This prospectus sets forth concisely the information about Scudder Growth and
Income 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 May 1, 1996, 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
Growth and
Income Fund
Prospectus
May 1, 1996
A pure no-load(TM) (no sales charges) mutual fund seeking long-term growth of
capital, current income, and growth of income.
<PAGE>
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 Growth and Income 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: 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 year ended December 31, 1995.
Investment management fee 0.51%**
12b-1 fees NONE
Other expenses 0.28%
----
Total Fund operating expenses 0.79%**
====
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
------ ------- ------- --------
$8 $25 $44 $98
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."
** These fees have been adjusted to reflect the fees which would have been
payable for the fiscal year ended December 31, 1995 under the Investment
Management Agreement dated August 8, 1995.
2
<PAGE>
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 December 31, 1995 and may be obtained without charge
by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993(b) 1992 1991 1990 1989 1988 1987 1986
------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .............................. $16.26 $17.24 $16.20 $15.76 $12.77 $14.14 $13.18 $12.31 $15.02 $15.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .................. .55 .49 .49 .57 .57 .65 .67 .60 .68 .67
Net realized and
unrealized gain (loss) on
investment transactions .............. 4.46 (.05) 2.01 .90 2.97 (1.01) 2.75 .86 (.07) 1.96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ............................. 5.01 .44 2.50 1.47 3.54 (.36) 3.42 1.46 .61 2.63
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income .................. (.56) (.51) (.45) (.53) (.55) (.67) (.69) (.59) (.68) (.68)
Net realized gains on
investment transactions .............. (.48) (.91) (1.01) (.50) -- (.34) (1.77) -- (2.64) (2.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ...................... (1.04) (1.42) (1.46) (1.03) (.55) (1.01) (2.46) (.59) (3.32) (2.96)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period ......... $20.23 $16.26 $17.24 $16.20 $15.76 $12.77 $14.14 $13.18 $12.31 $15.02
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%).......................... 31.18 2.60 15.59 9.57 28.16 (2.33) 26.36 12.01 3.50 18.27
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of period
($ millions) ........................... 3,061 1,992 1,624 1,166 723 491 490 402 392 385
Ratio of operating expenses to
average net assets (%) (a) ............. .80 .86 .86 .94 .97 .95 .87 .92 .89 .83
Ratio of net investment income
to average net assets (%) .............. 3.10 2.98 2.93 3.60 4.03 5.03 4.47 4.63 4.24 4.19
Portfolio turnover rate (%) .............. 26.9 42.3 35.5 27.5 44.7 64.7 76.6 47.6 59.5 45.3
<FN>
(a) The Adviser did not impose a portion of its management fee amounting
to $.02 per share for the year ended December 31, 1992.
If all expenses, including the management fee not imposed,
had been incurred by the Fund, the annualized ratio of expenses to
average net assets for such year would have been 1.08%
and the total return would have been lower. This ratio includes costs
associated with the acquisition of certain assets of
Niagara Share Corporation on July 27, 1992, exclusive of these charges the
ratio would have been .92%.
(b) Effective January 1, 1993, the Fund discontinued using equalization accounting.
</FN>
</TABLE>
3
<PAGE>
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 $100 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 Growth and Income Fund
Investment objective
* long-term growth of capital, current income and growth of income
Investment characteristics
* an actively managed portfolio consisting primarily of common stocks and
securities convertible into common stocks an emphasis on companies with
good prospects for earnings growth over time
* opportunity to share in the long-term growth of the U.S. stock market as
well as stock market risk
* daily liquidity at current net asset value
Contents
Investment objective and policies 5
Why invest in the Fund? 5
Investment results 6
Additional information about policies
and investments 7
Distribution and performance information 10
Fund organization 11
Purchases 12
Exchanges and redemptions 13
Transaction information 14
Shareholder benefits 17
Trustees and Officers 21
Investment products and services 22
How to contact Scudder 23
4
<PAGE>
Investment objective and policies
Scudder Growth and Income Fund (the "Fund"), a diversified series of Scudder
Investment Trust, seeks long-term growth of capital, current income and growth
of income. The Fund invests primarily in common stocks, preferred stocks, and
securities convertible into common stocks of companies which offer the prospect
for growth of earnings while paying current dividends. Over time, continued
growth of earnings tends to lead to higher dividends and enhancement of capital
value. The Fund allocates its investments among different industries and
companies, and adjusts its portfolio securities for investment considerations
and not for trading purposes.
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 attempts to achieve its investment objective by investing primarily in
dividend-paying common stocks, preferred stocks and securities convertible into
common stocks. The Fund may also purchase such securities which do not pay
current dividends but which offer prospects for growth of capital and future
income. Convertible securities (which may be current coupon or zero coupon
securities) are bonds, notes, debentures, preferred stocks and other securities
which may be converted or exchanged at a stated or determinable exchange ratio
into underlying shares of common stock. The Fund may also invest in
nonconvertible preferred stocks consistent with the Fund's objective. From time
to time, for temporary defensive purposes, when the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser") feels such a position is
advisable in light of economic or market conditions, the Fund may invest a
portion of its assets in cash and cash equivalents. The Fund may invest in
foreign securities and in repurchase agreements. It may also loan securities and
may engage in strategic transactions. More information about investment
techniques is provided under "Additional information about policies and
investments."
The Fund's share price fluctuates with changes in interest rates and market
conditions. These fluctuations may cause the value of shares to be higher or
lower than when purchased.
Why invest in the Fund?
The Fund seeks to provide participation in the long-term growth of the economy
through the potential investment returns offered by common stocks and securities
convertible into common stocks. It maintains a diversified portfolio consisting
primarily of common stocks, preferred stocks and convertible securities of
companies with long-standing records of earnings growth. These companies, many
of which are mainstays of the domestic U.S. economy, offer prospects for future
growth of earnings and profits, and therefore may offer investors attractive
long-term investment opportunities. This strategy, with an emphasis on income,
may be more appropriate for the conservative portions of your equity portfolio.
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.
5
<PAGE>
Investment results
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
The Fund is designed for long-term investors who can accept moderate stock market risk. In return for accepting stock
market risk, you may earn a greater return on your investment than from a money market or an income fund, but experience
less risk than from a portfolio of more speculative equity securities.
- -------------------------------------------------------------------------------------------------------------------------
Annual Capital Changes* Standard & Poor's
Scudder Growth and Income Fund 500 Stock Index
----------------------------------------------------------------- ---------------------------------
Net Asset Capital Gains Capital Price Capital
December 31 Value/Share Dividends Distributions Change Level Change
----------- ----------- ----------- ------------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
1985 $15.35 211
1986 15.02 $0.68 $2.28 + 13.39% 242 + 14.69%
1987 12.31 0.68 2.64 - 0.66 247 + 2.07
1988 13.18 0.59 -- + 7.07 278 + 12.55
1989 14.14 0.69 1.77 + 20.84 353 + 26.99
1990 12.77 0.67 0.34 - 7.32 330 - 6.52
1991 15.76 0.55 -- + 23.41 417 + 26.36
1992 16.20 0.53 0.50 + 6.04 436 + 4.46
1993 17.24 0.45 1.01 + 12.67 466 + 6.88
1994 16.26 0.51 0.91 - 0.43 459 - 1.50
1995 20.23 0.56 0.48 + 27.42 616 + 34.20
-------------------------------------------------------------------------------------------------------------------------
Growth of a $10,000 investment
Standard & Poor's
Scudder Growth and Income Fund 500 Stock Index
----------------------------------------------------------------- ---------------------------------
Total Return Total Return
------------------------ -----------------------
Periods Ended Value of Initial Average Value of Initial Average
December 31, 1995 $10,000 Investment Cumulative Annual $10,000 Investment Cumulative Annual
----------------- ------------------ ---------- ------ ------------------ ---------- ------
One Year $13,118 + 31.18% + 31.18% $13,758 + 37.58% + 37.58%
Five Years 21,845 + 118.45 + 16.91 21,544 + 115.44 + 16.58
Ten Years 36,974 + 269.74 + 13.97 40,036 + 300.36 + 14.87
The Standard & Poor's 500 Stock Index is an unmanaged index of 500 industrial, transportation, utility and financial
companies which is widely regarded as representative of the equity market in general. The Standard & Poor's 500 Stock
Index does not take into account the brokerage and other transaction costs investors incur when investing directly in
stocks on the index. The Fund's performance reflects actual investment experience, net of all operating expenses, which
are paid from the Fund's gross investment income. "Growth of a $10,000 investment" includes reinvestment of dividends and
capital gain distributions, if any.
The investment return and principal value of the Fund's shares represent past performance and will vary due to market
conditions, and the shares may be worth more or less at redemption than at original purchase.
* For definition of "capital change" please see "Distribution and performance information."
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
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 borrow money except as a temporary measure for extraordinary or
emergency purposes, and may not make loans except through the lending of
portfolio securities, the purchase of debt securities or through repurchase
agreements.
In addition, as a matter of nonfundamental policy, the Fund may not invest more
than 10% of its total assets, in the aggregate, in securities which are not
readily marketable, restricted securities and repurchase agreements maturing in
more than seven days.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.
Securities lending
The Fund may lend portfolio securities to registered broker/dealers as a means
of increasing its income. These loans may not exceed 33 1/3% of the Fund's total
assets taken at market value. Loans of portfolio securities will be secured
continuously by collateral consisting of U.S. Government securities or
fixed-income obligations that are maintained at all times in an amount at least
equal to the current market value of the loaned securities. The Fund will earn
any interest or dividends paid on the loaned securities and may share with the
borrower some of the income received on the collateral for the loan or will be
paid a premium for the loan.
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.
Convertible securities
The Fund may invest in convertible securities 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
While the Fund generally emphasizes investments in companies domiciled in the
U.S., it may invest in listed and unlisted foreign securities that meet the same
criteria as the Fund's domestic holdings. The Fund may invest in foreign
securities when the anticipated performance of the foreign securities is
believed by the Adviser to offer more return potential than domestic
alternatives in keeping with the investment objective of the Fund. The Fund may
enter into forward foreign currency exchange contracts in connection with the
purchase and sale of securities denominated in a foreign currency.
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.
7
<PAGE>
Additional information about policies and investments (cont'd)
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.
Securities lending. From time to time the Fund may lend its portfolio securities
to registered broker/dealers as described above. The risks of lending portfolio
securities, as with other extensions of secured credit, consist of possible
delays in receiving additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the borrower fail
financially. Loans will be made to registered broker/dealers deemed by the
Adviser to be of good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be earned from such loans would justify the
risk.
Illiquid investments. The absence of a trading market can make it difficult to
ascertain a market value fo illiquid investments. Disposing of illiquid
investments may involve timeconsuming negotiations and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
Zero coupon securities. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities that make current cash distributions of interest.
8
<PAGE>
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities.
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.
Foreign securities. Investments in foreign securities involve special
considerations due to limited information, higher brokerage costs, different
accounting standards, thinner trading markets as compared to domestic markets
and the likely impact of foreign taxes on the yield from debt securities. They
may also entail other risks, such as the possibility of one or more of the
following: imposition of dividend or interest withholding or confiscatory taxes;
currency blockages or transfer restrictions; expropriation, nationalization or
other adverse political or economic developments; less government supervision
and regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. Purchases of foreign
securities are usually made in foreign currencies and, as a result, the Fund may
incur currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar.
Further, it may be more difficult for the Fund's agents to keep currently
informed about corporate actions 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., increasing the risk of delayed settlements of
portfolio transactions or loss of certificates for portfolio securities. The
Fund's ability and decisions to purchase and sell portfolio securities may be
affected by laws or regulations relating to the convertibility and repatriation
of assets.
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
9
<PAGE>
Additional information about policies and investments (cont'd)
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position.
Finally, the daily variation margin requirements for futures contracts would
create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute dividends from its net investment income
quarterly in April, July, October and December. The Fund intends to distribute
net realized capital gains after utilization of capital loss carryforwards, if
any, in November or December to prevent application of a federal excise tax. An
additional distribution may be made within three months of the Fund's fiscal
year end, if necessary. Any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared.
According to preference, shareholders may receive distributions in cash or have
them reinvested in additional shares of the Fund. If an investment is in the
form of a retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholder's account.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains regardless of the length of time shareholders have owned
shares. Short-term capital gains and any other taxable income 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 its 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, five
years and ten years as of a stated ending date. "Cumulative total return"
represents the cumulative change in value of an investment in the Fund for
various periods. All types of total return calculations assume that all
dividends and capital gains distributions during the period were reinvested in
shares of the Fund. "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.
10
<PAGE>
Fund organization
Scudder Growth and Income 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 and on December 31, 1984 assumed the business of its
predecessor, which was organized as a Massachusetts corporation in May 1929.
The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Trust is not required to hold and has no current intention
of holding annual shareholder meetings, although special meetings may be called
for purposes such as electing or removing Trustees, changing fundamental
investment policies or approving an investment management contract. Shareholders
will be assisted in communicating with other shareholders in connection with
removing a Trustee as if Section 16(c) of the 1940 Act were applicable.
Investment adviser
The Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage the Fund's 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 Adviser receives an investment management fee for these services. As of
August 8, 1995, the Fund pays the Adviser an annual fee of 0.60% of the first
$500 million of the Fund's average daily net assets, 0.55% of such assets in
excess of $500 million, 0.50% of such assets in excess of $1 billion and 0.475%
of such assets in excess of $1.5 billion, and 0.45 of 1% of such assets in
excess of $2 billion. The fee is graduated so that increases in the Fund's net
assets may result in a lower annual fee rate and decreases in the Fund's net
assets may result in a higher annual fee rate. 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.
Prior to August 8, 1995 the investment management fee was equal, on an annual
basis, to 0.60% of the first $500 million of average daily net assets, 0.55% of
such assets in excess of $500 million, 0.50% of such assets in excess of $1
billion and 0.475% of such assets in excess of $1.5 billion.
For the fiscal year ended December 31, 1995, the Adviser received an investment
management fee of 0.52% of the Fund's average daily net assets on an annual
basis.
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
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.
11
<PAGE>
<TABLE>
<CAPTION>
<C> <C>
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 o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds."
by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds Scudder Shareholder Service
P.O. Box 2291 Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number. Then call
1-800-225-5163 for instructions.
o In Person Visit one of our 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 o By Mail Send a check with a Scudder investment slip, or with a letter of
payable to "The instruction including your account number and the complete Fund name, to
Scudder Funds." the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
o In Person Visit one of our Funds Centers to make an additional investment in your
Scudder fund account. Funds Center locations are listed under Shareholder
benefits.
o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy or By Telephone order for more details.
o By Automatic You may arrange to make investments on a regular basis through automatic
Investment Plan deductions from your bank checking account. Please call 1-800-225-5163
($50 minimum) for more information and an enrollment form.
12
<PAGE>
Exchanges and redemptions
Exchanging shares
Minimum investments: $1,000 to establish a new account;
$100 to exchange among existing accounts
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - 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;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds Scudder Shareholder 1-800-821-6234
P.O. Box 2291 Service Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA
02061-1612
-----------------------------------------------------------------------------------------------------------------------
Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). 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.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax 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;
- 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.
o By Automatic You may arrange to receive automatic cash payments periodically. Call
Withdrawal Plan 1-800-225-5163 for more information and an enrollment form.
</TABLE>
13
<PAGE>
Fund organization (cont'd)
Custodian
State Street Bank and Trust Company is the Fund's custodian.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Fund resulting from this cancellation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.
By "AutoBuy." If you elected "AutoBuy" for your account, you can call toll-free
to purchase shares. The money will be automatically transferred from your
predesignated bank checking account. Your bank must be a member of the Automated
14
<PAGE>
Clearing House for you to use this service. If you did not elect "AutoBuy," call
1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases must be for at
least $250 but not more than $250,000. Proceeds in the amount of your purchase
will be transferred from your bank checking account in two or three business
days following your call. For requests received by the close of regular trading
on the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. "AutoBuy" requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day.
If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "AutoBuy" transactions are not
available for Scudder IRA accounts and most other 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 by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "AutoSell." If you elected "AutoSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "AutoSell" requests received after the close of regular
trading
15
<PAGE>
Transaction information (cont'd)
on the Exchange will begin their processing and be redeemed at the net asset
value calculated the following business day.
"AutoSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $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.
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.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading.
Net asset value per share is calculated by dividing the value of total Fund
assets, less all liabilities, by the total number of shares outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of 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 redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
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.
16
<PAGE>
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 Growth and Income 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
17
<PAGE>
Shareholder benefits (cont'd)
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 Stated and abroad. Scudder believes its team approach benefits
Fund investors by bringing together many disciplines and leveraging Scudder's
extensive resources.
Lead Portfolio Manager Robert T. Hoffman has had responsibility for setting the
Fund's stock investing strategy and overseeing the Fund's day-to-day operations
since 1991. Mr. Hoffman, who joined Scudder in 1990 as a portfolio manager, has
12 years of experience in the investment industry, including several years of
pension fund management experience. Kathleen T. Millard, Portfolio Manager, has
been involved in the investment industry since 1983 and has worked as a
portfolio manager since 1986. Ms. Millard, who joined the team and Scudder in
1991, focuses on strategy and stock selection. Benjamin W. Thorndike, Portfolio
Manager, is the Fund's chief analyst and strategist for convertible securities.
Mr. Thorndike, who has 17 years of investment experience, joined Scudder in 1983
as a portfolio manager and the Fund in 1986. Lori Ensinger, Portfolio Manager,
joined the Fund in 1996 and focuses on stock selection and investment strategy.
Ms. Ensinger has worked in the investment industry since 1983 and at Scudder
since 1993. G. Todd Silva, Portfolio Manager, has focused on stock selection and
investment strategy since joining the Fund in 1996. Mr. Silva, who joined
Scudder in 1993, has over six years of investment experience.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. 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.
18
<PAGE>
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
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.
19
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
* 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.
20
<PAGE>
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; President and Director, Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
Juris Padegs*
Trustee
Jean C. Tempel
Trustee; General Partner, TL Ventures
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
Valerie F. Malter*
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.
21
<PAGE>
Investment products and services
<TABLE>
<CAPTION>
<C> <C>
The Scudder Family of Funds
Income
Money market Scudder Emerging Markets Income Fund
Scudder Cash Investment Trust Scudder Global Bond Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax free money market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Zero Coupon 2000 Fund
Tax free+ Growth
Scudder California Tax Free Fund* Scudder Capital Growth Fund
Scudder High Yield Tax Free Fund Scudder Development Fund
Scudder Limited Term Tax Free Fund Scudder Global Discovery Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Gold Fund
Scudder Massachusetts Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Medium Term Tax Free Fund Scudder International Fund
Scudder New York Tax Free Fund* Scudder Latin America Fund
Scudder Ohio Tax Free Fund* Scudder Pacific Opportunities Fund
Scudder Pennsylvania Tax Free Fund* Scudder Quality Growth Fund
Growth and Income Scudder Small Company Value Fund
Scudder Balanced Fund Scudder Value Fund
Scudder Growth and Income Fund The Japan Fund
------------------------------------------------------------------------------------------------------------------------
Retirement Plans and Tax-Advantaged Investments
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan*+++ (a variable annuity) Profit Sharing and
401(k) Plans Money Purchase Pension Plans
------------------------------------------------------------------------------------------------------------------------
Closed-end Funds#
The Argentina Fund, Inc. Scudder New Europe Fund, Inc.
The Brazil Fund, Inc. Scudder World Income Opportunities Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc. Institutional Cash Management
The Latin America Dollar Income Fund, Inc. Scudder Institutional Fund, Inc.
Montgomery Street Income Securities, Inc. Scudder Fund, Inc.
Scudder New Asia 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.
</TABLE>
22
<PAGE>
How to contact Scudder
<TABLE>
<CAPTION>
<C> <C>
Account Service and Information: Please address all correspondence to:
The Scudder Funds
For existing account service Scudder Investor Relations P.O. Box 2291
and transactions 1-800-225-5163 Boston, Massachusetts
02107-2291
For personalized information Scudder Automated
about your Scudder accounts; Information Line (SAIL)
exchanges and redemptions; or 1-800-343-2890
information on any Scudder fund
Investment Information: Or Stop by a Scudder Funds Center:
To receive information about Scudder Investor Relations Many shareholders enjoy the personal, one-on-one
the Scudder funds, for 1-800-225-2470 service of the Scudder Funds Centers. Check for a
additional applications and Funds Center near you--they can be found in the
prospectuses, or for following cities:
investment questions
For establishing 401(k) and Scudder Defined Boca Raton New York
403(b) plans Contribution Services Boston Portland, OR
1-800-323-6105 Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
For information on Scudder Treasurers Trust(TM), an For information on Scudder Institutional Funds*, funds
institutional cash management service for corporations, designed to meet the broad investment management and
non-profit organizations and trusts which utilizes service needs of banks and other institutions, call:
certain portfolios of Scudder Fund, Inc.* ($100,000 1-800-854-8525.
minimum), call: 1-800-541-7703.
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.
</TABLE>
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<PAGE>
SCUDDER GROWTH AND INCOME FUND
A Pure No-Load(TM) (No Sales Charges) Diversified
Mutual Fund Seeking Long-Term Growth of
Capital, Current Income and
Growth of Income
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STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
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This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder Growth and Income Fund
dated May 1, 1996, 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.
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TABLE OF CONTENTS
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THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Investment Restrictions.....................................................................................11
PURCHASES............................................................................................................13
Additional Information About Opening An Account.............................................................13
Additional Information About Making Subsequent Investments..................................................14
Additional Information About Making Subsequent Investments by AutoBuy.......................................14
Checks......................................................................................................14
Wire Transfer of Federal Funds..............................................................................15
Share Price.................................................................................................15
Share Certificates..........................................................................................15
Other Information...........................................................................................15
EXCHANGES AND REDEMPTIONS............................................................................................16
Exchanges...................................................................................................16
Redemption by Telephone.....................................................................................16
Redemption by AutoSell......................................................................................17
Redemption by Mail or Fax...................................................................................18
Redemption-In-Kind..........................................................................................18
Other Information...........................................................................................18
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................19
The Pure No-Load(TM) Concept................................................................................19
Dividend and Capital Gain Distribution Options..............................................................20
Diversification.............................................................................................21
Scudder Funds Centers.......................................................................................21
Reports to Shareholders.....................................................................................21
Transaction Summaries.......................................................................................21
THE SCUDDER FAMILY OF FUNDS..........................................................................................21
SPECIAL PLAN ACCOUNTS................................................................................................25
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals..............................................................................25
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........25
Scudder IRA: Individual Retirement Account.................................................................25
Scudder 403(b) Plan.........................................................................................26
Automatic Withdrawal Plan...................................................................................26
Group or Salary Deduction Plan..............................................................................27
Automatic Investment Plan...................................................................................27
Uniform Transfers/Gifts to Minors Act.......................................................................27
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS.............................................................................27
PERFORMANCE INFORMATION..............................................................................................28
Average Annual Total Return.................................................................................28
Cumulative Total Return.....................................................................................29
Total Return................................................................................................29
Capital Change..............................................................................................29
Comparison of Fund Performance..............................................................................29
FUND ORGANIZATION....................................................................................................33
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TABLE OF CONTENTS (continued)
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INVESTMENT ADVISER...................................................................................................34
Personal Investments by Employees of the Adviser............................................................37
TRUSTEES AND OFFICERS................................................................................................37
REMUNERATION.........................................................................................................39
DISTRIBUTOR..........................................................................................................40
TAXES................................................................................................................41
PORTFOLIO TRANSACTIONS...............................................................................................45
Brokerage...................................................................................................45
Portfolio Turnover..........................................................................................46
NET ASSET VALUE......................................................................................................46
ADDITIONAL INFORMATION...............................................................................................47
Experts.....................................................................................................47
Shareholder Indemnification.................................................................................47
Other Information...........................................................................................47
FINANCIAL STATEMENTS.................................................................................................48
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THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
(See "Investment objectives and policies" and
"Additional information about policies and
investments" in the Fund's prospectus.)
General Investment Objective and Policies
Scudder Growth and Income Fund (the "Fund"), a series of Scudder
Investment Trust (the "Trust"), is a pure no-load(TM), diversified, open-end
management investment company which continuously offers and redeems its shares.
It is a company of the type commonly known as a mutual fund.
The Fund seeks long-term growth of capital, current income and growth
of income.
The Fund invests primarily in common stocks, preferred stocks and
securities convertible into common stocks of companies which offer the prospect
for growth of earnings while paying current dividends. Over time, continued
growth of earnings tends to lead to higher dividends and enhancement of capital
value. The Fund allocates its investments among different industries and
companies and adjusts portfolio securities for investment considerations and not
for trading purposes.
The Fund attempts to achieve its investment objective by investing
primarily in dividend-paying common stocks, preferred stocks and securities
convertible into common stocks. The Fund may also purchase such securities which
do not pay current dividends but which offer prospects for growth of capital and
future income. Convertible securities (which may be current coupon or zero
coupon securities) are bonds, notes, debentures, preferred stocks and other
securities which may be converted or exchanged at a stated or determinable
exchange ratio into underlying shares of common stock. The Fund may also invest
in nonconvertible preferred stocks consistent with the Fund's objective. From
time to time, for temporary defensive purposes, when the Fund's investment
adviser, Scudder, Stevens & Clark, Inc. (the "Adviser") feels such a position is
advisable in light of economic or market conditions, the Fund may invest a
portion of its assets in cash and cash equivalents. The Fund may invest in
foreign securities. It may also invest in repurchase agreements and loan
securities and may engage in strategic transactions.
The Adviser believes that a fund investing in these kinds of securities
can perform well whether a growth or value investment style is in favor and that
the Fund's dividend strategy can improve its performance in down markets. The
Adviser believes these characteristics can help a shareholder feel comfortable
holding on to the Fund for the long run, despite short-term changes in the
investment climate.
When evaluating a security for purchase or sale, the Adviser may
consider a security's dividend yield relative to the average dividend yield of
the Standard & Poor's 500 Index.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net
asset value of the Fund's shares will increase or decrease with changes in the
market prices of the Fund's investments and there is no assurance that the
Fund's objective will be achieved. Except as otherwise noted, the Fund's
investment objective and policies may be changed by the Trustees without a vote
of the shareholders.
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
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increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and so may not experience market value declines to
the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes (LYONS). 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 follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter 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. While the Fund generally emphasizes investments in companies
domiciled in the U.S., it may invest in listed and unlisted foreign securities
that meet the same criteria as the Fund's domestic holdings. The Fund may invest
in foreign securities when the anticipated performance of the foreign securities
is believed by the Adviser to offer more potential than domestic alternatives in
keeping with the investment objective of the Fund.
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 and auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than the New York
Stock Exchange (the "Exchange") and securities of some foreign companies are
less liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than the volume and
liquidity 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 possible liability to the purchaser. Fixed
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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
nationalization, expropriation, the imposition of withholding or confiscatory
taxes, political, social, or economic instability or diplomatic developments
which could affect U.S. investments in those countries. Investments in foreign
securities may also entail certain risks, such as possible currency blockages or
transfer restrictions and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the 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.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
Investments in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
the value of these assets for 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, if any, into U.S. dollars on a daily basis. It may 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, if any, either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward foreign
currency exchange contracts. (See "Currency Transactions" for more information.)
To the extent that the Fund invests in foreign securities, the Fund's
share price could reflect the movements of both the different stock and bond
markets in which it is invested and the currencies in which the investments are
denominated; the strength or weakness of the U.S. dollar against foreign
currencies could account for part of that Fund's investment performance.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Adviser to be of good standing.
The value of the securities loaned will not exceed 33(1)/(3)% of the value of
the Fund's total assets at the time any loan is made.
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Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
("S&P").
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
repurchase price on 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 result in 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 through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case the Fund may incur a loss if the proceeds to the Fund of its sale of the
securities underlying the repurchase agreement 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 enforce the seller's 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 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
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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.
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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 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
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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
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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
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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
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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.
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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 may not be
changed without the approval of a majority of the outstanding voting securities
of the Fund involved which, under the 1940 Act and the rules thereunder and as
used in this Statement of Additional Information, means the lesser of (1) 67% or
more of the voting securities present at a meeting, if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy; or (2) more than 50% of the outstanding voting securities of the Fund.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, a 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 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
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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).
The Fund has undertaken that if the Fund obtains an exemptive order of
the SEC which would permit the taking of action in contravention of any policy
which may not be changed without a shareholder vote, the Fund will not take such
action unless either (i) the applicable exemptive order permits the taking of
such action without a shareholder vote or (ii) the staff of the SEC has issued
to the Fund a "no action" or interpretive letter to the effect that the Fund may
proceed without a shareholder vote.
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 total 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 7 days, and the Fund will not invest more than
10% 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;
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(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 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 33(1)/(3)% 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; 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 taxpayer 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 taxpayer 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
02101, 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.
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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, and 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 Fund shall have the authority, as agent of the shareholder, to redeem shares
in the account in order to reimburse the Fund or the principal underwriter for
the loss incurred. Net losses on such transactions which are not recovered from
the purchaser will be absorbed by the principal underwriter. Any net profit on
the liquidation of unpaid shares will accrue to the Fund.
Additional Information About Making Subsequent Investments by AutoBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000 but not less than $250. To
purchase shares by AutoBuy, shareholders should call before 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on
the day of your call. AutoBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
AutoBuy and redeem them within seven days of the purchase, the Fund may hold the
redemption proceeds for a period of up to seven business days. If you purchase
shares and there are insufficient funds in your bank account the purchase will
be canceled and you will be subject to any losses or fees incurred in the
transaction. AutoBuy transactions are not available for Scudder IRA accounts and
most other retirement plan accounts.
In order to request purchases by AutoBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish AutoBuy may so indicate on the application.
Existing shareholders who wish to add AutoBuy to their account may do so by
completing an AutoBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
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 Trust 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
14
<PAGE>
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from, or restricted in, placing future orders in any of the
Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m., eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently the Distributor pays a fee for receipt by 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 the Trust's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.
Share certificates now in a shareholder's possession may be sent to Scudder
Service Corporation (the "Transfer Agent") for cancellation and credit to such
shareholder's account. Shareholders who prefer may hold the certificates in
their possession until they wish to exchange or redeem such shares. (See
"Redeeming shares" in the Fund's prospectus.)
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 may suspend or
terminate the offering of shares of the Fund at any time.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., from exempt organizations, certification of exempt status) will be
returned to the investor.
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.
15
<PAGE>
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 account or may involve opening
a new account in another fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) 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 an original signature guarantee as described under
"Transaction information--Redeeming shares--Signature guarantee" 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 the respective net
asset value determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
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 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 by telephone up to $50,000 to their address of record.
Shareholders may also request by telephone to have the proceeds mailed or wired
to their pre-designated bank account. In order to request wire redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
16
<PAGE>
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate section
on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA, Scudder
Pension and Profit Sharing, Scudder 401(k) and Scudder 403(b)
plan holders) who wish to establish telephone redemption to a
predesignated bank account or who want to change the bank account
previously designated to receive redemption proceeds should
either return a Telephone Redemption Option Form (available upon
request) or send a letter identifying the account and specifying
the exact information to be changed. The letter must be signed
exactly as the shareholder's name(s) appears on the account. An
original signature and an original signature guarantee are
required for each person in whose name the account is registered.
Telephone redemption is not available with respect to shares
represented by share certificates or 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 requests by telephone (technically a repurchase by agreement
between the Trust and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared, which may take up to seven
business days.
Redemption by AutoSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoSell program may sell shares of the Fund by telephone. To sell shares
by AutoSell, shareholders should call before 4 p.m. eastern time. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, shares will be redeemed at the net asset value per share calculated at
the close of trading on the day of your call. AutoSell requests received after
the close of regular trading on the Exchange will begin their processing and be
redeemed at the net asset value calculated the following business day. AutoSell
transactions are not available for Scudder IRA accounts and most other
retirement plan accounts.
In order to request redemptions by AutoSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish AutoSell may so indicate on the application.
Existing shareholders who wish to add AutoSell to their account may do so by
17
<PAGE>
completing an AutoSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signature(s) guaranteed as explained in the
Fund's prospectus.
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 share certificates or shares
registered in other than individual names contact the Transfer Agent prior to
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 for shares tendered for
repurchase or redemption may result but only until the purchase check has
cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information please 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 Trust 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
Fund has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Trust 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
Trust through the Distributor at Two International Place, Boston, Massachusetts
02110-4103 by letter, fax 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 guarantee", 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
18
<PAGE>
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
Trust 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 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 Trust 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) a governmental body
having jurisdiction over the Fund may by order permit such a suspension for the
protection of the Trust's shareholders; provided that applicable rules and
regulations of the SEC (or any succeeding governmental authority) will 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 Fund. No transfer from an existing account to a
new fund account may be for less than $1,000 or the new account will be redeemed
as described above. (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.
19
<PAGE>
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 with 0.75% No-Load Fund with
YEARS Pure No-Load(TM)Fund 8.50% Load Fund 12b-1 Fee 0.25% 12b-1 Fee
<S> <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.
Dividend and Capital Gain Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be received by the Transfer Agent 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 written request. See "How to
contact Scudder" in the prospectus for the address.
Reinvestment is usually made at the closing net asset value determined
on the 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
20
<PAGE>
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.
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
Your investment represents an interest in a large, diversified
portfolio of carefully selected securities. Diversification may protect you
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. The Centers are designed to provide individuals with services
during any business day. Investors may pick up literature or find assistance
with opening an account, adding monies or special options to existing accounts,
making exchanges within the Scudder Family of Funds, redeeming shares, or
opening retirement plans. Checks should not be mailed to the Centers but to "The
Scudder Funds" at the address listed under "How to Contact Scudder" in the
Prospectus.
Reports to Shareholders
The Trust issues shareholders financial statements examined by
independent accountants on a semi-annual 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. The Fund
presently intends to distribute to shareholders informal quarterly reports
during the intervening quarters, containing certain performance and investment
highlights of the Fund.
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
21
<PAGE>
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 Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder 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 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.
- -----------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
22
<PAGE>
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.
- -----------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
23
<PAGE>
Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.
Scudder 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 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 Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. 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.
The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; easy telephone exchanges
into other Scudder funds; shares redeemable at net asset value at any time.
24
<PAGE>
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 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 Plan
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
25
<PAGE>
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 following table 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
Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
<S> <C> <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
Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
<S> <C> <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 may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. 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
26
<PAGE>
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.
DIVIDENDS AND CAPITAL GAIN 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, 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
27
<PAGE>
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,
exclusive of net short-term capital gains in excess of net long-term capital
losses, in April, July, October and December each year. Distributions of net
capital gains realized during each fiscal year will be made annually before the
end of the Fund's fiscal year on December 31. Additional distributions,
including distributions of net short-term capital gains in excess of net
long-term capital losses, may be made within three months of the Fund's fiscal
year end, 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 under its current investment objective), 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 finding the average
annual compound rates of return of a hypothetical investment, over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
T = Average Annual Total Return.
P = a hypothetical initial 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 periods ended December 31, 1995
One Year Five Years Ten Years
-------- ---------- ---------
31.18% 16.91% 13.97%
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.
28
<PAGE>
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 finding the
cumulative rates of a 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 periods ended December 31, 1995
One Year Five Years Ten Years
-------- ---------- ---------
31.18% 118.45% 269.74%
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,
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. Historical
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.
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
29
<PAGE>
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, Standard & Poor's 500 Composite
Stock Price Index (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.
30
<PAGE>
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.
Scudder's Theme: Build Create Provide. Marketing and fund literature may refer
to Scudder's theme: "Build Create Provide." This theme intends to encapsulate
the composition of a sound investment philosophy, one through which Scudder can
help provide investors appropriate avenues for pursuing dreams. Individuals
recognize the need to build investment plans that are suitable and directed at
achieving one's financial goals. The desired result from planning and a
long-term commitment to it is the ability to build wealth over time. While there
are no guarantees in the pursuit of wealth through investing, Scudder believes
that a sound investment plan can enhance one's ability to achieve financial
goals that are clearly defined and appropriately approached. Wealth, while a
relative term, may be defined as the freedom to provide for those interests
which you hold most important -- your family, future, and/or your community.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
31
<PAGE>
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.
Ned Davis Research, an independent research and brokerage firm that specializes
in quantitative research and publishes quarterly statistics pertaining to the
investment industry.
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.
32
<PAGE>
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
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 on May 15, 1991 from Scudder
Growth and Income Fund. The other series of the Trust is Scudder Quality Growth
Fund.
On November 4, 1987, the par value of the shares of beneficial interest
of the Trust was changed from no par value to $0.01 par value per share. The
Trust's authorized capital consists of an unlimited number of shares of
beneficial interest of $0.01 par value, all of which are of one class and have
equal rights as to voting, dividends and liquidation. The Trustees have the
authority to issue two or more series of shares and to designate the relative
rights and preferences as between the different series. All shares issued and
outstanding will be fully paid and non-assessable by the Trust and redeemable as
described in this Statement of Additional Information and in the Fund's
prospectus.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
33
<PAGE>
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to other series.
The Trustees, in their discretion, may authorize the division of shares
of the Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes nor of changing the method of distribution of shares of the
Fund.
The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Trust. However, nothing in the 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 United States. 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
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 Securities Trust, Scudder State Tax Free
Trust, Scudder Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S.
Treasury Money Fund, Scudder Variable Life Investment Fund, 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 over $12 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust and AARP Cash
Investment Funds.
The Adviser maintains a large research department, which conducts
ongoing 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 for clients of
the Adviser, but conclusions are based primarily on investigations and critical
analyses by its own research specialists.
34
<PAGE>
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 the Fund, and the Adviser was approved by the Trustees of
the Trust on August 8, 1995. The Agreement is dated August 8, 1995 and will
continue in effect until September 30, 1996 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 Fund, cast in person at a meeting called for the purpose of
voting on such approval, and by a majority vote either of the Fund's 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 what securities
shall be purchased for the portfolio of the Fund, what portfolio securities
shall be held or sold by the Fund and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Fund's Declaration of
Trust and By-Laws, the 1940 Act and the Code and to the Fund's investment
objectives, policies and restrictions and subject, further, to such policies and
instructions as the Trustees of the Trust may from time to time establish. The
Adviser also advises and assists the officers of the Trust in taking such steps
as are necessary or appropriate to carry out the decisions of its Trustees and
the appropriate committees of the Trustees regarding the conduct of the business
of the Fund.
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 Trust,
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 Trust's
office space and facilities.
For the Adviser's services from August 9, 1994 to August 7, 1995, the
Fund paid the Adviser an annual fee of 0.60 of 1% on the first $500 million of
the Fund's average daily net assets, 0.55 of 1% of such assets in excess of $500
million, 0.50 of 1% of such assets in excess of $1 billion and 0.475 of 1% of
such assets in excess of $1.5 million. Effective August 8, 1995, the Fund pays
the Adviser an annual fee of 0.60 of 1% on the first $500 million of the Fund's
35
<PAGE>
average daily net assets, 0.55 of 1% of such assets in excess of $500 million,
0.50 of 1% of such assets in excess of $1 billion and 0.475 of 1% of such assets
in excess of $1.5 billion, and 0.45 of 1% of such assets in excess of $2
billion. The fee is payable monthly, provided the Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid.
For the years ended December 31, 1995, 1994, and 1993, the Fund was
charged by the Adviser aggregate fees pursuant to its then effective investment
advisory agreement of $13,054,200, $9,941,300, and $7,981,719, respectively. The
Adviser waived approximately $1.3 million of management fees otherwise payable
to it in 1992 by the Fund. The $1.3 million resulted from the one-time
assumption of substantially all of the Niagara Share Corporation's ("Niagara")
severance plan liability by the Fund during the Fund's acquisition of certain
assets of Niagara. Net assets as of December 31, 1995 were $3,061,207,580.
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; 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 issue, 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 Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for its
expenses 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 Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of the Fund for portfolio pricing services, if any.
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 Trust is at the time offering Fund 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 either 2 1/2% of average daily net assets up to $30,000,000, 2% of the
next $70,000,000 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. For the
years ended December 31, 1995, 1994 and 1993, expenses subject to an expense
limitation equaled 0.80%, 0.86%, and 0.86%, respectively, of the average net
assets of the Fund. 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. No reimbursements have ever been required to be paid by the
Adviser to the Fund.
On July 27, 1992, the Fund acquired certain assets with a fair value of
$208,411,296 (including unrealized appreciation of $52,317,307) from Niagara, a
closed-end investment company, in a tax free exchange for 13,249,287 shares of
the Fund and the assumption by the Fund of substantially all of Niagara's
severance plan liability of $1,300,000. The Fund and its shareholders did not
bear the economic burden of the assumption of such Niagara liability because the
Adviser waived approximately $1,300,000 of management fees otherwise payable to
it in 1992 by the Fund. In addition to the severance plan liability, costs of
$207,541 were incurred by the Fund as a result of the acquisition. These costs,
which were borne by the Fund are included as Fund expenses for the year ended
December 31, 1992.
The Agreement also provides that the Fund may use any name derived from
the name "Scudder, Stevens & Clark" only as long as the Agreement extension or
any renewal or amendment thereof remains in effect.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Trust who are not
"interested persons" of the Trust have been represented by independent counsel
at the Fund's expense.
36
<PAGE>
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Trustees of the Trust may have dealings with
the Trust as principals in the purchase or sale of securities, except as
individual subscribers or holders of shares of the Trust.
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
Position with
Position with Underwriter, Scudder
Name, Age and Address Fund Principal Occupation** Investor Services, Inc.
- --------------------- ------------- ---------------------- -----------------------
<S> <C> <C> <C>
Daniel Pierce+*= (62) President and Trustee Chairman of the Board and Vice President, Director and
Managing Director Assistant Treasurer
of Scudder, Stevens &
Clark, Inc.
Henry P. Becton, Jr. (52) Trustee President and General --
125 Western Avenue Allston, MA Manager, WGBH Educational
02134 Foundation
Dudley H. Ladd+*= (52) Trustee Managing Director of Senior Vice President
Scudder, Stevens & and Director
Clark, Inc.
George M. Lovejoy, Jr.=(66) Trustee President and Former --
160 Federal Street Director, Fifty Associates
Boston, MA 02110 (real estate corporation)
Wesley W. Marple, Jr.= (64) Trustee Professor of Business --
413 Hayden Hall Administration
360 Huntington Ave. Boston, MA Northeastern University,
02115 College of Business
Administration
37
<PAGE>
Position with
Position with Underwriter, Scudder
Name, Age and Address Fund Principal Occupation** Investor Services, Inc.
- --------------------- ------------- ---------------------- -----------------------
<S> <C> <C> <C>
Juris Padegs#* (64) Trustee Managing Director of Vice President and Director
Scudder, Stevens &
Clark, Inc.
Jean C. Tempel (53) Trustee General Partner, TL --
Ten Post Office Square Ventures, 1994
Suite 1325 (venture capital funds)
Boston, MA 02109
Bruce F. Beaty# (37) Vice President Principal of Scudder, --
Stevens & Clark, Inc.
Jerard K. Hartman# (63) Vice President Managing Director of --
Scudder, Stevens &
Clark, Inc.
Robert T. Hoffman# (37) Vice President Managing Director of --
Scudder, Stevens &
Clark, Inc.
Thomas W. Joseph+ (57) Vice President Principal of Scudder, Vice President, Director,
Stevens & Clark, Inc. Treasurer and Assistant Clerk
David S. Lee+ (62) Vice President Managing Director of President, Director and Assistant
Scudder, Stevens & Treasurer
Clark, Inc.
Douglas M. Loudon# (51) Vice President Managing Director of __
Scudder, Stevens & Clark,
Inc.
Valerie F. Malter# (37) Vice President Principal of Scudder, __
Stevens & Clark, Inc.
Thomas F. McDonough+ (49) Vice President, Principal of Scudder, Clerk
Secretary and Stevens & Clark, Inc.
Assistant Treasurer
Pamela A. McGrath+ (42) Vice President Managing Director of --
and Treasurer Scudder, Stevens & Clark,
Inc.
Edward J. O'Connell# (50) Vice President Principal of Scudder, Assistant Treasurer
and Assistant Stevens & Clark, Inc.
Treasurer
Coleen Downs Dinneen+ (35) Assistant Secretary Vice President of Assistant Clerk
Scudder, Stevens &
Clark, Inc.
</TABLE>
38
<PAGE>
* Messrs. Ladd, Padegs and Pierce are considered by the Fund and its
counsel to be persons who are "interested persons" of the Adviser or
of the Fund (within the meaning of the Investment Company Act of
1940, as amended).
** Unless otherwise stated, all the officers and directors have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
= Messrs. Ladd, Lovejoy and 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
As of March 31, 1996, all Trustees and officers of the Fund as a group
owned beneficially (as that term is defined in Section 13(d) of the Securities
Exchange Act of 1934) less than 1% of the Fund.
To the best of the Fund's knowledge, as of March 31, 1996 no person
owned beneficially more than 5% of the Fund's outstanding shares.
The Trustees and officers of the Fund also serve in similar capacities
with other Scudder funds.
REMUNERATION
Several of the officers and Trustees of the Trust may be officers or
employees of the Adviser or of 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 Trust. The Fund pays no
direct remuneration to any officer of the Trust. However, each of the Trust's
Trustees who is not affiliated with the Adviser will be compensated for all
expenses relating to Trust business (specifically including travel expenses
relating to Trust business). 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 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 December 31, 1995, such
fees totaled $34,820.
The following Compensation Table provides, 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 the
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).
Generally, compensation received by a Trustee for serving on the board of a
closed-end fund is greater than the compensation received by a Trustee for
serving on the board of an open-end fund.
39
<PAGE>
<TABLE>
Compensation Table
for the year ended December 31, 1995
========================== ============================= =================== ================= ====================
(1) (2) (3) (4) (5)
Aggregate Compensation from Pension or
Registrant (consisting of Retirement Estimated Total Compensation
two funds: Scudder Growth Benefits Accrued Annual Benefits From Registrant
Name of Person, and Income Fund and Scudder As Part of Fund Upon Retirement and Fund Complex
Position Quality Growth Fund) Expenses Paid to Trustee
========================== ============================= =================== ================= ====================
<S> <C> <C> <C> <C>
Henry P. Becton, Jr. $ 16,600 N/A N/A $ 82,800
Trustee (15 funds)
George M. Lovejoy, Jr. $ 17,500 N/A N/A $112,900
Trustee (12 funds)
Wesley W. Marple, Jr. $ 17,500 N/A N/A $ 93,100
Trustee (15 funds)
Jean C. Tempel $ 17,200 N/A N/A $ 92,200
Trustee (15 funds)
</TABLE>
DISTRIBUTOR
The Fund has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser. The Fund's underwriting agreement dated September 10, 1985 will
remain in effect until September 30, 1996 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 Board of Trustees or a majority of the outstanding
voting securities of the Fund. The underwriting agreement was approved by the
Trustees on August 8, 1995.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the Commission of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Fund as a
broker/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 customer 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
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 each Fund shall bear some or all of such expenses.
40
<PAGE>
NOTE: Although the Trust 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 Trust pursuant
to a 12b-1 Plan, if any, adopted by the Trust, 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. 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 "Fund organization--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 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 gain)
and is not generally subject to federal income tax to the extent that it
distributes annually its investment company taxable income and net realized
capital gains in the manner required under the Code.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires the Fund to distribute to shareholders during a calendar year an amount
equal to at least 98% of the Fund's ordinary income for the calendar year, at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) realized during the one-year period ending October 31
during such year and all ordinary income and capital gains for prior years that
were not previously distributed. Investment companies with taxable years ending
on November 30 or December 31 may make an irrevocable election to measure the
required capital gain distribution for excise tax purposes, using their actual
taxable year, rather than the one year period ending October 31.
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 of Fund
shares by the difference between a pro rata share of such gains and the
individual tax credit.
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
either those shares or the shares of the Fund are deemed to have been held by
the Fund or the shareholder, as the case may be, for less than 46 days.
41
<PAGE>
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 his or her 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 may allow the Fund to make
an election to mark to market its shares of these foreign investment companies
in lieu of being subject to U.S. federal income taxation. At the end of each
taxable year to which the election applies, the Fund would report as ordinary
income the amount by which the fair market value of the foreign company's stock
exceeds the Fund's adjusted basis in these shares. No mark to market losses may
be recognized. The effect of the election would be to treat excess distributions
42
<PAGE>
and gain on dispositions as ordinary income which is not subject to a fund level
tax when distributed to shareholders as a dividend. Alternatively, the Fund may
elect to include as income and gain its share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxed in
the manner described above.
Equity options (including covered call options on portfolio stock)
written or purchased by the Fund will be subject to tax under Section 1234 of
the Code. In general, no loss is recognized by the Fund upon payment of a
premium in connection with the purchase of a put or call option. The character
of any gain or loss recognized (i.e., long-term or short-term) will generally
depend, in the case of a lapse or sale of the option, on the Fund's holding
period for the option and, in the case of an exercise of the option, on the
Fund's holding period for the underlying security. The purchase of a put option
may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or substantially
identical security in the Fund's portfolio. 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
security. The exercise of a put option written by the Fund is not a taxable
transaction for the Fund.
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 will be treated as 60% long-term and 40%
short-term, and on the last trading day of the Fund's fiscal year (and
generally, on October 31 for purposes of the 4% excise tax), 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. 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 of the Code 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 consisting 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 consisting of at least one position not governed
by Section 1256 and at least one future, forward, or nonequity option contract
which is 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 receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency, and on disposition of certain futures,
forward or options contracts, 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
43
<PAGE>
losses, may increase or decrease the amount of the Fund's investment company
taxable income to be distributed to its shareholders as ordinary income.
If a Fund holds zero coupon securities or other securities which are
issued at a discount a portion of the difference between the issue price and the
face value of such securities ("original issue discount") will be treated as
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the Fund level. Shareholders will be subject to income tax on such
original issue discount, whether or not they elect to receive their
distributions in cash. If a fund acquires a debt instrument at a market
discount, a portion of the gain recognized (if any) on disposition of such
instrument may be treated as ordinary income.
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 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.
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 respecting investments by foreign investors.
Shareholders should consult their tax advisers about the application of
the provisions of tax law in light of their particular tax situations.
44
<PAGE>
PORTFOLIO TRANSACTIONS
Brokerage
To the maximum extent feasible the Adviser places orders for portfolio
transactions through the Distributor which in turn places orders on behalf of
the Fund with other broker/dealers. The Distributor receives no commissions,
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
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation 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; 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 in excess of
that which another broker might charge for executing the same transaction solely
on account of the receipt of research, market or statistical information. The
Adviser does not place orders with broker/dealers on the basis that the
broker/dealer has or has not sold shares of the Fund. In effecting transactions
in over-the-counter securities, orders are placed with the principal market
makers for the security being traded unless, after exercising care, it appears
that more favorable results are available elsewhere.
Subject also to obtaining the most favorable net results, the Adviser
may place brokerage transactions through the Custodian and a credit against the
custodian fee due to State Street Bank equal to one-half of the commission on
any such transaction will be given on any such transaction. Except for
implementing the policy stated above, there is no intention to place portfolio
transactions with particular broker/dealers or groups thereof.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through 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 December 31, 1995, 1994 and 1993, the Fund paid
brokerage commissions of $2,371,881, $2,365,678, and $1,929,340, respectively.
In the fiscal year ended December 31, 1995, the Fund paid brokerage commissions
of $2,193,768 (92% 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 $1,565,672,475 (92% 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.
45
<PAGE>
The Trustees of the Fund 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. Within the past three years no such recapture has been effected.
Portfolio Turnover
The Fund's average annual portfolio turnover rates, 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 December 31, 1995 and 1994 were 26.9% and 42.3%, respectively. 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
46
<PAGE>
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 audited by Coopers & Lybrand L.L.P., One Post Office
Square, Boston, MA 02109, independent accountants, and are included or
incorporated by reference in the Prospectus and this Statement of Additional
Information, in reliance upon the accompanying report of said firm, which report
is given upon their authority as experts in accounting and auditing.
Shareholder Indemnification
The Fund 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 Fund. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund property or the
acts, obligations or affairs of the Fund. The Declaration of Trust also provides
for indemnification out of the Fund 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 Fund itself would be unable to meet its obligations.
Other Information
The CUSIP number of the Fund is 811167-10-5.
The Fund has a fiscal year ending December 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 Adviser in light of the Fund's investment objectives and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Fund'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.
The name "Scudder Growth and Income Fund" is the designation of the
Trust 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 Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents, shareholders nor other series of
the Trust assume any personal liability for obligations entered into on behalf
of the Fund. No other series of the Trust assumes any liabilities for
obligations entered into on behalf of the Fund. Upon the initial purchase of
shares, the shareholder agrees to be bound by the Fund'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.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Fund. The Fund pays Scudder Fund Accounting Corporation an annual fee
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<PAGE>
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. For the fiscal
years ended December 31, 1995 and 1994, Scudder Fund Accounting Corporation's
fee amounted to $198,521 and $39,116, respectively.
Scudder Service Corporation (the "Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Fund. The Fund pays
Service Corporation an annual fee of $20.40 for each account maintained for a
participant which is $10.03 for its services as transfer and dividend disbursing
agent and $10.37 for its services as shareholder service agent. Prior to October
1, 1989, Scudder Service Corporation acted solely as shareholder service agent
for the Fund. Included in services to shareholders was $3,361,522, $2,830,015
and $2,158,056, charged to the Fund by Scudder Service Corporation during the
fiscal years ended December 31, 1995, 1994 and 1993, respectively, of which
$686,744 was unpaid at December 31, 1995.
Scudder Trust Company, an affiliate of the Adviser, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Annual service fees are paid by the Fund
to Scudder Trust Company, Two International Place, Boston, Massachusetts
02110-4103, an affiliate of the Adviser, for such accounts. The Fund pays
Scudder Trust Company an annual fee of $20.40 per shareholder account. The Fund
incurred fees of $1,518,972, $1,122,704 and $605,465 during the fiscal years
ended December 31, 1995, 1994 and 1993, respectively.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statement for further information
with respect to the Fund and the securities offered hereby. The Registration
Statement and its amendments, are available for inspection by the public at the
SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio, of
Scudder Growth and Income Fund, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements are
incorporated by reference and attached hereto and appear on pages 10 through 28
inclusive in the Annual Report to the Shareholders of the Fund dated December
31, 1995 and are hereby deemed to be a part of this Statement of Additional
Information.
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<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
Growth and
Income Fund
Annual Report
December 31, 1995
o A fund with an income-oriented approach to common stock investing. Offers
opportunities for long-term growth of capital, current income, and growth of
income.
o A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
<PAGE>
SCUDDER GROWTH AND INCOME FUND
CONTENTS
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
18 Financial Statements
21 Financial Highlights
22 Notes to Financial Statements
28 Report of Independent Accountants
29 Tax Information
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder
IN BRIEF
- - Scudder Growth and Income Fund had a strong year and produced a 31.18%
total return in 1995.
- - This performance was better than that of the average growth and income fund
tracked by Lipper Analytical Services, but slightly below that of the
unmanaged S&P 500.
- - The Fund's disciplined investment approach resulted in an overweighting of
two of the top performing sectors of the U.S. stock market--financial
services and healthcare--but kept it out of the technology sector, which
also performed well.
- - Going forward, the Fund's emphasis on income should cushion the price
volatility of the portfolio. Favored sectors include financial services and
healthcare, selected manufacturing issues, and overseas-based companies.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
Performance of the major global stock and bond markets was generally
positive in 1995 as slow growth, moderate inflation and falling interest rates
provided a favorable economic climate. The biggest investment story of the year
was the stunning advance in the U.S. equity market, which contributed to Scudder
Growth and Income Fund's gratifying total return of 31.18% for the year.
Despite the impressive performance in 1995 of the domestic stock
market, U.S. equities are reasonably valued when viewed against the backdrop of
lower bond yields. Even so, a repeat of 1995's exceptional performance is
unlikely, especially if the economy slows as anticipated in the coming year.
This type of environment actually is one in which the Fund has historically
performed relatively well due to its disciplined investment approach.
Longer term, we see a number of trends underway that support the
outlook for investment in the U.S. and around the world. Technology is bringing
efficiencies to every stage of the product cycle, from design to distribution.
Globalization has widened the competitive universe, making inflationary price
increases less likely. Deregulation is subjecting major industries to market
discipline, increasing capacity and reducing supply bottlenecks. While investing
will always involve uncertainties and market fluctuation, the result of these
forces may well be an era of disinflationary growth that benefits investors and
raises living standards worldwide.
Finally, it is pleasing when others recognize the value of the Fund's
disciplined investment approach, as witness the following quote from
Morningstar, an independent research firm:
Overall, the fund's yield-oriented style has led
to a nice balance of solid returns and
below-average risk. It makes an appealing package
for more conservative investors. (Morningstar
Mutual Funds, 10/27/95)
Scudder Growth and Income Fund's distinctive approach is discussed in detail in
the portfolio management discussion beginning on page 6, which takes the form of
a special interview with the Fund's Lead Portfolio Manager, Robert Hoffman.
We welcome the many new investors in the Fund and appreciate your vote
of confidence.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Growth and Income Fund
3
<PAGE>
SCUDDER GROWTH AND INCOME FUND
PERFORMANCE UPDATE as of December 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER GROWTH AND INCOME FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $13,118 31.18% 31.18%
5 Year $21,845 118.45% 16.91%
10 Year $36,974 269.74% 13.97%
S&P 500 INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $13,758 37.58% 37.58%
5 Year $21,544 115.44% 16.58%
10 Year $40,036 300.36% 14.87%
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:
YEARLY PERIODS ENDED DECEMBER 31
Scudder Growth and Income Fund
Year Amount
- ----------------------
85 $10,000
86 $11,830
87 $12,244
88 $13,715
89 $17,329
90 $16,926
91 $21,692
92 $23,767
93 $27,473
94 $28,187
95 $36,974
S&P 500 Index
Year Amount
- ----------------------
85 $10,000
86 $11,866
87 $12,490
88 $14,564
89 $19,178
90 $18,583
91 $24,244
92 $26,092
93 $28,721
94 $29,101
95 $40,036
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 DECEMBER 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
--------------------------------------------------------------------------------
NET ASSET VALUE... $15.02 $12.31 $13.18 $14.14 $12.77 $15.76 $16.20 $17.24 $16.26 $20.23
INCOME DIVIDENDS.. $ .68 $ .68 $ .59 $ .69 $ .67 $ .55 $ .53 $ .45 $ .51 $ .56
CAPITAL GAINS
DISTRIBUTIONS..... $ 2.28 $ 2.64 $ -- $ 1.77 $ .34 $ -- $ .50 $ 1.01 $ .91 $ .48
FUND TOTAL
RETURN (%)........ 18.27 3.50 12.01 26.36 -2.33 28.16 9.57 15.59 2.60 31.18
INDEX TOTAL
RETURN (%)........ 18.66 5.25 16.56 31.63 -3.11 30.40 7.61 10.06 1.32 37.58
</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.
4
<PAGE>
PORTFOLIO SUMMARY as of December 31, 1995
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Common and Preferred
Stocks 92% The Fund focuses on
Convertible Bonds 3% stocks with above-average
Convertible Stocks 3% dividends and sound
Cash Equivalents 2% fundamentals.
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
SECTORS (Excludes 2% Cash Equivalents)
- --------------------------------------------------------------------------
Financial 19%
Manufacturing 15%
Health 15% Emphasis is on sectors that
Consumer Staples 13% should perform relatively
Energy 9% well in a slowing economy.
Durables 7%
Communications 6%
Utilities 5%
Consumer Discretionary 4%
Other 7%
----
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. UNITED TECHNOLOGIES CORP.
Manufacturer of aerospace equipment, climate control
systems, and elevators
2. STUDENT LOAN MARKETING ASSOCIATION
Student loan financing programs
3. XEROX CORP.
Leading manufacturer of copiers and duplicators
4. TRW INC.
Defense electronics, automotive parts and systems
5. ELI LILLY & CO.
Leading pharmaceutical company
6. LOCKHEED MARTIN CORP.
Manufacturer of aircraft, missiles and space equipment
7. H&R BLOCK INC.
Tax consulting and preparation
8. H.J. HEINZ CO.
Major manufacturer of processed foods
9. AMERICAN HOME PRODUCTS CORP.
Major U.S. diversified pharmaceutical company
10. KIMBERLY-CLARK CORP.
Consumer paper products and newsprint
A number of manufacturers that represent attractive relative value
are among the Fund's top holdings.
- -----------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio,
see page 10.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings
are available upon request.
5
<PAGE>
SCUDDER GROWTH AND INCOME FUND
PORTFOLIO MANAGEMENT DISCUSSION
Scudder Growth and Income Fund is managed by a team of three professionals with
a cumulative 39 years of investment experience: Robert T. Hoffman, Benjamin W.
Thorndike, and Kathleen T. Millard. For a report on the Fund's 1995 performance
and strategy, as well as management's outlook and positioning going into 1996,
here is an interview with Robert T. Hoffman, Managing Director of Scudder
Stevens & Clark and Lead Portfolio Manager of Scudder Growth and Income Fund.
Q. Rob, how did Scudder Growth and Income Fund perform in 1995?
A. The Fund's total return for the year -- which includes change in share price
plus reinvestment of any distributions -- was 31.18%. This figure reflects a
$3.97 increase in the Fund's net asset value per share, to $20.23 on December
31, as well as income distributions totaling $0.56 per share and capital gain
distributions totaling $0.48 per share.
Q. How would you characterize this performance?
A. It was a good year. Anyone who was invested in the Fund for the full year
made more than 30%. In addition, we outperformed the average growth and income
fund tracked by Lipper Analytical Services, which provided a total return of
30.82%. The Fund failed to match the 37.58% return on the unmanaged S&P 500
Index, which is not surprising in such a spectacular year for stocks. The
discipline we use in managing the Fund should provide competitive returns in
strong markets, but the biggest comparative advantage is often found in dull or
weak markets, where it is designed to provide above-average performance.
Q. Could you give us your perspective on the market of the past year?
A. Many people may have forgotten that the prognosis for equities was not very
good going into 1995. Among other factors, the Federal Reserve was still
concerned about inflation and had been pursuing a tight money policy, and there
was the crisis surrounding Latin America and the bailout of Mexico. Stock market
sector leadership vacillated over the first half of the year with speculation
concerning the Fed, as investors tried to gauge the impact of more or less
restrictive monetary policy on cyclical industries. The Fed later reversed
course in July in the face of a GDP downtick and lowered interest rates, setting
off another wave of market realignment. While falling interest rates, low
inflation and strong corporate earnings combined over the course of the year to
propel stocks in the aggregate to levels no one had really anticipated, it was
easy for investors to get whipsawed by chasing the previous month's hot sector.
Patience was the key, and we remained true to our income-oriented discipline and
evaluations of company fundamentals in the face of these gyrations. We believe
that the worst thing to do is panic when your investment style is temporarily
out of favor.
6
<PAGE>
Q. What market sectors or individual holdings were most significant in terms
of the Fund's performance in 1995?
A. Of our largest holdings at the beginning of the year, seven of the top ten
outperformed the S&P 500 Index in 1995. In particular, the outperformance of our
major holdings -- names like United Technologies, Lockheed Martin, and Rockwell
- -- occurred in the durable goods sector.
Throughout 1995, the Fund maintained overweighted positions in the year's
top two performing sectors: financial services and health. Many financial
companies have been the beneficiaries of declining interest rates, and one
significant portfolio holding, the Student Loan Marketing Association, turned in
exceptional performance, with a total return of 108% for the year. Sallie Mae
was a unique opportunity where unfavorable political and corporate developments
had been overly discounted, resulting in a depressed stock price. Health stocks
in general surged on the strength of an improved regulatory outlook and a merger
wave fed by undervaluation in the pharmaceutical group.
On the downside, our position in international stocks was one of the
primary reasons for the Fund's underperformance versus the S&P 500. European
markets on the whole lagged the U.S., and even our very small exposure to Latin
America hurt us early in the year as those markets were sharply impacted by the
Mexican peso crisis. I should note that the Fund did not have meaningful
exposure to technology, another of the year's top-performing sectors, which hurt
performance slightly versus the overall market and some of our peers. This is a
natural consequence of our emphasis on high dividends and strong fundamentals,
and meant that we missed the upsurge -- but also avoided the year-end correction
- -- experienced by that volatile group. In fact, sticking to our discipline
enabled the Fund to finish the year in a strong fashion. Our return of 6.65% for
the fourth quarter was well ahead of the 4.53% return of the average growth and
income fund, as well as the 6.02% return of the S&P 500.
Q. What is your outlook for 1996 and how does it impact Fund strategy?
A. We are maintaining an overweighted position in the financial group but have
been trimming our exposure to the money center and regional banks, whose
valuations have become less attractive, especially in the face of slowing loan
growth and deteriorating consumer credit quality. We still favor select
insurance stocks and specialized companies such as Sallie Mae and Fannie Mae. We
are also optimistic about the Fund's position in REITs (Real Estate Investment
Trusts), a group which underperformed last year, but which now sports an
historically low valuation.
The healthcare group remains reasonably valued relative to the market and
the industry's history. It's worth noting that healthcare company earnings have
historically been resilient in the face of declining consumer purchasing power
- -- a likely scenario given already high debt levels. Certain economically
7
<PAGE>
sensitive sectors such as manufacturing and energy are undervalued in our view,
and are well-represented in the portfolio. The prices of some manufacturing
stocks, particularly in the paper/forest products group, already discount a
recession and may rally well before the economy actually bottoms out. Our
technology position continues to be small, as we maintain a strong emphasis on
relative yield, which is generally lacking in this sector.
Finally, we find relative value in some non-U.S. markets including Europe,
where central banks are expected to step on the monetary accelerator to
stimulate growth. Consequently, international stock holdings have been increased
to slightly more than 10% of assets. In this area, we are focusing on foreign
counterparts to U.S. companies that display more compelling valuations with
similar, if not better, fundamentals.
In general, our focus on high dividend-paying stocks tends to lead us in
the direction of value investing, and this has benefited the Fund over time as
the market recognizes the intrinsic worth of individual stocks in the portfolio.
We think this is a good position to be in as the economy winds down and market
leadership becomes less driven by earnings.
Q. Given the higher valuations of stocks after an exceptional year in 1995, is
now a good time to invest?
A. Price-earnings ratios have to be viewed in the context of prevailing interest
rate levels, and one can make the case that U.S. equities are not overvalued in
view of last year's sharp bond yield declines. Perhaps more to the point, it's
very difficult to time the market, and we don't recommend that investors try to
do so. Historically, stocks have provided returns over time that are superior to
those of other asset classes, so participation in the equity markets has been a
good long-term strategy. For investors concerned about a stock market correction
after last year's upsurge, Scudder Growth and Income Fund focuses on consistent
performance and provides a relatively conservative way to achieve or maintain
this valuable equity exposure. In other words, while we like to think the Fund
is a great long-term investment, we feel it's an especially good fund for equity
investors after a 38% year in the stock market.
Q. Could you explain how the Fund seeks to provide consistent performance?
A. Our emphasis on yield stocks is designed to force us to look at stocks that
are out of favor, but also provides a cushion against price declines. Each stock
we buy must meet the threshold requirement of having a dividend yield 20% higher
than the market as measured by the S&P 500 Index. In addition, stocks that no
8
<PAGE>
longer meet this criterion subsequent to purchase -- due to a price rise,
dividend cut, or change in market levels -- become candidates for sale. Of
course, our analysis only begins with a stock's yield; we also perform extensive
research to assess the quality, stability, and earnings outlook of underlying
issuers.
The rationale for our "relative yield" discipline is that stocks with
higher yields than the market have in the past performed competitively in up
markets while declining less in down markets. Conversely, low-dividend stocks,
while they have tended to outperform in rising markets, have underperformed by a
wide margin in declining markets. Of course, past performance doesn't guarantee
future results.
Q. How effective has the relative yield approach been in reducing volatility
and producing reliable relative performance for Fund shareholders?
A. The Fund has in fact been less volatile than most other growth and income
funds over time. This is true in terms of standard deviation, a common way of
expressing volatility which measures the variation of returns in either
direction around an investment's mean return over time. The results are even
more impressive when you look solely at the Fund's performance in down markets.
The relative yield approach has also had a positive effect on total returns
over time. Scudder Growth and Income Fund's total returns place it in the top
quarter of growth and income funds tracked by Lipper Analytical Services for the
two (of 340 funds), three (of 259 funds), five (of 192 funds), and ten (of 119
funds) year periods ended December 31, 1995. Average annual returns for the two,
three, five, and ten year periods are 16.01%, 15.87%, 16.91%, and 13.97%,
respectively.
Q. In view of the preceding, for whom is Scudder Growth and Income Fund most
suitable as an investment?
A. Growth and Income Fund is not for investors looking to "knock the cover off
the ball." Our goal in managing the Fund is to provide well above-average
performance over the long-term, in large part by being one of the top performers
in dull and falling markets. We believe the Fund is an excellent investment for
those seeking both participation in the equity markets and more consistent
performance than the average equity vehicle. We like to feel it could be used
either as the only stock vehicle for a conservative investor seeking stock
market exposure, or for the "core" portion of an equity portfolio containing
more aggressive investments.
Scudder Growth and
Income Fund:
A Team Approach to Investing
Scudder Growth and Income 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. We believe our
team approach benefits Fund investors by bringing together many disciplines and
leveraging Scudder's extensive resources.
Lead Portfolio Manager Robert T. Hoffman has had responsibility for setting
the Fund's stock investing strategy and overseeing the Fund's day-to-day
operations since he joined Scudder in 1991. Rob has 11 years of experience in
the investment industry and also heads up the portfolio management team for AARP
Growth and Income Fund. Kathleen T. Millard, Portfolio Manager, has been
involved in the investment industry since 1983 and at Scudder since 1991.
Kathleen focuses on strategy and stock selection, a role she also plays for AARP
Growth and Income Fund. Benjamin W. Thorndike, Portfolio Manager, is the Fund's
chief analyst and strategist for convertible securities. Ben, who has 16 years
of investment experience, joined Scudder and the Fund in 1986 and also is a
Portfolio Manager for AARP Growth and Income Fund.
9
<PAGE>
<TABLE>
SCUDDER GROWTH AND INCOME FUND
INVESTMENT PORTFOLIO as of December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
1.3% REPURCHASE AGREEMENT
--------------------------------------------------------------------------------------
39,452,000 Repurchase Agreement with Donaldson,
Lufkin & Jenrette dated 12/29/95 at 5.85%
to be repurchased at $39,477,644 on 1/2/96,
collateralized by a $31,294,000 U.S. Treasury
Note, 8.125%, 5/15/21 (Cost $39,452,000) ........ 39,452,000
----------
--------------------------------------------------------------------------------------
1.1% COMMERCIAL PAPER
--------------------------------------------------------------------------------------
25,000,000 Corporate Asset Funding Corp., 5.62%,
1/26/96 ......................................... 24,902,431
10,000,000 General Electric Capital Corp., 5.95%,
1/5/96 .......................................... 9,993,389
----------
TOTAL COMMERCIAL PAPER (COST $34,895,820) ......... 34,895,820
----------
--------------------------------------------------------------------------------------
0.1% FOREIGN BONDS-NON U.S. $ DENOMINATED
--------------------------------------------------------------------------------------
GBP 2,500,000 National Power PLC, 6.25%, 9/23/08
Cost $4,438,999) ................................. 4,144,629
----------
--------------------------------------------------------------------------------------
0.3% CORPORATE BONDS
--------------------------------------------------------------------------------------
FINANCIAL
5,500,000 Siemens Capital Corp. with warrants, 8%,
6/24/02 (Cost $7,177,934) ....................... 7,493,750
----------
--------------------------------------------------------------------------------------
2.8% CONVERTIBLE BONDS
--------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 0.1%
Department &
Chain Stores 4,000,000 Federated Department Stores, Inc. debenture,
5%, 10/1/03 ..................................... 3,970,000
----------
HEALTH 0.2%
Pharmaceuticals 5,810,000 Sandoz Capital BVI Ltd., 2%, 10/6/02 .............. 5,490,450
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL 0.8%
Banks 0.6% 16,140,000 MBL International Finance Bermuda,
3%, 11/30/02 .................................... 18,641,700
----------
Other Financial
Companies 0.2% 4,560,000 First Financial Management Corp.,
5%, 12/15/99 .................................... 7,330,200
----------
SERVICE INDUSTRIES 0.4%
Miscellaneous
Commercial Services 24,000,000 ADT Operations Inc. Liquid Yield Option
Note, 7/6/10 .................................... 11,460,000
----------
DURABLES 0.0%
Automobiles 1,500,000 Magna International, Inc., 5%, 10/15/02 ........... 1,518,750
----------
MANUFACTURING 0.2%
Diversified
Manufacturing 5,000,000 Thermo Electron Corp., 4.25%, 1/1/03 .............. 5,425,000
----------
TECHNOLOGY 0.5%
Computer Software 0.2% 8,260,000 Softkey International, Inc., 5.5%, 11/1/00 ........ 6,174,350
----------
Electronic Data Processing 0.1% 7,500,000 Silicon Graphics Inc., 11/2/13 .................... 3,890,625
----------
Precision Instruments 0.2% 1,500,000 Thermo Instruments Systems Inc., 6.625%,
8/15/01 ......................................... 4,312,500
----------
CONSTRUCTION 0.2%
Homebuilding 9,300,000 Empresa ICA Sociedad Controladora S.A.,
5%, 3/15/04 ..................................... 4,882,500
----------
TRANSPORTATION 0.4%
Airlines 13,600,000 Delta Air Lines, Inc., 3.23%, 6/15/03 12,920,000
TOTAL CONVERTIBLE BONDS (COST $79,872,279) ........ 86,016,075
----------
--------------------------------------------------------------------------------
2.5% CONVERTIBLE PREFERRED STOCKS
--------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------
HEALTH 1.0%
Health Industry Services 1.0% 1,100,200 FHP International Corp.,"A", Cum. $1.25 ........... 29,292,825
----------
Medical Supply &
Specialty 0.0% 25,000 US Surgical Corp., "A", Cum. $2.20 ................ 631,250
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
SCUDDER GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL 0.0%
Consumer Finance 7,500 Advanta Corp., 6.75% .............................. 287,813
----------
SERVICE INDUSTRIES 0.2%
Miscellaneous
Commercial Services 6,151,000 Jardine Strategic Holdings Ltd., 7.5%, 5/7/49 ..... 6,612,325
----------
MANUFACTURING 0.4%
Containers & Paper 0.1% 60,100 Boise Cascade Corp. "G", Cum $1.58 ................ 1,720,363
----------
47,000 International Paper Co., 5.25% .................... 2,115,000
----------
3,835,363
----------
Industrial Specialty 0.3% 606,300 Cooper Industries, Inc., 6% ....................... 8,336,625
----------
TECHNOLOGY 0.2%
Electronic Data Processing 50,000 Ceridian Corp., 5.5% .............................. 4,625,000
----------
ENERGY 0.3%
Oil & Gas Production 180,500 Parker & Parsley Capital Corp., 6.25% ............. 8,528,625
----------
METALS & MINERALS 0.4%
Precious Metals 500,000 Freeport McMoRan Copper & Gold, Inc.,
Cum. $1.25 ...................................... 13,625,000
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $70,400,943) .............................. 75,774,826
----------
-------------------------------------------------------------------------------
0.2% PREFERRED STOCKS
-------------------------------------------------------------------------------
COMMUNICATIONS
Telephone/
Communications 120,000 Philippine Long Distance Telephone Co.
(Cost $6,000,000) ............................... 6,247,500
----------
-------------------------------------------------------------------------------
91.7% COMMON STOCKS
-------------------------------------------------------------------------------
Consumer Discretionary 4.0%
Department &
Chain Stores 3.6% 745,600 J.C. Penney Co., Inc. ............................. 35,509,200
74,100 May Department Stores ............................. 3,130,725
567,800 Melville Corp. .................................... 17,459,850
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
827,000 Rite Aid Corp. .................................... 28,324,750
666,100 Sears, Roebuck & Co. .............................. 25,977,900
-----------
110,402,425
-----------
Specialty Retail 0.4% 864,600 Intimate Brands, Inc. ............................. 12,969,000
-----------
CONSUMER STAPLES 12.2%
Alcohol & Tobacco 3.9% 515,200 Anheuser Busch Companies, Inc. .................... 34,454,000
549,600 Philip Morris Companies Inc. ...................... 49,738,800
1,060,780 RJR Nabisco Holdings Corp. ........................ 32,751,583
60,320 Schweitzer-Mauduit International, Inc. ............ 1,394,900
-----------
118,339,283
-----------
Consumer Specialties 0.1% 277,000 A.T. Cross Co. "A" ................................ 4,189,625
-----------
Food & Beverage 3.5% 559,500 General Mills, Inc. ............................... 32,311,125
1,526,850 H.J. Heinz Co. .................................... 50,576,906
686,000 Quaker Oats Co. ................................... 23,667,000
-----------
106,555,031
-----------
Package Goods/Cosmetics 4.7% 394,100 Avon Products Inc. ................................ 29,705,288
367,600 Clorox Co. ........................................ 26,329,350
126,800 Colgate-Palmolive Co. ............................. 8,907,700
603,200 Kimberly-Clark Corp. .............................. 49,914,800
601,800 Tambrands Inc. .................................... 28,735,950
-----------
143,593,088
-----------
HEALTH 13.2%
Health Industry Services 0.3% 205,500 U.S. HealthCare, Inc. ............................. 9,555,750
-----------
Medical Supply & Specialty 1.5% 1,139,000 Bausch & Lomb, Inc. ............................... 45,132,875
-----------
Pharmaceuticals 11.4% 515,700 American Home Products Corp. ...................... 50,022,900
1,095,900 Baxter International Inc. ......................... 45,890,813
404,300 Bristol-Myers Squibb Co. .......................... 34,719,263
731,600 Carter-Wallace Inc. ............................... 8,321,950
1,134,200 Eli Lilly & Co. ................................... 63,798,750
844,500 Schering-Plough Corp. ............................. 46,236,375
590,200 SmithKline Beecham PLC (ADR) ...................... 32,756,100
428,700 Warner-Lambert Co. ................................ 41,637,488
1,356,100 Zeneca Group PLC .................................. 26,243,195
-----------
349,626,834
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMUNICATIONS 5.7%
Telephone/
Communications 1,363,500 Alltel Corp. ...................................... 40,223,250
791,100 GTE Corp. ......................................... 34,808,400
1,067,840 Hong Kong Telecommunications Ltd. (ADR)............ 18,954,160
810,000 Koninklijke PTT Nederland ......................... 29,475,688
745,300 Sprint Corp. ...................................... 29,718,838
750,000 Tele Danmark A/S (ADR) ............................ 20,718,750
-----------
173,899,086
-----------
FINANCIAL 17.0%
Banks 7.1% 235,000 AmSouth Bancorp. .................................. 9,488,125
544,300 Bankers Trust New York Corp. ...................... 36,195,950
607,400 Chemical Banking Corp. ............................ 35,684,750
877,800 CoreStates Financial Corp. ........................ 33,246,675
947,600 First Bank System Inc. ............................ 47,024,650
503,300 J.P. Morgan & Co., Inc. ........................... 40,389,825
128,500 Nordbanken AB ..................................... 2,226,533
62,300 Summit Bancorporation ............................. 1,962,450
269 Swiss Bank Corp. (Bearer) ......................... 109,920
353,300 Wilmington Trust Corp. ............................ 10,908,138
-----------
217,237,016
-----------
Insurance 3.6% 444,605 Allstate Corp. .................................... 18,284,381
458,000 EXEL, Ltd. ........................................ 27,938,000
287,400 Hartford Steam Boiler Inspection &
Insurance Co. ................................... 14,370,000
918,200 Lincoln National Corp. ............................ 49,353,250
-----------
109,945,631
-----------
Other Financial
Companies 3.6% 279,000 Federal National Mortgage Association .............. 34,630,875
1,125,500 Student Loan Marketing Association ................. 74,142,313
-----------
108,773,188
-----------
Real Estate 2.7% 217,100 Avalon Properties, Inc. (REIT) .................... 4,667,650
338,500 Camden Property Trust (REIT) ...................... 8,081,688
73,800 Charles E. Smith Residential Realty, Inc. (REIT) .. 1,743,525
28,100 Equity Residential Properties Trust (REIT) ........ 860,563
326,600 General Growth Properties, Inc. (REIT) ............ 6,776,950
359,300 Health Care Property Investment Inc. (REIT) ....... 12,620,413
31,400 Mark Centers Trust (REIT) ......................... 357,175
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
468,400 Meditrust SBI (REIT) .............................. 16,335,450
302,400 Nationwide Health Properties Inc. (REIT) .......... 12,700,800
61,900 Post Properties Inc. (REIT) ....................... 1,973,063
391,500 Security Capital Industrial Trust (REIT) .......... 6,851,250
451,300 South West Property Trust Inc. (REIT) ............. 6,092,550
88,800 Vornado Realty Trust (REIT) ....................... 3,330,000
-----------
82,391,077
-----------
MEDIA 0.5%
Print Media 313,000 Reader's Digest Association Inc. "A" .............. 16,041,250
-----------
SERVICE INDUSTRIES 2.9%
Miscellaneous
Consumer Services 1.7% 1,280,200 H & R Block Inc. ................................... 51,848,100
-----------
Printing/Publishing 1.2% 805,000 Deluxe Corp. ....................................... 23,345,000
182,600 Dun & Bradstreet Corp. ............................. 11,823,350
-----------
35,168,350
-----------
DURABLES 6.5%
Aerospace 5.8% 398,400 AAR Corp. .......................................... 8,764,800
710,013 Lockheed Martin Corp. .............................. 56,091,027
729,400 Rockwell International Corp. ....................... 38,567,025
7,600 Thiokol Corp. ...................................... 257,450
784,500 United Technologies Corp. .......................... 74,429,438
-----------
178,109,740
-----------
Automobiles 0.6% 660,900 Dana Corp. ......................................... 19,331,325
-----------
Construction/
Agricultural Equipment 0.1% 49,000 PACCAR, Inc. ....................................... 2,064,125
-----------
MANUFACTURING 14.2%
Chemicals 3.5% 484,700 Dow Chemical Co. ................................... 34,110,763
683,000 E.I. du Pont de Nemours & Co. ...................... 47,724,625
140,000 Lubrizol Corp. ..................................... 3,902,500
948,900 Lyondell Petrochemical Co. ......................... 21,706,088
-----------
107,443,976
-----------
Diversified
Manufacturing 4.1% 1,451,200 Dresser Industries Inc. ............................ 35,373,000
270,800 Olin Corp. ......................................... 20,106,900
93,100 St. Joe Paper Co. .................................. 5,120,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
SCUDDER GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
834,500 TRW Inc. .......................................... 64,673,750
-----------
125,274,150
-----------
Electrical Products 0.8% 345,600 Thomas & Betts Corp. .............................. 25,488,000
-----------
Industrial Specialty 0.3% 320,300 Corning Inc. ...................................... 10,249,600
-----------
Machinery/
Components/Controls 0.3% 239,300 Timken Co. ........................................ 9,153,225
-----------
Office Equipment/Supplies 2.3% 514,000 Xerox Corp. ....................................... 70,418,000
-----------
Specialty Chemicals 2.6% 180,000 ARCO Chemical Co. ................................. 8,752,500
613,800 Betz Laboratories Inc. ............................ 25,165,800
358,600 Petrolite Corp. ................................... 10,220,100
1,191,800 Witco Corp. ....................................... 34,860,150
-----------
78,998,550
-----------
Wholesale Distributors 0.3% 96,100 Alco Standard Corp. ............................... 8,216,550
-----------
ENERGY 8.7%
Oil Companies 7.6% 367,200 Exxon Corp. ....................................... 29,421,900
372,800 Murphy Oil Corp. .................................. 15,471,200
480,100 Pennzoil Co. ...................................... 20,284,225
484,000 Repsol SA (ADR) ................................... 15,911,500
229,000 Royal Dutch Petroleum Co. (New York shares) ....... 32,317,625
421,000 Societe Nationale Elf Aquitaine ................... 31,056,389
328,900 Texaco Inc. ....................................... 25,818,650
212,177 Total SA "B" ...................................... 14,337,456
386,046 Total SA (ADR) .................................... 13,125,555
1,609,900 YPF S.A. "D" (ADR) ................................ 34,814,088
-----------
232,558,588
-----------
Oilfield Services/
Equipment 1.1% 670,000 Halliburton Co. ................................... 33,918,750
-----------
METALS & MINERALS 0.9%
Precious Metals 0.4% 365,000 De Beers Consolidated Mines Ltd. (ADR) ............ 11,041,250
-----------
Steel & Metals 0.5% 542,590 Freeport McMoRan Copper & Gold,
Inc. "A" ........................................ 15,192,520
-----------
TRANSPORTATION 1.4%
Railroads 1,119,500 Canadian National Railway Co. ..................... 16,792,500
100,800 Consolidated Rail Corp. ........................... 7,056,000
120,100 Norfolk Southern Corp. ............................ 9,532,938
137,200 Union Pacific Corp. ............................... 9,055,200
-----------
42,436,638
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UTILITIES 4.5%
Electric Utilities 698,600 CINergy Corp. ..................................... 21,394,625
227,600 CMS Energy Corp. .................................. 6,799,550
2,332,800 China Light & Power Co., Ltd. (ADR) ............... 10,614,240
239,500 National Power PLC (ADR) .......................... 2,215,375
507,300 PacifiCorp ........................................ 10,780,125
220,200 Pacific Gas & Electric Co. ........................ 6,248,175
2,329,000 PowerGen PLC ...................................... 7,997,293
970,200 PowerGen PLC (ADR) ................................ 12,733,875
1,008,000 Southern Company .................................. 24,822,000
210,000 Texas Utilities Co., Inc. ......................... 8,636,250
747,900 Unicom Corp. ...................................... 24,493,725
-------------
136,735,233
-------------
TOTAL COMMON STOCKS (COST $2,112,507,366) 2,802,297,829
-------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $2,354,745,341) (a) 3,056,322,429
=============
<FN>
(a) The cost for federal income tax purposes was $2,352,369,063. At December
31, 1995, net unrealized appreciation for all securities based on tax cost
was $703,953,366. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $729,585,416 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $25,632,050.
</FN>
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
Transactions in written call options during the year ended December 31, 1995 were as follows:
PREMIUMS
NUMBER OF CONTRACTS RECEIVED ($)
---------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994 ........ -- --
Contracts written ..................... 18,500 20,946,597
Contracts closed ...................... (18,500) (20,946,597)
---------------------------------------------------------
Outstanding at December 31, 1995 ........ -- --
====== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
SCUDDER GROWTH AND INCOME FUND
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
--------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $2,354,745,341)
(Note A) ................................................. $3,056,322,429
Collateral held for securities loaned (Note A) ............. 199,879,300
Cash ....................................................... 92,991
Receivables:
Dividends and interest ................................... 9,934,200
Investments sold ......................................... 8,976,497
Fund shares sold ......................................... 4,397,416
Foreign taxes recoverable ................................ 756,015
Other assets ............................................... 5,896
--------------
Total assets ............................................. 3,280,364,744
LIABILITIES
Payables:
Collateral on securities loaned (Note A) ................. $199,879,300
Fund shares redeemed ..................................... 11,035,007
Investments purchased .................................... 5,836,323
Accrued management fee (Note C) .......................... 1,267,197
Other accrued expenses (Note C) .......................... 1,139,337
------------
Total liabilities ...................................... 219,157,164
--------------
Net assets, at market value ................................ $3,061,207,580
==============
NET ASSETS
Net assets consist of:
Undistributed net investment income ...................... $ 2,471,598
Net unrealized appreciation (depreciation) on:
Investments ............................................ 701,577,088
Foreign currency related transactions .................. (4,957)
Accumulated net realized gain ............................ 7,577,287
Shares of beneficial interest ............................ 1,513,187
Additional paid-in capital ............................... 2,348,073,377
--------------
Net assets, at market value ................................ $3,061,207,580
==============
NET ASSET VALUE, offering and redemption price per share
($3,061,207,580 DIVIDED BY 151,318,741 shares of capital stock
outstanding, $.01 par value, unlimited number of
shares authorized) ......................................... $ 20.23
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of withholding taxes of $900,442) ....... $ 90,261,325
Interest ................................................ 8,627,930
------------
98,889,255
Expenses:
Management fee (Note C) ................................. $ 13,054,200
Services to shareholders (Note C) ....................... 5,649,686
Custodian and accounting fees (Note C) .................. 508,234
Trustees' fees (Note C) ................................. 34,820
Reports to shareholders ................................. 753,664
Federal and state registration .......................... 196,490
Auditing ................................................ 54,640
Legal ................................................... 24,771
Other ................................................... 90,374 20,366,879
------------ ------------
Net investment income ................................... 78,522,376
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) from:
Investments ............................................ 79,812,797
Options ................................................ (15,734,123)
Foreign currency related transactions .................. (148,438) 63,930,236
------------
Net unrealized appreciation (depreciation) during
the period on:
Investments ............................................ 546,343,519
Foreign currency related transactions .................. (20,211) 546,323,308
------------ ------------
Net gain on investment transactions ...................... 610,253,544
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $688,775,920
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
SCUDDER GROWTH AND INCOME FUND
- ----------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------
INCREASE (DECREASE IN NET ASSETS) 1995 1994
--------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................... $ 78,522,376 $ 55,084,132
Net realized gain from investment
transactions ........................................... 63,930,236 110,478,324
Net unrealized appreciation (depreciation) on
investment transactions during the period .............. 546,323,308 (124,874,829)
-------------- --------------
Net increase in net assets resulting
from operations ........................................ 688,775,920 40,687,627
-------------- --------------
Distributions to shareholders from:
Net investment income ($.56 and $.51
per share, respectively) ............................. (78,569,568) (55,549,751)
-------------- --------------
Net realized gains from investment
transactions ($.48 and $.91 per share,
respectively) .................................... (69,054,578) (104,186,389)
-------------- --------------
Fund share transactions:
Proceeds from shares sold ................................ 829,474,858 660,899,843
Net asset value of shares issued to
shareholders in reinvestment of distributions .......... 133,306,288 141,532,779
Cost of shares redeemed .................................. (434,428,526) (315,194,390)
-------------- --------------
Net increase in net assets from Fund
share transactions .................................... 528,352,620 487,238,232
-------------- --------------
INCREASE IN NET ASSETS ................................... 1,069,504,394 368,189,719
Net assets at beginning of period ........................ 1,991,703,186 1,623,513,467
-------------- --------------
NET ASSETS AT END OF PERIOD (including
undistributed net investment income of
$2,471,598 and $2,585,428, respectively) ............... $3,061,207,580 $1,991,703,186
============== ==============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ................ 122,454,972 94,183,009
-------------- --------------
Shares sold .............................................. 45,610,829 38,072,976
Shares issued to shareholders in reinvestment
of distributions ....................................... 6,927,513 8,384,211
Shares redeemed .......................................... (23,674,573) (18,185,224)
-------------- --------------
Net increase in Fund shares .............................. 28,863,769 28,271,963
-------------- --------------
Shares outstanding at end of period ...................... 151,318,741 122,454,972
============== ==============
</TABLE>
The accompanying notes are an integral part of the fianancial statements.
20
<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>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993(b) 1992 1991 1990 1989 1988 1987 1986
------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .............................. $16.26 $17.24 $16.20 $15.76 $12.77 $14.14 $13.18 $12.31 $15.02 $15.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .................. .55 .49 .49 .57 .57 .65 .67 .60 .68 .67
Net realized and
unrealized gain (loss) on
investment transactions .............. 4.46 (.05) 2.01 .90 2.97 (1.01) 2.75 .86 (.07) 1.96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ............................. 5.01 .44 2.50 1.47 3.54 (.36) 3.42 1.46 .61 2.63
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income .................. (.56) (.51) (.45) (.53) (.55) (.67) (.69) (.59) (.68) (.68)
Net realized gains on
investment transactions .............. (.48) (.91) (1.01) (.50) -- (.34) (1.77) -- (2.64) (2.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ...................... (1.04) (1.42) (1.46) (1.03) (.55) (1.01) (2.46) (.59) (3.32) (2.96)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period ......... $20.23 $16.26 $17.24 $16.20 $15.76 $12.77 $14.14 $13.18 $12.31 $15.02
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%).......................... 31.18 2.60 15.59 9.57 28.16 (2.33) 26.36 12.01 3.50 18.27
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of period
($ millions) ........................... 3,061 1,992 1,624 1,166 723 491 490 402 392 385
Ratio of operating expenses to
average net assets (%) (a) ............. .80 .86 .86 .94 .97 .95 .87 .92 .89 .83
Ratio of net investment income
to average net assets (%) .............. 3.10 2.98 2.93 3.60 4.03 5.03 4.47 4.63 4.24 4.19
Portfolio turnover rate (%) .............. 26.9 42.3 35.5 27.5 44.7 64.7 76.6 47.6 59.5 45.3
<FN>
(a) The Adviser did not impose a portion of its management fee amounting
to $.02 per share for the year ended December 31, 1992.
If all expenses, including the management fee not imposed,
had been incurred by the Fund, the annualized ratio of expenses to
average net assets for such year would have been 1.08%
and the total return would have been lower. This ratio includes costs
associated with the acquisition of certain assets of
Niagara Share Corporation on July 27, 1992, exclusive of these charges the
ratio would have been .92%.
(b) Effective January 1, 1993, the Fund discontinued using equalization accounting.
</FN>
</TABLE>
21
<PAGE>
SCUDDER GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder Growth and Income 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.
Portfolio debt securities with remaining maturities
greater than sixty days are valued by pricing agents approved
by the officers of the Fund, which quotations reflect
broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation
supplied by a bona fide market maker shall be used. Short-term
investments having a maturity of sixty days or less are valued
at amortized cost. All other securities are valued at their
fair value as determined in good faith by the Valuation
Committee of the Board of Trustees.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, is equal to at least 100.5% of the resale price.
SECURITY LENDING. The Fund may seek to increase its income by lending
portfolio securities. Such loans may be made through the Fund's authorized
agent to registered broker/dealers and are required to be collateralized by
cash in an amount at least equal to the market value plus accrued interest of
the securities loaned. The collateral is invested, and a negotiated percentage
of the interest earned is remitted to the Fund. This income is included as a
component of interest income. At December 31, 1995, the Fund loaned securities
with an aggregate market value of $193,380,096 which represents 6.3% of total
net assets.
OPTIONS. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or
sell to (put option), the writer a designated instrument at a specified price
within a specified period of time. Certain options, including options on
indices, will require cash settlement by the Fund if the option is exercised.
During the period, the Fund wrote call options on financial instruments as a
hedge against potential adverse price movements in the value of portfolio
assets.
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call
or purchased put option is adjusted for the amount of option premium. If a
written put or purchased call option is exercised, the
23
<PAGE>
SCUDDER GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Fund's cost basis of the acquired security or currency
would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under
an exchange traded written option or investment in a purchased
option is valued at the last sale price or, in the absence of
a sale, the mean between the closing bid and asked price or at
the most recent asked price (bid for purchased options) if no
bid and asked price are available. Over-the-counter written or
purchased options are valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund
foregoes, in exchange for the premium, the opportunity to
profit during the option period from an increase in the market
value of the underlying security or currency above the
exercise price. When the Fund writes a put option it accepts
the risk of a decline in the market value of the underlying
security or currency below the exercise price.
Over-the-Counter options have the risk of the potential
inability of counterparties to meet the terms of their
contracts. The Fund's maximum exposure to purchased options is
limited to the premium initially paid. In addition, certain
risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the
Fund's ability to close out an option contract prior to the
expiration date and, that a change in the value of the option
contract may not correlate exactly with changes in the value
of the securities or currencies hedged.
FOREIGN CURRENCY TRANSLATIONS. The books and records of
the Fund are maintained in U.S. dollars. Foreign currency
transactions are translated into U.S. dollars on the following
basis:
(i) market value of investment securities, other
assets and liabilities at the daily rates of exchange,
and
(ii) purchases and sales of investment securities,
dividend and interest income and certain expenses at
the daily rates of exchange prevailing on the respective
dates of such transactions.
The Fund does not isolate that portion of gains and
losses on investments which is due to changes in foreign
exchange rates from that which is due to changes in market
prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from
investments.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
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. The
Fund accordingly paid no federal income taxes and no provision for federal
income taxes was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made quarterly. 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. 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. These
differences relate primarily to non-taxable distributions and certain securities
sold at a loss. As a result, net investment income 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 specific identified cost method for determining realized
gain or loss on investments for both financial and federal income tax reporting
purposes.
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.
25
<PAGE>
SCUDDER GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the year ended December 31, 1995, purchases and
sales of investment securities (excluding short-term
investments) aggregated $1,061,268,297 and $660,993,305,
respectively.
C. RELATED PARTIES
- --------------------------------------------------------------------------------
On August 8, 1995, the Fund's Board of Trustees
approved a new Investment Management Agreement (the
"Management Agreement") with Scudder, Stevens & Clark, Inc.
(the "Adviser"). Under the Management Agreement the Adviser
directs the investments of the Fund in accordance with its
investment objective, 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 Management Agreement. The management fee payable
under the Management Agreement is equal to an annual rate of
approximately 0.60% on the first $500,000,000 of the Fund's
average daily net assets, 0.55% on the next $500,000,000,
0.50% on the next $500,000,000, 0.475% on the next
$500,000,000, and 0.45% of such net assets in excess of
$2,000,000,000, computed and accrued daily and payable
monthly.
Under the Investment Management Agreement between the
Fund and the Adviser which was in effect prior to August 8,
1995 (the "Agreement"), the Fund agreed to pay the Adviser an
annual rate of approximately 0.60% on the first $500,000,000
of the Fund's average daily net assets, 0.55% on the next
$500,000,000, 0.50% on the next $500,000,000, and 0.475% of
such net assets in excess of $1,500,000,000, computed and
accrued daily and payable monthly. Both Agreements also provide
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. For the year ended December 31, 1995, the fee
pursuant to both the Management Agreement and the Agreement
amounted to $13,054,200, which was equivalent to an annual
effective rate of .52% of the Fund's average daily net assets.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended December 31, 1995, the amount charged to the Fund by SSC aggregated
$4,880,494, of which $686,744 is unpaid at December 31, 1995.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser,
assumed responsibility for determining the daily net asset value per share
and maintaining the portfolio and general accounting records of the Fund. For
the year ended December 31, 1995, the amount charged to the Fund by SFAC
aggregated $198,521, of which $18,430 is unpaid at December 31, 1995.
The Fund pays each Trustee not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended December 31, 1995, Trustees' fees and expenses aggregated $34,820.
27
<PAGE>
SCUDDER GROWTH AND INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF SCUDDER INVESTMENT TRUST AND THE
SHAREHOLDERS OF SCUDDER GROWTH AND INCOME FUND:
We have audited the accompanying statement of assets
and liabilities of Scudder Growth and Income Fund, including
the investment portfolio, as of December 31, 1995, 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 ten years in the period then ended. 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 December 31,
1995 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 Growth and Income
Fund as of December 31, 1995, 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 ten years in the period then ended
in conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 2, 1996
28
<PAGE>
TAX INFORMATION
By now shareholders for whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund.
The Fund paid distributions of $.395 per share from net long-term capital
gains during its fiscal year ended December 31, 1995. Pursuant to Section 852 of
the Internal Revenue Code, the Fund designates $48,445,974 as capital gain
dividends for its fiscal year ended December 31, 1995.
For corporate shareholders, 100% of the income dividends paid during the Fund's
year ended December 31, 1995 qualified for the dividends received deduction.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Scudder Fund account, please call a Scudder Investor Relations
Representative at 1-800-225-5163.
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; President and Director, Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
Juris Padegs*
Trustee
Jean C. Tempel
Trustee; General Partner, TL Ventures
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
Valerie F. Malter*
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.
29
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
<TABLE>
The Scudder Family of Funds
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
<C> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder Global Bond Fund
Tax Free Money Market+ Scudder GNMA Fund
Scudder Tax Free Money Fund Scudder Income Fund
Scudder California Tax Free Money Fund* Scudder International Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Bond Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Small Company Value Fund
Scudder Growth and Income Fund Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
-----------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
-----------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
-----------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc. Scudder Treasurers Trust(TM)++
Scudder Fund, Inc.
-----------------------------------------------------------------------------------------------------------------
<FN>
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.
</FN>
</TABLE>
30
<PAGE>
HOW TO CONTACT SCUDDER
<TABLE>
Account Service and Information
<CAPTION>
-------------------------------------------------------------------------------------------------------------
<S> <C>
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For personalized information about your
Scudder accounts; exchanges and
redemptions; or information on any
Scudder fund 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 New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
-------------------------------------------------------------------------------------------------------------
For information on Scudder For information on Scudder
Treasurers Trust,(TM) an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit investment management and
organizations and trusts that uses service needs of banks and
certain portfolios of Scudder Fund, other institutions, call
Inc.* ($100,000 minimum), call 1-800-854-8525.
1-800-541-7703.
-------------------------------------------------------------------------------------------------------------
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
<FN>
* 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.
</FN>
</TABLE>
31
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark 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 37 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 us 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 long-standing
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.
<PAGE>
