This prospectus sets forth concisely the information about Scudder Quality
Growth Fund, a series of Scudder Investment Trust, an open-end management
investment company, that a prospective investor should know before
investing. Please retain it for future reference.
If you require more detailed information, a Statement of Additional
Information dated March 1, 1995, as amended from time to time, may be
obtained without charge by writing Scudder Investor Services, Inc., Two
International Place, Boston, MA 02110-4103 or calling 1-800-225-2470. The
Statement, which is incorporated by reference into this prospectus, has
been filed with the Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Contents--see page 4.
Scudder Quality Growth Fund
Prospectus
March 1, 1995
A pure no-load(tm) (no sales charges) mutual fund which seeks long-term
growth of capital through investment primarily in the equity securities of
seasoned, financially-strong U.S. growth companies.
Expense information
How to compare a Scudder pure no-load(tm) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Quality Growth Fund (the "Fund"). By
reviewing this table and those in other mutual funds' prospectuses, you can
compare the Fund's fees and expenses with those of other funds. With
Scudder's pure no-load?(tm) funds, you pay no commissions to purchase or
redeem shares, or to exchange from one fund to another. As a result, all of
your investment goes to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses (after expense maintenance): Expenses
paid by the Fund before it distributes its net investment income,
expressed as a percentage of the Fund's average daily net assets for
the fiscal year ended October 31, 1994.
Investment management fee 0.70%
12b-1 fees NONE
Other expenses 0.55%
-----
Total Fund operating expenses 1.25%**
=====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not
pay these expenses directly; they are paid by the Fund before it
distributes its net investment income to shareholders. (As noted above, the
Fund has no redemption fees of any kind.)
1 Year 3 Years 5 Years 10 Years
$13 $40 $69 $151
See "Fund organization--Investment adviser" for further information about
the investment management fee. This example assumes reinvestment of all
dividends and distributions and that the percentage amounts listed under
"Annual Fund operating expenses" remain the same each year. This example
should not be considered a representation of past or future expenses or
return. Actual Fund expenses and return vary from year to year and may be
higher or lower than those shown.
* You may redeem by writing or calling the Fund. If you wish to receive
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction
information--Redeeming shares."
** Until February 29, 1996, the Adviser has agreed to maintain the total
annualized expenses of the Fund at not more than 1.25% of average
daily net assets of the Fund. If the Adviser had not agreed to
maintain the Fund's expenses, the total annualized expenses of the
Fund would have amounted to 1.25% (of which 0.70% would have consisted
of investment management fees).
Financial highlights
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
audited financial statements.
If you would like more detailed information concerning the Fund's
performance, a complete portfolio listing and audited financial statements
are available in the Fund's Annual Report dated October 31, 1994 and may be
obtained without charge by writing or calling Scudder Investor Services,
Inc.
<TABLE>
<CAPTION>
For the Period
May 15, 1991
(commencement
Years Ended October 31, of operations)
----------------------------- to October 31,
1994 1993 1992 1991
----------------------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . $16.42 $15.30 $13.65 $12.00
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . . .16 .06 .02 .03
Net realized and unrealized gain (loss) on investments . (.09) 1.09 1.68 1.62
------ ------ ------ ------
Total from investment operations . . . . . . . . . . . . . .07 1.15 1.70 1.65
------ ------ ------ ------
Less distributions from:
Net investment income . . . . . . . . . . . . . . . . . . (.08) (.03) (.03) --
Net realized gains on investment transactions . . . . . (.24) -- (.02) --
------ ------ ------ ------
Total distributions . . . . . . . . . . . . . . . . . . . . (.32) (.03) (.05) --
------ ------ ------ ------
Net asset value, end of period . . . . . . . . . . . . . . $16.17 $16.42 $15.30 $13.65
====== ====== ====== ======
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . .39 7.49 12.47 13.75**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . . 113 126 101 30
Ratio of operating expenses net, to average daily
net assets (%) (a) . . . . . . . . . . . . . . . . . . . 1.25 1.20 1.25 1.25*
Ratio of net investment income to average daily net
assets (%) . . . . . . . . . . . . . . . . . . . . . . . .96 .39 .24 .83*
Portfolio turnover rate (%) . . . . . . . . . . . . . . . 119.7 111.4 27.4 11.5*
(a) Reflects a per share amount of expenses, exclusive of
management fees, reimbursed by the Adviser of . . . . $ -- $ -- $ -- $ .01
Reflects a per share amount of management fee not
imposed by the Adviser of . . . . . . . . . . . . . $ -- $ -- $ .01 $ .02
Operating expense ratio including expenses
reimbursed, management fee and other expenses
not imposed (%) . . . . . . . . . . . . . . . . . . -- -- 1.40 2.67*
* Annualized
** Not annualized
</TABLE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund
in 1928. Today, we manage in excess of $90 billion for many private
accounts and over 50 mutual fund portfolios. We manage the mutual funds in
a special program for the American Association of Retired Persons, as well
as the fund options available through Scudder Horizon Plan, a
tax-advantaged variable annuity. We also advise The Japan Fund and nine
closed-end funds that invest in countries around the world.
The Scudder Family of Funds is designed to make investing easy and less
costly. It includes money market, tax free, income and growth funds as well
as IRAs, 401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to the
professional service representatives of Scudder Investor Relations, easy
exchange among funds, shareholder reports, informative newsletters and the
walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(tm). This means you pay no
commissions to purchase or redeem your shares or to exchange from one fund
to another. There are no "12b-1" fees either, which many other funds now
charge to support their marketing efforts. All of your investment goes to
work for you. We look forward to welcoming you as a shareholder.
/s/Daniel Pierce
Scudder Quality Growth Fund
Investment objective
* long-term growth of capital through investment primarily in the equity
securities of seasoned, financially-strong U.S. growth companies
Investment characteristics
* emphasis on medium- to large-sized domestic companies with prospects
for maintaining greater than average growth in earnings, cash flow or
assets over time
* focus on companies in strong financial positions
* opportunity to share in the long-term growth of the stock market
* daily liquidity at current net asset value
Contents
Investment objective and policies 5
Why invest in the Fund? 6
Additional information about policies and investments 7
Purchases 10
Exchanges and redemptions 11
Distribution and performance information 12
Fund organization 12
Transaction information 13
Shareholder benefits 16
Trustees and Officers 19
Investment products and services 20
How to contact Scudder 21
Investment objective and policies
Scudder Quality Growth Fund (the "Fund"), a diversified series of Scudder
Investment Trust, seeks to provide long-term growth of capital through
investment primarily in the equity securities of seasoned,
financially-strong U.S. growth companies. Although current income is an
incidental consideration, many of the Fund's securities should provide
regular dividends which are expected to grow over time.
The Fund's equity investments consist of common stocks, preferred stocks
and securities convertible into common stocks of companies which are of
above-average financial quality and offer the prospect for above-average
growth in earnings, cash flow or assets relative to the overall market as
defined by the Standard & Poor's 500 Composite Price Index (S&P 500). The
prospect for above-average growth in assets is evaluated in terms of the
potential future earnings such growth in assets can produce.
The Fund allocates its investments among different industries and
companies, and adjusts its portfolio securities based on long-term
investment considerations as opposed to short-term trading. While the Fund
emphasizes U.S. investments, it can commit a portion of assets to the
equity securities of foreign growth companies which meet the criteria
applicable to domestic investments.
Except as otherwise indicated, the Fund's investment objective and policies
are not fundamental and may be changed without a vote of shareholders.
Shareholders will receive written notice of any changes in the Fund's
objective. If there is a change in investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light
of their then current financial position and needs. There can be no
assurance that the Fund's objective will be met.
Investments
The Fund invests primarily in the equity securities issued by medium- to
large-sized domestic companies that offer above-average appreciation
potential. In seeking such investments, the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser"), invests in companies with
the following characteristics:
* companies that have exhibited above-average growth rates over an
extended period with prospects for maintaining greater than average
rates of growth in earnings, cash flow or assets in the future;
* companies that are in a strong financial position with high credit
standings and profitability;
* companies with important business franchises, leading products or
dominant marketing and distribution systems;
* companies guided by experienced, motivated management;
* companies with at least five years' operating history and annual
revenues of $200 million or more and market capitalization of at least
$300 million; and
* companies selling at attractive prices relative to potential growth in
earnings, cash flow or assets.
The Adviser utilizes a combination of qualitative and quantitative research
techniques to identify companies that have above-average quality and growth
characteristics and that are deemed to be selling at attractive market
valuations. In-depth fundamental research is used to evaluate various
aspects of corporate performance, with a particular focus on consistency of
results, long-term growth prospects and financial strength. Quantitative
valuation models are designed to help determine which growth companies
offer the best values at a given point in time. From time to time, for
temporary defensive or emergency purposes, the Fund may invest a portion of
its assets in cash and cash equivalents when the Adviser deems such a
position advisable in light of economic or market conditions. The Fund also
may invest in foreign securities, repurchase agreements, and may engage in
strategic transactions.
Quality
The Fund invests at least 65% of its total assets in the equity securities
of seasoned, financially- strong U.S. growth companies which are considered
to be of above-average financial quality. The common stocks issued by these
companies qualify, at the time of purchase, for one of the three highest
equity ranking categories (A+, A or A-) of Standard & Poor's ("S&P") or, if
not ranked by S&P, are judged to be of comparable quality by the Adviser.
S&P assigns earnings and dividends rankings to corporations based on a
number of factors, including stability and growth of earnings and
dividends. Rankings by S&P are not an appraisal of a company's
creditworthiness, as is true for S&P's debt security ratings, nor are these
rankings intended as a forecast of future stock market performance. In
addition to using S&P rankings of earnings and dividends of common stocks,
the Adviser conducts its own analysis of a company's history, current
financial position and earnings prospects.
When assessing financial quality, the Adviser weighs four elements of
business risk. These factors are the Adviser's assessment of the strength
of a company's balance sheet, the accounting practices a company follows,
the volatility of a company's earnings over time and the vulnerability of
earnings to changes in external factors, such as the general economy, the
competitive environment, governmental action and technological change.
More information about investment techniques is provided under "Additional
information about policies and investments."
Why invest in the Fund?
The Fund provides investors with convenient and low-cost access to a
diversified equity portfolio involving seasoned, financially-strong U.S.
growth companies. The Fund's investment strategy is to acquire the equity
securities of well-managed large- and medium-sized companies, primarily
located in the U.S., which have established records of above-average
earnings growth and are judged to have potential for the future. The
Adviser believes that companies with relatively consistent and
above-average rates of growth will be rewarded by the market with higher
stock prices over time and investment returns in excess of the market as a
whole. Also, while the business results of such companies will be affected
by slowdowns in economic growth, they should be less affected by adverse
business conditions than more leveraged or cyclical companies.
The Fund is only appropriate for those investors who understand and can
accept the risks of stock market investing. While the Fund emphasizes the
securities of companies with above-average growth and quality
characteristics, movements in the overall stock market will affect the
Fund's price. The Adviser, however, attempts to lessen the effects of stock
market fluctuation through portfolio diversification and disciplined
security selection. The Adviser has been involved in quality growth
investing for over 20 years.
While the Fund is broadly diversified, it does not, in itself, represent a
complete investment program. Nonetheless, because of its emphasis on
quality growth companies, the Fund may be appropriate as a core equity
component of an investment portfolio containing money market, bond and more
specialized equity investments.
In addition, the Fund offers all the benefits of the Scudder Family of
Funds. Scudder, Stevens & Clark, Inc. manages a diverse family of pure
no-load(tm) funds and provides a wide range of services to help investors
meet their investment needs. Please refer to "Investment products and
services" for additional information.
Additional information about policies and investments
Investment restrictions
The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk. The Fund may not make loans except through the lending of
portfolio securities, the purchase of debt securities or through repurchase
agreements and may not borrow money except as a temporary measure for
extraordinary or emergency purposes.
In addition, as a matter of nonfundamental policy, the Fund may not invest
more than 10% of its net assets in securities which are not readily
marketable, in restricted securities or in repurchase agreements
maturing in more than seven days. The Fund may not invest more than 5% of
its total assets in restricted securities.
A complete description of these and other policies and restrictions is
contained under "The Fund's Investment Objective and Policies" in the
Fund's Statement of Additional Information.
Portfolio turnover rate
Recent economic and market conditions have necessitated more active
trading, resulting in a higher portfolio turnover rate for the Fund. A
higher rate involves greater transaction costs to the Fund and may result
in the realization of net capital gains, which would be taxable to
shareholders when distributed.
Convertible securities
The Fund may invest in convertible securities (bonds, notes, debentures,
preferred stocks and other securities convertible into common stocks) which
may offer higher income than the common stocks into which they are
convertible. The convertible securities in which the Fund may invest
include fixed-income or zero coupon debt securities which may be converted
or exchanged at a stated or determinable exchange ratio into underlying
shares of common stock. Prior to their conversion, convertible securities
may have characteristics similar to both nonconvertible debt securities and
equity securities.
Foreign securities
In addition to investments in companies domiciled in the U.S., the Fund may
invest a portion of its assets in listed and unlisted foreign securities of
the same type as the domestic securities in which it is permitted to
invest. The Fund may invest outside of the U.S. when the anticipated
performance of foreign securities is believed by the Adviser to offer more
return potential than domestic alternatives in keeping with the investment
objective of the Fund.
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund
may enter into repurchase agreements with selected banks and
broker/dealers. Under a repurchase agreement, the Fund acquires securities,
subject to the seller's agreement to repurchase them at a specified time
and price.
Strategic Transactions and derivatives
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as
interest rates, currency exchange rates, and broad or specific equity or
fixed-income market movements), to manage the effective maturity or
duration of fixed-income securities in the Fund's portfolio or to enhance
potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of
modern portfolio management and are regularly utilized by many mutual funds
and other institutional investors. Techniques and instruments may change
over time as new instruments and strategies are developed or regulatory
changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options
on securities, equity and fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options
thereon, enter into various interest rate transactions such as swaps, caps,
floors or collars, and enter into various currency transactions such as
currency forward contracts, currency futures contracts, currency swaps or
options on currencies or currency futures (collectively, all the above are
called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect
against possible changes in the market value of securities held in or to be
purchased for the Fund's portfolio resulting from securities markets or
currency exchange rate fluctuations, to protect the Fund's unrealized gains
in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to manage the effective maturity or
duration of fixed-income securities in the Fund's portfolio, or to
establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic
Transactions may also be used to enhance potential gain although no more
than 5% of the Fund's assets will be committed to Strategic Transactions
entered into for non-hedging purposes. Any or all of these investment
techniques may be used at any time and in any combination, and there is no
particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize
these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The
Fund will comply with applicable regulatory requirements when implementing
these strategies, techniques and instruments. Strategic Transactions
involving financial futures and options thereon will be purchased, sold or
entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and
the portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques
that the Fund may use from time to time.
Convertible securities. While convertible securities generally offer lower
yields than nonconvertible debt securities of similar quality, their prices
may reflect changes in the value of the underlying common stock.
Convertible securities entail less credit risk than the issuer's common
stock. Convertible securities purchased by the Fund must be rated
investment-grade, or if unrated, judged of equivalent quality by the
Adviser. Investment-grade convertible securities are rated Aaa, Aa, A or
Baa by Moody's Investors Service, Inc. ("Moody's"), or AAA, AA, A or BBB by
S&P. Moody's considers securities it rates Baa to have speculative elements
as well as investment-grade characteristics.
Foreign securities. Investing in foreign securities involves considerations
not typically found in investing in U.S. markets. These considerations,
which may favorably or unfavorably affect the Fund's performance, include
changes in exchange rates and exchange rate controls (which may include
suspension of the ability to transfer currency from a given country), costs
incurred in conversions between currencies, non-negotiable brokerage
commissions, less publicly available information, different accounting
standards, lower trading volume and greater market volatility, the
difficulty of enforcing obligations in other countries, less securities
regulation, different tax provisions (including withholding on dividends
and interest paid to the Fund), war, expropriation, political and social
instability and diplomatic developments. Further, the settlement period of
securities transactions in foreign markets may be longer than in domestic
markets. These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in
developed countries. The Adviser seeks to mitigate the risks associated
with these considerations through diversification and active professional
management.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted.
In the event of the commencement of bankruptcy or insolvency proceedings,
with respect to the seller of the security under a repurchase agreement,
the Fund may encounter delay and incur costs before being able to sell the
security. Also, if a seller defaults, the value of such securities may
decline before the Fund is able to dispose of them.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the
extent the Adviser's view as to certain market movements is incorrect, the
risk that the use of such Strategic Transactions could result in losses
greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of
put options) or lower than (in the case of call options) current market
values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell.
The use of currency transactions can result in the Fund incurring losses as
a result of a number of factors including the imposition of exchange
controls, suspension of settlements or the inability to deliver or receive
a specified currency. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the
related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the
Fund's position. In addition, futures and options markets may not be liquid
in all circumstances and certain over-the-counter options may have no
markets. As a result, in certain markets, the Fund might not be able to
close out a transaction without incurring substantial losses, if at all.
Although the use of futures contracts and options transactions for hedging
should tend to minimize the risk of loss due to a decline in the value of
the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a
greater ongoing potential financial risk than would purchases of options,
where the exposure is limited to the cost of the initial premium. Losses
resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. The Strategic Transactions
that the Fund may use and some of their risks are described more fully in
the Fund's Statement of Additional Information.
Purchases
Opening an account
Minimum initial investment: $1,000; IRAs $500
Group retirement plans (401(k), 403(b), etc.) have similar or lower
minimums. See appropriate plan literature.
Make checks payable to "The Scudder Funds."
* By Mail
Send your completed and signed application and check
by regular mail to: or by express,
registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
* By Wire
Please see Transaction information--Purchasing shares--By wire following
these tables for details, including the ABA wire transfer number. Then
call 1-800-225-5163 for instructions.
* In Person
Visit one of our Funds Centers to complete your application with the
help of a Scudder representative. Funds Center locations are listed
under Shareholder benefits.
Purchasing additional shares
Minimum additional investment: $100; IRAs $50
Group retirement plans (401(k), 403(b), etc.) have similar or lower
minimums. See appropriate plan literature.
Make checks payable to "The Scudder Funds."
* By Mail
Send a check with a Scudder investment slip, or with a letter of
instruction including your account number and the complete Fund name,
to the appropriate address listed above.
* By Wire
Please see Transaction information--Purchasing shares--
By wire following these tables for details, including the ABA wire
transfer number.
* In Person
Visit one of our Funds Centers to make an additional investment in
your Scudder fund account. Funds Center locations are listed under
Shareholder benefits.
* By Telephone
You may purchase additional shares in an amount of $10,000 or more.
Please call 1-800-225-5163 for more details.
* By Automatic Investment Plan ($50 minimum)
You may arrange to make investments on a regular basis through
automatic deductions from your bank checking account. Please call
1-800-225-5163 for more information and an enrollment form.
Exchanges and redemptions
Exchanging shares
Minimum investments: $1,000 to establish a new account; $100 to exchange
among existing accounts
* By Telephone
To speak with a service representative, call 1-800-225-5163 from 8
a.m. to 8 p.m. eastern time or to access SAIL(tm), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
* By Mail or Fax
Print or type your instructions and include:
- the name of the Fund and the account number you are exchanging
from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into; and
- your signature(s) as it appears on your account and a daytime
telephone number.
Send your instructions
by regular mail to: or by express, or by fax to:
registered, or
certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
Redeeming shares
* By Telephone
To speak with a service representative, call 1-800-225-5163 from 8
a.m. to 8 p.m. eastern time or to access SAIL(tm), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent to your predesignated bank account, or
redemption proceeds of up to $50,000 sent to your address of record.
* By Mail or Fax
Send your instructions for redemption to the appropriate address or
fax number above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem; and
- your signature(s) as it appears on your account and a daytime
telephone number.
A signature guarantee is required for redemptions over $50,000. See
Transaction information--Redeeming shares following these tables.
* By Automatic Withdrawal Plan
You may arrange to receive automatic cash payments periodically if the
value of your account is $10,000 or more. Call 1-800-225-5163 for more
information and an enrollment form.
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute any dividends from its net investment
income and any net realized capital gains after utilization of capital loss
carryforwards, if any, in December. An additional distribution may be made
if necessary. Any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid
during the following January will be treated by shareholders for federal
income tax purposes as if received on December 31 of the calendar year
declared. According to preference, shareholders may receive distributions
in cash or have them reinvested in additional shares of the Fund. If the
investment is in the form of a retirement plan, all dividends and capital
gains distributions must be reinvested into the shareholder's account.
Generally, dividends from net investment income are taxable to
investors as ordinary income. Long-term capital gains distributions, if
any, are taxable as long-term capital gains regardless of the length of
time shareholders have owned their shares. Short-term capital gains and any
other taxable distributions are taxable as ordinary income. A portion of
dividends from ordinary income may qualify for the dividends-received
deduction for corporations.
The Fund sends detailed tax information to shareholders about the amount
and type of its distributions by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance
figures are historical, show the performance of a hypothetical investment
and are not intended to indicate future performance. "Total return" is the
change in value of an investment in the Fund for a specified period. The
"average annual total return" of the Fund is the average annual compound
rate of return of an investment in the Fund assuming the investment has
been held for one year and the life of the Fund. "Cumulative total return"
represents the cumulative change in value of an investment in the Fund for
various periods. Total return calculations assume that all dividends and
capital gains distributions during the period were reinvested in shares of
the Fund. "Capital change" measures return from capital, including
reinvestment of any capital gains distributions but does not include the
reinvestment of dividends. Performance will vary based upon, among other
things, changes in market conditions and the level of the Fund's expenses.
Fund organization
Scudder Quality Growth Fund is a diversified series of Scudder Investment
Trust (the "Trust"), an open-end management investment company registered
under the Investment Company Act of 1940 (the "1940 Act"). The Trust,
formerly known as Scudder Growth and Income Fund, was organized as a
Massachusetts business trust in September 1984.
The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Trust is not required to hold and has no current
intention of holding annual shareholder meetings, although special meetings
may be called for purposes such as electing or removing Trustees, changing
fundamental policies or approving an investment management contract.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Trustee as if Section 16(c) of the 1940 Act were
applicable.
Investment adviser
The Fund retains the investment management firm of Scudder, Stevens &
Clark, Inc., a Delaware corporation, to manage its daily investment and
business affairs subject to the policies established by the Board of
Trustees. The Trustees have overall responsibility for the management of
the Fund under Massachusetts law.
The management fee payable to the Adviser under its Investment Management
Agreement is equal to an annual rate of 0.70% of the Fund's average daily
net assets.
The fee is payable monthly, provided that the Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount
of the fee then accrued on the books of the Fund and unpaid.
The Adviser has agreed not to impose all or a portion of its investment
management fee and to take other action, to the extent necessary, to
maintain the annualized expenses of the Fund at not more than 1.25% of
average daily net assets of the Fund until February 29, 1996.
All of the Fund's expenses are paid out of gross investment income.
Shareholders pay no direct charges or fees for investment or administrative
services.
Scudder, Stevens & Clark, Inc. is located at Two International Place,
Boston, Massachusetts.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts
02107-2291, a wholly-owned subsidiary of the Adviser, is the transfer,
shareholder servicing and dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a wholly-owned subsidiary of the Adviser,
is the Fund's principal underwriter. Scudder Investor Services, Inc.
confirms, as agent, all purchases of shares of the Fund. Scudder Investor
Relations is a telephone information service provided by Scudder Investor
Services, Inc.
Custodian
State Street Bank and Trust Company is the Fund's custodian.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share
after the Fund's transfer agent in Boston receives the purchase request in
good order. Purchases are made in full and fractional shares. (See "Share
price.")
By check. If you purchase shares with a check that does not clear, your
purchase will be canceled and you will be subject to any losses or fees
incurred in the transaction. Checks must be drawn on or payable through a
U.S. bank. If you purchase shares by check and redeem them within seven
business days of purchase, the Fund may hold redemption proceeds until the
purchase check has cleared, which may take up to seven business days. If
you purchase shares by federal funds wire, you may avoid this delay.
Redemption or exchange requests by telephone prior to the expiration of the
seven-day period will not be accepted.
By wire. To open a new account by wire, first call Scudder at
1-800-225-5163 to obtain an account number. A representative will instruct
you to send a completed, signed application to the transfer agent in
Boston. Accounts cannot be opened without a completed, signed application
and a Scudder fund account number. Contact your bank to arrange a wire
transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- - the name of the fund in which the money is to be invested,
- - the account number of the fund, and
- - the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain
day's price by calling 1-800-225-5163 before the close of regular trading
on the New York Stock Exchange (the "Exchange"), normally 4 p.m. eastern
time, on that day. Orders must be for $10,000 or more and cannot be for an
amount greater than four times the value of your account at the time the
order is placed. A confirmation with complete purchase information is sent
shortly after your order is received. You must include with your payment
the order number given at the time the order is placed. If payment by check
or wire is not received within seven business days, the order will be
canceled and the shareholder will be responsible for any loss to the Fund
resulting from this cancellation. Telephone orders are not available for
shares held in Scudder IRA accounts and most other Scudder retirement plan
accounts.
By exchange. Your new account will have the same registration and address
as your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for
more information, including information about the transfer of special
account features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund)
without redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If
you elected telephone redemption to your bank on your application, you can
call to request that federal funds be sent to your authorized bank account.
If you did not elect telephone redemption to your bank on your application,
call 1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested.
If your bank cannot receive federal reserve wires, redemption proceeds will
be mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until
the Fund's transfer agent has received your completed and signed
application. Telephone redemption is not available for shares held in
Scudder IRA accounts and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and
the right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be
sent to a predesignated bank account. The Fund uses procedures designed to
give reasonable assurance that telephone instructions are genuine,
including recording telephone calls, testing a caller's identity and
sending written confirmation of telephone transactions. If the Fund does
not follow such procedures, it may be liable for losses due to unauthorized
or fraudulent telephone instructions. The Fund will not be liable for
acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Signature guarantees. For your protection and to prevent fraudulent
redemptions, on written redemption requests in excess of $50,000 we require
an original signature and an original signature guarantee for each person
in whose name the account is registered. (The Fund reserves the right,
however, to require a signature guarantee for all redemptions.) You can
obtain a signature guarantee from most banks, credit unions or savings
associations, or from broker/dealers, municipal securities broker/dealers,
government securities broker/dealers, national securities exchanges,
registered securities associations, or clearing agencies deemed eligible by
the Securities and Exchange Commission. Signature guarantees by notaries
public are not acceptable. Redemption requirements for corporations, other
organizations, trusts, fiduciaries, agents, institutional investors and
retirement plans may be different from those for regular accounts. For more
information, please call 1-800-225-5163.
Share price
Purchases and redemptions, including exchanges, are made at net asset
value. Scudder Fund Accounting Corporation, a wholly-owned subsidiary of
the Adviser, determines net asset value per share as of the close of
regular trading on the Exchange, normally 4 p.m. eastern time, on each day
the Exchange is open for trading. Net asset value per share is calculated
by dividing the current market value of total assets, less all liabilities,
by the total number of shares outstanding.
Processing time
All purchase and redemption requests received in good order by the Fund's
transfer agent in Boston by the close of regular trading on the Exchange
are executed at the net asset value per share calculated at the close of
regular trading that day.
Purchase and redemption requests received after the close of regular
trading on the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify
Scudder Investor Relations by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business
day following the redemption request, but may take up to seven days (or
longer in the case of shares recently purchased by check).
Short-term trading
Purchases and sales should be made for long-term investment purposes only.
The Fund and Scudder Investor Services, Inc. each reserves the right to
restrict purchases of Fund shares (including exchanges) when a pattern of
frequent purchases and sales made in response to short-term fluctuations in
the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is
a sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and
redemption and exchange proceeds from accounts (other than those of certain
exempt payees) without a certified Social Security or tax identification
number and certain other certified information or upon notification from
the IRS or a broker that withholding is required. The Fund reserves the
right to reject new account applications without a certified Social
Security or tax identification number. The Fund also reserves the right,
following 30 days' notice, to redeem all shares in accounts without a
certified Social Security or tax identification number.
A shareholder may avoid involuntary redemption by providing the Fund with a
tax identification number during the 30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $1,000, which
amount may be changed by the Board of Trustees. Scudder retirement plans
have similar or lower minimum share balance requirements. The Fund reserves
the right, following 60 days' written notice to shareholders, to redeem all
shares in sub-minimum accounts, including accounts of new investors, where
a reduction in value has occurred due to a redemption or exchange out of
the account. Reductions in value that result solely from market activity
will not trigger an involuntary redemption. The Fund will mail the proceeds
of the redeemed account to the shareholder. The shareholder may restore the
share balance to $1,000 or more during the 60-day notice period and must
maintain it at no lower than that minimum to avoid involuntary redemption.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is
made at an investor's election through a member of the National Association
of Securities Dealers, Inc., other than Scudder Investor Services, Inc.,
that member may, at its discretion, charge a fee for that service.
Redemption-in-kind
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen
by the Fund and valued as they are for purposes of computing the Fund's net
asset value (a redemption-in-kind). If payment is made in securities, a
shareholder may incur transaction expenses in converting these securities
to cash. The Trust has elected, however, to be governed by Rule 18f-1 under
the 1940 Act, as a result of which the Fund is obligated to redeem shares,
with respect to any one shareholder during any 90-day period, solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
at the beginning of the period.
Shareholder benefits
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced
investment management firms, actively manages your Scudder fund investment.
Professional management is an important advantage for investors who do not
have the time or expertise to invest directly in individual securities.
A team approach to investing
Scudder Quality Growth Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management
process. Team members work together to develop investment strategies and
select securities for the Fund's portfolio. They are supported by Scudder's
large staff of economists, research analysts, traders and other investment
specialists who work in Scudder's offices across the United States and
abroad. Scudder believes our team approach benefits Scudder Quality Growth
Fund investors by bringing together many disciplines and leveraging
Scudder's extensive resources.
Lead Portfolio Manager Bruce F. Beaty assumed responsibility for the Fund's
day-to-day management and investment strategies in January 1995. Mr.
Beaty, who has been a portfolio manager at Scudder since joining the firm
in 1991, specializes in the quality growth discipline of investing. Prior
to joining Scudder in 1991, Mr. Beaty spent 11 years in the securities
brokerage business. Michael K. Shields, Portfolio Manager, joined the Fund
and Scudder in 1992 and has 13 years of experience in finance and banking.
SAIL(tm)--Scudder Automated Information Line
For touchtone access to account information, prices and yields, or to
perform transactions in existing Scudder fund accounts, shareholders can
call Scudder's Automated Information Line (SAIL) at 1-800-343-2890. During
periods of extreme economic or market changes, or other conditions, it may
be difficult for you to effect telephone transactions in your account. In
such an event you should write to the Fund; please see "How to contact
Scudder" for the address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net
asset value. You can move your investments among money market, income,
growth, tax free and growth and income funds with a simple toll-free call
or, if you prefer, by sending your instructions through the mail or by fax.
Telephone and fax redemptions and exchanges are subject to termination and
their terms are subject to change at any time by the Fund or the transfer
agent. In some cases, the transfer agent or Scudder Investor Services, Inc.
may impose additional conditions on telephone transactions.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in
additional Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a
review of portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund
reports, such as the Fund's Annual Report, may be mailed to your household
(same surname, same address). Please call 1-800-225-5163 if you wish to
receive additional shareholder reports.
Newsletters
Four times a year, Scudder sends you At the Helm, an informative newsletter
covering economic and investment developments, service enhancements and
other topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person,
Scudder Investor Services, Inc. maintains Funds Centers in Boca Raton,
Boston, Chicago, Cincinnati, Los Angeles, New York, Portland (OR), San
Diego, San Francisco and Scottsdale.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D.
(Telephone Device for the Deaf) service. If you have access to a T.D.D.,
call 1-800-543-7916 for investment information or specific account
questions and transactions.
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for
individuals, businesses and non-profit organizations. These flexible plans
are designed for use with the Scudder Family of Funds (except Scudder
tax-free funds, which are inappropriate for such plans). Scudder Funds
offer a broad range of investment objectives and can be used to seek almost
any investment goal. Using Scudder's retirement plans can help shareholders
save on current taxes while building their retirement savings.
* Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of $2,000 per person for anyone with earned income. Many
people can deduct all or part of their contributions from their
taxable income, and all investment earnings accrue on a tax deferred
basis. The Scudder No-Fee IRA charges no annual custodial fee.
* 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
* Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans.
* 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
* SEP-IRAs. Easily administered retirement plans for small businesses
and self-employed individuals. The maximum annual contribution to
SEP-IRA accounts is adjusted each year for inflation.
* Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start
with $2,500 or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian
for some of these plans and is paid an annual fee for some of the above
retirement plans. For information about establishing a Scudder No-Fee IRA,
SEP-IRA, Profit Sharing Plan, Money Purchase Pension Plan or a Scudder
Horizon Plan, please call 1-800-225-2470. For information about 401(k)s or
403(b)s please call 1-800-323-6105. To effect transactions in existing IRA,
SEP-IRA, Profit Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life
Insurance Company (in New York State, Intramerica Life Insurance Company (S
1802)). The contract is offered by Scudder Insurance Agency, Inc. (in New
York State, Nevada and Montana, Scudder Insurance Agency of New York,
Inc.). CNL, Inc. is the Principal Underwriter. Scudder Horizon Plan is not
available in all states.
Trustees and Officers
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Dudley H. Ladd*
Trustee
George M. Lovejoy, Jr.
Trustee; Chairman Emeritus, Meredith & Grew, Inc.
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
Juris Padegs*
Trustee
Jean C. Tempel
Trustee; Director and Executive Vice President, Safeguard Scientifics,
Inc.
Bruce F. Beaty*
Vice President
Jerard K. Hartman*
Vice President
Robert T. Hoffman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President
Douglas M. Loudon*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
Investment products and services
The Scudder Family of Funds
Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans
Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from
the tax-free funds may be subject to federal, state and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
++For information on Scudder Treasurers Trust(tm), an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call: 1-800-541-7703.
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Investor Relations
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
Scudder Automated Information Line (SAIL)
1-800-343-2890
Investment Information:
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
Scudder Investor Relations
1-800-225-2470
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services
1-800-323-6105
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Funds Center:
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can be
found in the following cities:
Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.
For information on Scudder Institutional Funds*, funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.
<PAGE>
SCUDDER QUALITY GROWTH FUND
A Pure No-Load(tm) (No Sales Charges) Diversified Mutual Fund Seeking Long-Term
Growth of Capital through Investment Primarily in Equity Securities of Seasoned,
Financially-Strong U.S. Growth Companies.
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1995
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus for Scudder Quality Growth Fund dated
March 1, 1995, as amended from time to time, a copy of which may be obtained
without charge by writing to Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES 1
General Investment Objective and Policies 1
Investment Restrictions 11
PURCHASES 14
Additional Information About Opening an Account 14
Additional Information About Making Subsequent Investments 14
Checks 14
Wire Transfer of Federal Funds 15
Share Price 15
Share Certificates 15
Other Information 15
EXCHANGES AND REDEMPTIONS 15
Exchanges 15
Redemption by Telephone 16
Redemption by Mail or Fax 17
Redemption-In-Kind 17
Other Information 17
FEATURES AND SERVICES OFFERED BY THE FUND 18
The Pure No-Load(tm) Concept 18
Distribution Plans 19
Diversification 20
Scudder Funds Centers 20
Reports to Shareholders 20
Transaction Summaries 20
THE SCUDDER FAMILY OF FUNDS 20
SPECIAL PLAN ACCOUNTS 24
Scudder Retirement Plans: Profit-Sharing and Money Purchase 24
Pension Plans for Corporations and Self-Employed Individuals
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for 24
Corporations and Self-Employed Individuals
Scudder IRA: Individual Retirement Account 24
Scudder 403(b) Plan 25
Automatic Withdrawal Plan 25
Group or Salary Deduction Plan 26
Automatic Investment Plan 26
Uniform Transfers/Gifts to Minors Act 26
Scudder Trust Company 27
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS 27
PERFORMANCE INFORMATION 27
Average Annual Total Return 27
Cumulative Total Return 28
Total Return 28
Capital Change 29
Performance Indices 29
Comparison of Fund Performance 29
FUND ORGANIZATION 32
INVESTMENT ADVISER 33
Personal Investments by Employees of the Adviser 36
TRUSTEES AND OFFICERS 37
REMUNERATION 38
DISTRIBUTOR 39
TAXES 40
PORTFOLIO TRANSACTIONS 44
Brokerage Commissions 44
Portfolio Turnover 45
NET ASSET VALUE 45
ADDITIONAL INFORMATION 46
Experts 46
Shareholder Indemnification 46
Other Information 46
FINANCIAL STATEMENTS 47
APPENDIX
</TABLE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
(See "Investment objective and policies" and "Additional
information about policies and investments" in the Fund's prospectus.)
General Investment Objective and Policies
Scudder Quality Growth Fund (the "Fund"), a diversified series of Scudder
Investment Trust (the "Trust"), seeks to provide long-term growth of capital
through investment primarily in the equity securities of seasoned, financially-
strong U.S. growth companies. Although current income is an incidental
consideration, many of the Fund's securities should provide regular dividends
which are expected to grow over time.
The Fund's equity investments consist of common stocks, preferred stocks
and securities convertible into common stocks of companies which are of above-
average financial quality and offer the prospect for above-average growth in
earnings, cash flow or assets relative to the overall market as defined by the
Standard & Poor's 500 Composite Price Index ("S&P 500"). The prospect for above-
average growth in assets is evaluated in terms of the potential future earnings
such growth in assets can produce.
The Fund allocates its investments among different industries and
companies, and adjusts its portfolio securities based on long-term investment
considerations as opposed to short-term trading. While the Fund emphasizes U.S.
investments, it can commit a portion of assets to the equity securities of
foreign growth companies which meet the criteria applicable to domestic
investments.
Except as otherwise indicated, the Fund's investment objective and policies
are not fundamental and may be changed without a vote of shareholders.
Shareholders will receive written notice of any changes in the Fund's objective.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the Fund's
objective will be met.
Investments. The Fund invests primarily in the equity securities issued by
medium- to large-sized domestic companies that offer above-average appreciation
potential. In seeking such investments, the Fund's investment adviser, Scudder,
Stevens & Clark, Inc. (the "Adviser"), invests in companies with the following
characteristics:
* companies that have exhibited above-average growth rates over an
extended period with prospects for maintaining greater than average
rates of growth in earnings, cash flow or assets in the future;
* companies that are in a strong financial position with high credit
standings and profitability;
* companies with important business franchises, leading products or
dominant marketing and distribution systems;
* companies guided by experienced, motivated management;
* companies with at least five years' operating history and annual
revenues of $200 million or more and market capitalization of at least
$300 million; and
* companies selling at attractive prices relative to potential growth in
earnings, cash flow or assets.
The Adviser utilizes a combination of qualitative and quantitative research
techniques to identify companies that have above-average quality and growth
characteristics and that are deemed to be selling at attractive market
valuations. In-depth fundamental research is used to evaluate various aspects of
corporate performance, with a particular focus on consistency of results, long-
term growth prospects and financial strength. Quantitative valuation models are
designed to help determine which growth companies offer the best values at a
given point in time. From time to time, for temporary defensive or emergency
purposes, the Fund may invest a portion of its assets in cash and cash
equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. The Fund also may invest in foreign securities,
repurchase agreements, and may engage in strategic transactions.
Quality. The Fund invests at least 65% of its total assets in the equity
securities of seasoned, financially-strong U.S. growth companies which are
considered to be of above-average financial quality. The common stocks issued by
these companies qualify, at the time of purchase, for one of the three highest
equity ranking categories (A+, A or A-) of Standard & Poor's ("S&P") or, if not
ranked by S&P, are judged to be of comparable quality by the Adviser. S&P
assigns earnings and dividends rankings to corporations based on a number of
factors, including stability and growth of earnings and dividends. Rankings by
S&P are not an appraisal of a company's creditworthiness, as is true for S&P's
debt security ratings, nor are these rankings intended as a forecast of future
stock market performance. In addition to using S&P rankings of earnings and
dividends of common stocks, the Adviser conducts its own analysis of a company's
history, current financial position and earnings prospects. (See "APPENDIX--
Standard & Poor's Earnings and Dividend Rankings for Common Stocks.")
When assessing financial quality, the Adviser weighs four elements of
business risk. These factors are the Adviser's assessment of the strength of a
company's balance sheet, the accounting practices a company follows, the
volatility of a company's earnings over time and the vulnerability of earnings
to changes in external factors, such as the general economy, the competitive
environment, governmental action and technological change.
Convertible Securities. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stocks. Investments in convertible securities may
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest include fixed-
income or zero coupon debt securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a
lesser extent than with debt securities generally, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because
of the conversion or exchange feature, the market value of convertible
securities typically changes as the market value of the underlying common stocks
changes, and, therefore, also tends to follow movements in the general market
for equity securities. A unique feature of convertible securities is that as
the market price of the underlying common stock declines, convertible securities
tend to trade increasingly on a yield basis, and so may not experience market
value declines to the same extent as the underlying common stock. When the
market price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the
underlying common stock, although typically not as much as the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As debt securities, convertible securities are investments which provide
for a stream of income (or in the case of zero coupon securities, accretion of
income) with generally higher yields than common stocks. Of course, like all
debt securities, there can be no assurance of income or principal payments
because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
nonconvertible securities of similar quality because of their conversion or
exchange features.
Convertible securities are generally subordinated to other similar but non-
convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
nonconvertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes (LYONs). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity,
their entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follows the
movements in the market value of the underlying common stock. Zero coupon
convertible securities are generally expected to be less volatile than the
underlying common stocks as they are usually issued with short to medium length
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Foreign Securities. Investors should recognize that investing in foreign
securities involves certain special considerations, including those set forth
below, which are not typically associated with investing in U.S. securities and
which may favorably or unfavorably affect the Fund's performance. As foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
stock markets, while growing in volume of trading activity, have substantially
less volume than the New York Stock Exchange (the "Exchange"), and securities of
some foreign companies are less liquid and more volatile than securities of
domestic companies. Similarly, volume and liquidity in most foreign bond
markets is less than in the U.S. and at times, volatility of price can be
greater than in the U.S. Further, foreign markets have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in a possible
liability to the purchaser. Payment for securities without delivery may be
required in certain foreign markets. Fixed commissions on some foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgments in foreign courts. There
is generally less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the U.S. It
may be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters which may affect the
prices of portfolio securities. Communications between the U.S. and foreign
countries may be less reliable than within the U.S., thus increasing the risk of
delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. In addition, with respect to certain foreign countries,
there is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect U.S.
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The management of the Fund
seeks to mitigate the risks associated with the foregoing considerations through
diversification and continuous professional management.
Because investments in foreign securities will usually involve currencies
of foreign countries, and because the Fund may hold foreign currencies and
forward foreign currency exchange contracts ("forward contracts"), futures
contracts and options on futures contracts on foreign currencies, the value of
the assets of the Fund as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions between
various currencies. Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts (or options thereon) to purchase or sell foreign
currencies. (See "Strategic Transactions and Derivatives" below.)
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer recognized as a
reporting government securities dealer if the creditworthiness of the bank or
broker/dealer has been determined by the Adviser to be at least as high as that
of other obligations the Fund may purchase or to be at least equal to that of
issuers of commercial paper rated within the two highest grades assigned by S&P
or Moody's Investors Service, Inc. ("Moody's").
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
Fund acquires a security ("Obligation") and the seller agrees, at the time of
sale, to repurchase the Obligation at a specified time and price. Obligations
subject to a repurchase agreement are held in a segregated account and the value
of such obligations kept at least equal to the repurchase price on a daily
basis. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
date of repurchase. In either case, the income to the Fund is unrelated to the
interest rate on the Obligation itself. Obligations will be held by the Fund's
custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, as amended (the "1940
Act"), a repurchase agreement is deemed to be a loan from the Fund to the seller
of the Obligation subject to the repurchase agreement and is therefore subject
to the Fund's investment restriction applicable to loans. It is not clear
whether a court would consider the Obligation purchased by the Fund subject to a
repurchase agreement as being owned by the Fund or as being collateral for a
loan by the Fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with respect to the seller of the Obligation before
repurchase of the Obligation under a repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security. Delays
may cause loss of interest or decline in price of the Obligation. If the court
characterizes the transaction as a loan and the Fund has not perfected a
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Fund would be at the risk of losing some
or all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Fund, the Adviser seeks to minimize
the risk of loss from repurchase agreements by analyzing the creditworthiness of
the obligor, in this case the seller of the Obligation. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the Obligation, in which case the Fund may incur a loss if
the proceeds to the Fund of the sale to a third party are less than the
repurchase price. To protect against such potential loss, if the market value
(including interest) of the Obligation subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the Obligation to deliver additional securities so that the
market value (including interest) of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Fund will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in the Fund's portfolio, or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency.
The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures
and options markets may not be liquid in all circumstances and certain over-the-
counter options may have no markets. As a result, in certain markets, the Fund
might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options
and over-the-counter options ("OTC options"). Exchange listed options are
issued by a regulated intermediary such as the Options Clearing Corporation
("OCC"), which guarantees the performance of the obligations of the parties to
such options. The discussion below uses the OCC as an example, but is also
applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent
that the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of the
U.S. Securities and Exchange Commission (the "SEC"), currently takes the
position that OTC options purchased by the Fund, and portfolio securities
"covering" the amount of the Fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to the Fund's limitation on investing no more than 10%
of its assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must
own the securities or futures contract subject to the call) or must meet the
asset segregation requirements described below as long as the call is
outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio), and
on securities, indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In
selling put options, there is a risk that the Fund may be required to buy the
underlying security at a disadvantageous price above the market price.
General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of
a premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the in-
the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar.
Proxy hedging entails entering into a commitment or option to sell a currency
whose changes in value are generally considered to be correlated to a currency
or currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers
that the Austrian schilling is correlated to the German deutschemark (the "D-
mark"), the Fund holds securities denominated in schillings and the Adviser
believes that the value of schillings will decline against the U.S. dollar, the
Adviser may enter into a commitment or option to sell D-marks and buy dollars.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived correlation between various currencies may not be present or may not
be present during the particular time that the Fund is engaging in proxy
hedging. If the Fund enters into a currency hedging transaction, the Fund will
comply with the asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which
the Fund may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. The Fund expects to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar
is a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Fund might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid, high
grade assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid, high grade securities at
least equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. For example, a call option written by the Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or to segregate liquid,
high grade securities sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require the
Fund to own portfolio securities which correlate with the index or to segregate
liquid, high grade assets equal to the excess of the index value over the
exercise price on a current basis. A put option written by the Fund requires
the Fund to segregate liquid, high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid, high grade assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when
the Fund sells these instruments it will only segregate an amount of assets
equal to its accrued net obligations, as there is no requirement for payment or
delivery of amounts in excess of the net amount. These amounts will equal 100%
of the exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the in-
the-money amount exceeds the exercise price, the Fund will segregate, until the
option expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid, high grade
securities having a value equal to the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to the Fund's net obligation,
if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited by
the requirements of Subchapter M of the Internal Revenue Code for qualification
as a regulated investment company. (See "TAXES.")
Investment Restrictions
Unless specified to the contrary, the following restrictions are
fundamental policies and may not be changed without the approval of "a majority
of the outstanding voting securities" of the Fund which, under the 1940 Act and
the rules thereunder and as used in this Statement of Additional Information,
means the lesser of (1) 67% or more of the shares of the Fund present at a
meeting if the holders of more than 50% of the outstanding shares of the Fund
are present in person or represented by proxy; or (2) more than 50% of the
outstanding shares of the Fund. Nonfundamental policies of the Fund may be
modified by the Fund's Trustees without a vote of shareholders.
Any investment restrictions herein which involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Fund. The Fund
is under no restriction as to the amount of portfolio securities which may be
bought or sold.
As a matter of fundamental policy, the Fund may not:
1. with respect to 75% of its total assets taken at market value purchase
more than 10% of the voting securities of any one issuer; or invest
more than 5% of the value of its total assets in the securities of any
one issuer, except obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and except securities of
other investment companies;
2. borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements provided that the Fund maintains asset coverage of 300% for
all borrowings;
3. purchase or sell real estate (except that the Fund may invest in (i)
securities of companies which deal in real estate or mortgages, and
(ii) securities secured by real estate or interests therein, and that
the Fund reserves freedom of action to hold and to sell real estate
acquired as a result of the Fund's ownership of securities); or
purchase or sell physical commodities or contracts relating to
physical commodities;
4. act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund;
5. make loans to other persons, except (a) loans of portfolio securities,
and (b) to the extent the entry into repurchase agreements and the
purchase of debt securities in accordance with its investment
objective and investment policies may be deemed to be loans;
6. issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur and except for shares of
the separate classes or series of the Trust, provided that collateral
arrangements with respect to currency-related contracts, futures
contracts, options or other permitted investments, including deposits
of initial and variation margin, are not considered to be the issuance
of senior securities for purposes of this restriction; and
7. purchase any securities which would cause more than 25% of the market
value of its total assets at the time of such purchase to be invested
in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation in respect to investments in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
(for the purposes of this restriction, telephone companies are
considered to be in a separate industry from gas and electric public
utilities, and wholly-owned finance companies are considered to be in
the industry of their parents if their activities are primarily
related to financing the activities of their parents).
Other Investment Policies. The Trustees of the Fund voluntarily adopted
policies and restrictions which are observed in the conduct of the Fund's
affairs. These represent intentions of the Trustees based upon current
circumstances. They differ from fundamental investment policies in that they
may be changed or amended by action of the Trustees without prior notice to or
approval of shareholders.
As a matter of nonfundamental policy, the Fund may not:
(a) purchase or retain securities of any open-end investment company, or
securities of closed-end investment companies except by purchase in
the open market where no commission or profit to a sponsor or dealer
results from such purchases, or except when such purchase, though not
made in the open market, is part of a plan of merger, consolidation,
reorganization or acquisition of assets; in any event the Fund may not
purchase more than 3% of the outstanding voting securities of another
investment company, may not invest more than 5% of its assets in
another investment company, and may not invest more than 10% of its
assets in other investment companies;
(b) pledge, mortgage or hypothecate its assets in excess, together with
permitted borrowings, of 1/3 of its total assets;
(c) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer, director or
trustee of the Fund or a member, officer, director or trustee of the
investment adviser of the Fund if one or more of such individuals owns
beneficially more than one-half of one percent (1/2%) of the
outstanding shares or securities or both (taken at market value) of
such issuer and such individuals owning more than one-half of one
percent (1/2%) of such shares or securities together own beneficially
more than 5% of such shares or securities or both;
(d) purchase securities on margin or make short sales unless, by virtue of
its ownership of other securities, it has the right to obtain
securities equivalent in kind and amount to the securities sold and,
if the right is conditional, the sale is made upon the same
conditions, except in connection with arbitrage transactions and
except that the Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities;
(e) invest more than 10% of its net assets in securities which are not
readily marketable, the disposition of which is restricted under
Federal securities laws, or in repurchase agreements not terminable
within seven days, and the Fund will not invest more than 5% of its
total assets in restricted securities;
(f) purchase securities of any issuer with a record of less than three
years continuous operations, including predecessors, except U.S.
Government securities, securities of such issuers which are rated by
at least one nationally recognized statistical rating organization,
municipal obligations and obligations issued or guaranteed by any
foreign government or its agencies or instrumentalities, if such
purchase would cause the investments of the Fund in all such issuers
to exceed 5% of the total assets of the Fund taken at market value;
(g) purchase more than 10% of the voting securities of any one issuer,
except securities issued by the U.S. Government, its agencies or
instrumentalities;
(h) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund at any
time do not exceed 20% of its net assets; or sell put options on
securities if, as a result, the aggregate value of the obligations
underlying such put options would exceed 50% of the Fund's net assets;
(i) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to all futures contracts entered into on behalf of
the Fund and the premiums paid for options on futures contracts does
not exceed 5% of the fair market value of the Fund's total assets;
provided, however, that in the case of an option that is in-the-money
at the time of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(j) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which own or
invest in such interests);
(k) borrow money, including reverse repurchase agreements, in excess of 5%
of its total assets (taken at market value) except for temporary or
emergency purposes, or borrow other than from banks;
(l) purchase warrants if as a result warrants taken at the lower of cost
or market value would represent more than 5% of the value of the
Fund's total net assets or more than 2% of its net assets in warrants
that are not listed on the New York or American Stock Exchanges or on
an exchange with comparable listing requirements (for this purpose,
warrants attached to securities will be deemed to have no value);
(m) make securities loans if the value of such securities loaned exceeds
30% of the value of the Fund's total assets at the time any loan is
made; all loans of portfolio securities will be fully collateralized
and marked to market daily. The Fund has no current intention of
making loans of portfolio securities that would amount to greater than
5% of the Fund's total assets; and
(n) purchase or sell real estate limited partnership interests.
PURCHASES
(See "Purchases" and "Transaction information" in the Fund's prospectus.)
Additional Information About Opening an Account
Clients having a regular investment counsel account with the Adviser or its
affiliates and members of their immediate families, officers and employees of
the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $1,000 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, TWX, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($1,000 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the tax identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number 9903-5552. The investor must
give the Scudder fund name, account name and new account number. Finally, the
investor must send the completed and signed application to the Fund promptly.
The minimum initial purchase amount is less than $1,000 under certain
special plan accounts.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more, and for an amount not
greater than four times the value of the shareholder's account, may be placed by
telephone, fax, etc. by members of the NASD, by banks and by established
shareholders [except by Scudder Individual Retirement Account (IRA), Scudder
Profit Sharing and Money Purchase Pension Plans, Scudder 401(k) and Scudder
403(b) plan holders]. Orders placed in this manner may be directed to any
office of the Distributor listed in the Fund's prospectus. A two-part invoice
of the purchase will be mailed out promptly following receipt of a request to
buy. Payment should be attached to a copy of the invoice for proper
identification. Federal regulations require that payment be received within
seven business days. If payment is not received within that time, the shares
may be canceled. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
the Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Trust shall have the authority, as agent of the
shareholder, to redeem shares in the account in order to reimburse the Fund or
the principal underwriter for the loss incurred. Net losses on such
transactions which are not recovered from the purchaser will be absorbed by the
principal underwriter. Any net profit on the liquidation of unpaid shares will
accrue to the Fund.
Checks
A certified check is not necessary, but checks are only accepted subject to
collection at full face value in U.S. funds and must be drawn on, or payable
through, a U.S. bank.
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Fund or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled
may be prohibited from or restricted in placing future orders in any of the
Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular trading
on a selected day, your bank must forward federal funds by wire transfer and
provide the required account information so as to be available to the Fund prior
to the close of regular trading on the Exchange.
The bank sending an investor's federal funds by bank wire may charge for
the service. Presently the Distributor pays a fee for receipt by State Street
Bank and Trust Company (the "Custodian") of "wired funds," but the right to
charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may be
open. These holidays include Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the Custodian is not open to receive such federal funds on
behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value next
computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on the Exchange on
each day during which the Exchange is open for trading. Orders received after
the close of regular trading on the Exchange will receive the next day's net
asset value. If the order has been placed by a member of the NASD, other than
the Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to the Fund's transfer agent in Boston by
the close of regular trading on the Exchange.
Share Certificates
Due to the desire of Trust management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund.
Other Information
If purchases or redemptions of Fund shares are arranged and settlement is
made at the investor's election through a member of the NASD other than the
Distributor, that member may, at its discretion, charge a fee for that service.
The Board of Trustees and the Distributor, the Trust's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor each may suspend or terminate
the offering of shares of the Fund at any time.
The Trust may issue shares of the Fund at net asset value in connection
with any merger or consolidation with, or acquisition of the assets of, any
investment company (or series thereof) or personal holding company, subject to
the requirements of the 1940 Act.
EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and "Transaction information" in the Fund's
prospectus.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either an additional investment into an existing or may involve opening a new
account in another fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option SAIL ("Scudder Automated
Information Line"), and dividend option as the existing account. Other features
will not carry over automatically to the new account. Exchanges into a new fund
account must be for a minimum of $1,000. When an exchange represents an
additional investment into an existing account, the account receiving the
exchange proceeds must have identical registration, tax identification number,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is different in any respect, the exchange request must be in
writing and must contain a signature guarantee as described under "Transaction
information--Redeeming shares--Signature guarantees" in the Fund's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at respective net asset
values determined on that day. Exchange orders received after the close will be
executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund through Scudder's Automatic Exchange
Program. Exchanges must be for a minimum of $50. Shareholders may add this
free feature over the phone or in writing. Automatic Exchanges will continue
until the shareholder requests by phone or in writing to have the feature
removed, or until the originating account is depleted. The Trust and the
Transfer Agent each reserves the right to suspend or terminate the privilege of
the Automatic Exchange Program at any time.
No commission is charged to the shareholder for any exchange described
above. An exchange into another Scudder fund is a redemption of shares, and
therefore may result in tax consequences (gain or loss) to the shareholder and
the proceeds of such an exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange by
telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain a prospectus of the Scudder fund into which the
exchange is being contemplated from the Distributor. Scudder retirement plans
may have different exchange requirements. Please refer to appropriate plan
literature.
Redemption by Telephone
Shareholders currently receive the right automatically, without having to
elect it, to redeem up to $50,000 to their address of record. Shareholders may
also request to have the proceeds mailed or wired to their pre-designated bank
account. In order to request redemptions by telephone, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which the redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a pre-
designated bank account must complete the appropriate section on the
application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA, Scudder
Pension and Profit Sharing, Scudder 401(k) and Scudder 403(b) Plan
holders) who wish to establish telephone redemption to a pre-
designated bank account or who want to change the bank account
previously designated to receive redemption payments should either
return a Telephone Redemption Option Form (available upon request) or
send a letter identifying the account and specifying the exact
information to be changed. The letter must be signed exactly as the
shareholder's name(s) appear on the account. An original signature
and an original signature guarantee are required for each person in
whose name the account is registered.
Telephone redemption is not available with respect to shares held in
retirement accounts.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be made by Federal Reserve Bank wire to the bank
account designated on the application unless a request is made that the
redemption check be mailed to the designated bank account. There will be a
$5.00 charge for all wire redemptions.
Note: Investors designating that a savings bank receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds must be
wired through a commercial bank which is a correspondent of the
savings bank. As this may delay receipt by the shareholder's account,
it is suggested that investors wishing to use a savings bank discuss
wire procedures with their banks and submit any special wire transfer
information with the telephone redemption authorization. If
appropriate wire information is not supplied, redemption proceeds will
be mailed to the designated bank.
The Trust employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that the Trust
does not follow such procedures, it may be liable for losses due to unauthorized
or fraudulent telephone instructions. The Trust will not be liable for acting
upon instructions communicated by telephone that it reasonably believes to be
genuine.
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
It is suggested that shareholders holding shares registered in other than
individual names contact the Transfer Agent prior to any redemptions to ensure
that all necessary documents accompany the request. When shares are held in the
name of a corporation, trust, fiduciary agent, attorney or partnership, the
Transfer Agent requires, in addition to the stock power, certified evidence of
authority to sign. These procedures are for the protection of shareholders and
should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption
will be sent within five business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays in
payment of more than seven days of payment for shares tendered for repurchase or
redemption may result but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those of regular
accounts. For more information call 1-800-225-5163.
Redemption-In-Kind
The Trust reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption in kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities into cash. The Trust, on
behalf of the Fund, has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Fund is obligated to redeem shares, with
respect to any one shareholder during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning
of the period.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to the
Fund through the Distributor at Two International Place, Boston, Massachusetts
02110-4103 by letter, fax, TWX, or telephone. A two-part confirmation will be
mailed out promptly after receipt of the redemption request. A written request
in good order as described above and any certificates with a proper signature
guarantee(s), as described in the Fund's prospectus under "Transaction
information--Redeeming shares--Signature guarantees", should be sent with a copy
of the invoice to Scudder Service Corporation, Confirmed Processing Department,
Two International Place, Boston, Massachusetts 02110-4103. Failure to deliver
shares or required documents (see above) by the settlement date may result in
cancellation of the trade and the shareholder will be responsible for any loss
incurred by the Fund or the principal underwriter by reason of such
cancellation. The Trust will have the authority, as agent of the shareholder,
to redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Net losses on such transactions which are
not recovered from the shareholder will be absorbed by the principal
underwriter. Any net gains so resulting will accrue to the Fund. For this
group, repurchases will be carried out at the net asset value next computed
after such repurchase requests have been received. The arrangements described
in this paragraph for repurchasing shares are discretionary and may be
discontinued at any time.
If a shareholder redeems all shares in the account after the record date of
a dividend, the shareholder will receive, in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. The
Fund does not impose a redemption or repurchase charge although a wire charge
may be applicable for redemption proceeds wired to an investor's bank account.
Redemption of shares, including an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (See "Taxes.")
Shareholders who wish to redeem shares from Special Plan Accounts should
contact the employer, trustee or custodian of the Plan for the requirements.
The Trust's Declaration of Trust provides that the determination of net
asset value may be suspended at times and a shareholder's right to redeem shares
and to receive payment may be suspended at times during which (a) the Exchange
is closed, other than customary weekend and holiday closings, (b) trading on the
Exchange is restricted, (c) an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) the SEC may by order permit a suspension of the right of
redemption or a postponement of the date of payment of redemption provided that
applicable rules and regulations of the SEC (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
If transactions at any time reduce a shareholder's account balance in the
Fund to below $1,000 in value, the Trust may notify the shareholder that, unless
the account balance is brought up to at least $1,000, the Trust will redeem all
shares and close the account by making payment to the shareholder. The
shareholder has sixty days to bring the account balance up to $1,000 before any
action will be taken by the Trust. (This policy applies to accounts of new
shareholders, but does not apply to certain Special Plan Accounts.) The
Trustees have the authority to change the minimum account size.
FEATURES AND SERVICES OFFERED BY THE FUND
(See "Shareholder benefits" in the Fund's prospectus.)
The Pure No-Load(tm) Concept
Investors are encouraged to be aware of the full ramifications of mutual
fund fee structures, and of how Scudder distinguishes its funds from the vast
majority of mutual funds available today. The primary distinction is between
load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for the
sale and distribution of fund shares. There are three types of loads: front-
end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of the
amount invested. A back-end load is a contingent deferred sales charge, which
can be as high as 8.50% of either the amount invested or redeemed. The maximum
front-end or back-end load varies, and depends upon whether or not a fund also
charges a 12b-1 fee and/or a service fee or offers investors various sales-
related services such as dividend reinvestment. The maximum charge for a 12b-1
fee is 0.75% of a fund's average annual net assets, and the maximum charge for a
service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can charge
a small 12b-1 fee and/or service fee against fund assets. Under the National
Association of Securities Dealers Rules of Fair Practice, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Because Scudder funds do not pay any asset-based sales charges or service
fees, Scudder developed and trademarked the phrase pure no-load(tm) to
distinguish Scudder funds from other no-load mutual funds. Scudder pioneered
the no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.
The following chart shows the potential long-term advantage of investing
$10,000 in a Scudder pure no-load fund over investing the same amount in a load
fund that collects an 8.50% front-end load, a load fund that collects only a
0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25% 12b-1
and/or service fee. The hypothetical figures in the chart show the value of an
account assuming a constant 10% rate of return over the time periods indicated
and reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
Scudder Load Fund No-Load Fund
Pure No- 8.50% Load with 0.75% with 0.25%
YEARS Load(tm) Fund Fund 12b-1 Fee 12b-1 Fee
----- ------------- ---- --------- ---------
<C> <C> <C> <C> <C>
10 $25,937 $23,733 $24,222 $25,354
15 41,772 38,222 37,698 40,371
20 67,275 61,557 58,672 64,282
</TABLE>
Investors are encouraged to review the fee tables on page 2 of the Fund's
prospectus for more specific information about the rates at which management
fees and other expenses are assessed.
Distribution Plans
Investors have freedom to choose whether to receive cash or to reinvest any
dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be received by the Transfer Agent in writing at least five days
prior to a dividend record date. Shareholders may change their dividend option
either by calling 1-800-225-5163 or by sending written instructions to the
Transfer Agent. Please include your account number with your request. See "How
to contact Scudder" in the Prospectus for the address. Shareholders who have
authorized telephone transactions may change their dividend option by calling 1-
800-225-5163.
Reinvestment is usually made at the closing net asset value determined on
the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Fund.
Investors may also have dividends and distributions automatically deposited
to their predesignated bank account through Scudder's DistributionsDirect
Program. Shareholders who elect to participate in the DistributionsDirect
Program, and whose predesignated checking account of record is with a member
bank of the Automated Clearing House Network (ACH) can have income and capital
gain distributions automatically deposited to their personal bank account
usually within three business days after the Fund pays its distribution. A
DistributionsDirect request form can be obtained by calling 1-800-225-5163.
Confirmation statements will be mailed to shareholders as notification that
distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Investment
Withdrawal Plan must reinvest any dividends or capital gains. For most
retirement plan accounts, the reinvestment of dividends and capital gains is
also required.
Diversification
An investment in the Fund represents an interest in a large, diversified
portfolio of carefully selected securities. Diversification may protect the
shareholder against the possible risks associated with concentrating in fewer
securities or in a specific market sector.
Scudder Funds Centers
Investors may visit any of the Fund Centers maintained by the Distributor
and listed in the Fund's prospectus. The Centers are designed to provide
individuals with services during any business day. Investors may pick up
literature or obtain assistance with opening an account, adding monies or
special options to existing accounts, making exchanges within the Scudder Family
of Funds, redeeming shares or opening retirement plans. Checks should not be
mailed to the Centers but to "The Scudder Funds" at the address listed under
"How to contact Scudder" in the Prospectus.
Reports to Shareholders
The Fund issues shareholders financial statements examined by independent
accountants on a semiannual basis and audited annually. These include a list of
investments held and statements of assets and liabilities, operations, changes
in net assets and supplementary information for the Fund. The Fund presently
intends to distribute to shareholders informal quarterly reports during the
intervening quarters, containing a summary of the Fund's performance and
portfolio holdings.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available to
shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the Fund's prospectus.)
The Scudder Family of Funds is America's first family of mutual funds and
the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
Initial purchases in each Scudder fund must be at least $1,000 or $500 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum
investments for special plan accounts may be lower.
MONEY MARKET
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability of
capital, and consistent therewith, to maintain the liquidity of capital and
to provide current income through investment in a supervised portfolio of
short-term debt securities. SCIT intends to seek to maintain a constant
net asset value of $1.00 per share, although in certain circumstances this
may not be possible.
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and U.S.
Government guaranteed obligations with maturities of not more than 762
calendar days. The Fund intends to seek to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may not be
possible.
INCOME
Scudder Emerging Markets Income Fund seeks to provide high current income
and, secondarily, long-term capital appreciation through investments
primarily in high-yielding debt securities issued in emerging markets.
Scudder GNMA Fund seeks to provide investors with high current income from
a portfolio of high-quality GNMA securities.
Scudder Income Fund seeks to earn a high level of income consistent with
the prudent investment of capital through a flexible investment program
emphasizing high-grade bonds.
Scudder International Bond Fund seeks to provide income from a portfolio of
high-grade bonds denominated in foreign currencies. As a secondary
objective, the Fund seeks protection and possible enhancement of principal
value by actively managing currency, bond market and maturity exposure and
by security selection.
Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments, and
more price stability than investments in intermediate-and long-term bonds.
Scudder Short Term Global Income Fund seeks to provide high current income
from a portfolio of high-grade money market instruments and short-term
bonds denominated in foreign currencies and the U.S. dollar.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment return
over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon securities.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") is designed to provide investors with
income exempt from regular federal income tax while seeking stability of
principal. STFMF seeks to maintain a constant net asset value of $1.00 per
share, although in certain circumstances this may not be possible.
Scudder California Tax Free Money Fund* is designed to provide California
taxpayers income exempt from California state and regular federal income
taxes, and seeks stability of capital and the maintenance of a constant net
asset value of $1.00 per share, although in certain circumstances this may
not be possible.
Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the maintenance of
a constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible.
TAX FREE
Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in investment-grade
municipal securities.
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a high
degree of principal stability.
Scudder Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in long-term
municipal securities with an emphasis on high quality.
Scudder Medium Term Tax Free Fund seeks to provide a high level of income
free from regular federal income taxes and to limit principal fluctuation
by investing in high-grade municipal securities of intermediate maturities.
Scudder California Tax Free Fund* seeks to provide income exempt from both
California and regular federal income taxes through the professional and
efficient management of a portfolio consisting of California state,
municipal and local government obligations.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as high
a level of income exempt from Massachusetts personal and regular federal
income tax as is consistent with a high degree of principal stability.
Scudder Massachusetts Tax Free Fund* seeks to provide income exempt from
both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.
Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government obligations.
Scudder Ohio Tax Free Fund* seeks to provide income exempt from both Ohio
and regular federal income taxes through the professional and efficient
management of a portfolio consisting of Ohio state, municipal and local
government obligations.
Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.
GROWTH AND INCOME
Scudder Balanced Fund seeks to provide a balance of growth and income, as
well as long-term preservation of capital, from a diversified portfolio of
equity and fixed income securities.
Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio invested
primarily in common stocks and convertible securities by companies which
offer the prospect of growth of earnings while paying current dividends.
GROWTH
Scudder Capital Growth Fund seeks to maximize long-term growth of capital
through a broad and flexible investment program emphasizing common stocks.
Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally common
stocks, of relatively small or little-known companies which in the opinion
of management have promise of expanding their size and profitability or of
gaining increased market recognition for their securities, or both.
Scudder Global Fund seeks long-term growth of capital primarily through a
diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S. and foreign
issuers. Income is an incidental consideration.
Scudder Global Small Company Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of small
companies located throughout the world.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity securities
and gold.
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S. companies
and economies with prospects for growth. It also invests in fixed-income
securities of foreign governments and companies, with a view toward total
investment return.
Scudder Latin America Fund seeks to provide long-term capital appreciation
through investment primarily in the securities of Latin American issuers.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Quality Growth Fund seeks to provide long-term growth of capital
through investment primarily in the equity securities of seasoned,
financially strong U.S. growth companies.
Scudder Value Fund seeks long-term growth of capital through investment in
undervalued equity securities.
The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
Scudder Service Representative; easy telephone exchanges into Scudder money
market, tax free, income, and growth funds; shares redeemable at net asset value
at any time.
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans," "Purchases--By Automatic
Investment Plan" and "Exchanges and redemptions--By Automatic Withdrawal Plan"
in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. It is
advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit sharing
and pension plans and IRA's other than those offered by the Fund's distributor
depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a plan
in the form of a Scudder Profit-Sharing Plan (including a version of the Plan
which includes a cash-or-deferred feature) or a Scudder Money Purchase Pension
Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a plan
in the form of a Scudder 401(k) Plan adopted by a corporation, a self-employed
individual or a group of self-employed individuals (including sole proprietors
and partnerships), or other qualifying organization. This plan has been
approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an employer-
maintained retirement plan, a simplified employee pension plan, or a tax-
deferred annuity program (a "qualified plan"), and a married individual who is
not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active
participants in qualified plans (or who have spouses who are active
participants) are also eligible to make tax-deductible contributions to an IRA;
the annual amount, if any, of the contribution which such an individual will be
eligible to deduct will be determined by the amount of his, her, or their
adjusted gross income for the year. Whenever the adjusted gross income
limitation prohibits an individual from contributing what would otherwise be the
maximum tax-deductible contribution he or she could make, the individual will be
eligible to contribute the difference to an IRA in the form of nondeductible
contributions.
An eligible individual may contribute as much as $2,000 of qualified income
(earned income or, under certain circumstances, alimony) to an IRA each year (up
to $2,250 for married couples if one spouse has earned income of no more than
$250). All income and capital gains derived from IRA investments are reinvested
and compound tax-deferred until distributed. Such tax-deferred compounding can
lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully tax-
deductible IRA by age 65 (before any distributions) if they contribute $2,000 at
the beginning of each year, assuming average annual returns of 5, 10, and 15%.
(At withdrawal, accumulations in this table will be taxable.)
<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
Starting
Age of Annual Rate
of Return
Contributions 5% 10% 15%
------------- ------ ------ ------
<S> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
<TABLE>
<CAPTION>
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
Starting
Age of Annual Rate
of Return
Contributions 5% 10% 15%
------------- ------ ------ ------
<S> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment for
tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders who currently own or purchase $10,000 or
more of shares of the Fund may establish an Automatic Withdrawal Plan. The
investor can then receive monthly, quarterly or periodic redemptions from his or
her account for any designated amount of $50 or more. Payments are mailed at
the end of each month. The check amounts may be based on the redemption of a
fixed dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains
distributions, if any, to be reinvested in additional shares. Shares are then
liquidated as necessary to provide for withdrawal payments. Since the
withdrawals are in amounts selected by the investor and have no relationship to
yield or income, payments received cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the initial investment. Requests for increases in withdrawal amounts or to
change payee must be submitted in writing, signed exactly as the account is
registered and contain signature guarantee(s) as described under "Transaction
information--Redeeming shares--Signature guarantees" in the Fund's prospectus.
Any such requests must be received by the Fund's transfer agent by the 15th of
the month in which such change is to take effect. An Automatic Withdrawal Plan
may be terminated at any time by the shareholder, the Trust or its agent on
written notice, and will be terminated when all shares of the Fund under the
Plan have been liquidated or upon receipt by the Trust of notice of death of the
shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling 1-800-
225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where satisfactory
arrangements have been made with Scudder Investor Services, Inc. for forwarding
regular investments through a single source. The minimum annual investment is
$240 per investor which may be made in monthly, quarterly, semiannual or annual
payments. The minimum monthly deposit per investor is $20. Except for trustees
or custodian fees for certain retirement plans, at present there is no separate
charge for maintaining group or salary deduction plans; however, the Trust and
its agents reserve the right to establish a maintenance charge in the future
depending on the services required by the investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called dollar
cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment
is $500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
Scudder Trust Company
Annual service fees are paid by the Fund to Scudder Trust Company, an
affiliate of the Adviser, for certain retirement plan accounts and are included
in the fees paid to the Transfer Agent.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance information--Dividends and
capital gains distributions" in the Fund's prospectus.)
The Fund intends to follow the practice of distributing substantially all
of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, if it appears to be in the best interest of the Fund and its
shareholders, the Fund may retain all or part of such gain for reinvestment,
after paying the related federal taxes for which shareholders may then be able
to claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income
required to be distributed by an excise tax provision of the Internal Revenue
Code, the Fund may be subject to that excise tax. In certain circumstances, the
Fund may determine that it is in the interest of shareholders to distribute less
than the required amount. (See "TAXES.")
The Fund intends to distribute investment company taxable income in
December each year. The Fund intends to declare in December any net realized
capital gains resulting from its investment activity. The Fund intends to
distribute the December dividends and capital gains either in December or in the
following January. Any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared.
Additional distributions may be made if necessary. Both types of
distributions will be made in shares of the Fund and confirmations will be
mailed to each shareholder unless a shareholder has elected to receive cash, in
which case a check will be sent.
PERFORMANCE INFORMATION
(See "Distribution and performance information--Performance information" in the
Fund's prospectus.)
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures are calculated in the following manners:
Average Annual Total Return
Average annual total return is the average annual compound rate of return
for periods of one year, five years, and ten years (or such shorter periods as
may be applicable dating from the commencement of the Fund's operations), all
ended on the last day of a recent calendar quarter. Average annual total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in Fund shares. Average annual total return is calculated by
computing the average annual compound rates of return of a hypothetical
investment over such periods according to the following formula (average annual
total return is then expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.
Average Annual Total Return for the periods ended October 31, 1994
Life of the
One Year Fund (1)
-------- ---------
0.39% 9.76%
(1) For the period from May 15, 1991, commencement of operations.
If the Adviser had not maintained the Fund's expenses, the average annual
total return for one year and the life of the Fund would have been approximately
0.39% and 9.67%, respectively.
As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for the Fund will vary based on changes in market conditions and
the level of the Fund's expenses.
In connection with communicating its average annual total return to current
or prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of a Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment over such periods, according to the
following formula (cumulative total return is then expressed as a percentage):
C = (ERV/P)-1
Where:
C = Cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.
Cumulative Total Return for the periods ended October 31, 1994
Life of the
One Year Fund (1)
-------- ---------
0.39% 38.04%
(1) For the period from May 15, 1991, commencement of operations.
If the Adviser had not maintained the Fund's expenses, the cumulative total
return for one year and the life of the Fund would have been approximately 0.39%
and 37.61%, respectively.
Total Return
Total return is the rate of return on an investment for a specified period
of time calculated in the same manner as cumulative total return.
Capital Change
Capital change measures the return from invested capital including
reinvested capital gains distributions. Capital change does not include the
reinvestment of income dividends.
Quotations of the Fund's performance are based on historical earnings and
show the performance of a hypothetical investment and are not intended to
indicate future performance of the Fund. An investor's shares when redeemed may
be worth more or less than their original cost. Performance of the Fund will
vary based on changes in market conditions and the level of the Fund's expenses.
Because some of the Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar against these currencies
may account for part of the Fund's investment performance. Information on the
value of the dollar versus foreign currencies may be used from time to time in
advertisements concerning the Fund. Such historical information is not
indicative of future performance.
Performance Indices
The Fund's performance will, from time to time, be compared to the
percentage changes of unmanaged performance indices. Such indices will include
the Dow Jones Industrial Average ("DJIA"), S&P 500 and the Consumer Price Index
("CPI"). The DJIA and S&P 500 are unmanaged indices widely regarded as
representative of the equity market in general. The CPI is a commonly used
measure of inflation.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner.
Since there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.
Examples include, but are not limited to the Dow Jones Industrial Average, the
Consumer Price Index, the S&P 500, the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management
in various geographical areas may be quoted in advertising and marketing
materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may
also compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment and
money market funds seek stability of principal, these investments are considered
to be less risky than investments in either bond or equity funds, which may
involve the loss of principal. However, all long-term investments, including
investments in bank products, may be subject to inflation risk, which is the
risk of erosion of the value of an investment as prices increase over a long
time period. The risks/returns associated with an investment in bond or equity
funds depend upon many factors. For bond funds these factors include, but are
not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond
funds and equity funds. Shorter-term bond funds generally are considered less
risky and offer the potential for less return than longer-term bond funds. The
same is true of domestic bond funds relative to international bond funds, and
bond funds that purchase higher quality securities relative to bond funds that
purchase lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more
risky than domestic equity funds but generally offer the potential for greater
return.
Risk/return spectrums also may depict funds that invest in both domestic
and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical information
made by independent sources may also be used in advertisements concerning the
Fund, including reprints of, or selections from, editorials or articles about
this Fund. Sources for Fund performance information and articles about the Fund
may include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Daily, a daily newspaper that features financial, economic, and
business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
FUND ORGANIZATION
(See "Fund organization" in the Fund's prospectus.)
The Fund is a series of Scudder Investment Trust, a Massachusetts business
trust established under a Declaration of Trust dated September 20, 1984, as
amended. The name of the Trust was changed, effective May 15, 1991, from
Scudder Growth and Income Fund.
The Trust's authorized capital consists of an unlimited number of shares of
beneficial interest, par value $0.01 per share. The Trust's shares are
currently divided into two series, Scudder Quality Growth Fund and Scudder
Growth and Income Fund. The Trustees of the Trust have the authority to issue
additional series of shares. Each share of each Fund has equal rights with each
other share of that Fund as to voting, dividends and liquidation. All shares
issued and outstanding will be fully paid and nonassessable by the Trust, and
redeemable as described in this Statement of Additional Information and in each
Fund's prospectus.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of
the Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting that individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved. Additionally, approval of the
investment advisory agreement is a matter to be determined separately by each
series.
The Trustees, in their discretion, may authorize the division of shares of
the Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of any subsequently created classes may bear different
expenses in connection with different methods of distribution of their classes.
The Trustees have no present intention of taking the action necessary to effect
the division of shares into separate classes (which under present regulations
would require the Fund first to obtain an exemptive order of the SEC), nor of
changing the method of distribution of shares of the Fund.
The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
INVESTMENT ADVISER
(See "Fund organization--Investment adviser" in the Fund's prospectus.)
Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to the Fund. This organization is one of the most
experienced investment management firms in the U.S. It was established in 1919
and pioneered the practice of providing investment counsel to individual clients
on a fee basis. In 1928 it introduced the first no-load mutual fund to the
public. In 1953 Scudder introduced Scudder International Fund, Inc., the first
mutual fund available in the U.S. investing internationally in securities of
issuers in several foreign countries. The firm reorganized from a partnership
to a corporation on June 28, 1985.
The principal source of the Adviser's income is professional fees received
from providing continuous investment advice, and the firm derives no income from
brokerage or underwriting of securities. Today, it provides investment counsel
for many individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. In addition,
it manages Montgomery Street Income Securities, Inc., Scudder California Tax
Free Trust, Scudder Cash Investment Trust, Scudder Development Fund, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund,
Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder State Tax Free Trust, Scudder Tax Free
Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder
Variable Life Investment Fund, Scudder World Income Opportunities Fund, Inc.,
The Argentina Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund, Inc.,
The Korea Fund, Inc., The Japan Fund, Inc. and The Latin America Dollar Income
Fund, Inc. Some of the foregoing companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual funds
which comprise the AARP Investment Program from Scudder. The AARP Investment
Program from Scudder has assets of over $11 billion and includes the AARP Growth
Trust, AARP Income Trust, AARP Tax Free Income Trust and AARP Cash Investment
Funds.
Institutional assets managed by the Adviser using a quality growth
investment approach exceeded $2 billion as of September 31, 1994.
International Investment Experience. The Adviser has been a leader in
international investment management for over forty years. In addition to
Scudder International Fund, Inc., which was incorporated in Canada in 1953 as
the first foreign investment company registered with the SEC, the Adviser's
investment company clients include Scudder Global Income Fund, and Scudder Short
Term Global Income Fund, which invest worldwide, Scudder Greater Europe Growth
Fund, which invests primarily in the equity securities of European companies,
Scudder International Bond Fund, which invests internationally, Scudder Latin
America Fund, which invests in Latin American issuers, and The Japan Fund, Inc.,
which invests primarily in securities of Japanese companies. The Adviser also
manages the assets of eight New York Stock Exchange traded closed-end investment
companies investing in foreign securities: The Argentina Fund, Inc., The Brazil
Fund, Inc., The First Iberian Fund, Inc., The Korea Fund, Inc., The Latin
America Dollar Income Fund, Inc., Scudder New Asia Fund, Inc., Scudder New
Europe Fund, Inc., and Scudder World Income Opportunities Fund, Inc. Assets of
the Adviser's international investment company clients totaled more than
$20 billion as of December 31, 1994.
The Adviser utilizes its international investment experience when
evaluating foreign accounting practices such as those which may be used by the
issuers of the foreign securities in which the Fund may invest.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. In this work, the Adviser
utilizes certain reports and statistics from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and other clients of the Adviser, but conclusions are based primarily on
investigations and critical analyses by its own research specialists.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
date. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.
The Investment Management Agreement (the "Agreement") between the Trust, on
behalf of Scudder Quality Growth Fund, and the Adviser was last approved by the
Trustees on August 9, 1994 and by a majority of the Fund's shareholders on May
12, 1992. The Agreement is dated May 9, 1991 and will continue in effect until
September 30, 1995 and from year to year thereafter only if its continuance is
approved annually by the vote of a majority of those Trustees who are not
parties to such Agreement or interested persons of the Adviser or the Trust,
cast in person at a meeting called for the purpose of voting on such approval,
and by a majority vote either of the Trustees or of the outstanding voting
securities of the Fund. The Agreement may be terminated at any time without
payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.
Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objectives, policies and restrictions and determines which securities
shall be purchased for the portfolio of the Fund, which portfolio securities
shall be held or sold by the Fund, and what portion of the Fund's assets will be
held uninvested, subject always to the provisions of the Trust's Declaration of
Trust and By-Laws, the 1940 Act and the Internal Revenue Code of 1986 and to the
Fund's investment objectives, policies and restrictions, and subject, further,
to such policies and instructions as the Trustees may from time to time
establish. The Adviser also advises and assists the officers of the Fund in
taking such steps as are necessary or appropriate to carry out the decisions of
its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of the Fund.
The Adviser also renders significant administrative services (not otherwise
provided by third parties) necessary for the Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns; preparing and filing the Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value; monitoring the
registration of shares of the Fund under applicable federal and state securities
laws; maintaining the Fund's books and records to the extent not otherwise
maintained by a third party; assisting in establishing accounting policies of
the Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring the Fund's operating budget; processing the payment
of the Fund's bills; assisting the Fund in, and otherwise arranging for, the
payment of distributions and dividends and otherwise assisting the Fund in the
conduct of its business, subject to the direction and control of the Trustees.
The Adviser pays the compensation and expenses (except those for attending
Board and Committee meetings outside New York, New York and Boston,
Massachusetts) of all Trustees, officers and executive employees of the Trust
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such Trustees, officers and employees of the Adviser as may duly
be elected officers or Trustees of the Trust, subject to their individual
consent to serve and to any limitations imposed by law, and provides the Fund's
office space and facilities. For these services, the Fund is charged by the
Adviser a fee equal to approximately 0.70 of 1% of the Fund's average daily net
assets. The fee is payable monthly, provided the Fund will make such interim
payments as may be requested by Scudder not to exceed 75% of the amount of the
fee then accrued on the books of the Fund and unpaid. The Agreement provides
that if the Fund's expenses, exclusive of taxes, interest, and extraordinary
expenses, exceed specified limits, such excess, up to the amount of the
management fee, will be paid by the Adviser. The Adviser retains the ability to
be repaid by the Fund if expenses fall below the specified limit prior to the
end of the fiscal year. These expense limitation arrangements can decrease the
Fund's expenses and improve its performance. The Adviser has agreed, until
February 29, 1996, to maintain the total annualized expenses of the Fund at no
more than 1.25% of average daily net assets of the Fund. During the fiscal
years ended October 31, 1992, 1993 and 1994, these agreements resulted in a
reduction of management fees paid by the Fund of $99,978, $0 and $3,897,
respectively. During the fiscal years ended October 31, 1992, 1993 and 1994,
the Adviser imposed a portion of its management fee amounting to $358,519,
$883,299 and $802,235, respectively.
Under the Agreement, the Fund is responsible for all of its other expenses
including organizational costs; fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; payment
for portfolio pricing services to a pricing agent, if any; legal, auditing and
accounting expenses; the calculation of Net Asset Value, taxes and governmental
fees; the fees and expenses of the transfer agent; the cost of preparing stock
certificates and any other expenses including clerical expenses of issuance,
redemption or repurchase of shares; the expenses of and the fees for registering
or qualifying securities for sale; the fees and expenses of Trustees, officers
and employees of the Trust who are not affiliated with the Adviser; the cost of
printing and distributing reports and notices to shareholders; and the fees and
disbursements of custodians. The Trust may arrange to have third parties assume
all or part of the expenses of sale, underwriting and distribution of shares of
the Fund. The Fund is also responsible for its expenses incurred in connection
with litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto.
The Adviser has agreed in the Agreement to reimburse the Fund for annual
expenses in excess of the lowest applicable expense limitation imposed by any
state in which the Fund is at the time offering its shares for sale, although no
payments are required to be made by the Adviser pursuant to this reimbursement
provision in excess of the annual fee paid by the Fund to the Adviser.
Management has been advised that the lowest such limitation is presently 2 1/2%
of average daily net assets up to $30 million, 2% of the next $70 million of
such net assets and 1 1/2% of such net assets in excess of that amount. Certain
expenses such as brokerage commissions, taxes, extraordinary expenses and
interest are excluded from such limitations, and other expenses may be excluded
from time to time. If reimbursement is required, it will be made as promptly as
practicable after the end of the Fund's fiscal year. However, no fee payment
will be made to the Adviser during any fiscal year which will cause year to date
expenses to exceed the cumulative pro rata expense limitation at the time of
such payment.
The Agreement also provides that the Trust and the Fund may use any name
derived from the name "Scudder, Stevens & Clark" only as long as the Agreement
or any extension, any renewal or amendment thereof remains in effect.
In reviewing the terms of the Agreement and in discussions with the Adviser
concerning such Agreement, Trustees who are not "interested persons" of the
Trust have been represented by independent counsel Ropes & Gray at the Fund's
expense.
The Agreement provides that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may engage in
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Trustees of the Trust may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS
Position with
Underwriter,
Position Principal Scudder Investor
Name and Address with Trust Occupation** Services, Inc.
- ---------------- ---------- ------------ ------------------
<C> <C> <C> <C>
Daniel Pierce+*= President and Chairman of the Director, Vice
Trustee Board and Managing President and
Director of Assistant
Scudder, Stevens & Treasurer
Clark, Inc.
Henry P. Becton, Jr. Trustee President and --
WGBH General Manager,
125 Western Avenue WGBH Educational
Allston, MA Foundation
Dudley H. Ladd+*= Trustee Managing Director Director and
of Scudder, Senior Vice
Stevens & Clark, President
Inc.
George M. Lovejoy, Trustee Chairman Emeritus, --
Jr.= Meredith & Grew,
160 Federal Street Incorporated (a
Boston, MA real estate
service company)
Wesley W. Marple, Trustee Professor of --
Jr.= Business
413 Hayden Hall Administration
360 Huntington Ave. Northeastern
Boston, MA 02115 University,
College of
Business
Administration
Juris Padegs#* Trustee Managing Director Director and Vice
of Scudder, President
Stevens & Clark,
Inc.
Jean C. Tempel Trustee Director, --
Ten Post Office Executive Vice
Square President and
Suite 1325 Manager, Safeguard
Boston, MA 02109 Scientifics, Inc.
Bruce F. Beaty Vice President Principal of --
Scudder, Stevens &
Clark, Inc.
Jerard K. Hartman# Vice President Managing Director --
of Scudder,
Stevens & Clark,
Inc.
Robert T. Hoffman# Vice President Managing Director --
of Scudder,
Stevens & Clark,
Inc.
Thomas W. Joseph+ Vice President Principal of Director, Vice
Scudder, Stevens & President,
Clark, Inc. Treasurer and
Assistant Clerk
David S. Lee+ Vice President Managing Director President,
of Scudder, Assistant Treasure
Stevens & Clark, and Director
Inc.
Douglas M. Loudon# Vice President Managing Director Senior Vice
of Scudder, President
Stevens & Clark,
Inc.
Thomas F. McDonough+ Vice President, Principal of Clerk
Secretary and Scudder, Stevens &
Assistant Clark, Inc.
Treasurer
Pamela A. McGrath+ Vice President Principal of --
and Treasurer Scudder, Stevens &
Clark, Inc.
Edward J. O'Connell# Vice President Principal of Assistant
and Assistant Scudder, Stevens & Treasurer
Treasurer Clark, Inc.
Coleen Downs Dinneen+ Assistant Vice President of Assistant Clerk
Secretary Scudder, Stevens &
Clark, Inc.
Certain accounts for which the Adviser acts as investment adviser owned
1,467,537 shares in the aggregate, or 18.96% of the outstanding
shares on January 31, 1995. The Adviser may be deemed to be the beneficial
owner of such shares but disclaims any beneficial ownership in such shares.
As of January 31, 1995, all Trustees and officers of the Trust as a group
owned beneficially (as the term is defined in Section 13(a) under the Securities
Exchange Act of 1934) 338.159 shares, or 4.37% of the shares of
the Fund outstanding on such date.
To the best of the Trust's knowledge, as of January 31, 1995, no person
owned beneficially more than 5% of the Fund's shares except as stated above.
* Messrs. Ladd, Padegs and Pierce are considered by the Trust and its
counsel to be persons who are "interested persons" of the Adviser or
of the Trust (within the meaning of the 1940 Act, as amended).
** Unless otherwise stated, all the officers and Trustees have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
= Messrs. Ladd, Lovejoy, Pierce and Marple are members of the Executive
Committee, which has the power to declare dividends from ordinary
income and distributions of realized capital gains to the same extent
as the Board is so empowered.
+ Address: Two International Place, Boston, Massachusetts
# Address: 345 Park Avenue, New York, New York
The Trustees and officers of the Trust also serve in similar capacities for
other Scudder funds.
REMUNERATION
Several of the officers and Trustees of the Trust may be officers or
employees of the Adviser, the Distributor, the Transfer Agent, or Scudder Trust
Company, from whom they receive compensation, as a result of which they may be
deemed to participate in the fees paid by the Fund. The Fund pays no direct
remuneration to any officer of the Trust. However, each of the Trustees who is
not affiliated with the Adviser will be paid by the Fund. Each of these
unaffiliated Trustees receives an annual Trustee's fee of $4,000 plus $300 for
attending each Trustees' meeting, audit committee meeting or meeting held for
the purpose of discussing the investment procedures of the Fund or considering
arrangements between the Fund and the Adviser or any of its affiliates. Each
unaffiliated Trustee also receives $100 per committee meeting attended other
than those set forth above. For the fiscal year ended October 31, 1994, the
Trustees' fees amounted to $37,257.
The following Compensation Table provide s, in tabular form, the
following data.
Column (1) All Trustees who receive compensation from the Trust.
Column (2) Aggregate compensation received by a Trustee from all series of
Scudder Investment Trust, which is comprised of Scudder Growth and Income
Fund and Scudder Quality Growth Fund.
Columns (3) and (4) Pension or retirement benefits accrued or proposed to be
paid by the Trust. Scudder Investment Trust does not pay its Trustees such
benefits.
Column (5) Total compensation received by a Trustee from Scudder Growth and
Income Fund and Scudder Quality Growth Fund, plus compensation received from all
funds managed by Scudder for which a Trustee serves. The total number of funds
from which a Trustee receives such compensation is also provided in column (5).
</TABLE>
<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1994
(1) (2) (3) (4) (5)
Aggregate Compensation
from Scudder Investment Pension or
Trust (consisting of Retirement Total Compensation
two funds: Scudder Benefits Accrued Estimated From Scudder
Growth and Income Fund As Part of Fund Annual Investment Trust
Name of Person, and Scudder Quality Expenses Benefits Upon and Fund Complex
Position Growth Fund) -------- Retirement Paid to Trustee
-------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Henry P. Becton, Jr. $18,600 N/A N/A $ 90,598
Trustee (15 funds)
George M. Lovejoy, Jr. $18,800 N/A N/A $ 117,450
Trustee (12 funds)
Wesley W. Marple, Jr. $18,700 N/A N/A $ 95,694
Trustee (15 funds)
Jean C. Tempel $3,800 N/A N/A $ 15,076
Trustee (14 funds)
</TABLE>
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a wholly-owned
subsidiary of the Adviser. The Trust's underwriting agreement, dated September
10, 1985, will remain in effect until September 30, 1995 and from year to year
thereafter only if its continuance is approved annually by a majority of the
Trustees who are not parties to such agreement or interested persons of any such
party and either by vote of a majority of the Trustees or a majority of the
outstanding voting securities of the Trust. The underwriting agreement was last
approved by the Trustees on August 9, 1994.
Under the principal underwriting agreement, the Fund is responsible for:
the payment of all fees and expenses in connection with the preparation and
filing with the SEC of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Trust or the Fund as a
broker/dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor), notices, proxy
statements, reports or other communications to shareholders of the Fund; the
cost of printing and mailing confirmations of purchases of shares and the
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.
Note: Although the Fund currently has no 12b-1 Plan and the Trustees have no
current intention of adopting one, the Fund will also pay those fees and
expenses permitted to be paid or assumed by the Fund pursuant to a 12b-1 Plan,
if any, adopted by the Fund, notwithstanding any other provision to the contrary
in the underwriting agreement.
As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
Underwriting Agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged the investor. The
Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
(See "Distribution and performance information--Dividends and capital gains
distributions" and "Transaction information--Tax information and Tax
identification number" in the Fund's prospectus.)
The Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), or a
predecessor statute and has qualified as such since its inception. It intends
to continue to qualify for such treatment. Such qualification does not involve
governmental supervision or management of investment practices or policy.
As a regulated investment company qualifying under Subchapter M of the
Code, the Fund is required to distribute to its shareholders at least 90 percent
of its investment company taxable income (including net short-term capital
gains) and is not generally subject to federal income tax to the extent that it
annually distributes its investment company taxable income and net realized
capital gains in the manner required under the Code.
The Fund will be subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing an amount equal to the sum of at least 98% of the Fund's ordinary
income for the calendar year, at least 98% of the excess of its capital gains
over capital losses (adjusted for certain ordinary losses as prescribed in the
Code) realized during the one-year period ending October 31 during such year,
and all ordinary income and capital gains for prior years that were not
previously distributed.
The Fund's investment company taxable income includes dividends, interest
and net short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.
If any net realized long-term capital gains in excess of net realized short-
term capital losses are retained by the Fund for reinvestment, requiring federal
income taxes to be paid thereon by the Fund, the Fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result,
each shareholder will report such capital gains as long-term capital gains, will
be able to claim a relative share of federal income taxes paid by the Fund on
such gains as a credit against personal federal income tax liabilities, and will
be entitled to increase the adjusted tax basis on Fund shares by the difference
between a pro rata share of such gains and the individual tax credit. If the
Fund makes such an election, it may not be treated as having met the excise tax
distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise a substantial
part of the Fund's gross income. To the extent that such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of the Fund,
with respect to which the dividends are received, are treated as debt-financed
under federal income tax law and is eliminated if the shares are deemed to have
been held for less than 46 days.
Distributions of the excess of net long-term capital gains over net short-
term capital losses are taxable to shareholders as long-term capital gains,
regardless of the length of time the shares of the Fund have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gains
during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of investment company taxable income and net realized
capital gains, whether received in shares or in cash, must be reported by each
shareholder on a federal income tax return. Dividends and capital gains
distributions declared in October, November, or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000 or, if
less, the amount of the individual's earned income for any taxable year only if
(i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and his or her nonearning spouse) for that
year. There are special rules for determining how withdrawals are to be taxed
if an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by the Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital.
In particular, investors should consider the tax implications of buying shares
just prior to a distribution. The price of shares purchased at that time
includes the amount of the forthcoming distribution. Those purchasing just
prior to a distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
If the Fund invests in stock of certain foreign investment companies, the
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
Proposed regulations have been issued which will allow the Fund to make an
election to mark-to-market its shares of these foreign investment companies in
lieu of being taxed in the manner described above. At the end of each taxable
year to which the election applies, the Fund will include in its income the
amount by which the fair market value of the foreign company's stock exceeds the
Fund's adjusted basis in these shares. No mark-to-market losses may be
recognized. Distributions and gain on dispositions of such stock will be
treated as ordinary income distributable to shareholders rather than being
subject to a fund level tax. The Fund intends to make this election if it is
determined to be appropriate and in the best interest of the shareholders.
Dividend and interest income received by the Fund from sources outside the
U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may
reduce or eliminate these foreign taxes, however, and foreign countries
generally do not impose taxes on capital gains in respect of investments by
foreign investors.
Equity options written by the Fund (covered call options on portfolio
stock) will be subject to tax under Section 1234 of the Code. If the Fund
writes a call option, no gain is recognized upon its receipt of a premium. If
the option lapses or is closed out, any gain or loss is treated as a short-term
capital gain or loss. If a call option is exercised, any resulting gain or loss
is short-term or long-term capital gain or loss depending on the holding period
of the underlying stock.
Many futures and forward contracts entered into by the Fund and all listed
nonequity options written or purchased by the Fund (including covered call
options written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position generally will be treated as 60% long-term and 40% short-
term capital gain or loss, and on the last trading day of the Fund's fiscal
year, all outstanding Section 1256 positions will be marked to market (i.e.,
treated as if such positions were closed out at their closing price on such
day), with any resulting gain or loss recognized as 60% long-term and 40% short-
term capital gain or loss. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options, and similar financial instruments entered into or
acquired by the Fund will be treated as ordinary income or loss. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in the
Fund's portfolio.
Subchapter M requires that the Fund realize less than 30% of its annual
gross income from the sale or other disposition of stock, securities and certain
options, futures and forward contracts held for less than three months.
Options, futures and forward activities of the Fund may increase the amount of
gains realized by the Fund that are subject to the 30% limitation. Accordingly,
the amount of such activities that the Fund may engage in may be limited.
Positions of the Fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by the Fund.
Positions of the Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
governed by Section 1256 which substantially diminishes the Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which reduce or eliminate the
operation of these rules. The Fund will monitor its transactions in options and
futures and may make certain tax elections in connection with these investments.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain futures contracts, forward contracts and options,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contracts and the date of
disposition are also treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the level of the Fund. Shareholders will be subject to income tax
on such original issue discount, whether or not they elect to receive their
distributions in cash.
The Fund will be required to report to the IRS all distributions of taxable
income and capital gains as well as gross proceeds from the redemption or
exchange of Fund shares, except in the case of certain exempt shareholders.
Under the backup withholding provisions of Section 3406 of the Code,
distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if
the Fund is notified by the IRS or a broker that the taxpayer identification
number furnished by the shareholder is incorrect or that the shareholder has
previously failed to report interest or dividend income. If the withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a series of a Massachusetts business trust and is
not liable for any income or franchise tax in the Commonwealth of Massachusetts,
provided that the Fund continues to be treated as a regulated investment company
under Subchapter M of the Code.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who
is not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of the
provisions of tax law in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
To the maximum extent feasible the Adviser places orders for portfolio
transactions for the Fund through the Distributor, which in turn places orders
on behalf of the Fund with other brokers and dealers. The Distributor receives
no commission, fees or other remuneration from the Fund for this service.
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase and
sale of securities for the Fund's portfolio is to obtain the most favorable net
results, taking into account such factors as price, commission (negotiable in
the case of U.S. national securities exchange transactions), where applicable,
size of order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as
primary market makers reflect the spread between the bid and asked prices.
Purchases of underwritten issues may be made, which will include an underwriting
fee paid to the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to the custodian of the Fund
for appraisal purposes, or who supply research, market and statistical
information to the Fund. The term "research, market and statistical
information" includes advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, and analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. The Adviser is not
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might have charged for executing the same transaction solely on account of the
receipt of research, market or statistical information. The Adviser does not
place orders with brokers or dealers on the basis that the broker or dealer has
or has not sold shares of the Fund. In effecting transactions in over-the-
counter securities, orders are placed with the principal market makers for the
security being traded unless, after exercising care, it appears that more
favorable results are available otherwise.
Although certain research, market and statistical information from brokers
and dealers can be useful to the Fund and to the Adviser, it is the opinion of
the Adviser that such information will only supplement the Adviser's own
research effort since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Fund, and not all such
information is used by the Adviser in connection with the Fund. Conversely,
such information provided to the Adviser by brokers and dealers through whom
other clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Fund.
In the fiscal years ended October 31, 1994, 1993 and 1992, the Fund paid
brokerage commissions of $302,266, $287,198 and $85,311.68, respectively. In
the fiscal year ended October 31, 1994, the Fund paid brokerage commissions of
$264,999 (88% of the total brokerage commissions), resulting from orders placed,
consistent with the policy of seeking to obtain the most favorable net results,
for transactions placed with brokers and dealers who provided supplementary
research, market and statistical information to the Trust or Adviser. The
amount of such transactions aggregated $201,061,798 (84% of all brokerage
transactions). The balance of such brokerage was not allocated to any
particular broker or dealer or with regard to the above-mentioned or any other
special factors.
The Trustees of the Trust intend to review from time to time whether the
recapture for the benefit of the Fund of some portion of the brokerage
commissions or similar fees paid by the Fund on portfolio transactions is
legally permissible and advisable.
Portfolio Turnover
The Fund's average annual portfolio turnover rate, i.e. the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
(excluding from both the numerator and the denominator all securities with
maturities at the time of acquisition of one year or less), for the fiscal years
ended October 31, 1994 and 1993 was 119.7% and 111.4%, respectively. A higher
rate involves greater brokerage and transaction expenses to the Fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed. Purchases and sales are made for the Fund's
portfolio whenever necessary, in management's opinion, to meet the Fund's
objective.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Net asset value per share is determined by dividing
the value of the total assets of the Fund, less all liabilities, by the total
number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent
bid quotation. An equity security which is traded on the National Association
of Securities Dealers Automated Quotation ("NASDAQ") system is valued at its
most recent sale price. Lacking any sales, the security is valued at the high
or "inside" bid quotation. The value of an equity security not quoted on the
NASDAQ System, but traded in another over-the-counter market, is its most recent
sale price. Lacking any sales, the security is valued at the Calculated Mean.
Lacking a Calculated Mean, the security is valued at the most recent bid
quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities
with remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded over-
the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee, most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Fund included in the Prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been so included or incorporated by reference in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
Shareholder Indemnification
The Trust is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Trust property or the
acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Trust property of any shareholder held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
Other Information
The CUSIP number of the Fund is 811167-20-4.
The Fund has a fiscal year ending October 31.
Many of the investment changes in the Fund will be made at prices different
from those prevailing at the time they may be reflected in a regular report to
shareholders of the Fund. These transactions will reflect investment decisions
made by the Fund's investment adviser in light of the objective and policies of
the Fund and other factors such as its other portfolio holdings and tax
considerations and should not be construed as recommendations for similar action
by other investors.
The name "Scudder Investment Trust" is the designation of the Trustees for
the time being under a Declaration of Trust dated September 20, 1984, as amended
from time to time, and all persons dealing with the Trust must look solely to
the property of the Trust for the enforcement of any claims against the Trust as
neither the Trustees, officers, agents nor shareholders assume any personal
liability for obligations entered into on behalf of the Trust. Upon the initial
purchase of shares, the shareholder agrees to the bound by the Trust's
Declaration of Trust, as amended from time to time. The Declaration of Trust is
on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts. All persons dealing with the Fund must look only to the assets
of the Fund for the enforcement of any claims against the Fund as no other
series of the Trust assumes any liabilities for obligations entered into on
behalf of the Fund.
Costs of $49,774 incurred by the Fund in conjunction with its organization
are amortized over the five year period beginning May 15, 1991.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Trust's custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a wholly-owned subsidiary of the Adviser, computes
net asset value for the Fund. The Fund pays Scudder Fund Accounting Corporation
an annual fee equal to 0.025% of the first $150 million of average daily net
assets, 0.0075% of such assets in excess of $150 million, 0.0045% of such assets
in excess of $1 billion, plus holding and transaction charges for this service.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a wholly-owned subsidiary of the Adviser, is the
transfer, dividend-paying and shareholder service agent for the Fund and also
provides subaccounting and recordkeeping services for shareholder accounts in
certain retirement and employee benefit plans. The Fund pays Service
Corporation an annual fee of $17.55 for each account maintained for a
participant. For the fiscal period ending October 31, 1994, Service
Corporation's fee amounted to $278,448. Please call 1-800-225-5163 for specific
mailing instructions regarding your investment.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the Commission under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. This Registration Statement is
available for inspection by the public at the SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio, of Scudder
Quality Growth Fund, together with the Report of Independent Accountants, and
Financial Highlights, are incorporated by reference and attached hereto on pages
9 through 22, inclusive, in the Annual Report to the Shareholders of the Fund
dated October 31, 1994, and are hereby deemed to be a part of this Statement of
Additional Information.
APPENDIX
Standard & Poor's Earnings and Dividend Rankings for Common Stocks
The investment process involves assessment of various factors--such as
product and industry position, corporate resources and financial policy--with
results that make some common stocks more highly esteemed than others. In this
assessment, Standard & Poor believes that earnings and dividend performance is
the end result of the interplay of these factors and that, over the long run,
the record of this performance has a considerable bearing on relative quality.
The rankings, however, do not pretend to reflect all of the factors, tangible or
intangible, that bear on stock quality.
Relative quality of bonds or other debt, that is, degrees of protection for
principal and interest, called creditworthiness, cannot be applied to common
stocks, and therefore rankings are not to be confused with bond quality ratings
which are arrived at by a necessarily different approach.
Growth and stability of earnings and dividends are deemed key elements in
establishing Standard & Poor's earnings and dividend rankings for common stocks,
which are designed to capsulize the nature of this record in a single symbol.
It should be noted, however, that the process also takes into consideration
certain adjustments and modifications deemed desirable in establishing such
rankings.
The point of departure in arriving at these rankings is a computerized
scoring system based on per-share earnings and dividend records of the most
recent ten years--a period deemed long enough to measure significant time
segments of secular growth, to capture indications of basic change in trend as
they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within long-
term trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.
Further, the ranking system makes allowance for the fact that, in general,
corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales
volume) are set for the various rankings, but the system provides for making
exceptions where the score reflects an outstanding earnings-dividend record.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample of
stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
NR signifies no ranking because of insufficient data or because the stock
is not amenable to the ranking process.
The positions as determined above may be modified in some instances by
special considerations, such as natural disasters, massive strikes, and non-
recurring accounting adjustments.
A ranking is not a forecast of future market price performance, but is
basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may be attractively priced for purchase.
Rankings based upon earnings and dividend records are no substitute for complete
analysis. They cannot take into account potential effects of management
changes, internal company policies not yet fully reflected in the earnings and
dividend record, public relations standing, recent competitive shifts, and a
host of other factors that may be relevant to investment status and decision.
<PAGE>
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder Quality Growth Fund
Annual Report
October 31, 1994
* A fund seeking long-term growth of capital through investment
primarily in the equity securities of seasoned, financially-strong
U.S. growth companies.
* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.
SCUDDER QUALITY GROWTH FUND
CONTENTS
2 Highlights
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
14 Financial Statements
17 Financial Highlights
18 Notes to Financial Statements
21 Report of Independent Accountants
22 Tax Information
25 Officers and Trustees
26 Investment Products and Services
27 How to Contact Scudder
HIGHLIGHTS
* Declining stock prices in the United States affected Scudder Quality
Growth Fund's performance during the fiscal year ended October 31,
1994.
* The Fund's 0.39% total return included $0.075 per share in income
dividends and $0.235 in capital gain distributions, which more than
compensated for the Fund's $0.25 decline in net asset value.
* Since its inception on May 15, 1991, the Fund has provided an average
annual total return of 9.76%.
* The Fund increased its exposure to the healthcare industry by
investing in stocks believed to represent good values, given their
depressed prices.
* Rising interest rates led us to reduce the Fund's exposure to
interest-rate-sensitive financial stocks from 17% last year to about
10% on October 31.
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
In the past 12 months, in an environment of generally low inflation,
many of the world's economies experienced modest growth. Nevertheless,
financial markets were jittery, reflecting investor concern about the
prospects for inflation and rising interest rates in the United States and
elsewhere.
Looking to 1995, we expect higher interest rates to limit economic
growth in the United States to a more sustainable pace. Indeed, if one
considers the historical average life of postwar expansions, the U.S.
expansion is already in its later stages. The U.S. economy may receive a
boost from increased exports, aided by recoveries in Europe and Japan.
Corporate earnings in related industries should improve as a result.
However, in the near term, as investors sort through often-conflicting
economic data, the world's stock markets are likely to remain volatile.
If you have questions about your Fund or your investments, contact a
Scudder Investor Information representative at 1-800-225-2470. Page 27
provides more information on how to contact Scudder. Thank you for choosing
Scudder Quality Growth Fund to help meet your investment needs.
In closing, we would like to take this opportunity to announce that on
October 10, 1994, we introduced Scudder Greater Europe Growth Fund,
designed to invest both in Western and Eastern Europe. For more information
about Scudder Greater Europe Growth Fund and other investment products and
services, see page 26.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Quality Growth Fund
<PAGE>
Scudder Quality Growth Fund
Performance Update as of October 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- ------------------------------------------------------------------
Scudder Quality Growth Fund
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,039 0.39% 0.39%
Life of
Fund* $13,804 38.04% 9.76%
S&P 500 Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,386 3.86% 3.86%
Life of
Fund* $14,175 41.75% 10.59%
*The Fund commenced operations on May 15, 1991.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Scudder Quality Growth Fund
Year Amount
- --------------------
5/15/91* 10000
10/91 11375
4/92 11748
10/92 12793
4/93 12628
10/93 13751
4/94 13146
10/94 13804
S&P 500 Index
Year Amount
- --------------------
5/15/91* 10000
10/91 10796
4/92 11586
10/92 11874
4/93 12658
10/93 13648
4/94 13331
10/94 14175
The Standard & Poor's (S&P) 500 Index is an unmanaged
capitalization-weighted measure of 500 widely held common
stocks listed on the New York Stock Exchange, American Stock
Exchange, and Over-The-Counter market. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended October 31
- ----------------------------------
<TABLE>
<S> <C> <C> <C> <C>
1991* 1992 1993 1994
--------------------------------
Net Asset Value... $13.65 $15.30 $16.42 $16.17
Income Dividends.. $ -- $ .03 $ .03 $ .08
Capital Gains
Distributions..... $ -- $ .02 $ -- $ .24
Fund Total
Return (%)........ 13.75 12.47 7.49 .39
Index Total
Return (%)........ 7.88 9.95 14.91 3.86
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
If the Adviser had not maintained the Fund's expenses, the average annual
total return for the one year and life of Fund would have been
approximately .39% and 9.67%, respectively.
Scudder Quality Growth Fund
Portfolio Summary as of October 31, 1994
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
Equity Securities 100% The Fund remains nearly fully invested
---- in companies with a history of strong
100% earnings growth, high returns on
==== equity, and relatively low debt.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Sectors
- --------------------------------------------------------------------------
Consumer Staples 15%
Health 13% In looking for ways to profit from
Financial 10% the increasingly global economy, we
Manufacturing 10% have focused on multinational firms
Technology 10% that stand to gain the most from
Energy 9% the opening of new markets and the
Durables 9% crumbling of old barriers.
Communications 7%
Consumer Discretionary 7%
Other 10%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------
1. American Telephone & Telegraph Co.
Telecommunication services and business systems
2. Mellon Bank Corp.
Commercial banking and financial services
3. Eli Lilly Co.
Leading pharmaceutical company
4. General Electric Co.
Leading producer of electrical equipment
5. American Cyanamid Co.
Drugs, medical products and chemicals
6. PepsiCo. Inc.
Soft drinks, snack foods and food services
7. CPC International Inc.
International food processor
8. Home Depot, Inc.
Building supply/home improvement stores
9. Motorola Inc.
Manufacturer of semiconductors and communication products
10. American International Group, Inc.
Major international insurance holding company
The Fund's exposure to the healthcare industry has been incresed as
we felt the stocks represented good value in the light of the
prevailing negative sentiment.
For more complete details about the Fund's Investment Portfolio, see page 9.
A monthly Investment Portfolio Summary is available upon request.
<PAGE>
SCUDDER QUALITY GROWTH FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Rising interest rates in the United States and elsewhere have created
considerable volatility in the stock and bond markets this year.
Interest-rate-sensitive industries, such as banking and insurance, have
been particularly hard hit, as investors anticipated reduced earnings. But
despite monetary tightening, many stocks, notably those of companies with
overseas operations, have provided modestly positive returns over the past
12 months. While the longer-term outlook for equities is solid, based on
expectations of continued gains in corporate profits, the near-term outlook
remains clouded by the fear of higher inflation and the growing competition
for savings from increasingly higher-yielding fixed-income securities.
Scudder Quality Growth Fund's net asset value (NAV) ended the fiscal
year on October 31, 1994, at $16.17, down modestly from $16.42 at the end
of the previous year. The price decline was due largely to declines in the
prices of the Fund's financial stock holdings. During the fiscal year, the
Fund distributed $0.075 in income dividends and $0.235 in capital gains.
These distributions more than compensated for the decline in price, and the
Fund provided a total return of 0.39% for the 12-month period, compared
with a 3.86% return for the unmanaged Standard and Poor's 500 stock index.
During difficult periods such as these, it is important to remember that
the Fund is managed with a long-term investment horizon for individuals
seeking capital appreciation as a primary objective. Since its inception on
May 15, 1991, the Fund has provided an average annual total return of
9.76%. Page 4 contains additional performance information.
Scudder Quality Growth Fund invests primarily in financially strong
companies with a history of rising earnings and prospects for above-average
growth. While largely a domestic equity fund, a small percentage of the
portfolio's holdings, roughly 5% at present, consists of non-U.S.
companies. In all cases, we look for companies with above-average returns
on equity and below-average debt levels relative to the S&P 500 Index. Such
quantitative measures are supplemented with our assessments of a company's
management and the quality of its earnings.
A Multinational Approach
Much has been written about the increasingly integrated global
economy. We believe the globalization trend is powerful and unstoppable. In
our opinion, multinational firms stand to gain the most from the opening of
new markets and the crumbling of political and economic barriers. As
domestic growth moderates over the next 12 months, growth in Europe should
accelerate. Moreover, continued strength in the developing economies of
Latin America and the Pacific Rim should provide important outlets for
export growth, as well as low-cost manufacturing facilities for U.S.
multinationals.
A number of specific Fund holdings stand to benefit directly from such
trends: consumer companies such as Duracell, Gillette, Pepsico, and Toys
"R" Us; healthcare companies such as Warner Lambert, Johnson & Johnson, and
Schering Plough; communications companies like AT&T, Motorola, L.M.
Ericsson, and Nokia; infrastructure providers such as Fluor, Foster
Wheeler, General Electric, Emerson Electric, and ASEA; and global media
giants like Disney, Time Warner, and Viacom.
In order to compete more effectively in the new global economy, many
companies are rushing to use new technologies that enhance productivity.
This move toward greater operating efficiency has increased the demand for
many technology products produced by such Fund holdings as Intel,
Microsoft, Texas Instruments, Hewlett Packard, Molex, Compaq, and Oracle
Systems.
Increased Enthusiasm For Healthcare Companies
As the fiscal year progressed, it became apparent that the President's
healthcare reform proposal was losing popular support, making passage of
such legislation unlikely. At the same time, many healthcare companies took
action to improve their competitive positions by way of alliances,
acquisitions, and restructurings. While investor sentiment remained
negative for much of the period, we took the opportunity to increase the
Fund's exposure to the healthcare industry by investing in stocks believed
to represent good values, given their depressed prices. The Fund benefited
from the better-than-expected earnings reports of such holdings as Johnson
& Johnson, Abbott Labs, and United Healthcare, as well as from the
acquisition of American Cyanamid and the partial purchase of McKesson by
Eli Lilly.
Capital Spending Led Economic Expansion
Capital spending has been the primary engine of growth in the current
economic recovery. Manufacturing capacity is strained, and both domestic
and foreign companies are building new manufacturing facilities in order to
meet the burgeoning demand for capital equipment. The Fund has a number of
investments in this sector of the economy, including General Electric,
Emerson Electric, Minnesota Mining & Manufacturing, TRW, Caterpillar,
Dover, and Parker-Hannifin.
Economic expansion and higher interest rates led us to reduce the
Fund's exposure to interest-rate-sensitive financial stocks, which in
general performed poorly, from 17% last year to about 10% on October 31.
Holdings that were sold included Chubb, J. P. Morgan, and Northern Trust.
The Fund maintained positions in several financial service stocks, however,
where we believe significant growth opportunities exist, despite higher
rates. This list includes State Street Boston, Mellon Bank, American
International Group, and Federal National Mortgage Association (Fannie
Mae).
Looking Ahead
Our forecast calls for continued growth in real gross domestic product
at roughly a 3% rate over the next year. Corporate profit growth should
moderate but remain healthy with gains of approximately 10% expected for
1995. The relatively good news on profits may not be reflected immediately
in higher stock prices given the current concerns regarding the direction
and level of interest rates and inflation. Even so, we remain committed to
our essential strategy of investing the Fund's assets in stocks, and we
refrain from making short-term market timing decisions under most
conditions. It is our fundamental belief that active market timing is an
ill-advised and costly game.
In conclusion, we plan to maintain the strategy of investing in
companies with strong prospects for profit growth over the next several
years. We believe this approach will continue to provide competitive
returns for long-term investors seeking capital appreciation.
Sincerely,
Your Portfolio Management Team
/s/Howard F. Ward /s/Bruce F. Beaty
Howard F. Ward Bruce F. Beaty
/s/Michael K. Shields
Michael K. Shields
Scudder Quality Growth Fund: A Team Approach to Investing
Scudder Quality Growth Fund is run by a team of Scudder investment
professionals who each play an important role in the Fund's management
process. Team members work closely together to develop investment
strategies and select securities for the Fund. They are supported by
Scudder's large staff of economists, research analysts, traders, and other
investment specialists who work in our offices across the United States and
abroad. We believe our team approach benefits Scudder Quality Growth Fund
investors by bringing together many disciplines and leveraging Scudder's
extensive resources.
Lead Portfolio Manager Howard F. Ward joined Scudder in 1982 and has
been responsible for Scudder Quality Growth Fund's investment strategy and
daily operation since the Fund was created in 1991. Howard, who has 15
years' experience in stock analysis and investing, specializes in the
quality growth discipline of equity investing and also serves as Lead
Portfolio Manager for Scudder Balanced Fund. Bruce F. Beaty, Portfolio
Manager, contributes expertise in technology, a role he has filled since
the Fund's inception. Bruce joined Scudder in 1991 and has 14 years of
investing experience. Michael K. Shields, Portfolio Manager, focuses on the
Fund's healthcare stocks. Mike joined the Fund and Scudder in 1992 and has
12 years of experience in the financial industry.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO as of October 31, 1994
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
100.0% COMMON STOCKS
--------------------------------------------------------------
CONSUMER DISCRETIONARY 7.0%
Department &
Chain Stores 5.4% 52,666 Home Depot, Inc. . . . . . . . . . . . 2,396,303
20,000 J.C. Penney Co., Inc. . . . . . . . . . 1,012,500
70,200 Wal-Mart Stores Inc. . . . . . . . . . . 1,649,700
25,000 Walgreen Co. . . . . . . . . . . . . . . 1,037,500
----------
6,096,003
----------
Home Furnishings 0.6% 44,000 Shaw Industries Inc. . . . . . . . . . 643,500
----------
Restaurants 0.7% 25,000 McDonald's Corp. . . . . . . . . . . . 718,750
----------
Specialty Retail 0.3% 10,000 Toys "R" Us Inc.* . . . . . . . . . . . 385,000
----------
CONSUMER STAPLES 14.5%
Consumer Electronic &
Photographic Products 1.3% 8,000 Duracell International Inc. . . . . . . 345,000
22,000 Whirlpool Corp. . . . . . . . . . . . . 1,144,000
----------
1,489,000
----------
Food & Beverage 10.2% 32,000 Albertson's Inc. . . . . . . . . . . . 960,000
50,000 CPC International Inc. . . . . . . . . 2,675,000
30,000 ConAgra Inc. . . . . . . . . . . . . . 933,750
25,700 General Mills, Inc. . . . . . . . . . . 1,439,200
10,000 Kellogg Co. . . . . . . . . . . . . . . 587,500
81,000 PepsiCo Inc. . . . . . . . . . . . . . 2,835,000
54,000 Sara Lee Corp. . . . . . . . . . . . . 1,329,750
16,000 Wm. Wrigley Jr. Company . . . . . . . . 722,000
----------
11,482,200
----------
Package Goods/Cosmetics 3.0% 12,000 Colgate-Palmolive Co. . . . . . . . . . 732,000
7,000 Gillette Co. . . . . . . . . . . . . . 520,625
34,000 Procter & Gamble Co. . . . . . . . . . 2,125,000
----------
3,377,625
----------
HEALTH 12.7%
Health Industry Services 1.1% 15,000 U.S. HealthCare, Inc. . . . . . . . . . 708,750
10,000 United Healthcare Corp. . . . . . . . . 527,500
----------
1,236,250
----------
Hospital Management 1.4% 33,000 Columbia/HCA Healthcare Corp. . . . . . 1,373,625
15,000 National Medical Enterprises . . . . . 217,500
----------
1,591,125
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
SCUDDER QUALITY GROWTH FUND
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pharmaceuticals 10.2% 22,400 Abbott Laboratories . . . . . . . . . . 694,400
30,000 American Cyanamid Co. . . . . . . . . . 2,962,500
15,000 Baxter International Inc. . . . . . . . 390,000
51,000 Eli Lilly Co. . . . . . . . . . . . . . 3,162,000
7,000 Johnson & Johnson . . . . . . . . . . . 382,375
27,000 Schering-Plough Corp. . . . . . . . . . 1,923,750
25,500 Warner-Lambert Co. . . . . . . . . . . 1,944,375
----------
11,459,400
----------
COMMUNICATIONS 7.1%
Cellular Telephone 0.3% 12,000 AirTouch Communications, Inc.* . . . . 358,500
----------
Telephone/
Communications 6.8% 24,000 Alltel Corp. . . . . . . . . . . . . . 621,000
75,000 American Telephone & Telegraph Co. . . 4,125,000
13,000 Hong Kong Telecommunications Ltd. (ADR). 276,250
27,000 MCI Communications Corp. . . . . . . . 621,000
61,000 Sprint Corp. . . . . . . . . . . . . . 1,990,125
----------
7,633,375
----------
FINANCIAL 10.2%
Banks 6.1% 20,575 Banc One Corp. . . . . . . . . . . . . 594,103
60,700 Mellon Bank Corp. . . . . . . . . . . . 3,376,438
25,000 National City Corp. . . . . . . . . . . 678,125
47,000 Norwest Corp. . . . . . . . . . . . . . 1,151,500
30,000 State Street Boston Corp. . . . . . . . 1,001,250
----------
6,801,416
----------
Insurance 3.7% 8,000 AMBAC Inc. . . . . . . . . . . . . . . 280,000
24,000 American International Group, Inc. . . . 2,247,000
15,000 EXEL, Ltd. . . . . . . . . . . . . . . 590,625
5,000 General Re Corp. . . . . . . . . . . . 560,000
8,000 MBIA Inc. . . . . . . . . . . . . . . . 433,000
----------
4,110,625
----------
Other Financial Companies 0.4% 6,500 Federal National Mortgage Association. . 494,000
----------
MEDIA 5.7%
Advertising 0.5% 18,000 Interpublic Group of Companies Inc. . . 594,000
----------
Broadcasting &
Entertainment 3.6% 20,000 CBS Inc. . . . . . . . . . . . . . . . 1,197,500
6,500 Capital Cities/ABC Inc. . . . . . . . . 540,313
23,000 Time Warner Inc. . . . . . . . . . . . 816,500
25,000 Turner Broadcasting System Inc. "B" . . 443,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6,000 Viacom Inc. "B"* . . . . . . . . . . . 235,500
21,000 Walt Disney Co. . . . . . . . . . . . 826,875
----------
4,060,438
----------
Cable Television 1.2% 32,000 Comcast Corp. "A" . . . . . . . . . . . 524,000
37,000 Tele-Communications Inc. "A" . . . . . 837,125
----------
1,361,125
----------
Print Media 0.4% 9,000 News Corp. Ltd. (ADR) . . . . . . . . . 439,875
----------
SERVICE INDUSTRIES 3.9%
EDP Services 1.1% 2,000 Automatic Data Processing, Inc. . . . . 116,750
10,000 First Data Corp. . . . . . . . . . . . 501,250
15,000 General Motors Corp. "E" . . . . . . . 549,375
----------
1,167,375
----------
Environmental Services 0.7% 25,000 WMX Technologies Inc. . . . . . . . . 734,375
----------
Investment 1.4% 12,000 Charles Schwab Corp. . . . . . . . . . 426,000
10,000 Dean Witter, Discover & Co. . . . . . 386,250
11,000 Merrill Lynch & Co., Inc. . . . . . . 433,125
5,500 Morgan Stanley Group, Inc. . . . . . . 359,563
----------
1,604,938
----------
Miscellaneous Commercial
Services 0.4% 18,000 Sysco Corp. . . . . . . . . . . . . . 447,750
----------
Printing/Publishing 0.3% 8,000 Reuters Holdings PLC "B" (ADR) . . . . 377,000
----------
DURABLES 8.6%
Aerospace 0.3% 8,000 Boeing Co. . . . . . . . . . . . . . . 351,000
----------
Automobiles 3.4% 37,000 Chrysler Corp. . . . . . . . . . . . . 1,803,750
44,000 Ford Motor Co. . . . . . . . . . . . . 1,298,000
20,000 Magna International, Inc. "A" . . . . 710,000
----------
3,811,750
----------
Construction/Agricultural
Equipment 1.4% 15,000 Caterpillar Inc. . . . . . . . . . . . 896,250
10,000 Deere & Co. . . . . . . . . . . . . . 717,500
----------
1,613,750
----------
Telecommunications
Equipment 3.2% 18,000 DSC Communications Corp.* . . . . . . 553,500
9,000 General Instrument Corp.* . . . . . . 301,500
10,000 L.M. Ericsson Telephone Co. "B" (ADR) . 609,375
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
SCUDDER QUALITY GROWTH FUND
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9,000 Newbridge Networks Corp.* . . . . . . 248,625
25,000 Nokia Corp. AB (ADR) . . . . . . . . . 1,878,125
----------
3,591,125
----------
Tires 0.3% 14,000 Cooper Tire & Rubber Co. . . . . . . . 344,750
----------
MANUFACTURING 10.2%
Diversified Manufacturing 6.5% 12,000 Dover Corp. . . . . . . . . . . . . . 666,000
15,000 Dresser Industries Inc. . . . . . . . 316,875
64,000 General Electric Co. . . . . . . . . . 3,128,000
35,000 Minnesota Mining & Manufacturing Co. . 1,938,125
13,000 TRW Inc. . . . . . . . . . . . . . . . 926,250
7,000 Thermo Electron Corp.* . . . . . . . . 319,375
----------
7,294,625
----------
Electrical Products 1.9% 13,000 ASEA AB (ADR) . . . . . . . . . . . . . 942,500
20,000 Emerson Electric Co. . . . . . . . . . 1,215,000
----------
2,157,500
----------
Industrial Specialty 0.5% 15,000 Sherwin-Williams Co. . . . . . . . . . 489,375
----------
Machinery/Components/
Controls 1.3% 19,000 Federal-Mogul Corp. . . . . . . . . . . 432,250
22,000 Parker-Hannifin Group . . . . . . . . . 1,028,500
----------
1,460,750
----------
TECHNOLOGY 9.6%
Computer Software 1.5% 15,100 Microsoft Corp.* . . . . . . . . . . . 951,300
10,000 Oracle Systems Corp.* . . . . . . . . . 460,000
5,500 Sybase Inc.* . . . . . . . . . . . . . . 288,063
----------
1,699,363
----------
Diverse Electronic Products 3.8% 13,000 Applied Materials, Inc.* . . . . . . . 676,000
37,000 General Motors Corp. "H" . . . . . . . . 1,332,000
39,000 Motorola Inc. . . . . . . . . . . . . 2,296,125
----------
4,304,125
----------
Electronic Components/
Distributors 0.4% 11,000 Molex Inc. "A" . . . . . . . . . . . . 451,000
----------
Electronic Data Processing 1.4% 20,000 Compaq Computers Corp.* . . . . . . . . 802,500
8,000 Hewlett-Packard Co. . . . . . . . . . 782,000
----------
1,584,500
----------
Office/Plant Automation 0.4% 14,000 Cisco Systems, Inc.* . . . . . . . . . 421,750
----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Semiconductors 2.1% 20,000 Intel Corp. . . . . . . . . . . . . . . 1,242,500
14,000 Texas Instruments Inc. . . . . . . . . 1,048,250
-----------
2,290,750
-----------
ENERGY 8.8%
Engineering 1.1% 13,000 Fluor Corp. . . . . . . . . . . . . . . 643,500
17,000 Foster Wheeler Corp. . . . . . . . . . 612,000
-----------
1,255,500
-----------
Oil Companies 5.7% 37,000 Chevron Corp. . . . . . . . . . . . . . 1,665,000
27,000 Exxon Corp. . . . . . . . . . . . . . . 1,697,625
12,000 Mobil Corp. . . . . . . . . . . . . . . 1,032,000
13,000 Royal Dutch Petroleum Co.
(New York shares) . . . . . . . . . . 1,514,500
17,000 Unocal Corp. . . . . . . . . . . . . . 497,250
-----------
6,406,375
-----------
Oil/Gas Transmission 1.7% 56,500 Enron Corp. . . . . . . . . . . . . . . 1,829,188
-----------
Oilfield Services/Equipment 0.3% 6,000 Schlumberger Ltd. . . . . . . . . . . . 352,500
-----------
METALS AND MINERALS 1.1%
Steel & Metals 24,000 Allegheny Ludlum Corp. . . . . . . . . 477,000
12,000 Nucor Corp. . . . . . . . . . . . . . . 741,000
-----------
1,218,000
-----------
CONSTRUCTION 0.6%
Forest Products 22,000 Louisiana-Pacific Corp. . . . . . . . 673,748
-----------
TOTAL COMMON STOCKS (Cost $106,216,360). 112,265,069
-----------
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $106,216,360) (a) . . . . . . . 112,265,069
===========
* Nonincome producing security.
(a) The cost for federal income tax purposes was $106,687,997. At October 31, 1994, net unrealized
appreciation for all securities based on tax cost was $5,577,072. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an excess of market value over
tax cost of $8,703,194 and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over market value of $3,126,122.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $106,216,360)
(Note A) . . . . . . . . . . . . . . . . . . . . . $112,265,069
Cash . . . . . . . . . . . . . . . . . . . . . . . . 683,909
Receivables:
Investments sold . . . . . . . . . . . . . . . . . 7,450,098
Dividends and interest . . . . . . . . . . . . . . 201,375
Fund shares sold . . . . . . . . . . . . . . . . . 104,424
Deferred organization expenses (Note A) . . . . . . . 16,120
------------
Total assets . . . . . . . . . . . . . . . . . 120,720,995
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . $7,206,304
Fund shares redeemed . . . . . . . . . . . . . . . 93,668
Accrued management fee (Note C) . . . . . . . . . 71,895
Other accrued expenses (Note C) . . . . . . . . . 85,129
---------
Total liabilities . . . . . . . . . . . . . . . 7,456,996
------------
Net assets, at market value . . . . . . . . . . . . . $113,263,999
============
NET ASSETS
Net assets consist of:
Undistributed net investment income (Note D) . . . $ 919,547
Unrealized appreciation on investments . . . . . . 6,048,709
Accumulated net realized gain (Note D) . . . . . . 7,485,388
Shares of beneficial interest . . . . . . . . . . 70,061
Additional paid-in capital . . . . . . . . . . . . 98,740,294
------------
Net assets, at market value . . . . . . . . . . . . . $113,263,999
============
NET ASSET VALUE, offering and redemption price per
share ($113,263,999 / 7,006,138 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) . . . . . . $16.17
======
</TABLE>
The accompanying notes are an integral part of the financial statementst.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $ 2,443,660
Interest . . . . . . . . . . . . . . . . . . . . . . . . 115,667
-----------
2,559,327
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $802,235
Services to shareholders (Note C) . . . . . . . . . . . . 344,650
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . 37,257
Custodian fees . . . . . . . . . . . . . . . . . . . . . 107,976
Reports to shareholders . . . . . . . . . . . . . . . . . 65,715
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 32,455
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 21,683
Amortization of organization expense (Note A) . . . . . . 9,946
State registration . . . . . . . . . . . . . . . . . . . 15,149
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 7,602 1,444,668
-------- ----------
Net investment income . . . . . . . . . . . . . . . . . . 1,114,659
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain from investments . . . . . . . . . . . 7,612,915
Net unrealized depreciation on investments
during the period . . . . . . . . . . . . . . . . . . (8,282,506)
----------
Net loss on investments . . . . . . . . . . . . . . . . . (669,591)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $ 445,068
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
SCUDDER QUALITY GROWTH FUND
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . $ 1,114,659 $ 492,864
Net realized gain on investments . . . . . . . 7,612,915 1,909,712
Net unrealized appreciation (depreciation)
on investments during the period . . . . . . (8,282,506) 5,254,400
------------ ------------
Net increase in net assets
resulting from operations . . . . . . . . . 445,068 7,656,976
------------ ------------
Distributions to shareholders from:
Net investment income ($.08 and $.03
per share, respectively) . . . . . . . . . . (573,627) (199,553)
------------ ------------
Net realized gains from investment
transactions ($.24 per share) . . . . . . . (1,793,533) --
------------ ------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . 30,065,461 87,979,349
Net asset value of shares issued to
shareholders in reinvestment of
distributions . . . . . . . . . . . . . . . 2,309,792 190,215
Cost of shares redeemed . . . . . . . . . . . . (43,432,867) (70,355,713)
------------ ------------
Net increase (decrease) in net assets from
Fund share transactions . . . . . . . . . . (11,057,614) 17,813,851
------------ ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . (12,979,706) 25,271,274
Net assets at beginning of period . . . . . . . 126,243,705 100,972,431
------------ ------------
NET ASSETS AT END OF PERIOD (including
undistributed net investment income
of $919,547 and $415,551, respectively) . . $113,263,999 $126,243,705
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . 7,689,455 6,598,066
------------ ------------
Shares sold . . . . . . . . . . . . . . . . . . 1,895,781 5,586,764
Shares issued to shareholders in reinvestment
of distributions . . . . . . . . . . . . . . 144,448 11,742
Shares redeemed . . . . . . . . . . . . . . . . (2,723,546) (4,507,117)
------------ ------------
Net increase (decrease) in Fund shares . . . . (683,317) 1,091,389
------------ ------------
Shares outstanding at end of period . . . . . . 7,006,138 7,689,455
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
For the Period
May 15, 1991
(commencement
Years Ended October 31, of operations)
----------------------------- to October 31,
1994 1993 1992 1991
----------------------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . $16.42 $15.30 $13.65 $12.00
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . . .16 .06 .02 .03
Net realized and unrealized gain (loss) on investments . (.09) 1.09 1.68 1.62
------ ------ ------ ------
Total from investment operations . . . . . . . . . . . . . .07 1.15 1.70 1.65
------ ------ ------ ------
Less distributions from:
Net investment income . . . . . . . . . . . . . . . . . . (.08) (.03) (.03) --
Net realized gains on investment transactions . . . . . (.24) -- (.02) --
------ ------ ------ ------
Total distributions . . . . . . . . . . . . . . . . . . . . (.32) (.03) (.05) --
------ ------ ------ ------
Net asset value, end of period . . . . . . . . . . . . . . $16.17 $16.42 $15.30 $13.65
====== ====== ====== ======
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . .39 7.49 12.47 13.75**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . . 113 126 101 30
Ratio of operating expenses net, to average daily
net assets (%) (a) . . . . . . . . . . . . . . . . . . . 1.25 1.20 1.25 1.25*
Ratio of net investment income to average daily net
assets (%) . . . . . . . . . . . . . . . . . . . . . . . .96 .39 .24 .83*
Portfolio turnover rate (%) . . . . . . . . . . . . . . . 119.7 111.4 27.4 11.5*
(a) Reflects a per share amount of expenses, exclusive of
management fees, reimbursed by the Adviser of . . . . $ -- $ -- $ -- $ .01
Reflects a per share amount of management fee not
imposed by the Adviser of . . . . . . . . . . . . . $ -- $ -- $ .01 $ .02
Operating expense ratio including expenses
reimbursed, management fee and other expenses
not imposed (%) . . . . . . . . . . . . . . . . . . -- -- 1.40 2.67*
* Annualized
** Not annualized
</TABLE>
<PAGE>
SCUDDER QUALITY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder Quality Growth Fund (the "Fund") is a diversified series of Scudder
Investment Trust (the "Trust"). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The policies
described below are followed consistently by the Fund in the preparation of its
financial statements in conformity with generally accepted accounting
principles.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system.
If there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such
market. If no sale occurred, the security is then valued at the calculated mean
between the most recent bid and asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation shall be used. Short-term
investments having a maturity of sixty days or less are valued at amortized
cost.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes and no federal income tax
provision was required.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles. The
differences primarily relate to investments in certain securities sold at a
loss. As a result, net investment income (loss) and net realized gain (loss) on
investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
ORGANIZATION COSTS. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are
being amortized on a straight-line basis over a five-year period.
OTHER. Investment security transactions are accounted for on a trade date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the year ended October 31, 1994, purchases and sales of investment
securities (excluding short-term investments) aggregated $135,183,430 and
$145,753,999, respectively.
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Fund's Investment Management Agreement (the "Agreement") with
Scudder, Stevens & Clark, Inc. (the "Adviser"), the Fund pays the Adviser a fee
equal to an annual rate of 0.70% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of the
Fund, the Adviser
<PAGE>
SCUDDER QUALITY GROWTH FUND
- --------------------------------------------------------------------------------
directs the investments of the Fund in accordance with its investment
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The Agreement provides that if the Fund's expenses, exclusive of
taxes, interest, and extraordinary expenses, exceed specified limits, such
excess, up to the amount of the management fee, will be paid by the Adviser.
In addition, the Adviser has agreed not to impose all or a portion of its
management fee until February 28, 1995 in order to maintain the annualized
expenses of the Fund at not more than 1.25% of average daily net assets. For
the year ended October 31, 1994, the Adviser did not impose a portion of its
fee amounting to $3,897, and the portion imposed amounted to $802,235.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the year ended October 31, 1994, the amount charged by SSC aggregated
$278,448, of which $22,562 is unpaid at October 31, 1994.
The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually plus specified amounts for attended board and committee meetings. For
the year ended October 31, 1994, Trustees fees aggregated $37,257.
D. RECLASSIFICATION OF CAPITAL ACCOUNTS
- --------------------------------------------------------------------------------
As required, effective November 1, 1993, the Fund has adopted the provisions of
Statement of Position 93-2 "Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies" (SOP). In implementing the SOP, the Fund has reclassified
$35,023 to decrease undistributed net investment income and $35,023 to increase
accumulated net realized gains. These reclassifications, which have no impact
on the net asset value of the Fund, are primarily attributable to certain
differences in the computation of distributable income and capital gains under
federal income tax rules and regulations versus generally accepted accounting
principles. The statement of changes in net assets and financial highlights for
prior periods have not been restated to reflect this change in presentation.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF SCUDDER INVESTMENT TRUST AND THE SHAREHOLDERS OF
SCUDDER QUALITY GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Quality Growth Fund including the investment portfolio, as of October 31, 1994,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the three years in the period then
ended, and for the period May 15, 1991 (commencement of operations) to October
31, 1991. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Quality Growth Fund as of October 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended, and for the period May 15, 1991
(commencement of operations) to October 31, 1991 in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 9, 1994
<PAGE>
SCUDDER QUALITY GROWTH FUND
TAX INFORMATION
- --------------------------------------------------------------------------------
The Fund will mail shareholders IRS Form 1099-Div in late January, summarizing
all taxable distributions paid for 1994.
Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$6,688,862 as capital gain dividends for the year ended October 31, 1994.
Pursuant to section 854 of the Internal Revenue Code, the Fund designates
$2,404,512 as dividends eligible for the dividends received deduction for
corporations for the year ended October 31, 1994.
<PAGE>
OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational
Foundation
Dudley H. Ladd*
Trustee
George M. Lovejoy, Jr.
Trustee; Chairman Emeritus, Meredith & Grew, Incorporated
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern
University
Juris Padegs*
Trustee
Jean C. Tempel
Trustee; Director and Executive Vice President, Safeguard
Scientifics, Inc.
Jerard K. Hartman*
Vice President
Robert T. Hoffman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President
Douglas M. Loudon*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Howard F. Ward*
Vice President
Coleen Downs Dinneen*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
INVESTMENT PRODUCTS AND SERVICES
INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds
Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan+++* (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans
Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus.
Read it carefully before you invest or send money. +A portion of the
income from the tax-free funds may be subject to federal, state and
local taxes. *Not available in all states. +++A no-load variable
annuity contract provided by Charter National Life Insurance Company
and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark,
Inc., are traded on various stock exchanges. ++For information on
Scudder Treasurers Trust(tm), an institutional cash management service
that utilizes certain portfolios of Scudder Fund, Inc. ($100,000
minimum), call: 1-800-541-7703.
HOW TO CONTACT SCUDDER
Account Service and Information
For existing account service and transactions
SCUDDER SERVICE CORPORATION
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR INFORMATION
1-800-225-2470
For establishing Keogh, 401(k) and 403(b) plans
SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105
Please address all correspondence to
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they
can be found in the following cities:
Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and
trusts which utilizes certain portfolios of Scudder Fund, Inc.*
($100,000 minimum), call: 1-800-541-7703.
For information on Scudder Institutional Funds,* funds designed to
meet the broad investment management and service needs of banks and
other institutions, call:
1-800-854-8525.
Scudder Investor Information and Scudder Funds Centers are services
provided through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive
a prospectus with more complete information,
including management fees and expenses. Please read it carefully
before you invest or send money.
Celebrating 75 Years of Serving Investors
This year marks the 75th anniversary of the founding of Scudder,
Stevens & Clark, Inc., investment adviser for the Scudder Funds.
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped
shape the investment industry. In 1928, we introduced the nation's
first no-load mutual fund. Today we offer 36 pure no load(tm) funds,
including the first international mutual fund offered to U.S.
investors.
Over the years, Scudder's global investment perspective and
dedication to research and fundamental investment disciplines have
helped Scudder become one of the largest and most respected investment
managers in the world. Though times have changed since our beginnings,
we remain committed to our longstanding principles: managing money
with integrity and distinction, keeping the interests of our clients
first; providing access to investments and markets that may not be
easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
