (but not limited to) bonds, are used by
issuers to borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity. Some
debt securities do not pay current interest, but are purchased at a discount
from their face values. The fixed income securities in which the Fund invests
must be rated, at the time of purchase, investment grade (in one of the four
highest rating categories) by one or more nationally recognized statistical
ratings organizations or be of comparable quality to securities having such
ratings, as determined by the Advisors. The value of fixed income securities in
the Fund's portfolio generally varies inversely with the changes in interest
rates. Prices of fixed income securities with longer effective maturities are
more sensitive to interest rate changes than those with shorter effective
maturities.

In periods of declining interest rates, the yield (the income generated over a
stated period of time) of the Fund's investment in fixed income securities may
tend to be higher than prevailing market rates, and in periods of rising
interest rates, the yield of a Fund may tend to be lower. Also, when the
interest rates are falling, the inflow of net new money to the Fund, impacting
the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the yield of the Fund. In periods of rising interest rates, the
opposite can be true. The net asset value of the Fund investing in fixed income
securities can generally be expected to change as general levels of interest
rates fluctuate.

Fixed Income Security Risk. Fixed income securities generally expose the Fund to
four types of risk: (1) interest rate risk (the potential for fluctuations in
bond prices due to changing interest rates); (2) income risk (the potential for
a decline in the Fund's income due to falling market interest rates); (3) credit
risk (the possibility that a bond issuer will fail to make timely payments of
either interest or principal to the Fund); and (4) prepayment risk or call risk
(the likelihood that, during a period of falling interest rates, securities with
high stated interest rates will be prepaid, or "called" prior to maturity,
requiring the Fund to invest the proceeds at the generally lower interest
rates).

                                       -4-


US GOVERNMENT SECURITIES (INCLUDING US TREASURY SECURITIES AND AGENCY
SECURITIES)
The Fund may invest its assets in securities issued or guaranteed by the US
government, its agencies or instrumentalities. These securities, including those
which are guaranteed by federal agencies or instrumentalities, may or may not be
backed by the 'full faith and credit' of the United States. In the case of
securities not backed by the full faith and credit of the United States, it may
not be possible to assert a claim against the United States itself in the event
the agency or instrumentality issuing or guaranteeing the security for ultimate
repayment does not meet its commitments. Securities which are not backed by the
full faith and credit of the United States include, but are not limited to,
securities of the Tennessee Valley Authority, the Federal National Mortgage
Association (Fannie Mae), the US Postal Service and the Resolution Funding
Corporation (REFCORP), each of which has a limited right to borrow from the US
Treasury to meet its obligations, and securities of the Federal Farm Credit
System, the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation
(FHLMC) and the Student Loan Marketing Association (Sallie Mae), the obligations
of each of which may be satisfied only by the individual credit of the issuing
agency. Securities which are backed by the full faith and credit of the United
States include Treasury bills, Treasury notes, Treasury bonds and pass-through
obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Export-Import Bank. There is no percentage
limitation with respect to investments in US government securities.

Corporate Debt Securities Corporate debt securities are fixed income securities
issued by businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt securities. The credit risks of corporate debt
securities vary widely among issuers.

In addition, the credit risk of an issuer's debt security may vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities.

Demand Instruments . Demand instruments are corporate debt securities that the
issuer must repay upon demand. Other demand instruments require a third party,
such as a dealer or bank, to repurchase the security for its face value upon
demand. The Fund treats demand instruments as short-term securities, even though
their stated maturity may extend beyond one year.

Insurance Contracts . Insurance contracts include guaranteed investment
contracts, funding agreements and annuities. The Fund treats these contracts as
fixed income securities.

Zero Coupon Securities and Deferred Interest Bonds Zero coupon and deferred
interest bonds are debt obligations which are issued at a significant discount
from face value. The original discount approximates the total amount of interest
the bonds will accrue and compound over the period until maturity or the first
interest accrual date at a rate of interest reflecting the market rate of the
security at the time of issuance. Zero coupon securities are redeemed at face
value at their maturity date without interim cash payments of interest or
principal. The amount of this discount is accrued over the life of the security,
and the accrual constitutes the income earned on the security for both
accounting and tax purposes. Because of these features, the market prices of
zero coupon securities are generally more volatile than the market prices of
securities that have similar maturities but that pay interest periodically.

While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds generally provide for a period of delay before the
regular payment of interest begins. Although this period of delay is different
for each deferred interest bond, a typical period is approximately one-third of
the bond's term to maturity. Such investments benefit the issuer by mitigating
its initial need for cash to meet debt service, but some also provide a higher
rate of return to attract investors who are willing to defer receipt of such
cash.

The Fund will accrue income on such investments for tax and accounting purposes,
as required, which is distributable to shareholders and which, because no cash
is generally received at the time of accrual, may require the liquidation of
other portfolio securities to satisfy a Fund's distribution obligations. See the
section entitled 'State Taxes.'

                                       -5-


Variable Rate Securities Variable rate securities are long-term maturity
securities which are subject to frequently available put option or tender option
features under which the holder may put the security back to the issuer or its
agent at a predetermined price (generally par) after giving specified notice.
The interest rate on a variable rate security changes at intervals according to
an index or a formula or other standard measurement as stated in the bond
contract. One common method is to calculate the interest rate as a percentage of
the rate paid on selected issues of Treasury securities on specified dates. The
put option or tender option right is typically available to the investor on a
weekly or monthly basis although on some demand securities the investor has a
daily right to exercise the put option. Variable rate securities with the put
option exercisable on dates on which the variable rate changes are often called
'variable rate demand notes.'

The absence of an active secondary market for certain variable and floating rate
notes could make it difficult to dispose of the instruments, and a Fund could
suffer a loss if the issuer defaults or during periods in which the Fund is not
entitled to exercise its demand rights. Variable and floating rate instruments
held by the Fund will be subject to the Fund's limitation on investments in
illiquid securities when a reliable trading market for the instruments does not
exist and the Fund may not demand payment of the principal amount of such
instruments within seven days.

Short-Term Instruments Short-term instruments consist of foreign and domestic:
(1) short-term obligations of sovereign governments, their agencies,
instrumentalities, authorities or political subdivisions; (2) other short-term
debt securities rated AA or higher by S&P or Aa or higher by Moody's or, if
unrated, are deemed to be of comparable quality in the opinion of the Advisors;
(3) commercial paper; (4) bank obligations, including negotiable certificates of
deposit, time deposits and banker's acceptances; and (5) repurchase agreements.
At the time the Fund invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding debt rated
AA or higher by S&P or Aa or higher by Moody's; outstanding commercial paper or
bank obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings
are available, the instrument must be deemed to be of comparable quality in the
opinion of the Advisors. These instruments may be denominated in U.S. dollars or
in foreign currencies.

Short-term instruments also include credit balances and bank certificates of
deposit, discounted treasury notes and bills issued by Germany, the states of
Germany, the European Union, OECD Members or quasi-governmental entities of any
of the foregoing.

Up to 49% of the net assets of the Fund may temporarily invest in bank deposits
and money market instruments maturing in less than 12 months, as a measure taken
in the Advisors' judgment during, or in anticipation of, adverse market
conditions, to meet anticipated expenses or for day-to-day operating. When the
Fund experiences large cash inflows, for example through the sale of securities,
and attractive investments are unavailable in sufficient quantities, the Fund
may hold short-term investments (or shares of money market mutual funds) for a
limited time pending availability of such investments.

In addition, when in the opinion of the Advisors, it is advisable to adopt a
temporary defensive position because of unusual and adverse market or other
conditions, up to 100% of the Fund's assets may be invested in such short-term
instruments. Under normal circumstances the Fund will purchase bank deposits and
money market instruments to invest temporary cash balances or to maintain
liquidity to meet redemptions. However, for the Fund, certificates of deposit
from the same credit institution may not account for more than 10% of a Fund's
total assets.

Commercial Paper The Fund may invest its assets in commercial paper including
variable rate demand master notes issued by US corporations or by non-US
corporations which are direct parents or subsidiaries of US corporations. Master
notes are demand obligations that permit the investment of fluctuating amounts
at varying market rates of interest pursuant to arrangements between the issuer
and a US commercial bank acting as agent for the payees of such notes. Master
notes are callable on demand, but are not marketable to third parties.
Consequently, the right to redeem such notes depends on the borrower's ability
to pay on demand. At the date of investment, commercial paper must be rated
within the highest rating category for short-term debt obligations by at least
two (unless only rated by one) nationally recognized statistical rating
organizations (eg, Moody's and S&P) or, if unrated, are of comparable quality as
determined by or under the direction of the Fund's Board of Directors. Any

                                       -6-


commercial paper issued by a non-US corporation must be US dollar-denominated
and not subject to non-US withholding tax at the time of purchase. Aggregate
investments in non-US commercial paper of non-US issuers cannot exceed 10% of
the Fund's net assets. Since the Fund may contain commercial paper issued by
non-US corporations, it may be subject to additional investment risks with
respect to those securities that are different in some respects from obligations
of US issuers, such as currency exchange control regulations, the possibility of
expropriation, seizure or nationalization of non-US deposits, less liquidity and
more volatility in non-US securities markets and the impact of political, social
or diplomatic developments or the adoption of other foreign government
restrictions which might adversely affect the payment of principal and interest
on securities held by the Fund. If it should become necessary, greater
difficulties might be encountered in invoking legal processes abroad than would
be the case in the United States. There may be less publicly available
information about a non-US issuer, and non-US issuers generally are not subject
to uniform accounting and financial reporting standards, practices and
requirements comparable to those applicable to US issuers.

Interest Rates Interest rate risks apply to the Fund only to the extent it
invest in fixed income securities. Prices of fixed income securities rise and
fall in response to changes in the interest rate paid by similar securities.
Potential or anticipated changes in interest rates also may affect the value of
fixed income securities. Generally, when interest rates rise, prices of fixed
income securities fall. However, market factors, such as the demand for
particular fixed income securities, may cause the price of certain fixed income
securities to fall while the prices of other securities rise or remain
unchanged.

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

DERIVATIVE SECURITIES

The Fund may invest in various instruments that are commonly known as
"derivatives." Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile and/or less liquid than more traditional debt securities. There
are, in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. For example, the
Fund may use futures and options as a low-cost method of gaining exposure to a
particular securities market without investing directly in those securities and
for traditional hedging purposes to attempt to protect the Fund from exposure to
changing interest rates, securities prices or currency exchange rates and for
cash management or other investment purposes. The use of derivatives may result
in leverage, which tends to magnify the effects of an instrument's price changes
as market conditions change. Leverage involves the use of a small amount of
money to control a large amount of financial assets, and can in some
circumstances, lead to significant losses. The Fund will limit the leverage
created by its use of derivatives for investment purposes by "covering" such
positions as required by the SEC. The Advisors may use derivatives in
circumstances where the Advisors believe they offer an economical means of
gaining exposure to a particular asset class. Derivatives will not be used to
acquire exposure to changes in the value of assets or indexes that by themselves
would not be purchased for the Fund. The use of derivatives for non-hedging
purposes may be considered speculative.

The Fund's investment in options, futures or forward contracts, and similar
strategies depend on the Advisors' judgment as to the potential risks and
rewards of different types of strategies. Options and futures can be volatile
investments, and may not perform as expected. If the Advisors apply a hedge at
an inappropriate time or judge price trends incorrectly, options and futures
strategies may lower the Fund's return. The Fund could also experience losses if
the prices of its options and futures positions were poorly correlated with its
other investments, or if it could not close out its positions because of an
illiquid secondary market. Options and futures traded on foreign exchanges
generally are not regulated by U.S. authorities, and may offer less liquidity
and less protection to the Fund in the event of default by the other party to
the contract.

Many derivative contracts are traded on securities or commodities exchanges.
Derivative contracts bought and sold by the Fund must be admitted to official
listing on a recognized futures or securities exchange and the securities
underlying the options are within the applicable investment objective and
policies of the Fund. These exchanges set all the terms of the contract except
for the price. Investors make payments due under their contracts through the

                                       -7-


exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allow investors to close out their contracts by entering into offsetting
contracts. These options place greater reliance on the dealer to fulfill the
terms of the options, and therefore entail greater risk to the Fund.

Transactions in options, futures contracts, options on futures contracts and
forward contracts entered into for non-hedging purposes involve greater risk and
could result in losses which are not offset by gains on other portfolio assets.

Options on Securities. All options on securities purchased or sold by the Fund
will be traded on a securities exchange. The Fund may purchase and write (sell)
put and call options on stocks. Options are rights, but not obligations to buy
or sell an underlying asset for a specified price (the exercise price) during,
or at the end of, a specified period. A call option gives the purchaser of the
option the right (but not the obligation) to buy, and obligates the writer to
sell, the underlying stock at the exercise price at any time during the option
period. Similarly, a put option gives the purchaser of the option the right (but
not the obligation) to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period.

The Fund may write (sell) covered call and put options to a limited extent (the
limit being 20%) on their portfolio securities ("covered options") in an attempt
to increase income through the premiums they receive for writing the option(s).
However, in return for the premium, the Fund may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Fund.

A call option written by the Fund is "covered" if the Fund owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds a call option on the same security and in the same
principal amount as the written call option where the exercise price of the call
option so held (a) is equal to or less than the exercise price of the written
call option or (b) is greater than the exercise price of the written call option
if the difference is segregated by the Fund in cash or liquid securities.

When the Fund writes a covered call option, it gives the purchaser of the option
the right to buy the underlying security at the price specified in the option
(the "exercise price") by exercising the option at any time during the option
period. If the option expires unexercised, the Fund will realize income in an
amount equal to the premium received for writing the option. If the option is
exercised, a decision over which the Fund has no control, the Fund must sell the
underlying security to the option holder at the exercise price. By writing a
covered call option, the Fund forgoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price. In addition, the Fund may continue to hold a stock which might
otherwise have been sold to protect against depreciation in the market price of
the stock.

A put option written by the Fund is "covered" when, among other things, cash or
liquid securities acceptable to the broker are placed in a segregated account to
fulfill the obligations undertaken. When the Fund writes a covered put option,
it gives the purchaser of the option the right to sell the underlying security
to the Fund at the specified exercise price at any time during the option
period. If the option expires unexercised, the Fund will realize income in the
amount of the net premium received for writing the option. If the put option is
exercised, a decision over which the Fund has no control, the Fund must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Fund, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price. The Fund will only write put options involving
securities for which a determination is made at the time the option is written
that the Fund wish to acquire the securities at the exercise price.

The Fund may terminate its obligation as the writer of a call or put option by
purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." The Fund will realize a profit or loss on a closing purchase
transaction if the amount paid to purchase

                                       -8-


an option is less or more, as the case may be, than the amount received from the
sale thereof. To close out a position as a purchaser of an option, the Fund may
enter into a "closing sale transaction" which involves liquidating the Fund's
position by selling the option previously purchased. Where the Fund cannot
effect a closing purchase transaction, it may be forced to incur brokerage
commissions or dealer spreads in selling securities it receives or it may be
forced to hold underlying securities until an option is exercised or expires.

When the Fund writes an option, an amount equal to the net premium received by
the Fund is included in the liability section of the Fund's Statement of Assets
and Liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked to market to reflect the current market value of the option
written. The current market value of a traded option is the last sale price or,
in the absence of a sale, the mean between the closing bid and asked price. If
an option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, the Fund will realize a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when the option
was sold), and the deferred credit related to such option will be eliminated. If
a call option is exercised, the Fund will realize a gain or loss from the sale
of the underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be identified on
the Fund's books.

The Fund may also purchase call and put options on any securities in which it
may invest. The Fund would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Fund, in exchange for the premium paid, to purchase a security
at a specified price during the option period. The Fund would ordinarily have a
gain if the value of the securities increased above the exercise price
sufficiently to cover the premium and would have a loss if the value of the
securities remained at or below the exercise price during the option period. The
Fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or securities of
the type in which it is permitted to invest. The purchase of a put option would
entitle the Fund, in exchange for the premium paid, to sell a security, which
may or may not be held by the Fund at a specified price during the option
period. The purchase of protective puts is designed merely to offset or hedge
against a decline in the market value of the Fund. Put options also may be
purchased by the Fund for the purpose of affirmatively benefiting from a decline
in the price of securities that the Fund does not own. The Fund would ordinarily
recognize a gain if the value of the securities decreased below the exercise
price sufficiently to cover the premium and would recognize a loss if the value
of the securities remained at or above the exercise price. Gains and losses on
the purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying portfolio securities. The Fund may not invest
more than 25% of its total assets in purchased protective put options.

The strike prices of the securities options, together with the strike prices of
the securities that underlie other securities options already purchased or
granted for the account of the Fund, may not exceed 20% of net assets of the
Fund. Options on securities may be purchased or written (sold) to a third party
only to the extent that the strike prices of such options, together with the
strike prices of options on securities of the same issuer already purchased or
written (sold) by the Fund, do not exceed 10% of the net assets of the Fund.
Options on securities may only be written (sold) to the extent that the strike
prices of such options, together with the strike prices of options on securities
of the same issuer already written for the account of the Fund, do not exceed 2%
of the net assets of the Fund. When an option transaction is offset by a back-
to-back transaction (e.g., where the Fund writes a put option on a security and
purchases a put option on the same security having the same expiration date),
these two transactions will not be counted for purposes of the limits set forth
in this paragraph.

                                       -9-


Options on Securities Indices The Fund may also purchase and write
exchange-listed and OTC put and call options on securities indices. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indices may also be based on a particular industry or market segment.

Options on securities indices are similar to options on securities except that
(1) the expiration cycles of securities index options are monthly, while those
of securities options are currently quarterly, and (2) the delivery requirements
are different. Instead of giving the right to take or make delivery of stock at
a specified price, an option on a securities index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (b) a fixed "index multiplier." Receipt
of this cash amount will depend upon the closing level of the securities index
upon which the option is based being greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the index and the
exercise price of the option times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Securities index options may be offset by entering into closing
transactions as described above for securities options.

OTC derivative contracts are considered to be illiquid and generally carry
greater liquidity risk than exchange-traded contracts. The staff of the SEC has
taken the position that, in general, purchased OTC options and the underlying
securities used to cover written OTC options are illiquid securities.

As discussed above in "Options on Securities," the Fund would normally purchase
a call option in anticipation of an increase in the market value of the relevant
index. The purchase of a call option would entitle the Fund, in exchange for the
premium paid, to purchase the underlying securities at a specified price during
the option period. The Fund would ordinarily have a gain if the value of the
underlying securities increased above the exercise price sufficiently to cover
the premium and would have a loss if the value of the securities remained at or
below the exercise price during the option period.

As discussed above in "Options on Securities," the Fund would normally purchase
put options in anticipation of a decline in the market value of the relevant
index ("protective puts"). The purchase of a put option would entitle the Fund,
in exchange for the premium paid, to sell the underlying securities at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
index. The Fund would ordinarily recognize a gain if the value of the index
decreased below the exercise price sufficiently to cover the premium and would
recognize a loss if the value of the index remained at or above the exercise
price. Gains and losses on the purchase of protective put options would tend to
be offset by countervailing changes in the value of the index.

Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Fund will realize
a gain or loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in the
case of certain indices, in an industry or market segment, rather than movements
in the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the Advisors' ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.

Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although the Fund
generally will only purchase or write such an option if the Advisors believe the
option can be closed out. Use of options on securities indices also entails the
risk that trading in such options may be interrupted if trading in certain
securities included in the index is interrupted. The Fund will not purchase such
options unless the Advisors believe the market is sufficiently developed such
that the risk of trading in such options is no greater than the risk of trading
in options on securities.

                                      -10-


Price movements in the Fund's portfolio may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indices
cannot serve as a complete hedge. Because options on securities indices require
settlement in cash, the Advisors may be forced to liquidate portfolio securities
to meet settlement obligations. The Fund's activities in index options may also
be restricted by the requirements of the Internal Revenue Code, as amended (the
"Code") for qualification as a regulated investment company.

In addition, the hours of trading for options on the securities indices may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying securities markets that cannot be reflected in the option markets and
that may adversely affect the value of any options held by the Fund. It is
impossible to predict the volume of trading that may exist in such options, and
there can be no assurance that viable exchange markets will develop or continue.

Options on Foreign Securities Indices. The Fund may purchase and write put and
call options on foreign stock indices listed on domestic and foreign stock
exchanges. The Fund may also purchase and write OTC Options on foreign stock
indices and baskets of foreign securities.

The Fund may, to the extent allowed by federal securities laws, invest in (1)
securities indices instead of investing directly in individual non-U.S.
securities and (2) OTC options on baskets of securities instead of investing
directly in individual non-US securities. The Fund may also use foreign stock
index options for hedging purposes.

Futures Contracts and Options on Futures Contracts. The Fund may enter into
futures contracts on securities, securities indices, foreign currencies and
interest rates, and purchase and write (sell) options thereon which are traded
on exchanges designated by the Commodity Futures Trading Commission (the "CFTC")
or, if consistent with CFTC regulations, on foreign exchanges. These futures
contracts are standardized contracts for the future delivery of, among other
things, a commodity, a non-U.S. currency, an interest rate sensitive security
or, in the case of index futures contracts or certain other futures contracts, a
cash settlement with reference to a specified multiplier times the change in the
index. An option on a futures contract gives the purchaser the right (but not
the obligation), in return for the premium paid, to assume a position in a
futures contract.

The Fund may enter into futures contracts and options on futures contracts on
securities, securities indices and currencies both to manage their exposure to
changing interest rates, securities prices and currency exchange rates and as an
efficient means of managing allocations between asset classes. Aggregate initial
margin and premiums required to establish positions other than those considered
by the CFTC to be "bona fide hedging" will not exceed 5% of the Fund's net asset
value, after taking into account unrealized profits and unrealized losses on any
such contracts.

The successful use of futures contracts and options thereon draws upon the
Advisors' skill and experience with respect to such instruments and are subject
to special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the price of the futures contracts and options on the value of the
securities or currency in the Funds. Successful use of futures or options
contracts is further dependent on the Advisors' ability to predict correctly
movements in the securities or foreign currency markets and no assurance can be
given that their judgment will be correct.

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts.

At the same time a futures contract is entered into, the Fund must allocate cash
or liquid securities as a deposit payment ("initial margin"). Daily thereafter,
the futures contract is valued and the payment of "variation margin" may be
required, and each day the Fund would provide or receive cash that reflects any
decline or increase in the contract's value.

                                      -11-


At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some, but not many, cases, securities called for by a futures contract may
not have been issued when the contract was written.

Although futures contracts (other than those that settle in cash, such as index
futures) by their terms call for the actual delivery or acquisition of the
instrument underlying the contract, in most cases the contractual obligation is
fulfilled by offset before the date of the contract without having to make or
take delivery of the instrument underlying the contract. The offsetting of a
contractual obligation is accomplished by entering into an opposite position in
an identical futures contract on the commodities exchange on which the futures
contract was entered into (or a linked exchange) calling for delivery in the
same month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the instrument
underlying the contract. Since all transactions in the futures market are made,
offset or fulfilled through a clearinghouse associated with the exchange on
which the contracts are traded, the Fund will incur brokerage fees when it
enters into futures contracts.

When the Fund purchases a futures contract, it agrees to purchase a specified
quantity of an underlying instrument at a specified future date and price or to
make or receive a cash payment based on the value of a securities index or a
financial instrument. When the Fund sells a futures contract, it agrees to sell
a specified quantity of the underlying instrument at a specified future date and
price or to receive or make a cash payment based on the value of a securities
index or a financial instrument. When the Fund purchases or sells a futures
contract, the value of the futures contract tends to increase and decrease in
tandem with the value of its underlying instrument or index. The price at which
the purchase and sale will take place is fixed when the Fund enters into the
contract. Futures can be held until their delivery dates or the positions can be
(and normally are) closed out, by entering into an opposing contract, before
then.

When the Fund purchases or sells a futures contract, it is required to make an
initial margin deposit. Although the amount may vary, initial margin can be as
low as 1% or less of the notional amount of the contract. Additional margin may
be required as the contract fluctuates in value. Since the amount of margin is
relatively small compared to the value of the securities covered by a futures
contract, the potential for gain or loss on a futures contract may be much
greater than the amount of the Fund's initial margin deposit.

The purpose of the acquisition or sale of a futures contract, in cases where the
Fund holds or intends to acquire fixed-income securities, is to attempt to
protect the Fund from fluctuations in interest or foreign exchange rates without
actually buying or selling fixed-income securities or foreign currencies. For
example, if interest rates were expected to increase (which thus would cause the
prices of debt securities held by the Fund to decline), the Fund might enter
into futures contracts for the sale of debt securities. Such a sale would have
much the same effect as selling an equivalent value of the debt securities owned
by the Fund. If interest rates did increase, the value of the debt securities in
the Fund would decline, but the value of the futures contracts to the Fund would
increase at approximately the same rate, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. The Fund could seek
to accomplish similar results by selling debt securities and investing in bonds
with short maturities when interest rates are expected to increase. However,
since the futures market is more liquid than the cash market, the use of futures
contracts as an investment technique allows the Fund to maintain a defensive
position without having to sell its portfolio securities.

Similarly, when it is expected that interest rates may decline (thus increasing
the value of debt securities held by the Fund), futures contracts may be
purchased to attempt to hedge against anticipated purchases of debt securities
at higher prices. Since the fluctuations in the value of futures contracts
should be similar to those of debt securities, the Fund could take advantage of
the anticipated rise in the value of debt securities without actually buying
them until the market had stabilized. At that time, the futures contracts could
be liquidated and the Fund could then buy debt securities on the cash market.
The segregated assets maintained to cover the Fund's obligations with respect to
such futures contracts will consist of cash or liquid securities acceptable to
the broker from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Fund with respect to such
futures contracts.

The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and

                                      -12-


variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on most
participants entering into offsetting transactions rather than making or taking
delivery. To the extent that many participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements in
the futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of securities price, general interest rate or currency exchange
rate trends by the Advisors may still not result in a successful transaction.

In addition, futures contracts entail other significant risks. Although the
Advisors believe that use of such contracts will benefit the Fund, if the
Advisors' investment judgment about the general direction of interest rates or
an index is incorrect, the Fund's overall performance would be poorer than if it
had not entered into any such contract. For example, if the Fund has hedged
against the possibility of an increase in interest rates or a decrease in an
index which would adversely affect the value of securities held in its portfolio
and interest rates decrease or securities prices increase instead, the Fund will
lose part or all of the benefit of the increased value of its securities which
it has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient cash, it may have
to sell securities from its portfolio to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.

Futures Contracts on Securities Indices. The Fund may also enter into futures
contracts providing for the making and acceptance of a cash settlement based
upon changes in the value of an index of U.S. or non-U.S. securities. This
investment technique may be used as a low-cost method of gaining exposure to a
particular securities market without investing directly in those securities or
to hedge against anticipated future changes in general market prices which
otherwise might either adversely affect the value of securities held by the Fund
or adversely affect the prices of securities which are intended to be purchased
at a later date for the Fund or as an efficient means of managing allocation
between asset classes. A futures contract may also be entered into to close out
or offset an existing futures position.

When used for hedging purposes, each transaction in futures contracts on a
securities index involves the establishment of a position which, the Advisors
believe, will move in a direction opposite to that of the investment being
hedged. If these hedging transactions are successful, the futures positions
taken for the Fund will rise in value by an amount which approximately offsets
the decline in value of the portion of the Fund's investments that are being
hedged. Should general market prices move in an unexpected manner, the full
anticipated benefits of futures contracts may not be achieved or a loss may be
realized.

For the purpose of hedging the Fund's assets, the Fund may sell (but not
purchase) stock index or interest rate futures contracts and may purchase put or
call options on futures contracts, options on securities indices and any of the
warrants described above. Any such transaction will be considered a hedging
transaction, and not subject to the limitations on non-hedging transactions
stated below, to the extent that (1) in the case of stock index futures, options
on securities indices and warrants thereon, the contract value does not exceed
the market value of the shares held by the Fund for which the hedge is intended
and such shares are admitted to official listing on a stock exchange in the
country in which the relevant futures or securities exchange is based or (2) in
the case of interest rate futures and options on securities indices and warrants
thereon, the contract value does not exceed the interest rate exposure
associated with the assets held in the applicable currency by the Fund. In
carrying out a particular hedging strategy, the Fund may sell futures contracts
and purchase options or warrants based on securities, financial instruments or
indices that have issuers, maturities or other characteristics that do not
precisely match those of the Fund's assets for which such hedge is intended,
thereby creating a risk that the futures, options or warrants position will not
mirror the performance of such assets. The Fund may also enter into transactions
in futures contracts, options on futures, options on indices and warrants for
non-hedging purposes, as described below.

                                      -13-


Options on Futures Contracts (Including Futures Contracts on Securities
Indices). The Fund may purchase and write (sell) options on futures contracts
for hedging purposes. For example, as with the purchase of futures contracts,
when the Fund is not fully invested, it may purchase a call option on an
interest rate sensitive futures contract to hedge against a potential price
increase on debt securities due to declining interest rates.

The purchase of a call option on a futures contract is similar in some respects
to the purchase of a call option on an index or individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities.

The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of the underlying portfolio securities which are
the same as or correlate with the security or foreign currency that is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the price specified in the premium received
for writing the option ("exercise price"), the Fund will retain the full amount
of the net premium (the premium received for writing the option less any
commission), which provides a partial hedge against any decline that may have
occurred in the Fund's holdings.

The writing of a put option on an index futures contract may constitute a
partial hedge against increasing prices of the underlying securities or foreign
currency that are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option net premium, which provides a
partial hedge against any increase in the price of securities that the Fund
intends to purchase.

If a put or call option the Fund has written is exercised, the Fund will incur a
loss that will be reduced by the amount of the net premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.

The purchase of a call or put option on a futures contract with respect to an
index is similar in some respects to the purchase of a call or protective put
option on an index. For example, the Fund may purchase a put option on an index
futures contract to hedge against the risk of lowering securities values.

The amount of risk the Fund assumes when it purchases an option on a futures
contract with respect to an index is the premium paid for the option plus
related transaction costs. In addition to the correlation risks discussed above,
the purchase of such an option also entails the risk that changes in the value
of the underlying futures contract will not be fully reflected in the value of
the option purchased.

Warrants on Futures Contracts. The Fund may purchase warrants which, like
options on futures contracts and options on securities indices, entitle the
holder to purchase or sell a futures contract or to a cash payment reflecting
the price fluctuation in an index of securities. The Fund may also purchase
warrants that entitle the holder to a cash payment reflecting the fluctuation in
the value of certain financial futures contracts. Warrants on futures contracts
and warrants on securities indices differ from the equivalent options in that:
(1) they are securities issued by a financial institution/special purpose issuer
rather than contracts entered into with a futures exchange and (2) they are
traded on a securities exchange rather than on a futures exchange. The use of
warrants will generally entail the same risks that are associated with the
Fund's positions in options on futures and options on securities indices.

Liquidity of Options and Futures Contracts. There is no assurance a liquid
market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a Fund
to enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options or futures positions could also be impaired.

                                      -14-


Combined Positions. The Fund may purchase and write options in combination with
each other, or in combination with futures or forward contracts, to adjust the
risk and return characteristics of the overall position. For example, the Fund
may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.

Position Limits. Futures exchanges can limit the number of futures and options
on futures contracts that can be held or controlled by an entity. If an adequate
exemption cannot be obtained, the Fund may be required to reduce the size of its
futures and options positions or may not be able to trade a certain futures or
options contract in order to avoid exceeding such limits.

The Fund may purchase or sell stock index or interest rate futures contracts,
put or call options on futures, options on securities indices and warrants other
than for hedging purposes. The Fund may enter into transactions for non-hedging
purposes only to the extent that (1) the underlying contract values, together
with the contract values of any instrument then held by the Fund for non-hedging
purposes, do not exceed in the aggregate 20% of the net assets of the Fund and
(2) such instruments relate to categories of assets which the Fund is permitted
to hold.

RISKS ASSOCIATED WITH FUTURES, OPTIONS AND WARRANTS

The successful use of futures, options and warrants depends on the ability of
the Advisors to predict the direction of the market or, in the case of hedging
transactions, the correlation between market movements and movements in the
value of the Fund's assets, and is subject to various additional risks. The
investment techniques and skills required to use futures, options and warrants
successfully are different from those required to select equity securities for
investment. The correlation between movements in the price of the futures
contract, option or warrant and the price of the securities or financial
instruments being hedged is imperfect and the risk from imperfect correlation
increases, with respect to stock index futures, options and warrants, as the
composition of the Fund's portfolio diverges from the composition of the index
underlying such stock index futures, options or warrants. If the Fund has hedged
portfolio securities by purchasing put options or selling futures contracts, the
Fund could suffer a loss which is only partially offset or not offset at all by
an increase in the value of the Fund's securities. As noted, the Fund may also
enter into transactions in future contracts, options and warrants for other than
hedging purposes (subject to applicable law), including speculative
transactions, which involve greater risk. In particular, in entering into such
transactions, the Fund may experience losses which are not offset by gains on
other portfolio positions, thereby reducing its gross income. In addition, the
markets for such instruments may be volatile from time to time, which could
increase the risk incurred by the Fund in entering into such transactions. The
ability of the Fund to close out a future, option or warrant position depends on
a liquid secondary market.

As noted above, the Fund intends to adhere to certain policies relating to the
use of futures contracts, which should have the effect of limiting the amount of
leverage by the Fund.

Although foreign currency exchange transactions are intended to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is difficult, and the successful
execution of a hedging strategy is highly uncertain.

OTHER LIMITATIONS.

The Commodity Exchange Act prohibits U.S. persons, such as the Fund, from buying
or selling certain foreign futures contracts or options on such contracts.
Accordingly, the Fund will not engage in foreign futures or options transactions
unless the contracts in question may lawfully be purchased and sold by U.S.
persons in accordance with applicable CFTC regulations or CFTC staff advisories,
interpretations and no action letters. In addition, in order to

                                      -15-


assure that the Fund will not be considered a "commodity pool" for purposes of
CFTC rules, the Fund will enter into transactions in futures contracts or
options on futures contracts only if (1) such transactions constitute bona fide
hedging transactions, as defined under CFTC rules or (2) no more than 5% of the
Fund's net assets are committed as initial margin or premiums to positions that
do not constitute bona fide hedging transactions.

SECURITIES OF NON-U.S. ISSUERS AND FOREIGN INVESTING

The Fund may invest in securities of non-U.S. issuers directly or in the form of
American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") or
other similar securities representing ownership of securities of non-U.S.
issuers held in trust by a bank or similar financial institution. These
securities may not necessarily be denominated in the same currency as the
securities they represent. Designed for use in U.S., European and international
securities markets, ADRs, and GDRs are alternatives to the purchase of the
underlying securities in their national markets and currencies, but are subject
to the same risks as the non-U.S. securities to which they relate.

With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Fund may be made through
investment in other investment companies that in turn are authorized to invest
in the securities of such countries. Investment in other investment companies is
generally limited in amount by the 1940 Act, will involve the indirect payment
of a portion of the expenses (including advisory fees of such other investment
companies) and may result in a duplication of fees and expenses.

The Fund considers an issuer to be based in a country if:
..        it is headquartered in the country; or
..        it has primary operations in the country.

The Fund may invest in non-U.S. securities in the form of ADRs or GDRs. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. GDRs are
receipts issued by either a U.S. or non-U.S. banking institution evidencing
ownership of the underlying non-U.S. securities . Generally, ADRs, in registered
form, are designed for use in U.S. securities markets and GDRs in bearer form,
are designed for use in European and international securities markets. An ADR or
GDR may be denominated in a currency different from the currency in which the
underlying foreign security is denominated.

The Fund may focus its investments in a particular region and/or in one or more
foreign countries. Focusing the Fund's investments in a particular region or
country will subject the Fund (to a greater extent than if its investments in
such region or country were more diversified) to the risks of adverse securities
markets, exchange rates and social, political or economic developments which may
occur in that particular region or country.

FOREIGN SECURITIES - RISKS

Investment in securities of foreign issuers involves different and additional
investment risks than those affecting securities of U.S. domestic issuers.

The value of the Fund's investments in foreign securities may be adversely
affected by changes in political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, nationalization, limitation on the removal
of funds or assets, or imposition of (or change in) currency exchange control or
tax regulations in those foreign countries. In addition, changes in government
administrations or economic or monetary policies in the United States or abroad
could result in appreciation or depreciation of portfolio securities and could
favorably or unfavorably affect the Fund's operations. Furthermore, the
economies of individual foreign nations may differ from the U.S. economy,
whether favorably or unfavorably, in areas such as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position; it may also be more difficult to obtain and
enforce a judgment against a foreign issuer. Any foreign investments made by the
Fund must be made in compliance with foreign currency restrictions and tax laws
restricting the amounts and types of foreign investments.

In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic securities exchanges. Accordingly, the Fund's foreign

                                      -16-


investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.

Since the Fund's investments in foreign securities involve foreign currencies,
the value of the Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. As discussed above, the Fund may
engage in certain currency management strategies to hedge currency risks, though
there can be no guarantee that these strategies will be successful.

Certain of the risks associated with foreign investments are heightened when the
Fund invests in certain Asian countries. In some cases, political uncertainty
and political corruption in such countries could threaten to reverse favorable
trends toward market and economic reform, privatization and removal of trade
barriers, and further disruptions in Asian securities markets could result. In
addition, certain Asian countries have managed currencies which are maintained
at artificial levels relative to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, may have a disruptive and negative
effect on foreign investors. For example, in 1997 the Thai Baht lost 46.75% of
its value against the U.S. dollar. A number of Asian companies are highly
dependent on foreign loans for their operation. In 1997, several Asian countries
were forced to negotiate loans from the International Monetary Fund and other
supranational organizations which impose strict repayment term schedules and
require significant economic and financial restructuring. There can be no
assurance that such restructurings or future restructurings, will not have an
adverse effect on individual companies, or securities markets, in which the Fund
is invested.

Emerging Markets. An emerging market is commonly defined as one that experienced
comparatively little industrialization or that has a relatively new stock market
and a low level of quoted market capitalization.

Investments in securities of issuers in emerging markets countries may involve a
high degree of risk and many may be considered speculative. Investments in
developing and emerging markets may be subject to potentially greater risks than
those of other foreign issuers. These risks include: (i) the small current size
of the markets for such securities and the low volume of trading, which result
in less liquidity and in greater price volatility; (ii) certain national
policies which may restrict the Fund's investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iii) foreign taxation; (iv) the absence, until recently, of a
capital market structure or market oriented economy as well as issuers without a
long period of successful operations; (v) the possibility that recent favorable
economic developments may be slowed or reversed by unanticipated political or
social events in such countries or their neighboring countries; and (vi) greater
risks of expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability.

The risks involved in making investments in securities of issuers in emerging
markets have been underscored by recent events. For example, issuers in the Asia
region have experienced currency volatility, political instability and economic
declines in recent years. In response to these declines, Malaysia has enacted
currency exchange controls, restricting the repatriation of assets for a period
of one year. In the past, Russia declared a moratorium on repayment of its own
debt, substantially devalued its currency and suspended the government-
sponsored foreign exchange market for its currency.

In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Some markets have been unable to keep pace with the volume of
securities transactions, making it more difficult to conduct such transactions.
The inability of the Fund to make intended securities purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a security due to settlement problems
could result either in losses to the Fund due to subsequent declines in the
value of the security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.

                                      -17-


CURRENCY MANAGEMENT

In connection with the Fund's investments denominated in foreign currencies, the
Advisors may choose to utilize a variety of currency management (hedging)
strategies. The Advisors seek to take advantage of different yield, risk and
return characteristics that different currencies, currency denominations and
countries can provide to U.S. investors. In doing so, the Advisors will consider
such factors as the outlook for currency relationships; current and anticipated
interest rates; levels of inflation within various countries; prospects for
relative economic growth; and government policies influencing currency exchange
rates and business conditions. There can be no guarantee that any currency
management strategies will be successful and they could result in losses that
are not otherwise offset by gains in the Fund's portfolio securities.

The Advisors attempt to manage currency risk by limiting the amount the Fund
invest in securities denominated in a particular currency. However, this type of
diversification will not protect the Funds against a general increase in the
value of the U.S. dollar relative to other currencies.

Currency Exchange Transactions. Because the Fund may buy and sell securities
denominated in currencies other than the U.S. dollar and receive interest,
dividends and sale proceeds in currencies other than the U.S. dollar, the Fund
from time to time may enter into currency exchange transactions to convert to
and from different currencies and to convert foreign currencies to and from the
U.S. dollar. The Fund either enter into these transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the currency exchange market or use
forward currency exchange contracts (discussed below) to purchase or sell
currencies.

Currency Hedging. The Fund's currency hedging strategies will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund generally accruing in connection
with the purchase or sale of its portfolio securities. Position hedging is the
sale of forward currency with respect to portfolio security positions. The Fund
may not position hedge to an extent greater than the aggregate market value (at
the time of entering into the hedge) of the hedged securities.

Currency hedging may be important because a decline in the U.S. dollar value of
a foreign currency in which the Fund's securities are denominated will reduce
the U.S. dollar value of the securities, even if their value in the foreign
currency remains constant. The use of currency hedges does not eliminate
fluctuations in the underlying prices of the securities, but it does establish a
rate of exchange that can be achieved in the future. For example, in order to
protect against diminutions in the U.S. dollar value of non-dollar denominated
securities they hold, the Fund may purchase foreign currency put options. If the
value of the foreign currency does decline, the Fund will have the right to sell
the currency for a fixed amount in dollars and will thereby offset, in whole or
in part, the adverse effect on the U.S. dollar value of its securities that
otherwise would have resulted. Conversely, if a rise in the U.S. dollar value of
a currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, the Fund may purchase
call options on the particular currency. The purchase of these options could
offset, at least partially, the effects of the adverse movements in exchange
rates. The benefit to the Fund derived from purchases of currency options, like
the benefit derived from other types of options, will be reduced by premiums and
other transaction costs. Because transactions in currency exchange are generally
conducted on a principal basis, no fees or commissions are generally involved.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Although currency hedges may limit the
risk of loss due to a decline in the value of a hedged currency, at the same
time, they also may limit any potential gain that might result should the value
of the currency increase. If a devaluation is generally anticipated, the Fund
may not be able to contract to sell a currency at a price above the devaluation
level they anticipate.

Forward Currency Exchange Contracts. A forward currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract. Forward
currency exchange contracts establish an exchange rate at a future date. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks and brokerages) and their customers. A
forward currency exchange contract may not have a deposit requirement and may be
traded at a net price without commission. The Fund maintains with its custodian
a segregated account of cash or liquid securities in an amount at least equal to
their obligations under each forward currency exchange

                                      -18-


contract. Neither spot transactions nor forward currency exchange contracts
eliminate fluctuations in the prices of the Fund's securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.

The Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in currency
exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into the Advisors' long-term investment
decisions, the Fund will not routinely enter into currency hedging transactions
with respect to securities transactions; however, the Advisors believe that it
is important to have the flexibility to enter into currency hedging transactions
when they determine that the transactions would be in the Fund's best interest.
Although these transactions tend to minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of any hedging
strategy involves risk.

While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward contracts. In such event the
Fund's ability to utilize forward contracts may be restricted. Forward contracts
may reduce the potential gain from a positive change in the relationship between
the U.S. dollar and foreign currencies. Unanticipated changes in currency prices
may result in poorer overall performance for the Fund than if it had not entered
into such contracts. The use of currency forward contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on the Fund's foreign currency denominated portfolio securities
and the use of such techniques will subject the Fund to certain risks.

Options on Foreign Currencies. The Fund may write covered put and call options
and purchase put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As with other
types of options, however, the writing of an option on foreign currency will
constitute only a partial hedge up to the amount of the premium received, and a
Fund could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may be used to hedge against fluctuations in exchange rates although,
in the event of exchange rate movements adverse to a Fund's position, it may
forfeit the entire amount of the premium plus related transaction costs. In
addition, a Fund may purchase call options on currency when the Advisors
anticipate that the currency will appreciate in value.

The Fund may also write options on foreign currencies for the same types of
hedging purposes. For example, where the Fund anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Fund could write a
put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on foreign currencies, the Fund also may be required to forego all or a portion
of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.

The Fund may write covered call options on foreign currencies. A call option
written on a foreign currency by the Fund is covered if the Fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration identified on the Fund's books) upon
conversion or exchange of other foreign currency held in its

                                      -19-


portfolio. A call option is also covered if the Fund has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is segregated by the Fund in cash or liquid
securities.

There is no assurance that a liquid secondary market will exist for any
particular option, or at any particular time. If the Fund is unable to effect a
closing purchase transaction with respect to covered options it has written, the
Fund may not be able to sell the underlying currency or dispose of assets held
in a segregated account until the options expire or are exercised. Similarly, if
the Fund is unable to effect a closing sale transaction with respect to options
it has purchased, it would have to exercise the options in order to realize any
profit and will incur transaction costs upon the purchase or sale of underlying
currency. The Fund pays brokerage commissions or spreads in connection with its
options transactions.

As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. In some circumstances,
the Fund's ability to terminate OTC options may be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in OTC options transactions will not fulfill their obligations. The Fund intends
to treat OTC options as not readily marketable and therefore subject to the
Fund's limitation with respect to illiquid securities.

The Fund may enter into foreign currency exchange transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or anticipated securities
transactions. The Fund may also enter into foreign currency transactions to
hedge currency risks associated with the assets of the Fund denominated in
foreign currencies or principally traded in foreign currencies. The Fund may
also enter into foreign currency transactions to hedge against currencies other
than the U.S. dollar. The Fund may purchase or sell foreign currency contracts
for forward delivery. To conduct the hedging discussed above, the Fund would
generally enter into a forward contract to sell the foreign currency in which
the investment is denominated in exchange for U.S. dollars or other currency in
which the Advisors desire to protect the value of the Fund. The Fund may also
purchase option rights for the purchase or sale of currencies or currency
futures contracts or warrants which entitle the holder to the right to purchase
or sell currencies or currency futures contracts or to receive payment of a
difference, which is measured by the performance of currencies or currency
futures contracts, provided that these option rights and warrants are admitted
to official listing on an exchange.

The Fund does not currently intend to engage in foreign currency transactions as
an investment strategy. However, as discussed above, the Fund may enter into
forward contracts to hedge against changes in foreign currency exchange rates
that would affect the value of existing or anticipated investments denominated
or principally traded in a foreign currency.

ADDITIONAL LIMITATIONS AND RISK FACTORS

Asset Coverage. The Fund will comply with the segregation or coverage guidelines
established by the SEC and other applicable regulatory bodies with respect to
certain transactions, including (but not limited to) options written on
securities and indexes; currency, interest rate and security index futures
contracts and options on these futures contracts; and forward currency
contracts. These guidelines may, in certain instances, require the Fund to
identify cash or liquid securities to the extent the Fund's obligations with
respect to these strategies are not otherwise covered through ownership of the
underlying security or financial instrument, by other portfolio positions or by
other means consistent with applicable regulatory policies. Unless the
transaction is otherwise covered, the segregated assets must at all times equal
or exceed the Fund's obligations with respect to these strategies. Segregated
assets cannot be sold or transferred unless equivalent assets are substituted in
their place or it is no longer necessary to segregate them. As a result, there
is a possibility that segregation of a large percentage of the Fund's assets
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations. In addition, this may cause the Fund to
miss favorable trading opportunities or to realize losses on derivative
contracts or special transactions.

For example, a call option written on securities may require the Fund to hold
the securities subject to the call (or securities convertible into the
securities without additional consideration) or to segregate assets (as
described above)

                                      -20-


sufficient to purchase and deliver the securities if the call is exercised. A
call option written on an index may require the Fund to own portfolio securities
that correlate with the index or to segregate assets (as described above) equal
to the excess of the index value over the exercise price on a current basis. A
put option written by the Fund may require the Fund to segregate assets (as
described above) equal to the exercise price. The Fund could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Fund. If the Fund holds a futures contract,
the Fund could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held. The Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.

The use of options, futures and foreign currency contracts is a highly
specialized activity which involves investment techniques and risks that are
different from those associated with ordinary portfolio transactions. Gains and
losses on investments in options and futures depend on a variety of factors
including the Advisors' ability to predict the direction of stock prices,
interest rates, currency movements and other economic factors. The loss that may
be incurred by the Fund in entering into futures contracts and written options
thereon and forward currency contracts is potentially unlimited. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain facilities of an options clearing
entity or other entity performing the regulatory and liquidity functions of an
options clearing entity inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. Most futures exchanges limit the amount of fluctuation
permitted in a futures contract's prices during a single trading day. Once the
limit has been reached no further trades may be made that day at a price beyond
the limit. The price limit will not limit potential losses, and may in fact
prevent the prompt liquidation of futures positions, ultimately resulting in
further losses. Options and futures traded on foreign exchanges generally are
not regulated by U.S. authorities, and may offer less liquidity and less
protection to the Fund in the event of default by the other party to the
contract.

The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets and that may adversely affect the
value of any options held by the Fund. It is impossible to predict the volume of
trading that may exist in such options, and there can be no assurance that
viable exchange markets will develop or continue.

The Fund intends to comply with Section 4.5 of the regulations under the
Commodity Exchange Act, which limits the extent to which the Fund can commit
assets to initial margin deposits and option premiums. In addition, the Fund
will comply with guidelines established by the SEC with respect to coverage of
options and futures contracts by mutual funds, and if the guidelines so require,
will set aside appropriate liquid assets in a segregated account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures contract or option is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.

Except as set forth above under "Futures Contracts" and "Options on Futures
Contracts", there is no limit on the percentage of the assets of the Fund that
may be at risk with respect to futures contracts and related options or forward
currency contracts. The Fund may not invest more than 25% of its total assets in
purchased protective put options. The Fund's transactions in options, forward
currency contracts, futures contracts and options on futures contracts may be
limited by the requirements for qualification of the Fund as regulated
investment company for tax purposes. See the section entitled "Taxes." There can
be no assurance that the use of these portfolio strategies will be successful.

                                      -21-


Leverage. Leverage risk is created when an investment exposes the Fund to a
level of risk that exceeds the amount invested. Changes in the value of such an
investment magnify a Fund's risk of loss and potential for gain. Leverage risk
may exist when the Fund purchases securities while it also has borrowed money.

Credit. Credit risk is the possibility that an issuer will default on a security
by failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money. Credit risk is only a risk for the Fund if it invests in
fixed income securities or chooses to lend securities.

Many fixed income securities receive credit ratings from services such as S & P
and Moody's. These services assign ratings to securities by assessing the
likelihood of issuer default. Lower credit ratings correspond to higher credit
risk. If a security has not received a rating, the Fund must rely entirely upon
the Advisors' credit assessment.

Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.

Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement their investment strategies.

Correlation of Price Changes. Because there are a limited number of types of
exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match the Fund's
current or anticipated investments exactly. The Fund may invest in options and
futures contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments.

Options and futures contracts prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures contracts prices are affected by such
factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect securities prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in the Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.

OTHER INVESTMENTS AND INVESTMENT PRACTICES

When-Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities can take place a month or more after the date of the purchase
commitment. The payment obligation and the interest rate that will be received
on when-issued and delayed-delivery securities are fixed at the time the buyer
enters into the commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. When-issued securities may include securities purchased on a "when, as
and if issued" basis, under which the issuance of the security depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. The value of such securities is subject to
market fluctuation during this period and no interest or income, as applicable,
accrues to the Fund until settlement takes place.

                                      -22-


At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, the Fund
identifies on its books cash or liquid assets in an amount at least equal to
such commitments. It may be expected that the Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of the
segregated securities and/or from cash flow. If the Fund chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio obligation, incur a gain or loss
due to market fluctuation. It is the current policy of the Fund not to enter
into when-issued commitments exceeding in the aggregate 15% of the market value
of the Fund's total assets, less liabilities other than the obligations created
by when-issued commitments. When the Fund engages in when-issued or
delayed-delivery transactions, it relies on the other party to consummate the
trade. Failure of the seller to do so may result in the Fund incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.

Repurchase Agreements. Repurchase agreements may be entered into for the Fund
only with a "primary dealer" (as designated by the Federal Reserve Bank of New
York) in U.S. government securities. This is an agreement in which the seller
(the "Lender") of a security agrees to repurchase from the Fund the security
sold at a mutually agreed upon time and price. As such, it is viewed as the
lending of money to the Lender. The resale price normally is in excess of the
purchase price, reflecting an agreed upon interest rate. The rate is effective
for the period of time assets of the Fund are invested in the agreement and is
not related to the coupon rate on the underlying security. The period of these
repurchase agreements is usually short, from overnight to one week, and at no
time are assets of the Fund invested in a repurchase agreement with a maturity
of more than one year. The securities which are subject to repurchase
agreements, however, may have maturity dates in excess of one year from the
effective date of the repurchase agreement. The Fund's custodian always receives
as collateral securities which are issued or guaranteed by the U.S. government,
its agencies or instrumentalities. Collateral is marked to the market daily and
has a market value including accrued interest at least equal to 100% of the
dollar amount invested on behalf of the Fund in each agreement along with
accrued interest. Payment for such securities is made only upon physical
delivery or evidence of book-entry transfer to the account of the Fund's
Custodian. If the Lender defaults, the Fund might incur a loss if the value of
the collateral securing the repurchase agreement declines and might incur
disposition costs in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the Lender, realization
upon the collateral on behalf of the Fund may be delayed or limited in certain
circumstances. A repurchase agreement with more than seven days to maturity may
not be entered into for the Fund if, as a result, more than 15% of the Fund's
net assets would be invested in such repurchase agreement together with any
other illiquid securities.

Reverse Repurchase Agreements. Reverse repurchase agreements may be entered into
only with a "primary dealer" (as designated by the Federal Reserve Bank of New
York) in U.S. government securities. This is an agreement in which the Fund
agrees to repurchase securities sold by it at a mutually agreed upon time and
price. As such, it is viewed as the borrowing of money for the Fund by the
Investment Company Act. Proceeds of borrowings under reverse repurchase
agreements are invested for the Fund. This is the speculative factor known as
"leverage." If interest rates rise during the term of a reverse repurchase
agreement utilized for leverage, the value of the securities to be repurchased
for the Fund as well as the value of securities purchased with the proceeds will
decline. Proceeds of a reverse repurchase transaction are not invested for a
period which exceeds the duration of the reverse repurchase agreement. A reverse
repurchase agreement is not entered into for the Fund if, as a result, more than
one-third of the market value of the Fund's total assets, less liabilities other
than the obligations created by reverse repurchase agreements, is engaged in
reverse repurchase agreements. In the event that such agreements exceed, in the
aggregate, one-third of such market value, the amount of the Fund's obligations
created by reverse repurchase agreements is reduced within three days thereafter
(not including Sundays and holidays) or such longer period as the SEC may
prescribe. A segregated account with the Custodian is established and maintained
for the Fund with liquid assets in an amount at least equal to the Fund's
purchase obligations under its reverse repurchase agreements. Such a segregated
account consists of liquid, high grade debt securities marked to the market
daily, with additional liquid assets added when necessary to insure that at all
times the value of such account is equal to the purchase obligations.

                                      -23-


Lending of Portfolio Securities. The Fund may lend portfolio securities to
borrowers that the securities lending agent deems creditworthy. In return, the
Fund receives cash or liquid securities from the borrower as collateral. The
borrower must furnish additional collateral if the market value of the loaned
securities increases. Also, the borrower must pay the Fund the equivalent of any
dividends or interest received on the loaned securities.

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment. However, the Fund may pay all or a portion of the
interest earned on the cash collateral to the borrower.

Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker. Borrowed securities are returned when the loan is
terminated. Any appreciation or depreciation in the market price of the borrowed
securities which occurs during the term of the loan accrues to the Fund and its
investors.

Securities lending activities are subject to interest rate risks and credit
risks. These transactions create leverage risks.

The following conditions will be met whenever portfolio securities of the Fund
are loaned: (1) the Fund must receive at least 100% collateral from the
borrower; (2) the borrower must increase such collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as payments in respect of any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Fund may pay only reasonable custodian and
finder's fees in connection with the loan; and (6) while voting rights on the
loaned securities may pass to the borrower, the Fund must terminate the loan and
regain the right to vote the securities if a material event occurs conferring
voting rights and adversely affecting the investment. In addition, the Fund will
consider all facts and circumstances, including the creditworthiness of the
borrowing financial institution. The Fund will not lend its securities to any
officer, Director, employee or other affiliate of the Corporation, the Manager,
the Advisor or the Distributor, unless otherwise permitted by applicable law.
The Fund may lend its portfolio securities up to one-third of the value of its
total assets.

The Fund may lend its securities on a demand basis provided the market value of
the assets transferred in securities loans together with the market value of the
securities already transferred as a securities loan for the Fund's account to
the same borrower does not exceed 10% of total net assets of the Fund.

INVESTMENT RATINGS

The fixed income securities in which the Fund invests must be rated, at the time
of purchase, investment grade (in one of the four highest rating categories) by
one or more nationally recognized rating service or be of comparable quality to
securities having such ratings. The Advisors determine whether a security is
investment grade based upon the credit ratings given by one or more nationally
recognized rating service. For example, Standard and Poor's assigns ratings to
investment grade securities (AAA, AA, A, and BBB) based on its assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Advisors' credit assessment that the security is comparable to investment grade.
Securities rated BBB have speculative characteristics.

RISK MANAGEMENT

The Fund may employ non-hedging risk management techniques. Examples of such
strategies include synthetically altering the duration of a portfolio or the mix
of securities in a portfolio. For example, if the Advisors wish to extend
maturities in a fixed income portfolio in order to take advantage of an
anticipated decline in interest rates, but does not wish to purchase the
underlying long term securities, they might cause the Fund to purchase futures
contracts on long-term debt securities. Similarly, if the Advisors wish to
decrease fixed income securities or purchase equities, they could cause the Fund
to sell futures contracts on debt securities and purchase futures contracts on a
stock index. Because these risk management techniques involve leverage, they
include the possibility of losses as well as gains that are greater than if
these techniques involved the purchase and sale of the securities themselves.

                                      -24-


                       INVESTMENT OBJECTIVES AND POLICIES

The Fund's fundamental investment policies cannot be changed unless authorized
by the "vote of a majority of its outstanding voting securities". The Fund's
non-fundamental investment policies, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective. Whenever the Fund is requested to
vote on a change in the fundamental investment policies, the Corporation will
hold a meeting of Fund shareholders and will cast its votes as instructed by the
Fund's shareholders.

Unless otherwise noted and except with respect to borrowing money, there will be
no violation of any investment restriction if that restriction is complied with
at the time the relevant action is taken even if there is a later change in
market value of an investment, in net or total assets, in the securities rating
of the investment, or any other later change.

FUNDAMENTAL INVESTMENT POLICIES

The Fund invests primarily in equity securities of companies located in the US
or abroad and operating in the biotechnology industry.

The Fund's investment programs are subject to a number of investment
restrictions that reflect self-imposed standards as well as federal and state
regulatory limitations. The investment restrictions recited below are matters of
fundamental policy of the Fund and are in addition to those described in the
Fund's Prospectus, and may not be changed without the affirmative vote of a
majority of outstanding shares. The percentage limitations contained in these
restrictions apply at the time of purchase of securities. The Fund will not:

1.   Purchase any security if, as a result, 25% or more of its total assets
     would be invested in securities of issuers in industries outside of the
     Fund's focus (no more than 25% of securities of isuers in non-biotechnology
     companies). This limitation shall not apply to securities issued or
     guaranteed as to principal or interest by the US government or
     instrumentalities.

2.   Issue senior securities. For purposes of this restriction, borrowing money
     in accordance with paragraph 3 below, making loans in accordance with
     paragraph 7 below, the issuance of Shares in multiple classes or series,
     the purchase or sale of options, futures contracts, forward commitments,
     swaps and transactions in repurchase agreements are not deemed to be senior
     securities.

3.   Borrow money, except as a temporary measure for extraordinary or emergency
     purposes in an amount not exceeding 33 1/3% of the value of the total
     assets of the Fund at the time of such borrowing.

4.   Underwrite the securities of other issuers, except to the extent that, in
     connection with the disposition of portfolio securities, the Fund may be
     deemed to be an underwriter under the Securities Act of 1933 (the '1933
     Act').

5.   Purchase or sell real estate except that the Fund may (i) acquire or lease
     office space for its own use, (ii) invest in securities of issuers that
     invest in real estate or interests therein, (iii) invest in securities that
     are secured by real estate or interests therein, (iv) purchase and sell
     mortgage-related securities and (v) hold and sell real estate acquired by
     the Fund as a result of the ownership of securities.

6.   Purchase or sell commodities or commodity contracts, except the Fund may
     purchase and sell financial futures contracts, options on financial futures
     contracts and warrants and may enter into swap and forward commitment
     transactions.

7.   Make loans, except that the Fund may (i) lend portfolio securities with a
     value not exceeding one-third of the Fund's total assets, (ii) enter into
     repurchase agreements, and (iii) purchase all or a portion of an issue of
     debt securities (including privately issued debt securities), bank loan
     participation interests, bank certificates of

                                      -25-


     deposit, bankers' acceptances, debentures or other securities, whether or
     not the purchase is made upon the original issuance of the securities.

NON-FUNDAMENTAL INVESTMENT POLICIES

8.   Up to 5% of the total assets of the Fund may be invested in shares of
     investment companies, provided these shares are offered to the public
     without limitation on the number of shares, the shareholders have the right
     to redeem their shares, and the investment companies have investment
     policies consistent with those of the Fund. The Fund may not own more than
     3% of the total outstanding voting stock of any other investment company.
     As a shareholder of another investment company, the Fund would bear, along
     with other shareholders, its pro rata portion of the other investment
     company's expenses, including advisory fees.

9.   Acquire any illiquid investments, such as repurchase agreements with more
     than seven days to maturity, if as a result thereof, more than 15% of the
     market value of the Fund's net assets would be in investments that are
     illiquid;

10.  Invest more than 10% of its net assets in unlisted securities and Notes;

     Up to a total of 10% of the net assets of the Fund may be invested in:

        (a)  securities that are consistent with the Fund's investment objective
             and policies, which are not admitted to official listing on one of
             the stock exchanges or included on one of the regulated markets;

        (b)  interests in loans which are portions of an overall loan granted by
             a third party and for which a note has been issued (Notes),
             provided these Notes can be assigned at least twice after purchase
             by the Fund, and the Note was issued by:

                  .    the Federal Republic of Germany (Germany), a special
                       purpose fund of Germany, a state of Germany, the European
                       Union or a member state of the Organization for Economic
                       Cooperation and Development (an OECD Member),

                  .    another German domestic authority, or a regional
                       government or local authority of another Member State or
                       another state party to the CEEA for which a zero
                       weighting was notified according to Article 7 of the
                       Council Directive 89/647/EEC of 18 December 1989 on a
                       solvency ratio for credit institutions (Official Journal
                       EC No. L386, p. 14),

                  .    other corporate bodies or institutions organized under
                       public law and registered domestically in Germany or in
                       another Member State or another state party to the CEEA,

                  .    other debtors, if guaranteed as to the payment of
                       interest and repayment of principal by one of the
                       aforementioned bodies, or

                  .    companies which have issued securities which are admitted
                       to official listing on a German or other foreign stock
                       exchange.

The current Member States, the states party to the CEEA, and OECD Members are
listed in Appendix B.

11.  Sell any security short, except to the extent permitted by the 1940 Act.
     Transactions in futures contracts and options shall not constitute selling
     securities short; or

12.  Purchase securities on margin, but the Fund may obtain such short term
     credits as may be necessary for the clearance of transactions.

                                      -26-


Note: In connection with the first non-fundamental policy, shares of another
securities investment fund managed by the Advisors or by another investment
advisor affiliated with the Advisors through a substantial direct or indirect
interest may be purchased, subject to certain limitations, if the other
investment fund according to its investment policies is specialized in a
specific geographic area or economic sector. The Fund would not, however, pay a
sales charge when investing in an investment company managed by the Advisors or
their affiliates. In addition, no management or advisory fees would be paid by
the Fund with respect to its assets which are invested in investment companies
managed by the Advisors or their affiliates.

                               PORTFOLIO TURNOVER

Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in the Fund may be sold whenever the Advisors
believe it is appropriate to do so in light of the investment objective of the
Fund without regard to the length of time a particular security may have been
held. A 100% annual turnover rate would occur, for example, if all portfolio
securities (excluding short-term obligations) were replaced once in a period of
one year, or if 10% of the portfolio securities were replaced ten times in one
year. The rate of portfolio turnover of the Fund may exceed that of certain
other mutual funds with the same investment objective. The amount of brokerage
commissions and taxes on realized capital gains to be borne by the shareholders
of the Fund tend to increase as the level of portfolio activity increases.

The Fund's annual portfolio turnover rate (the lesser of the value of the
purchases or sales for the year divided by the average monthly market value of
the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions.

                PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

The Advisors are responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Fund, the selection
of brokers, dealers and futures commission merchants to effect transactions and
the negotiation of brokerage commissions, if any. Broker-dealers may receive
brokerage commissions on portfolio transactions, including options, futures and
options on futures transactions and the purchase and sale of underlying
securities upon the exercise of options. Orders may be directed to any
broker-dealer or futures commission merchant, including to the extent and in the
manner permitted by applicable law, the Advisors or their subsidiaries or
affiliates. Purchases and sales of certain portfolio securities on behalf of the
Fund are frequently placed by the Advisors with the issuer or a primary or
secondary market-maker for these securities on a net basis, without any
brokerage commission being paid by the Fund. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers reflect
the spread between the bid and asked prices. Transaction costs may also include
fees paid to third parties for information as to potential purchasers or sellers
of securities. Purchases of underwritten issues may be made which will include
an underwriting fee paid to the underwriter.

The Advisors seek to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for the Fund taking into account such factors as price,
commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Advisors review on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.

The Advisors are authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for the
Fund with a broker to pay a brokerage commission (to the extent applicable) in
excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the

                                      -27-


availability of securities or purchasers or sellers of securities; and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.

Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
of the Fund may determine, the Advisors may consider sales of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio
transactions. The Advisors will make such allocations if commissions are
comparable to those charged by nonaffiliated, qualified broker-dealers for
similar services. Higher commissions may be paid to firms that provide research
services to the extent permitted by law. The Advisors may use this research
information in managing the Fund's assets, as well as the assets of other
clients.

Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.

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

In certain instances there may be securities which are suitable for the Fund as
well as for one or more of the Advisors' other clients. Investment decisions for
the Fund and for the Advisors' other clients are made with a view to achieving
their respective investment objectives. It may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling that same
security. Some simultaneous transactions are inevitable when several clients
receive investment advice from the same investment advisor, particularly when
the same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the Fund is concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.

                             PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. Mutual fund performance
is commonly measured as total return and/or yield. The Fund's performance is
affected by its expenses. These performance figures are calculated in the
following manner:

Yield: Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. Yields for a Fund
used in advertising are computed by dividing the Fund's interest and dividend
income for a given 30-day or one-month period, net of expenses, by the average
number of shares entitled to receive distributions during the period, dividing
this figure by the Fund's net asset value per share at the end of the period,
and annualizing the result (assuming compounding of income) in order to arrive
at an annual percentage rate. Income is calculated for purpose of yield
quotations in accordance with standardized methods applicable to all stock and
bond mutual funds. Dividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purpose of yield calculations. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation.

                                      -28-


Income calculated for the purposes of calculating a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distributions of the Fund paid over the same period or the rate of income
reported in the Fund's financial statements. This difference may be significant
for a Fund investing in a Fund whose investments are denominated in foreign
currencies.

Total return. Total return is the change in value of an investment in a Fund
over a given period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
return calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for the rest of
the year. A Fund's average annual total return is calculated for certain periods
by determining the average annual compounded rates of return over those periods
that would cause an investment of $1,000 (made at the maximum public offering
price with all distributions reinvested) to reach the value of that investment
at the end of the periods. A Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year performance.

Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of a Fund will vary depending upon
interest rates, the current market value of the securities held by the
corresponding Fund and changes in the expenses of the Fund. In addition, during
certain periods for which total return may be provided, DeAM, Inc. may have
voluntarily agreed to waive portions of its fees, or reimburse certain operating
expenses of a Fund, on a month-to-month basis. Such waivers will have the effect
of increasing such Fund's net income (and therefore its yield and total return)
during the period such waivers are in effect.

Average Annual Total Return is calculated according to the following formula:

                           P (1 + T)[POWER OF n] = ERV

Where:

        P = a hypothetical initial payment of $1,000,
        T = average annual total return, and
        n = number of years.
        erv = ending redeemable value

In calculating the above, it is assumed that the maximum sales load (or other
charges deducted from payments) is deducted from the initial $1,000 payment, all
dividends and distributions are reinvested at the price stated in the
prospectus, and all recurring fees that are charged to all shareholder accounts
are included.

Global Biotechnology Fund has not commenced operations as of the date of this
SAI

Performance Results: Total returns and yields are based on past results and are
not an indication of future performance. Any total return quotation provided for
a Fund should not be considered as representative of the performance of the Fund
in the future since the net asset value and public offering price of shares of
the Fund will vary based not only on the type, quality and maturities of the
securities held in the corresponding Fund, but also on changes in the current
value of such securities and on changes in the expenses of the Fund. These
factors and possible differences in the methods used to calculate total return
should be considered when comparing the total return of a Fund to total returns
published for other investment companies or other investment vehicles. Total
return reflects the performance of both principal and income.

COMPARISON OF FUND PERFORMANCE

Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should

                                      -29-


consider the effect of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.

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

Evaluations of the Fund's performance made by independent sources may also be
used in advertisements concerning the Fund. Sources for the Fund's performance
information could include local, national or foreign news publications.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature of the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI").

           VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND

VALUATION OF SECURITIES

The Fund is open for business each day the New York Stock Exchange, Inc.
("NYSE") is open (a "Valuation Day"). The Fund's net asset value ("NAV") per
share is calculated as of the close of regular trading on the NYSE, which is
currently 4:00 p.m., Eastern time (the "Valuation Time"). The NAV per share is
computed by dividing the value of the Fund's assets, less all liabilities
attributable to the shares, by the total number of shares outstanding as of the
time of valuation.

Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Such market valuations may represent
the last quoted price on the securities major trading exchange or may be
determined through use of matrix pricing. In matrix pricing, pricing services
may use various pricing models, involving comparable securities, historic
relative price movements, economic factors and dealer quotations.
Over-the-counter securities will normally be valued at the bid price. Short-term
debt obligations and money market securities maturing in 60 days or less are
valued at amortized cost, which approximates market.

When valuing securities for which market quotations are not readily available or
for which the market quotations that are available are considered unreliable,
the Fund determines a fair value in good faith under procedures established by
and under the general supervision of the Board of Trustees. The Fund may use
these procedures to establish the fair value of securities when, for example, a
significant event occurs between the time the market closes and the time the
Fund values its investments. After consideration of various factors, the Fund
may value the securities at their last reported price or at some other value. It
is generally agreed that securities for which market quotations are not readily
available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.

The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:

          type of security involved, financial statements, cost at
          date of purchase, size of holding, discount from market
          value of unrestricted securities of the same class at the
          time of purchase, special

                                      -30-


          reports prepared by analysts, information as to any
          transactions or offers with respect to the security,
          existence of merger proposals or tender offers affecting the
          security, price and extent of public trading in similar
          securities of the issuer or comparable companies, and other
          relevant matters.

To the extent that the Fund purchases securities which are restricted as to
resale or for which current market quotations are not available, the Advisors,
under the supervision of the Board of Trustees, will value such securities based
upon all relevant factors as outlined in FRR 1.

PURCHASE AND REDEMPTION OF SHARES

Shares of the Fund will be continuously offered to each Company's separate
accounts at the net asset value per share next determined after a proper
purchase request has been received by the Company. The Company then offers to
Contract owners units in its separate accounts which directly correspond to
shares in the Fund. Each Company submits purchase and redemption orders to the
Fund based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the Company by such Contract owners. Contract owners can send such instructions
and requests to the Companies by first class mail, overnight mail or express
mail sent to the address set forth in the relevant Company's offering memorandum
included with the Fund's prospectus. The Fund and the Distributor reserve the
right to reject any purchase order for shares of the Fund.

Each investor in the Fund may add to or reduce its investment in the Fund on
each day the Fund determines its net asset value. At the close of each such
business day, the value of each investor's beneficial interest in the Fund will
be determined by multiplying the net asset value of the Fund by the percentage,
effective for that day, which represents that investor's share of the aggregate
beneficial interests in the Fund. Any additions or withdrawals which are to be
effected as of the close of business on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the Fund will
then be recomputed as the percentage equal to the fraction (i) the numerator of
which is the value of such investor's investment in the Fund as of the close of
business on such day plus or minus, as the case may be, the amount of net
additions to or withdrawals from the investor's investment in the Fund effected
as of the close of business on such day, and (ii) the denominator of which is
the aggregate net asset value of the Fund as of the close of business on such
day plus or minus, as the case may be, the amount of net additions to or
withdrawals from the aggregate investments in the Fund by all investors in the
Fund. The percentage so determined will then be applied to determine the value
of the investor's interest in the Fund as the close of business on the following
business day.

Payment for redeemed shares will ordinarily be made within seven (7) business
days after the Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contract owner's request in proper form.

The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.

The offering memorandum for the Company's variable annuity or variable life
insurance policy describes the allocation, transfer and withdrawal provisions of
such annuity or policy.

REDEMPTIONS AND PURCHASES IN KIND

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

                                      -31-


to any one investor during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.

The Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Valuation of Securities" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisors,
appropriate investments for the Fund. In addition, securities accepted in
payment for shares must: (i) meet the investment objective and policies of the
acquiring Fund; (ii) be acquired by the applicable Fund for investment and not
for resale; (iii) be liquid securities which are not restricted as to transfer
either by law or liquidity of market; and (iv) if stock, have a value which is
readily ascertainable as evidenced by a listing on a stock exchange,
over-the-counter market or by readily available market quotations from a dealer
in such securities. When securities are used as payment for shares or as a
redemption in kind from the fund, the transaction fee will not be assessed.
However, the shareholder will be charged the costs associated with receiving or
delivering the securities. These costs include security movement costs and taxes
and registration costs. The Fund reserves the right to accept or reject at its
own option any and all securities offered in payment for its shares.

TRADING IN FOREIGN SECURITIES

Trading in foreign securities for the Fund may be completed at times which vary
from the closing of the NYSE. In computing the net asset values, the Fund values
foreign securities at the latest closing price on the exchange on which they are
traded immediately prior to the closing of the NYSE. Similarly, foreign
securities quoted in foreign currencies are translated into U.S. dollars at the
foreign exchange rates.

Occasionally, events that affect values and exchange rates may occur between the
times at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Trustees, although
the actual calculation may be done by others.

                             MANAGEMENT OF THE TRUST

The Trust is governed by a Board of Trustees which is responsible for protecting
the interests of investors. None of the executive officers of the Trust or the
Fund devotes full time to the affairs of the Trust or the Fund.

The Board of Trustees is comprised of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Fund. In addition,
the Trustees review contractual arrangements with companies that provide
services to the Fund and review the Fund's performance.

The Trustees and officers of the Trust, their birthdates, their principal
occupations during the past five years, and addresses are set forth below. Their
titles may have varied during that period. Unless otherwise indicated, the
address of each Trustee and officer is One South Street , Baltimore, MD 21202.

                                      -32-


                              TRUSTEES AND OFFICERS

                                                                                                              Number of
                                                                                                              Portfolios
Name, Date of Birth,                                                                                          in Fund
Position(s) with the Trust,                                                                                   Complex
and Length of Time Served/1/,/2/ Business Experience and Directorships During Past 5 Years                    Overseen

INDEPENDENT TRUSTEES
Richard R. Burt                  Chairman, IEP Advisors, Inc. (July 1998 to present); Chairman of the Board,  67
2/3/47                           Weirton Steel Corporation/3/ (April 1996 to present); Member of the Board,
Trustee since 2002               Hollinger International, Inc./3/ (publishing) (1995 to present), HCL
                                 Technologies Limited (information technology) (April 1999 to present), UBS
                                 Mutual Funds (formerly known as Brinson and Mitchell Hutchins families of
                                 funds) (1995 to present) (registered investment companies); and Member,
                                 Textron Inc./3/ International Advisory Council (July 1996 to present).
                                 Formerly, Partner, McKinsey & Company (consulting) (1991-1994) and US Chief
                                 Negotiator in Strategic Arms Reduction Talks (START) with former Soviet
                                 Union and US Ambassador to the Federal Republic of Germany (1985-1991);
                                 Member of the Board, Homestake Mining/3/ (mining and exploration)
                                 (1998-February 2001), Archer Daniels Midland Company/3/ (agribusiness
                                 operations) (October 1996-June 2001) and Anchor Gaming (gaming software and
                                 equipment) (March 1999-December 2001).

S. Leland Dill                   Trustee, Phoenix Zweig Series Trust (since September 1989), Phoenix Euclid   65
3/28/30                          Market Neutral Funds (since May 1998) (registered investment companies);
Trustee since 2002               Retired (since 1986). Formerly, Partner, KPMG Peat Marwick (June 1956-June
                                 1986); Director, Vintners International Company Inc. (June 1989-May 1992),
                                 Coutts (USA) International (January 1992-March 2000), Coutts Trust Holdings
                                 Ltd., Coutts Group (March 1991-March 1999) and General Partner, Pemco
                                 (investment company) (June 1979-June 1986).

Martin J. Gruber                 Nomura Professor of Finance, Leonard N. Stern School of Business, New York   66
7/13/37                          University (since 1964); Trustee, CREF (since 2000); Director, S.G. Cowen
Trustee since 2002               Mutual(1985-2001), Japan Equity Fund, Inc. (since 1992), Thai Capital Fund,
                                 Inc. (2000 to present) and Singapore Fund, Inc.
                                 (since 2000) (registered investment companies).

Joseph R. Hardiman               Jacob Safra Professor of International Banking and Professor, Finance        65
5/27/37                          Department, The Wharton School, University of Pennsylvania (since 1972);
Trustee since 2002               Director, Lauder Institute of International Management Studies (since
                                 2000); Co-Director, Wharton Financial Institutions Center (since 2000) and
                                 Vice Dean and Director, Wharton Undergraduate Division (1995-2000).

                                      -33-


Richard J. Herring               Private Equity Investor (1997 to present); Director, Soundview Technology    65
2/18/46                          Group Inc. (investment banking) (July 1998 to present), Corvis
Trustee since 2002               Corporation/3/ (optical networking equipment) (July 2000 to present),
                                 Brown Investment Advisory & Trust Company (investment advisor) (February
                                 2001 to present), The Nevis Fund (registered investment company) (July 1999
                                 to present), and ISI Family of Funds (registered investment companies)
                                 (March 1998 to present). Formerly, Director, Circon Corp./3/ (medical
                                 instruments) (November 1998-January 1999); President and Chief Executive
                                 Officer, The National Association of Securities Dealers, Inc. and The
                                 NASDAQ Stock Market, Inc. (1987-1997); Chief Operating Officer of Alex.
                                 Brown & Sons Incorporated (now Deutsche Bank Securities Inc.) (1985-1987)
                                 and General Partner, Alex. Brown & Sons Incorporated (now Deutsche Bank
                                 Securities Inc.) (1976-1985).

Graham E. Jones                  Senior Vice President, BGK Properties, Inc. (commercial real estate) (since  65
1/31/33                          1995); Trustee, 8 open-end mutual funds managed by Weiss, Peck & Greer
Trustee since 2002               (since 1985) and Trustee of 22 open-end mutual funds managed by Sun Capital
                                 Advisers, Inc. (since 1998).

Rebecca W. Rimel                 President and Chief Executive Officer, The Pew Charitable Trusts             65
4/10/51                          (charitable foundation) (1994 to present). Formerly, Executive Director,
Trustee since 2002               The Pew Charitable Trusts (1988 to 1994); Director, ISI Family of Funds
                                 (registered investment companies) (1997 to 1999);
                                 and Director and Executive Vice President, The
                                 Glenmede Trust Company (investment trust and
                                 wealth management) (1994 to 2000).

Philip Saunders, Jr.             Principal, Philip Saunders Associates (Economic and Financial Consulting)    65
10/11/35                         (since 1998). Formerly, Director, Financial Industry Consulting, Wolf &
Trustee since 2002               Company (1987-1988); President, John Hancock Home Mortgage Corporation
                                 (1984-1986); Senior Vice President of Treasury and Financial Services, John
                                 Hancock Mutual Life Insurance Company, Inc. (1982-1986).

William N. Searcy                Pension & Savings Trust Officer, Sprint Corporation/3/ (telecommunications)  65
9/3/46                           (since 1989); Trustee of 22 open-end mutual funds managed by Sun Capital
Trustee since 2002               Advisers, Inc. (since 1998).

Robert H. Wadsworth              President, Robert H. Wadsworth Associates, Inc. (consulting firm) (1982 to   68
1/29/40                          present); President and Director, Trust for Investment Managers (registered
Trustee since 2002               investment company) (1999 to present).  Formerly, President, Investment
                                 Company Administration, L.L.C. (1992*-July 2001); President, Treasurer and
                                 Director, First Fund Distributors, Inc. (1990-January 2002); Vice
                                 President, Professionally Managed Portfolios (1999-2002) and Advisors
                                 Series Trust (1997-2002) (registered investment companies); and President,
                                 Guinness Flight Investment Funds, Inc. (registered investment companies).
                                 * Inception date of the corporation which was the predecessor to the LLC.

INTERESTED TRUSTEE

                                      -34-


Richard T. Hale/4/               Managing Director, Deutsche Bank Securities Inc. (formerly President since   199
7/17/45                          2000. Deutsche Banc Alex. Brown Inc.) and Deutsche Asset Management (1999
Trustee since 2002 and           to present); Director and President, Investment Company Capital Corp.
Chairman since 2002              (registered investment advisor) (1996 to present); President, DB Hedge
                                 Strategies Fund LLC (registered investment company) (June 2002 to present);
                                 Director, Deutsche Global Funds, Ltd. (2000 to present), CABEI Fund (2000
                                 to present), North American Income Fund (2000 to present) (registered
                                 investment companies); Vice President, Deutsche Asset Management, Inc.
                                 (2000 to present). Chartered Financial Analyst. Formerly, Director, ISI
                                 Family of Funds (registered investment companies) (1992-1999).

Name, Date of Birth,
Position(s) with the Trust,
and Length of Time Served/1/,/2/ Business Experience and Directorships During Past 5 Years
OFFICERS
William F. Glavin, Jr./5/        Managing Director of Deutsche Asset Management, Inc., Vice President and
8/30/58                          Director of Scudder Distributors, Inc., Trustee, Crossroads for Kinds, Inc.
President since 2002             (serves at risk children).

Kenneth Murphy/5/                Vice President, Deutsche Asset Management (2000-present).  Formerly,
10/13/63                         Director, John Hancock Signature Services (1992-2001); Senior Manager,
Vice President and               Prudential Mutual Fund Services (1987-1992).
Anti-Money Laundering
Compliance Officer since
2002

Charles A. Rizzo/5/              Director, Deutsche Asset Management (April 2000 to present); Certified
8/5/57                           Public Accountant; Certified Management Accountant. Formerly, Vice
Treasurer since 2002             President and Department Head, BT Alex. Brown Incorporated (Deutsche Bank
                                 Securities Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P.
                                 (PricewaterhouseCoopers LLP) (1993-1998).

Daniel O. Hirsch                 Managing Director, Deutsche Asset Management (2002 to present) and
3/27/54                          Director, Global Funds Ltd. (2002 to present).  Formerly, Director,
Secretary since 1999             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).

     (1)  Unless otherwise indicated, the mailing address of each Director and
          Officer with respect to fund operations is One South Street,
          Baltimore, MD21202.
     (2)  Length of time served represents the date each Trustee or Officer
          first began serving in that position with Deutsche Asset Management
          VIT Funds, a trust of which these funds are a series.
     (3)  A publicly held company with securities registered pursuant to Section
          12 of the Exchange Act.
     (4)  Mr. Hale is a Trustee who is an 'interested person' within the meaning
          of Section 2(a)(19) of the 1940 Act. Mr. Hale is Vice President of
          DeAM, Inc. and a Managing Director of Deutsche Asset Management, the
          US asset management unit of Deutsche Bank and its affiliates.
     (5)  Address: Two International Place, Boston, Massachusetts.

                                      -35-


                                   COMMITTEES

The Board has an Audit Committee consisting of all of the independent Trustees.
All of the members of the Audit Committee are independent as defined in the 1940
Act. The Audit Committee reviews the scope and results of the Fund's annual
audit with the Fund's independent accountants and recommends the engagement of
such accountants. The Audit Committee met twice during the fiscal year ended
December 31, 2002.

The Board has a Nominating Committee consisting of           . which is
responsible for considering candidates for election to the Board of Trustees in
the event a position is vacated or created. The Nominating Committee meets as
necessary, but did not meet during the fiscal year ended December 31, 2002. The
Funds have not contemplated accepting nominations from shareholders.

The Board has a Pricing Committee consisting of           . The Pricing
Committee has responsibility for determine a valuation methodology for fund
assets and, if the use of a calculated value of a security would result in a
change to the NAV of more than one cent per share, to determine a fair value for
that security. The Pricing Committee met once during the fiscal year ended
December 31, 2002.

The Board has a Valuation Committee consisting of           . The Valuation
Committee has responsibility for valuing illiquid securities, if any. The
Valuation Committee of the Trust did not meet during the fiscal year ended
December 31, 2002.

                                      -36-

SECURITY AND OTHER INTERESTS

AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY TRUSTEE IN FAMILY OF INVESTMENT
NAME OF TRUSTEE SECURITIES IN THE FUND (1) COMPANIES
- -----------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Richard R. Burt None None
S. Leland Dill None None
Martin J. Gruber None None
Joseph R. Hardiman None None
Richard J. Herring None None
Graham E. Jones None None
Rebecca W. Rimel None None
Philip Saunders, Jr. None None
William N. Searcy None None
Robert H. Wadsworth None None
INTERESTED TRUSTEE
Richard T. Hale None None

Board Consideration of the Advisory Contract

Compensation

No director, officer or employee of the Advisor or PFPC Distributors, Inc. or
any of its affiliates will receive any compensation from the Trust for serving
as an officer or Trustee of the Trust.

Pension or Retirement Total Compensation
Aggregate Benefits Accrued as Estimated Annual from Registrant and
Name of Person, Compensation Part of Benefits Fund Complex
Position from Trust** Trust Expenses Upon Retirement
INDEPENDENT TRUSTEES
- --------------------
Richard R. Burt N/A N/A

S. Leland Dill N/A N/A

Martin J. Gruber N/A N/A

Joseph R. Hardiman N/A N/A

Richard J. Herring N/A N/A

Graham E. Jones N/A N/A

Rebecca W. Rimel N/A N/A

Philip Saunders, Jr. N/A N/A

William N. Searcy N/A N/A

Robert H. Wadsworth N/A N/A

** Amount does not include reimbursed expenses for attending Board meetings.

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS OF THE TRUST

As of April 1,2003 the Trustees and officers of the Trust owned in the aggregate
less than 1% of the shares of the the Fund or the Trust (all series taken
together).

Through its separate accounts, the Companies are the Fund's sole stockholders of
record. As of April 2, 2003, no shareholders are deemed to be control persons or
principal owners of the Fund, as defined in the 1940 Act. Control persons are
presumed to control a Fund for purposes of voting on matters submitted to a vote
of shareholders due to their beneficial ownership of 25% or more of the
outstanding voting securities of a Fund. Principal holders own of record or
beneficially 5% or more of a Fund's outstanding voting securities.

CODE OF ETHICS

The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act. The Fund's Code of Ethics permits Fund personnel to
invest in securities for their own accounts, but requires compliance with the
Code's pre-clearance requirements (with certain exceptions). In addition, the
Fund's Code of Ethics provides for trading "blackout periods" that prohibit
trading by personnel within periods of trading by the Fund in the same security.
The Fund's Code of Ethics also prohibits short term trading profits and personal
investment in

-37-


initial public offerings. The Code requires prior approval with respect to
purchases of securities in private placements.

The Fund's Advisors also have adopted Codes of Ethics. The Codes of Ethics
allows personnel to invest in securities for their own accounts, but requires
compliance with the Codes' pre-clearance requirements and other restrictions
including "blackout periods" and minimum holding periods, subject to limited
exceptions. The Codes prohibit purchases of securities in initial public
offerings (the prohibition is limited to U.S. public offerings) and require
prior approval for purchases of securities in private placements.

INVESTMENT ADVISOR

Under the supervision of the Board of Trustees, Deutsche Asset Management, Inc.
('DeAM, Inc. or the 'Advisor')"), with headquarters at 280 Park Avenue, New
York, NY 10017, acts as the Fund's Investment Advisor. Scudder Investments is
part of Deutsche Asset Management, which is the marketing name for the asset
management activities of Deutsche Bank A.G., Deutsche Bank Trust Company
America, DB Securities Inc., Deutsche Asset Management, Inc., and Deutsche Asset
Management Investment Services Limited. Deutsche Asset Management International
GmbH ("DeAM International" or "Sub-Advisor") is the sub-advisor to the Fund.
(DeAM, Inc. and DeAM International collectively are referred to as the
"Advisors").

DeAM, Inc. and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations which may be purchased on
behalf of the Fund, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
persons issue, deal, trade and invest in securities for their own accounts and
are among the leading market participants with respect to various types of such
securities. DeAM, Inc. has informed the Fund that, in making its investment
decisions, it does not obtain or use material inside information in its
possession or in the possession of any of its affiliates. In making investment
recommendations for the Fund, DeAM, Inc. will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of DeAM, Inc., its parent or its subsidiaries or
affiliates and, in dealing with its customers, DeAM, Inc., its parent,
subsidiaries and affiliates will not inquire or take into consideration whether
securities of such customers are held by any fund managed by DeAM, Inc. or any
such affiliate.

The Investment Management Agreement provides for the Fund to pay DeAM, Inc. a
fee, accrued daily and paid monthly, equal on an annual basis to 0.85% of the
average daily net assets of the Fund. DeAM, Inc. compensates DeAM International
out of its advisory fee.

ADMINISTRATOR

PFPC Inc. ("PFPC") serves as Administrator to the Fund. PFPC is a majority-owned
subsidiary of PNC Bank Corp. As Administrator, PFPC, 3200 Horizon Drive, King of
Prussia, PA 19406, is obligated on a continuous basis to provide such
administrative services as the Board of Trustees of the Trust reasonably deems
necessary for the proper administration of the Fund. PFPC will generally assist
in all aspects of the Fund's operations; supply and maintain office facilities
(which may be in PFPC's own offices), statistical and research data, data
processing services, clerical, accounting, bookkeeping and recordkeeping
services (including without limitation the maintenance of such books and records
as are required under the 1940 Act and the rules thereunder, except as
maintained by other agents), internal auditing, executive and administrative
services, and stationery and office supplies; prepare reports to shareholders or
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filings with the SEC and various state Blue
Sky authorities; supply supporting documentation for meetings of the Board of
Trustees; provide monitoring reports and assistance regarding compliance with
the Declaration of Trust, by-laws, investment objectives and policies and with
Federal and state securities laws; arrange for appropriate insurance coverage;
calculate net asset values, net income and realized capital gains or losses, and
negotiate arrangements with, and supervise and coordinate the activities of,
agents and others to supply services.

As compensation for PFPC's services under the Administration Agreement, PFPC is
entitled to receive from the Trust a monthly administration fee.

                                      -38-


DISTRIBUTOR

PFPC Distributors, Inc. (the "Distributor") serves as the distributor of the
Fund's shares to separate accounts of the Companies, for which it receives no
separate fee from the Fund. The principal address of the Distributor is 3200
Horizon Drive, King of Prussia, PA 19406.

CUSTODIAN AND TRANSFER AGENT

Deutsche Bank Trust Company Americas (formerly Bankers Trust Company), 100 Plaza
One, Jersey City, New Jersey 07311, is custodian for the securities and cash of
the Fund's assets. Foreign instruments purchased by the Fund are held by various
sub-custodial arrangements employed by Deutsche Bank Trust Company Americas.

On November 5, 2002 Deutsche Bank AG ("DBAG") agreed to sell its Global
Securities Services business to State Street Bank, Inc. ("State Street"). This
sale included U.S. custody, securities lending, and other processing services
located in Europe, Asia, and the Americas and is expected to close on or about
January 31, 2003 (the "Closing Date"). The actual transition and migration of
assets, technology, and infrastructure will take more than a year to complete.
Deutsche Bank Trust Company Americas ("DBT Co.") currently is the custodian to
the Funds. DBT Co.'s custody business is one of the businesses affected by the
transaction with State Street. Since many of DBT Co.'s employees will become
State Street employees on the Closing Date, the Funds' Board approved on
December 16, 2002 an interim outsourcing arrangement that allows State Street to
provide custodial services to the Funds, subject to DBT Co. oversight.
Furthermore, certain of the Funds currently use DBT Co. and DBAG, NY
("Deutsche") as its securities lending agent. Therefore, in connection with the
transaction, the Board on January 13, 2003 approved an interim outsourcing
arrangement that allows a State Street subsidiary to perform certain aspects of
securities lending services for all Funds authorized to participate in
securities lending, subject to oversight from Deutsche. On or about February 24,
2003 the Board will consider whether to appoint State Street as the Funds'
permanent custodian. At a later date, Deutsche Asset Management will make
recommendations to the Funds' Board regarding its securities lending program,
but Deutsche will remain as securities lending agent until such time as the
Board approves a new securities lending agent for the Funds.

PFPC serves as transfer agent of the Trust. Under its transfer agency agreement
with the Trust, PFPC maintains the shareholder account records for the Fund,
handles certain communications between shareholders and the Fund and causes to
be distributed any dividends and distributions payable by the Fund.

Deutsche Bank Trust Company Americas and PFPC may be reimbursed by the Fund for
out-of-pocket expenses.

EXPENSES

In addition to the fees of DeAM, Inc., the Fund is responsible for the payment
of all other expenses incurred in the operation of the Fund, which include,
among other things, expenses for legal and independent auditor's services,
charges of the Fund's custodian and transfer agent, SEC fees, a pro rata portion
of the fees of the Trust's unaffiliated trustees and officers, accounting costs
for reports sent to Contract owners, the Fund's pro rata portion of membership
fees in trade organizations, a pro rata portion of the fidelity bond coverage
for the Trust's officers, interest, brokerage and other trading costs, taxes,
all expenses of computing the Fund's net asset value per share, expenses
involved in registering and maintaining the registration of the Fund's shares
with the SEC and qualifying the Fund for sale in various jurisdictions and
maintaining such qualification, litigation and other extraordinary or
non-recurring expenses. However, other typical Fund expenses such as Contract
owner servicing, distribution of reports to Contract owners and prospectus
printing and postage will be borne by the relevant Company.

COUNSEL AND INDEPENDENT AUDITORS

Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trust and the Fund. Ernst & Young LLP, 2001 Market
Street, Philadelphia, Pennsylvania 19103 acts as Independent Auditors of the
Trust and the Fund.

                                      -39-


                            ORGANIZATION OF THE TRUST

The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. Effective April 30, 2000, the Trust's name changed from BT
Insurance Funds Trust to Deutsche Asset Management VIT Funds. The Fund is a
separate series of the Trust. The Trust offers shares of beneficial interest of
the Fund and the Trust's other series, par value $0.001 per share. The shares of
some of the other series of the Trust are offered through separate Prospectuses.
No series of shares has any preference over any other series. All shares, when
issued, will be fully paid and nonassessable. The Trust's Board of Trustees has
the authority to create additional series without obtaining shareholder
approval.

The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligation.

Through its separate accounts, the Companies are the Funds' sole stockholders of
record. Therefore under the 1940 Act, Companies owning 25% or more of the
outstanding securities of the Fund are deemed to be in control of the Fund.
Nevertheless, when a shareholders' meeting occurs, each Company solicits and
accepts voting instructions from its Contract owners who have allocated or
transferred monies for an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contract owners' interests in the Funds in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the prospectuses for its variable annuities and variable
life insurance policies.

Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.

The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.

The Fund is only available to owners of variable annuity or variable life
insurance policies issued by the Companies through their respective separate
accounts. The Fund does not currently foresee any disadvantages to Contract
owners arising from offering its shares to variable annuity and variable life
insurance policy separate accounts simultaneously, and the Board of Trustees
monitors events for the existence of any material irreconcilable conflict
between or among Contract owners. If a material irreconcilable conflict arises,
one or more separate accounts may withdraw their investment in the Fund. This
could possibly force the Fund to sell portfolio securities at disadvantageous
prices. Each Company will bear the expenses of establishing separate portfolios
for its variable annuity and variable life insurance separate accounts if such
action becomes necessary; however, ongoing expenses that are ultimately borne by
Contract owners will likely increase due to the loss of economies of scale
benefits that can be provided to mutual funds with substantial assets.

                                    TAXATION

TAXATION OF THE FUNDS

The Fund intends to qualify or continue to qualify annually as a regulated
investment company under the Code. As a regulated investment company, the Fund
will not be subject to U.S. Federal income tax on its investment company taxable
income and net capital gains (the excess of net long-term capital gains over net
short-term capital losses), if any, that it distributes to shareholders. Each
Fund intends to distribute to its shareholders, at least annually, substantially
all of its investment company taxable income and net capital gains, and
therefore does not anticipate incurring a Federal income tax liability. The
Funds also do not anticipate paying any excise taxes. The Fund's dividends and
distributions will not qualify for the dividends-received deduction for
corporations.

If for any taxable year the 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

                                      -40-


(without any deduction for distributions to its shareholders). In such event,
dividend distributions would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.

The Fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax rules. All
section 1256 contracts held by the Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized gain or loss on
those positions will be included in the Fund's income as if each position had
been sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized by the
Fund from positions in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were not part of a
"hedging transaction" nor part of a "straddle," 60% of the resulting net gain or
loss will be treated as long-term capital gain or loss, and 40% of such net gain
or loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the Fund.

The Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferred benefits
provided by the variable contracts which are offered in connection with such
separate accounts. The Advisors intend to diversify the Fund's investments in
accordance with those requirements. The prospectus for each Company's variable
annuities and variable life insurance policies describe the federal income tax
treatment of distributions from such contracts.

To comply with regulations under Section 817(h) of the Code, the Fund will be
required to diversify its investments so that on the last day of each calendar
quarter no more than 55% of the value of its assets is represented by any one
investment, no more than 70% is represented by any two investments, no more than
80% is represented by any three investments and no more than 90% is represented
by any four investments. Generally, all securities of the same issuer are
treated as a single investment. For the purposes of Section 817(h) of the Code,
obligations of the U.S. Treasury and each U.S. Government instrumentality are
treated as securities of separate issuers. The Treasury Department has indicated
that it may issue future pronouncements addressing the circumstances in which a
variable annuity contract owner's control of the investments of a separate
account may cause the variable contract owner, rather than the separate
account's sponsoring insurance company, to be treated as the owner of the assets
held by the separate account. If the variable annuity contract owner is
considered the owner of the securities underlying the separate account, income
and gains produced by those securities would be included currently in the
variable annuity contract owner's gross income. It is not known what standards
will be set forth in such pronouncements or when, if at all, these
pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Fund will be able to operate as
described currently in the Prospectus or that the Fund will not have to change
its investment policies or goals.

The foregoing is only a brief summary of important tax law provisions that
affect the Fund. Other Federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax advisor.

DISTRIBUTIONS

The Fund distributes substantially all of its net income and recognized long
term and short term capital gains to shareholders each year. The Fund
distributes income dividends annually. In addition, the Fund will distribute net
long term and short term capital gains, if any, at least annually and may make
additional capital gains distributions at other times, if required, to remain in
compliance with the applicable tax regulations. Unless a shareholder instructs
the Trust to pay such dividends and distributions in cash, they will be
automatically reinvested in additional shares of the Fund that paid the dividend
or distribution. The prospectus for a Company's variable annuity or variable
life insurance policies describe the frequency of distributions to Contract
owners and the federal income tax treatment of distributions from such contracts
to Contract owners.

                                      -41-


OTHER TAXATION

The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor any Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as a
regulated investment company under Subchapter M of the Code.

FOREIGN WITHHOLDING TAXES

Income received by the Fund from investments in foreign securities may be
subject to withholding and other taxes imposed by foreign countries.

                              FINANCIAL STATEMENTS

The Fund has not commenced operations as of the date of this SAI and, thus, has
no financial statements.

                                      -42-


                                    APPENDIX

                        BOND AND COMMERCIAL PAPER RATINGS

Set forth below are descriptions of ratings which represent opinions as to the
quality of the securities. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.

            MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safe-guarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

            MOODY'S INVESTORS SERVICE, INC.'S SHORT-TERM DEBT RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year.

                                      -43-


Issuers rated Prime-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:

..    Leading market positions in well established industries.

..    High rates of return on funds employed.

..    Conservative capitalization structure with moderate reliance on debt and
     ample asset protection.

..    Broad margins in earnings coverage of fixed financial charges and high
     internal cash generation.

..    Well established access to a range of financial markets and assured sources
     of alternate liquidity.

Issuers rated Prime-2 or P-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

            STANDARD & POOR'S RATINGS GROUP'S CORPORATE BOND RATINGS

                                Investment Grade

AAA: Debt rated AAA has the highest rating assigned by S&P's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

                                Speculative Grade

Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.

BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.

The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.

                                      -44-


CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.

The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.

CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.

C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.

D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

NY: Bonds may lack a S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P's does not rate a particular type of obligation as a matter of policy.

           STANDARD & POOR'S RATINGS GROUP'S COMMERCIAL PAPER RATINGS

A: S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1 ".

A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

                   FITCH INVESTORS SERVICE, INC. BOND RATINGS

                                Investment Grade

AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".

                                      -45-


A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

                                High Yield Grade

BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

DDD, DD, and D: Bonds are in default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.

Plus (+) or Minus (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.

NR: Indicates that Fitch does not rate the specific issue.

Conditional: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.

                          FITCH INVESTORS SERVICE, INC.

                               Short-Term Ratings

Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".

                                      -46-


F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
"F-1+" and "F-1 " categories.

F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.

                           DUFF & PHELPS BOND RATINGS

                                Investment Grade

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, and AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.

A+, A, and A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.

BBB+, BBB, and BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

High Yield Grade

BB+, BB, and BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.

B+, B, and B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.

CCC: Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

Preferred stocks are rated on the same scale as bonds but the preferred rating
gives weight to its more junior position in the capital structure. Structured
financings are also rated on this scale.

               DUFF & PHELPS PAPER/CERTIFICATES OF DEPOSIT RATINGS

                              Category 1: Top Grade

Duff 1 plus: Highest certainty of timely payment. Short-term liquidity including
internal operating factors and/or ready access to alternative sources of funds,
is outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.

Duff 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.

Duff 1 minus: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

                                      -47-


                             Category 2: Good Grade

Duff 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

                         Category 3: Satisfactory Grade

Duff 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.

No ratings are issued for companies whose paper is not deemed to be of
investment grade.

Bonds which are unrated expose the investor to risks with respect to capacity to
pay interest or repay principal which are similar to the risks of lower-rated
bonds. The Fund is dependent on the investment advisor's or investment
sub-advisor's judgment, analysis and experience in the evaluation of such bonds.

Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.

NOTE:

1    The ratings indicated herein are believed to be the most recent ratings
available as of the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating agencies
may from time to time revise such ratings, they undertake no obligation to do
so, and the ratings indicated do not necessarily represent ratings which would
be given to these securities on the date of the Fund's fiscal year end.

                                      -48-


                         INVESTMENT ADVISOR OF THE FUND

                         DEUTSCHE ASSET MANAGMENT, INC.

                       INVESTMENT SUB-ADVISOR OF THE FUND

                  DEUTSCHE ASSET MANAGEMENT INTERNATIONAL GmbH

                                  ADMINISTRATOR

                                    PFPC INC.

                                   DISTRIBUTOR

                             PFPC DISTRIBUTORS, INC.

                                    CUSTODIAN

                      DEUTSCHE BANK TRUST COMPANY AMERICAS

                                 TRANSFER AGENT

                                    PFPC INC.

                              INDEPENDENT AUDITORS

                                ERNST & YOUNG LLP

                                     COUNSEL

                            WILLKIE FARR & GALLAGHER

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

No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its
Statements of Additional Information or the Trust's official sales literature in
connection with the offering of the Trust's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. Neither the Prospectuses nor this SAI constitutes an
offer in any state in which, or to any person to whom, such offer may not
lawfully be made.

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


                            PART C. OTHER INFORMATION

Item 23.  Exhibits

                        Description

             a(1)       Declaration of Trust is hereby incorporated by reference
                        to the initial Registration Statement filed with the
                        Securities and Exchange Commission on January 26, 1996.

             a(2)       Amendment No. 1 to the Declaration of Trust dated July
                        16, 1996 is hereby incorporated by reference to Exhibit
                        a(2) to Post-Effective Amendment No. 9 filed with the
                        Securities and Exchange Commission on April 25, 2000.

             a(3)       Amendment No. 2 to the Declaration of Trust dated
                        September 9, 1996 is hereby incorporated by reference to
                        Exhibit a(3) to Post-Effective Amendment No. 9 filed
                        with the Securities and Exchange Commission on April 25,
                        2000.

             a(4)       Amendment No. 3 to the Declaration of Trust dated June
                        12, 1997 is hereby incorporated by reference to Exhibit
                        a(4) to Post-Effective Amendment No. 9 filed with the
                        Securities and Exchange Commission on April 25, 2000.

             a(5)       Certificate of Amendment to the Declaration of Trust
                        dated September 9, 1999 is hereby incorporated by
                        reference to Exhibit a(5) to Post-Effective Amendment
                        No. 9 filed with the Securities and Exchange Commission
                        on April 25, 2000.

             a(6)       Certificate of Amendment to the Declaration of Trust
                        dated May 1, 2000 is incorporated by reference to
                        Exhibit a(6) to Post-Effective Amendment No. 11 filed
                        with the Securities and Exchange Commission on April 25,
                        2001.

             a(7)       Certificate of Amendment to the Declaration of Trust
                        dated April 25, 2001 is incorporated by reference to
                        Exhibit a(7) to Post-Effective Amendment No. 11 filed
                        with the Securities and Exchange Commission on April 25,
                        2001.

             a(8)       Certificate of Amendment to the Declaration of Trust
                        dated December 17, 2002 - To Be Filed By Amendment.

             b          The Registrant's By-Laws are incorporated by reference
                        to Amendment No. 1 filed with the Securities and
                        Exchange Commission on September 18, 1996.

             c          Not Applicable.


             d(1)       Investment Management Agreement, dated April 30, 2001,
                        between Deutsche Asset Management VIT Funds Trust, on
                        behalf of Managed Assets Fund, and Deutsche Asset
                        Management, Inc. is incorporated by reference to Exhibit
                        d(1) to Post-Effective Amendment No. 11 filed with the
                        Securities and Exchange Commission on April 25, 2001.

             d(2)       Investment Management Agreement, dated April 30, 2001,
                        between Deutsche Asset Management VIT Funds Trust, on
                        behalf of Small Cap Index Fund, Equity 500 Index Fund,
                        EAFE(R) Equity Index Fund, U.S. Bond Index Fund, Small
                        Cap Fund, International Equity Fund, Global Financial
                        Services Fund, Global Technology Fund, Global
                        Biotechnology Fund, International Select Equity Fund,
                        and NASDAQ 100 Index Fund, and Deutsche Asset
                        Management, Inc. is incorporated by reference to Exhibit
                        d(2) to Post-Effective Amendment No. 14 filed with the
                        Securities and Exchange Commission on August 10, 2001.

             d(3)       Form of Investment Sub-Advisory Agreement on behalf of
                        Global Biotechnology Fund, Global Financial Services
                        Fund and Global Technology Fund between Deutsche Asset
                        Management Inc. and DWS International Portfolio
                        Management GmbH is incorporated by reference to Exhibit
                        d(3) to Post-Effective Amendment No. 14 filed with the
                        Securities and Exchange Commission on August 10, 2001.

             d(4)       Form of Investment Sub-Advisory Agreement on behalf of
                        the International Select Equity Fund between Deutsche
                        Asset Management Inc. and Deutsche Asset Management
                        Investment Services Ltd. is incorporated by reference to
                        Exhibit d(4) to Post-Effective Amendment No. 14 filed
                        with the Securities and Exchange Commission on August
                        10, 2001.

             d(5)       Investment Management Agreement, dated July 30, 2002,
                        between Deutsche Asset Management VIT Funds Trust, on
                        behalf of Small Cap Index Fund, Equity 500 Index Fund,
                        EAFE(R) Equity Index Fund, U.S. Bond Index Fund, Small
                        Cap Fund, International Equity Fund, Global Financial
                        Services Fund, Global Technology Fund, Global
                        Biotechnology Fund, International Select Equity Fund,
                        NASDAQ 100 Index Fund, and Scudder Real Estate
                        Securities Portfolio, and Deutsche Asset Management,
                        Inc. - To Be Filed By Amendment.

             d(6)       Form of Investment Sub-Advisory Agreement on behalf of
                        the Scudder Real Estate Securities Portfolio between
                        Deutsche Asset Management Inc. and RREEF America L.L.C
                        - To Be Filed By Amendment.


             e(1)       Distribution Agreement, dated December 31, 2000, between
                        Deutsche Asset Management VIT Funds Trust (each series
                        except Scudder Real Estate Securities Portfolio) and
                        PFPC Distributors, Inc. incorporated by reference to
                        Exhibit e(1) to Post-Effective Amendment No. 10 filed
                        with the Securities and Exchange Commission on April 12,
                        2001.

             e(2)       Distribution Agreement between Deutsche Asset Management
                        VIT Funds Trust on behalf of the Scudder Real Estate
                        Securities Portfolio and Scudder Distributors, Inc. - To
                        Be Filed By Amendment.

             f          Not Applicable.

             g(1)       The Custodian Agreement between Registrant and Bankers
                        Trust Company is incorporated by reference to Amendment
                        No. 1 filed with the Securities and Exchange Commission
                        on September 18, 1996.

             g(2)       The Delegation Agreement, dated March 6, 1998, between
                        Registrant and Bankers Trust Company is incorporated by
                        reference to Exhibit g(2) to Post-Effective Amendment
                        No. 15 filed with the Securities and Exchange Commission
                        on February 20, 2002.

             g(3)       Form of Custodian Agreement between Registrant on behalf
                        of the International Select Equity Fund and Brown
                        Brothers Harriman & Co. is incorporated by reference to
                        Exhibit g(3) to Post-Effective Amendment No. 14 filed
                        with the Securities and Exchange Commission on August
                        10, 2001.

             g(4)       Form of Custodian Agreement between Registrant on behalf
                        of the Scudder Real Estate Securities Portfolio - To Be
                        Filed By Amendment.

             h(1)       The Transfer Agency and Services Agreement, dated
                        December 10, 1998, between Registrant (each series
                        except Scudder Real Estate Securities Portfolio) and
                        First Data Investor Services Group, Inc. (now known as
                        PFPC Inc.) is incorporated by reference to
                        Post-Effective Amendment No. 7 filed with the Securities
                        and Exchange Commission on March 1, 1999.

             h(2)       The Administration Agreement, dated December 10, 1998,
                        between Registrant (each series except Scudder Real
                        Estate Securities Portfolio) and First Data Investor
                        Services Group, Inc. (now known as PFPC Inc.) is
                        incorporated by reference to Post-Effective Amendment
                        No. 7 filed with the Securities and Exchange Commission
                        on March 1, 1999.

             h(3)       Amendment to the Administration Agreement, dated
                        September 9, 1999, is incorporated by reference to
                        Exhibit h(3) to Post-


                        Effective  Amendment No. 9 filed with the Securities and
                        Exchange Commission on April 25, 2000.

             h(4)       Amendment to the Transfer Agency Services Agreement,
                        dated October 11, 2000 is incorporated by reference to
                        Exhibit h(4) to Post-Effective Amendment No. 10 filed
                        with the Securities and Exchange Commission on April 12,
                        2001.

             h(5)       Amendment to the Administration Agreement, dated March
                        1, 2001, is incorporated by reference to Exhibit h(5) to
                        Post-Effective Amendment No. 11 filed with the
                        Securities and Exchange Commission on April 25, 2001.

             h(6)       Form of Fund Participation Agreement is incorporated by
                        reference to Exhibit h(6) to Post-Effective Amendment
                        No. 14 filed with the Securities and Exchange Commission
                        on August 10, 2001.

             h(7)       Form of NASDAQ 100 Index Fund Licensing Agreement is
                        incorporated by reference to Exhibit h(7) to
                        Post-Effective Amendment No. 14 filed with the
                        Securities and Exchange Commission on August 10, 2001.

             h(8)       The Transfer Agency Agreement between Registrant, on
                        behalf of Scudder Real Estate Securities Portfolio, and
                        Scudder Investments Service Company - To Be Filed By
                        Amendment.

             h(9)       The Administration Agreement between Registrant, on
                        behalf of Scudder Real Estate Securities Portfolio, and
                        Investment Company Capital Corporation is incorporated
                        by reference to Post-Effective Amendment No. 17 - To Be
                        Filed By Amendment.

             i          Legal opinion To Be Filed By Amendment.

             j(1)       Consent of Independent Auditors - To Be Filed By
                        Amendment.

             j(2)       Power of Attorney - Filed herein as Exhibit j(2).

             k          Not Applicable.

             l(1)       The form of Purchase Agreement relating to Initial
                        Capital is incorporated by reference to Amendment No. 1
                        filed with the Securities and Exchange Commission on
                        September 18, 1996.

             l(2)       The form of Purchase Agreement relating to Small Cap
                        Fund and International Equity Fund is incorporated by
                        reference to Pre-Effective Amendment No. 1 filed with
                        the Securities and Exchange Commission on September 20,
                        1996.


             l(3)       The form of Purchase Agreement relating to Small Cap
                        Index Fund, EAFE(R) Equity Index Fund and Equity 500
                        Index Fund is incorporated by reference to
                        Post-Effective Amendment No. 1 filed with the Securities
                        and Exchange Commission on November 22, 1996.

             l(4)       The form of Purchase Agreement relating to the U.S. Bond
                        Index Fund is incorporated by reference to
                        Post-Effective Amendment No. 2 filed with the Securities
                        and Exchange Commission on July 18, 1997.

             m          Rule 12b-1 Plan. Distribution Plan for Class B Shares
                        - To Be Filed By Amendment.

             n          Rule 18f-3 Multiple Class Plan - To Be Filed By
                        Amendment.

             p(1)       Code of Ethics of Trust is incorporated by reference to
                        Exhibit o(1) to Post-Effective Amendment No. 9 filed
                        with the Securities and Exchange Commission on April 25,
                        2000.

             p(2)       Code of Ethics of Deutsche Asset Management, Inc. is
                        incorporated by reference to Exhibit o(2) to
                        Post-Effective Amendment No. 14 filed with the
                        Securities and Exchange Commission on August 10, 2001.

             p(3)       Code of Ethics of DWS International Portfolio Management
                        GmbH is incorporated by reference to Exhibit o(3) to
                        Post-Effective Amendment No. 14 filed with the
                        Securities and Exchange Commission on August 10, 2001.

             p(4)       Code of Ethics of Deutsche Asset Management Investment
                        Services Limited is incorporated by reference to Exhibit
                        o(4) to Post-Effective Amendment No. 14 filed with the
                        Securities and Exchange Commission on August 10, 2001.

             p(5)       Code of Ethics of RREEF America L.L.C. - To Be Filed By
                        Amendment.

Item 24.  Persons Controlled by or Under Common Control with Registrant

          Not Applicable.

Item 25.  Indemnification

          Reference is made to Articles IV and V of Registrant's Declaration of
Trust filed with Securities and Exchange Commission on January 26, 1996.

          Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant


pursuant to the foregoing provisions, or otherwise, the Registrant understands
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

Item 26.  Business and Other Connections of Investment Adviser

               All of the information required by this item is set forth in the
               Form ADV, as amended, of Deutsche Asset Management, Inc.
               (formerly Morgan Grenfell Inc.) (File No. 801-27291). The
               following sections of each such Form ADV are incorporated herein
               by reference:

               (a)  Items 1 and 2 of Part II
               (b)  Section 6, Business Background, of each Schedule D.

Item 27.  Principal Underwriters

        (a)    In addition to Deutsche Asset Management VIT Funds Trust (each
               series except Scudder Real Estate Securities Portfolio), PFPC
               Distributors, Inc. (the "Distributor") act as principal
               underwriter for the following investment companies as of 4/1/02:
               AB Funds Trust, AFBA 5 Star Funds, Inc., Columbia Common Stock
               Fund, Inc., Columbia Growth Fund, Inc., Columbia International
               Stock Fund, Inc., Columbia Special Fund, Inc., Columbia Small Cap
               Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia
               Balanced Fund, Inc., Columbia Daily Income Company, Columbia U.S.
               Government Securities Fund, Inc., Columbia Fixed Income
               Securities Fund, Inc., Columbia Municipal Bond Fund, Inc.,
               Columbia High Yield Fund, Inc., Columbia National Municipal Bond
               Fund, Inc., Columbia Strategic Value Fund, Inc., Columbia
               Technology Fund, Inc., Forward Funds, Inc, The Galaxy Fund, The
               Galaxy VIP Fund, Galaxy Fund II, GAMNA Series Funds, Inc., Harris
               Insight Funds Trust, Hillview Investment Trust II, International
               Dollar Reserve Fund I, Ltd., Kalmar Pooled Investment Trust, LKCM
               Funds, Matthews International Funds, Metropolitan West Funds, New
               Covenant Funds, Pictet Funds, The RBB Fund, Inc., RS Investment
               Trust, Stratton Growth Fund, Inc., Stratton Monthly Dividend REIT
               Shares, Inc., The Stratton Funds, Inc., Tomorrow Funds Retirement
               Trust, Trainer, Wortham First Mutual Funds, Undiscovered Managers
               Funds, Weiss, Peck & Greer Funds Trust, Weiss, Peck & Greer
               International Fund, Whitehall Funds Trust, Wilshire Target Funds,
               Inc., WPG Large Cap Growth Fund, WPG Tudor Fund, WT Investment
               Trust. The BlackRock Funds, Inc. and BlackRock Provident
               Institutional Funds (Distributed by BlackRock Distributors, Inc.,
               a wholly owned subsidiary of PFPC Distributors, Inc.); Northern
               Funds Trust and Northern Institutional Funds Trust (Distributed
               by Northern Funds Distributors, LLC., a wholly owned subsidiary
               of PFPC Distributors, Inc.); The Offit Investment Fund, Inc.
               (Distributed by Offit Funds Distributor, Inc., a wholly owned
               subsidiary of PFPC Distributors, Inc.); The Offit Variable
               Insurance Fund,

Inc. (Distributed by Offit Funds Distributor, Inc., a wholly owned
subsidiary of PFPC Distributors, Inc.); ABN AMRO Funds
(Distributed by ABN AMRO Distribution Services (USA), Inc., a
wholly owned subsidiary of PFPC Distributors, Inc.). PFPC
Distributors, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. PFPC Distributors, Inc. is
located at 3200 Horizon Drive, King of Prussia, Pennsylvania
19406.

Scudder Distributors, Inc. ("SDI") acts as principal underwriter
of the Scudder Real Estate Securities Portfolio shares.

(b) The information required by this Item 27(b) with respect to each
director, officer or partner of PFPC Distributors, Inc. is
incorporated by reference to Schedule A of Form BD filed by PFPC
Distributors, Inc. with the SEC pursuant to the Securities Act of
1934 (File No. 8-31334). No director, officer, or partner of PFPC
Distributors, Inc. holds a position or office with the Registrant.

Information on the officers and directors of SDI, principal
underwriter for the Registrant's series Scudder Real Estate
Securities Portfolio is set forth below. SDI's principal business
address is 222 South Riverside Plaza, Chicago, Illinois 60606.

(1) (2) (3)
Name and Principal Business Positions and Offices with
Address Position and Offices with Distributor Registrant
Thomas F. Eggers Chairman and Director
345 Park Avenue
New York, NY 10154

Jonathan R. Baum Chief Executive Officer, President
345 Park Avenue and Director
New York, NY 10154

William F. Glavin Vice President and Director
Two International Place
Boston, MA 02110-4103

James J. McGovern Chief Financial Officer and Treasurer
345 Park Avenue
New York, NY 10054

Caroline Pearson Secretary
Two International Place
Boston, MA 02110-4103

Linda J. Wondrack Vice President and Chief Compliance
Two International Place Officer
Boston, MA 02110-4103


           (1)                                     (2)                                    (3)
Name and Principal Business                                                     Positions and Offices with
Address                                Position and Offices with Distributor    Registrant
Susan K. Crawshaw                      Vice President
222 South Riverside Plaza
Chicago, IL 60606

Scott B. David                         Vice President
Two International Place
Boston, MA 02110-4103

Robert Froelich                        Vice President
222 South Riverside Plaza
Chicago, IL 60606

Michael L. Gallagher                   Vice President
222 South Riverside Plaza
Chicago, IL 60606

M. Patrick Donovan                     Vice President
Two International Place
Boston, MA 02110-4103

Michael E. Harrington                  Vice President
222 South Riverside Plaza
Chicago, IL 60606

Dean Jackson                           Vice President
222 South Riverside Plaza
Chicago, IL 60606

Terrance S. McBride                    Vice President
222 South Riverside Plaza
Chicago, IL 60606

C. Perry Moore                         Vice President
222 South Riverside Plaza
Chicago, IL 60606

Johnston A. Norris                     Vice President
222 South Riverside Plaza
Chicago, IL 60606

Todd N. Gierke                         Assistant Treasurer
222 South Riverside Plaza
Chicago, IL 60606

James E. Keating                       Assistant Treasurer
345 Park Avenue
New York, NY 10054

(1) (2) (3)
Name and Principal Business Positions and Offices with
Address Position and Offices with Distributor Registrant
Philip J. Collora Assistant Secretary
222 South Riverside Plaza
Chicago, IL 60606

Diane E. Ratekin Assistant Secretary
222 South Riverside Plaza
Chicago, IL 60606

Item 28. Location of Accounts and Records

All accounts books and other documents required to be maintained by
Registrant by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder will be maintained at the offices of:

(1) Deutsche Asset Management Inc.
280 Park Avenue
New York, NY 10019

(2) PFPC Distributors, Inc.
3200 Horizon Drive
King of Prussia, PA 19406.

(3) PFPC Inc.
3200 Horizon Drive
King of Prussia, PA 19406

(4) Investment Company Capital Corporation
One South Street
Baltimore, MD 21202

(5) Scudder Investments Service Company
811 Main Street
Kansas City, MO 64105

(6) Scudder Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606

Item 29. Management Services

Not Applicable.

Item 30. Undertakings

Not Applicable


                                INDEX TO EXHIBITS

Exhibit Number   Exhibit

    j(2)         Power of Attorney

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all the requirements for effectiveness of this
registration statement pursuant to Rule 485(a) under the Securities Act of 1933
and the Registrant has duly caused this Post-Effective Amendment No. 18 to be
signed on its behalf by the undersigned, thereunto duly authorized, Baltimore,
Maryland on this 18/th/ day of March, 2003.

Deutsche Asset Management VIT Funds Trust

By: /s/ Bruce A. Rosenblum
----------------------
Bruce A. Rosenblum
As Attorney-in-Fact

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the date indicated:

Signatures Title Date
---------- ----- ----
* President, March 18, 2003
- ------------------------------
William F. Glavin, Jr. Chief Executive Officer

* Treasurer, Principal March 18, 2003
- ------------------------------
Charles A. Rizzo Financial and Accounting
Officer

* Trustee March 18, 2003
- ------------------------------
Richard R. Burt

* Trustee March 18, 2003
- ------------------------------
S. Leland Dill

* Trustee March 18, 2003
- ------------------------------
Martin J. Gruber

* Trustee March 18, 2003
- ------------------------------
Richard T. Hale

* Trustee March 18, 2003
- ------------------------------
Joseph R. Hardiman

* Trustee March 18, 2003
- ------------------------------
Richard J. Herring

* Trustee March 18, 2003
- ------------------------------
Graham E. Jones

* Trustee March 18, 2003
- ------------------------------
Rebecca W. Rimel


         Signatures                            Title                                Date
         ----------                            -----                                ----
   *                                    Trustee                               March 18, 2003
- ------------------------------
Philip Saunders, Jr.

   *                                    Trustee                               March 18, 2003
- ------------------------------
William N. Searcy

   *                                    Trustee                               March 18, 2003
- ------------------------------
Robert H. Wadsworth

* By:   /s/ Bruce A. Rosenblum
        ----------------------
        Bruce A. Rosenblum
        as Attorney-in-Fact