Scudder Quality Growth Fund
Annual Report
October 31, 1996
Pure No-Load(TM) Funds
A fund seeking long-term growth of capital through investment primarily in the
equity securities of seasoned, financially strong U.S. growth companies.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
14 Financial Statements
17 Financial Highlights
18 Notes to Financial Statements
20 Report of Independent Accountants
21 Tax Information
21 Officers and Trustees
22 Investment Products and Services
23 How to Contact Scudder
In Brief
o Scudder Quality Growth Fund provided a 19.49% total return for the 12
months ended October 31, 1996. The 642 similar funds tracked by Lipper
Analytical Services provided an average total return of 18.47%, while the
Fund's benchmark, the Russell 1000 Growth Index, provided a 22.05% total
return for the period.
o The Fund's sector breakdown remained relatively unchanged during the fiscal
year. We remained committed to keeping the Fund's sector weightings in line
with its benchmark index while making informed stock choices within each
sector.
o We believe growth companies will benefit from the current environment of
slower economic growth and low inflation.
2 -- SCUDDER QUALITY GROWTH FUND
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We hope you enjoy our newly redesigned shareholder report. The new format
is designed to enhance the attractiveness and readability of the reports. Let us
know what you think.
This annual report for Scudder Quality Growth Fund covers a period of
continued strength for both the U.S. economy and stock market. A healthy
backdrop helped the Fund provide a 19.49% total return for the 12 months ended
October 31, 1996.
The U.S. economy has been experiencing an expansion of record length, and
while a mild recession would not be a surprise in 1997, there are few reasons to
question the economy's long-term strength. While the financial markets will
always surge and dip in response to short-term indicators, many long-term
structural factors such as deregulation, globalization, and technology are
setting the stage for global economic growth. This, in turn, offers opportunity
for companies domiciled here and abroad in the years ahead as they find global
audiences for products and services. While investors should remain vigilant and
allocate their assets wisely, these global trends should provide a rewarding
investment environment over the long term.
It is with this ever-changing investment landscape in mind that Scudder
recently launched an innovative new product called Scudder Pathway Series.
Pathway Series is a collection of four distinct portfolios -- Conservative,
Growth, Balanced, and International -- that offers flexibility, diversification,
and simplicity. Each portfolio invests in a diverse mix of Scudder Funds. For
more information on Scudder Fund products and services, please turn to page 22.
Should you have any questions about your Scudder Quality Growth Fund account,
please contact a Scudder Investor Relations Representative at 1-800-225-2470.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Quality Growth Fund
3 -- SCUDDER QUALITY GROWTH FUND
<PAGE>
PERFORMANCE UPDATE as of October 31, 1996
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/96 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER QUALITY GROWTH FUND
- --------------------------------------
1 Year $11,949 19.49% 19.49%
5 Year $17,948 79.48% 12.41%
Life of
Fund* $20,416 104.16% 13.94%
- --------------------------------------
RUSSELL 1000 GROWTH INDEX
- --------------------------------------
1 Year $12,205 22.05% 22.05%
5 Year $19,770 97.70% 14.59%
Life of
Fund* $20,462 104.62% 14.11%
*The Fund commenced operations on May 15, 1991. Index
comparisons begin May 31, 1991.
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
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 OCTOBER 31
SCUDDER QUALITY GROWTH FUND
Year Amount
- ----------------------
5/91 $10,000
10/91 $10,894
10/92 $12,252
10/93 $13,169
10/94 $13,220
10/95 $16,364
10/96 $19,553
YEARLY PERIODS ENDED MONTH OCTOBER 31
RUSSELL 1000 GROWTH FUND
Year Amount
- ----------------------
5/91 $10,000
10/91 $10,350
10/92 $11,470
10/93 $12,308
10/94 $12,973
10/95 $16,766
10/96 $20,462
The Russell 1000 Growth Index is an unmanaged capitalization-weighted price
index of 1000 largest U.S. growth companies traded on the NYSE, AMEX, and
NASDAQ. Index returns assume reinvestment of dividends and, unlike Fund
returns, do not reflect any fees or expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED OCTOBER 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991* 1992 1993 1994 1995 1996
---------------------------------------------------
NET ASSET VALUE... $13.65 $15.30 $16.42 $16.17 $18.44 $21.19
INCOME DIVIDENDS.. $ - $ .03 $ .03 $ .08 $ .15 $ .14
CAPITAL GAINS
DISTRIBUTIONS..... $ - $ .02 $ - $ .24 $ 1.09 $ .60
FUND TOTAL
RETURN (%)........ 13.75 12.47 12.47 .39 23.78 19.49
RETURN (%)........ 8.66 10.82 7.31 5.40 29.23 22.05
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
If the Adviser had not maintained the Fund's expenses, the total returns for
the five year and the life of Fund would have been lower.
4 -- SCUDDER QUALITY GROWTH FUND
<PAGE>
PORTFOLIO SUMMARY as of OCTOBER 31, 1996
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Equity Holding 94%
Cash Equivalents 6%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
We remain near-fully invested in stocks of
seasoned, financially-strong U.S. companies.
- --------------------------------------------------------------------------
SECTORS
(Excludes 6% Cash Equivalents)
- --------------------------------------------------------------------------
Consumer Staples 18%
Health 17%
Manufacturing 14%
Technology 14%
Consumer Discretionary 10%
Service Industries 9%
Financial 8%
Media 5%
Durables 4%
Other 1%
- ----------------------------------
100%
- ----------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund's sector breakdown remained relatively
unchanged during the period, although holdings within
sectors changed.
- --------------------------------------------------------------------------
10 LARGEST EQUITY HOLDINGS
(24% OF PORTFOLIO)
- --------------------------------------------------------------------------
1.GENERAL ELECTRIC CO.
Leading producer of electrical equipment
2.PHILIP MORRIS COMPANIES INC.
Tobacco, food products and brewing
3.PROCTER & GAMBLE CO.
Diversified manufacturer of consumer products
4.MERCK & CO. INC.
Leading ethical drug manufacturer
5.ELECTRONIC DATA SYSTEMS CORP.
Provider of information technology services
6.AMERICAN INTERNATIONAL GROUP, INC.
Major international insurance holding company
7.JOHNSON & JOHNSON
Healthcare products
8.CLEAR CHANNEL COMMUNICATIONS, INC.
Operator of T.V. and radio stations
9. MICROSOFT CORP.
Computer operating systems software
10.PFIZER, INC.
Leading international pharmaceutical company
We established a number of new healthcare positions during the
period, including tenth-largest holding Pfizer.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 9. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
5 -- SCUDDER QUALITY GROWTH FUND
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Throughout Scudder Quality Growth Fund's fiscal year, investor fears of
strengthening economic growth and accompanying inflation fueled a host of stock
market gyrations. Amidst the surges and dips, your Fund provided a 19.49% total
return for its fiscal year ended October 31. This compared with an average
return of 18.47% for the 642 similar funds tracked by Lipper Analytical
Services, and a 22.05% total return for the same period for the Fund's
benchmark, the unmanaged Russell 1000 Growth Index.
A Look Back
On balance, the stock market continued its upward march through Scudder Quality
Growth Fund's fiscal year. Through February, slow economic growth and low
inflation provided a healthy backdrop for companies capable of delivering
consistently above-average earnings growth rates. In fact, such growth companies
generally prosper when the economy is slow because of their ability to deliver
earnings regardless of the underlying economic environment. Demand for equities
was high, and record levels of cash flowed into mutual funds. While we felt
strongly that economic acceleration was unlikely, signs of stronger growth
caused a stir in the market on more than one occasion. Most notably, much
stronger-than-anticipated February employment numbers caused investors to fear a
surge in inflation, resulting in the Dow Jones Industrial Average tumbling 171
points in March.
The volatile market environment lingered into the second half of the Fund's
fiscal year, as July in particular saw equity returns hurt by surprisingly
strong indicators, and cash flows into equity mutual funds began to taper off.
We continued to believe, however, that economic acceleration and harmful levels
of inflation were unlikely to materialize in the near future. The portfolio was
invested with the expectation that economic growth would remain moderate,
inflation would remain under control, and rapid earnings growth would be
increasingly hard to sustain for the more cyclically sensitive companies and
industries. We held true to our strategy of investing in those companies that we
believed would deliver solid earnings growth, and focused on companies with
solid long-term franchises, strategically oriented and experienced management
teams, and dominant market shares in growing industries.
Focus On Stock Selection
Scudder Quality Growth Fund strives to achieve superior investment returns by
investing in companies with consistent above-average earnings growth. The Fund's
sector exposure is generally kept reasonably close to that of the Russell 1000
Growth Index. Our focus is on choosing quality growth stocks within each sector.
In keeping with this approach, the Fund's sector breakdown for the most part
remained relatively unchanged during the period (see accompanying chart),
although individual holdings within sectors changed. For example, we established
a number of new healthcare positions, including Sandoz, SmithKline, and Pfizer.
We also used market volatility to our advantage to initiate or increase
6 -- SCUDDER QUALITY GROWTH FUND
<PAGE>
positions in quality technology stocks like Computer Associates, Cisco, Atmel,
and Microsoft.
The best performing sectors mid-year were consumer staples and technology, with
strong performances from stocks of companies such as Philip Morris, Coca-Cola,
and Gillette. Although the healthcare sector was a relatively poor performer
during this period, we maintained our exposure as we believed the stocks owned
by the Fund were the best positioned in the sector. This proved a sensible
strategy, as healthcare was one of the Fund's best performing sectors later in
the year.
The Fund had no exposure to communications stocks at the close of the period.
The intense competition between the local access providers, long distance
companies, and regional bells makes for very interesting reading, but not very
rewarding investing, in our opinion. We plan to hold off investing in that
sector until a clearer picture emerges.
The most significant change in sector allocation over the 12 months covered by
this report was in the manufacturing sector, which increased from 8% to 14%. On
more than one occasion during the period, signs of a strengthening economy led
investors toward manufacturing stocks, which generally respond positively to a
stronger economy. We took advantage of some particularly attractive investment
opportunities in this sector, including Honeywell and Monsanto.
======================================================
The Year in Review: Quality Growth Fund's
Sector Weightings
======================================================
Q1 Q2 Q3 Q4
======================================================
Consumer Staples 18% 19% 19% 18%
Health 18% 17% 17% 17%
Technology 14% 12% 11% 14%
Consumer Discretionary 9% 12% 11% 10%
Manufacturing 8% 10% 14% 14%
Service Industries 9% 10% 10% 9%
Financial 9% 7% 7% 8%
Media 7% 5% 5% 5%
Energy -- 2% -- --
Durables 3% -- 3% 4%
Communications -- -- -- --
Other 5% 6% 3% 1%
======================================================
Sector weightings remained relatively unchanged during the fiscal year as the
Fund remained committed to a strategy of making informed stock choices, not
sector bets.
The Road Ahead
We believe growth stocks will benefit from the current environment of slow
economic growth and low inflation. Without more concrete signs of acceleration
in the rate of inflation, we believe the Federal Reserve will not raise
short-term interest rates. This scenario should be viewed positively by the
7 -- SCUDDER QUALITY GROWTH FUND
<PAGE>
markets, and should particularly benefit growth stocks.
We continue to believe the best strategy for the Fund is to focus on stock
selection. In our opinion, the best performing stocks will be those of companies
capable of continued fundamental progress through these uncertain times. We
don't plan significant changes to our current sector weights, as we believe any
attempt to enhance portfolio returns through sector rotation would be extremely
difficult. Any changes made to the Fund will be to ensure that the portfolio is
made up of companies with the best long-term fundamentals -- those with growing
shares in expanding markets, secure franchises, the ability to deliver
consistent earnings quarter after quarter, and skilled management teams.
We believe Scudder Quality Growth Fund should reward investors seeking capital
appreciation over the long term through investment in seasoned, financially
strong U.S. companies. Thank you for your continued investment in Scudder
Quality Growth Fund.
Scudder Quality Growth Fund: A Team Approach to Investing
Scudder Quality Growth Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders, and other investment specialists who
work in Scudder's offices across the United States and abroad. We believe our
team approach benefits Fund investors by bringing together many disciplines and
leveraging Scudder's extensive resources.
Lead Portfolio Manager Valerie F. Malter joined Scudder in 1995 and is
responsible for the Fund's investment strategy and daily operation. Valerie has
10 years of experience as an analyst covering a wide range of industries, and
three years of portfolio management experience focusing on the stocks of
companies with medium- to large-sized market capitalizations. Michael K.
Shields, Portfolio Manager, joined the Fund and Scudder in 1992 and has 14 years
of experience in the financial industry.
Sincerely,
Your Portfolio Management Team
/s/Valerie F. Malter
Valerie F. Malter
/s/Michael K. Shields
Michael K. Shields
8 -- SCUDDER QUALITY GROWTH FUND
<PAGE>
<PAGE>
Investment Portfolio as of October 31, 1996
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------
Repurchase Agreements 5.9%
- --------------------------------------------------------------------------------
Repurchase Agreement with State Street
Bank & Trust Company dated 10/31/96
at 5.52%, to be repurchased at
$13,031,998 on 11/1/96, collateralized
by a $12,230,000 U.S. Treasury
Bond, 7.25%, 5/15/16 (Cost $13,030,000) .............. 13,030,000 13,030,000
Shares
- --------------------------------------------------------------------------------
Common Stocks 94.1%
- --------------------------------------------------------------------------------
Consumer Discretionary 9.6%
Department & Chain Stores 4.5%
Federated Department Stores, Inc.* ..................... 58,900 1,943,700
Nordstrom, Inc. ........................................ 17,000 613,063
Price/Costco Inc.* ..................................... 161,900 3,217,762
Wal-Mart Stores Inc. ................................... 157,600 4,196,100
----------
9,970,625
----------
Hotels & Casinos 2.0%
Host Marriott Corp. .................................... 163,600 2,515,350
ITT Corp.* ............................................. 43,600 1,831,200
----------
4,346,550
----------
Restaurants 0.9%
McDonald's Corp. ....................................... 46,700 2,072,313
----------
Specialty Retail 2.2%
Corporate Express, Inc.* ............................... 81,200 2,649,150
Intimate Brands, Inc. .................................. 121,400 2,200,375
----------
4,849,525
----------
Consumer Staples 16.5%
Alcohol & Tobacco 5.1%
Anheuser-Busch Companies, Inc. ......................... 112,100 4,315,850
Philip Morris Companies Inc. ........................... 76,000 7,039,500
----------
11,355,350
----------
Consumer Electronic & Photographic Products 1.1%
Duracell International Inc. ............................ 37,300 2,489,775
----------
Food & Beverage 3.4%
Coca-Cola Co., Inc. .................................... 73,500 3,711,750
Dole Food Co. .......................................... 48,900 1,907,100
PepsiCo Inc. ........................................... 65,325 1,935,253
----------
7,554,103
----------
The accompanying notes are an integral part of the financial statements.
================================================================================
9 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Package Goods/Cosmetics 6.9%
Avon Products Inc. ..................................... 40,800 2,213,400
Colgate-Palmolive Co. .................................. 43,300 3,983,600
Gillette Co. ........................................... 37,700 2,818,075
Procter & Gamble Co. ................................... 63,600 6,296,400
----------
15,311,475
----------
Health 16.3%
Biotechnology 1.3%
Amgen Inc.* ............................................ 49,400 3,028,837
----------
Health Industry Services 0.9%
United Healthcare Corp. ................................ 50,800 1,924,050
----------
Medical Supply & Specialty 1.4%
Medtronic Inc. ......................................... 47,500 3,057,812
----------
Pharmaceuticals 12.7%
American Home Products Corp. ........................... 42,500 2,603,125
Baxter International Inc. .............................. 69,000 2,872,125
Eli Lilly & Co. ........................................ 33,349 2,351,105
Johnson & Johnson ...................................... 94,100 4,634,425
Merck & Co. Inc. ....................................... 75,700 5,611,262
Pfizer, Inc. ........................................... 54,100 4,476,775
Sandoz Ltd. AG (ADR) ................................... 41,600 2,407,600
SmithKline Beecham PLC (ADR) ........................... 52,200 3,269,025
----------
28,225,442
----------
Financial 8.0%
Banks 2.5%
NationsBank Corp. ...................................... 23,300 2,196,025
State Street Boston Corp. .............................. 53,800 3,409,575
----------
5,605,600
----------
Insurance 3.6%
American International Group, Inc. ..................... 47,650 5,175,981
MBIA Inc. .............................................. 30,900 2,738,512
----------
7,914,493
----------
Consumer Finance 0.8%
Associates First Capital Corp. ......................... 39,600 1,717,650
----------
Other Financial Companies 1.1%
Federal National Mortgage Association .................. 61,300 2,398,363
----------
The accompanying notes are an integral part of the financial statements.
================================================================================
10 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Media 4.8%
Advertising 0.9%
Interpublic Group of Companies Inc. .................... 42,800 2,075,800
----------
Broadcasting & Entertainment 3.9%
Clear Channel Communications, Inc.* .................... 62,200 4,540,600
Time Warner Inc. ....................................... 54,600 2,033,850
Walt Disney Co. ........................................ 31,000 2,042,125
----------
8,616,575
----------
Service Industries 8.1%
EDP Services 3.9%
Electronic Data Systems Corp. .......................... 115,400 5,193,000
First Data Corp. ....................................... 44,600 3,556,850
----------
8,749,850
----------
Miscellaneous Commercial Services 0.8%
Sensormatic Electronics Corp. .......................... 104,700 1,714,463
----------
Miscellaneous Consumer Services 2.3%
CUC International Inc.* ................................ 93,850 2,299,325
Service Corp. International ............................ 96,700 2,755,950
----------
5,055,275
----------
Printing/Publishing 1.1%
Reuters Holdings PLC "B" (ADR) ......................... 33,700 2,506,438
----------
Durables 3.5%
Telecommunications Equipment
Ascend Communications, Inc.* ........................... 47,100 3,079,162
Cascade Communications Corp.* .......................... 30,300 2,200,538
Nokia AB Oy (ADR) ...................................... 53,100 2,462,513
----------
7,742,213
----------
Manufacturing 13.3%
Chemicals 3.5%
Monsanto Co. ........................................... 100,500 3,982,312
Praxair Inc. ........................................... 51,400 2,274,450
Sigma-Aldrich Corp. .................................... 26,775 1,573,031
----------
7,829,793
----------
Diversified Manufacturing 4.3%
General Electric Co. ................................... 75,600 7,314,300
Honeywell, Inc. ........................................ 35,300 2,193,013
----------
9,507,313
----------
The accompanying notes are an integral part of the financial statements.
================================================================================
11 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Electrical Products 3.1%
Emerson Electric Co. ................................... 49,900 4,441,100
FORE Systems, Inc.* .................................... 61,800 2,456,550
----------
6,897,650
----------
Hand Tools 0.9%
Black & Decker Corp. ................................... 50,000 1,868,750
----------
Office Equipment/Supplies 1.5%
Xerox Corp. ............................................ 73,600 3,413,200
----------
Technology 12.9%
Computer Software 5.4%
Computer Associates International, Inc. ................ 48,900 2,891,212
Informix Corp.* ........................................ 125,700 2,788,969
Microsoft Corp.* ....................................... 32,900 4,515,525
Oracle Systems Corp.* .................................. 42,300 1,789,819
----------
11,985,525
----------
Electronic Components/Distributors 0.2%
Ingram Micro, Inc."A"* ................................. 20,700 372,600
----------
Electronic Data Processing 1.4%
Ceridian Corp.* ........................................ 63,100 3,131,337
----------
Office/Plant Automation 3.8%
3Com Corp.* ............................................ 30,600 2,069,325
Cabletron Systems Inc.* ................................ 48,600 3,031,425
Cisco Systems, Inc.* ................................... 54,300 3,359,812
----------
8,460,562
----------
Semiconductors 2.1%
Atmel Corp.* ........................................... 77,100 1,956,413
Intel Corp. ............................................ 25,300 2,779,838
----------
4,736,251
----------
The accompanying notes are an integral part of the financial statements.
================================================================================
12 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Energy 1.2%
Oil/Gas Transmission
Enron Corp. ............................................ 58,100 2,701,650
Total Common Stocks (Cost $164,308,185) ................ 209,187,208
===========
Total Investment Portfolio - 100.0%
(Cost $177,338,185) (a) .............................. 222,217,208
===========
* Non-income producing security.
(a) The cost for federal income tax purposes was $177,613,834. At October 31,
1996, net unrealized appreciation for all securities based on tax cost was
$44,603,374. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $47,481,396 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$2,878,022.
The accompanying notes are an integral part of the financial statements.
================================================================================
13 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1996
Assets
- --------------------------------------------------------------------------------
Investments, at market (identified cost
$177,338,185) (Note A) ....................... $222,217,208
Cash ........................................... 880
Receivable for investments sold ................ 4,997,577
Receivable for Fund shares sold ................ 457,311
Dividends and interest receivable .............. 76,658
------------
Total assets ................................... 227,749,634
Liabilities
- --------------------------------------------------------------------------------
Payables for investments purchased ............. $ 6,038,563
Payable for Fund shares redeemed ............... 172,311
Accrued management fee (Note C) ................ 136,437
Other accrued expenses (Note C) ................ 148,690
------------
Total liabilities .............................. 6,496,001
Net assets, at market value .................... $221,253,633
============
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ............ $ 459,505
Unrealized appreciation on investments ......... 44,879,023
Accumulated net realized gain .................. 19,088,864
Paid-in capital ................................ 156,826,241
Net assets, at market value .................... $221,253,633
============
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and redemption
price per share ($221,253,633 / 10,441,357
outstanding shares of beneficial interest,
$.01 par value, unlimited number of shares
authorized) .................................. $ 21.19
============
The accompanying notes are an integral part of the financial statements.
================================================================================
14 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Statement of Operations
year ended October 31, 1996
Investment Income
- --------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld
of $19,198) .................................. $ 2,526,785
Interest ....................................... 523,058
------------
3,049,843
Expenses:
Management fee (Note C) ........................ $ 1,447,537
Services to shareholders (Note C) .............. 474,227
Custodian and accounting fees (Note C) ......... 89,652
Trustees' fees and expenses (Note C) ........... 37,344
Reports to shareholders ........................ 62,315
Auditing ....................................... 35,985
Legal .......................................... 14,378
Registration fees .............................. 23,655
Amortization of organization expenses (Note A) . 6,174
Other .......................................... 11,590
------------
2,202,857
Net investment income .......................... 846,986
============
Realized and unrealized gain on investment transactions
- --------------------------------------------------------------------------------
Net realized gain from investments ............. 19,474,609
Net unrealized appreciation on investments
during the period ............................ 15,602,000
------------
Net gain on investments ........................ 35,076,609
Net increase in net assets resulting from
operations ................................... $ 35,923,595
============
The accompanying notes are an integral part of the financial statements.
================================================================================
15 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1996 1995
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ...................................... $ 846,986 $ 966,751
Net realized gain on investments ........................... 19,474,609 5,911,775
Net unrealized appreciation on investments during the period 15,602,000 23,228,314
------------- -------------
Net increase in net assets resulting from operations ....... 35,923,595 30,106,840
------------- -------------
Distributions to shareholders from:
Net investment income ...................................... (1,354,259) (1,069,236)
------------- -------------
Net realized gains from investment transactions ............ (5,803,710) (7,769,783)
------------- -------------
Fund share transactions:
Proceeds from shares sold .................................. 75,627,033 62,792,871
Net asset value of shares issued to shareholders in
reinvestment of distributions............................... 6,992,173 8,642,766
Cost of shares redeemed .................................... (63,602,914) (32,495,742)
------------- -------------
Net increase in net assets from Fund share transactions .... 19,016,292 38,939,895
------------- -------------
Increase (decrease) in net assets .......................... 47,781,918 60,207,716
Net assets at beginning of period .......................... 173,471,715 113,263,999
------------- -------------
Net assets at end of period (including undistributed net
investment income of $459,505 and $966,778, respectively)... $ 221,253,633 $ 173,471,715
============= =============
Other Information
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................. 9,409,227 7,006,138
------------- -------------
Shares sold ................................................ 3,829,796 3,794,148
Shares issued to shareholders in reinvestment of ........... 380,630 595,642
distributions
Shares redeemed ............................................ (3,178,296) (1,986,701)
------------- -------------
Net increase in Fund shares ................................ 1,032,130 2,403,089
Shares outstanding at end of period ........................ 10,441,357 9,409,227
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
================================================================================
16 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
May 15 1991
(commencement of
operations) to
Years Ended October 31, October 31,
1996 (a) 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ............................... $18.44 $16.17 $16.42 $15.30 $13.65 $12.00
Income from investment operations:
Net investment income ................... .08 .11 .16 .06 .02 .03
Net realized and unrealized gain
(loss) on investments ................ 3.41 3.40 (.09) 1.09 1.68 1.62
Total from investment operations ........ 3.49 3.51 .07 1.15 1.70 1.65
Less distributions from:
Net investment income ................... (.14) (.15) (.08) (.03) (.03) --
Net realized gains on investment
transactions ......................... (.60) (1.09) (.24) -- (.02) --
Total distributions ..................... (.74) (1.24) (.32) (.03) (.05) --
Net asset value, end of period .......... $21.19 $18.44 $16.17 $16.42 $15.30 $13.65
------------------------------------------------------------------------------------------------------------------------
Total Return (%) ........................ 19.49 23.78 .39 7.49 12.47 13.75**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .. 221 173 113 126 101 30
Ratio of operating expenses net,
to average daily net assets (%) ...... 1.07 1.17 1.25 1.20 1.25 1.25*
Ratio of operating expenses before
expense reductions, to average
daily net assets (%) ................. 1.07 1.17 1.25 1.20 1.40 2.67*
Ratio of net investment income to
average daily net assets (%) ......... .41 .71 .96 .39 .24 .83*
Portfolio turnover rate (%) ............. 68.8 91.6 119.7 111.4 27.4 11.5*
Average commission rate paid (b) ........ $.0551 $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after September 1, 1995.
* Annualized
** Not annualized
================================================================================
17 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Quality Growth Fund (the "Fund") is a diversified series of Scudder
Investment Trust (the "Trust"). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation shall be used. Short-term investments
having a maturity of sixty days or less are valued at amortized cost.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. The differences
primarily relate to investments in certain securities sold at a loss. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
================================================================================
18 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Organization Costs. Costs incurred by the Fund in connection with its
organization and initial registration of shares were deferred and amortized on a
straight-line basis over a five-year period.
Other. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
For the year ended October 31, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $163,465,611 and
$134,364,781, respectively.
C. Related Parties
Under the Fund's Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund pays the Adviser a fee equal to
an annual rate of 0.70% of the Fund's average daily net assets, computed and
accrued daily and payable monthly. As manager of the assets of the Fund, the
Adviser directs the investments of the Fund in accordance with its investment
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The Agreement provides that if the Fund's expenses, exclusive of
taxes, interest, and extraordinary expenses, exceed specified limits, such
excess, up to the amount of the management fee, will be paid by the Adviser. In
addition, the Adviser agreed not to impose all or a portion of its management
fee until February 29, 1996 in order to maintain the annualized expenses of the
Fund at not more than 1.25% of average daily net assets. For the year ended
October 31, 1996, the fee pursuant to the Agreement amounted to $1,447,537.
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 October 31, 1996, the amount charged to the Fund by SSC aggregated
$275,078, of which $24,462 is unpaid at October 31, 1996.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended October 31,
1996, the amount charged to the Fund by STC aggregated $128,483, of which
$22,495 is unpaid at October 31, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1996, the amount charged to the Fund by SFAC aggregated $56,114, of
which $4,665 is unpaid at October 31, 1996.
The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually plus specified amounts for attended board and committee meetings. For
the year ended October 31, 1996, Trustees fees and expenses aggregated $37,344.
================================================================================
19 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder Investment Trust and the Shareholders of Scudder
Quality Growth Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Quality Growth Fund including the investment portfolio, as of October 31, 1996,
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 five years in the period then ended,
and for the period May 15, 1991 (commencement of operations) to October 31,
1991. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Quality Growth Fund as of October 31, 1996, 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 five years in the period then ended, and for the period May 15, 1991
(commencement of operations) to October 31, 1991 in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 16, 1996
================================================================================
20 - SCUDDER QUALITY GROWTH FUND
<PAGE>
Tax Information
The Fund will mail shareholders IRS Form 1099-Div in late January, summarizing
all taxable distributions paid for 1996.
The Fund paid distributions of $0.32 per share from net long-term capital gains
during its fiscal year ended October 31, 1996. Pursuant to section 852 of the
Internal Revenue Code, the Fund designates $16,387,183 as capital gain dividends
for the year ended October 31, 1996.
Pursuant to section 854 of the Internal Revenue Code, the Fund designates
$2,418,885 as dividends eligible for the dividends received deduction for
corporations for the year ended October 31, 1996.
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
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 -- SCUDDER QUALITY GROWTH FUND
<PAGE>
Investment Products and Services
The Scudder Family of Funds
- --------------------------------------------------------------------------------
Money Market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- --------------------------------------------------------------------------------
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase
Pension Plans
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
Institutional Cash Management
- --------------------------------------------------------------------------------
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +A portion of the income from the tax-free funds may
be subject to federal, state, and local taxes. *Not available in all states.
+++A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust,(TM) an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.
22 -- SCUDDER QUALITY GROWTH FUND
<PAGE>
How to Contact Scudder
Account Service and Information
- --------------------------------------------------------------------------------
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
Visit the Scudder World Wide Web Site at:
- --------------------------------------------------------------------------------
http://funds.scudder.com
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 Treasurers Trust(TM), an
institutional cash management service for corporations,
non-profit organizations and trusts which utilizes certain
portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
For information on Scudder Institutional Funds*, funds designed
to meet the broad investment management and service needs of
banks and other institutions, call: 1-800-854-8525.
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.
23 -- SCUDDER QUALITY GROWTH FUND
<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 over 40 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.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
