Scudder
Growth and
Income Fund
Annual Report
December 31, 1996
Pure No-Load(TM) Funds
A fund with a disciplined approach to common stock investing offering
opportunities for long-term growth of capital, current income, and growth of
income.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
19 Financial Statements
22 Financial Highlights
23 Notes to Financial Statements
27 Report of Independent Accountants
28 Tax Information
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder
In Brief
o Scudder Growth and Income Fund provided a total return of 22.18% for the
fiscal year, besting the average return of 522 growth and income funds as
tracked by Lipper Analytical Services, Inc.
o The Fund's value approach to investing in stocks with above-average
dividend yields helped it outperform the market averages during periods of
market weakness in the third and fourth quarters.
o The Fund benefited from a shift from consumer staples and health care to
economically sensitive (cyclical) stocks during the year.
o Morningstar assigned the Fund an overall 4-star rating for its
risk-adjusted performance among 2,959 domestic equity funds as of December
31, 1996.^1
- ----------
^1 Source: Morningstar. Ratings are subject to change monthly and are calculated
from the Fund's three-, five-, and ten-year average annual returns in excess of
90-day Treasury bill returns with appropriate fee adjustments, and a risk factor
that reflects Fund performance below 90-day T-bill returns. In an investment
category, 10% of funds receive 5 stars and the next 22.5% receive 4 stars. In
the growth and income category, the Fund received a 4-star rating for the
one-year period, a 4-star rating for the three-year period, a 4-star rating for
the five-year period, and a 4-star rating for the ten-year period. In the equity
category there were 1,826; 1,058; and 598 funds for the three-, five-, and
ten-year periods, respectively. Past performance is no guarantee of future
results.
2 - Scudder Growth and Income Fund
<PAGE>
Letter From the Fund's President
Dear Shareholders,
In 1996 Scudder Growth and Income Fund celebrated its 68th year by
providing a total return of 22.18% for the 12-month period ended December 31,
1996. This return was in keeping with the 22.96% annual return for the S&P 500.
We hope that long-term as well as new shareholders are pleased with this
performance, which was achieved in an environment of conflicting economic
signals and rapid sector rotation.
The strong performance of the stock market in 1995 and 1996 has prompted
many investors to worry about the possibility of a near-term correction. We
would like to take this opportunity to remind shareholders that the Fund's
combination of strict dividend yield requirements and value orientation is
designed to provide strong relative performance in less favorable environments.
The Fund's sound approach and solid track record have been recognized by a
number of financial publications recently. SmartMoney, for example, selected
Scudder Growth and Income Fund as one of the seven best mutual funds for 1997.^1
Honors such as these are gratifying, and we will continue to seek to live up to
these high expectations.
Looking ahead, we believe there are few reasons to dispute the market's
momentum over the long term. Many structural factors including improved fiscal
policies, deregulation, technology, and globalization are setting the stage for
positive global economic growth without harmful levels of inflation. We believe
that these are powerful and positive influences, which should benefit long-term
investors.
Thank you for your continued investment in Scudder Growth and Income Fund.
If you have any questions about your investment, please call a Scudder Investor
Relations representative at 1-800-225-2470 or visit our Internet Web site at
http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
President,
Scudder Growth and Income Fund
^1 Smart Money, February 1997
3 - Scudder Growth and Income Fund
<PAGE>
PERFORMANCE UPDATE as of December 31, 1996
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER GROWTH AND INCOME FUND
- --------------------------------------
1 Year $12,218 22.18% 22.18%
5 Year $20,825 108.25% 15.80%
10 Year $38,185 281.85% 14.34%
- --------------------------------------
S & P 500 INDEX
- --------------------------------------
1 Year $12,296 22.96% 22.96%
5 Year $20,305 103.05% 15.20%
10 Year $41,485 314.85% 15.28%
- -----------------------------------------------------------------
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 DECEMBER 31
SCUDDER GROWTH AND INCOME FUND
Year Amount
- ----------------------
'86 $10,000
'87 $10,350
'88 $11,593
'89 $14,648
'90 $14,307
'91 $18,336
'92 $20,090
'93 $23,222
'94 $23,826
'95 $31,253
'96 $38,185
S & P 500 INDEX
Year Amount
- ----------------------
'86 $10,000
'87 $10,525
'88 $12,273
'89 $16,162
'90 $15,660
'91 $20,431
'92 $21,988
'93 $24,204
'94 $24,524
'95 $33,739
'96 $41,485
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>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $12.31 $13.18 $14.14 $12.77 $15.76 $16.20 $17.24 $16.26 $20.23 $23.23
INCOME DIVIDENDS.. $ .68 $ .59 $ .69 $ .67 $ .55 $ .53 $ .45 $ .51 $ .56 $ .57
CAPITAL GAINS
DISTRIBUTIONS..... $ 2.64 $ -- $ 1.77 $ .34 $ -- $ .50 $ 1.01 $ .91 $ .48 $ .87
FUND TOTAL
RETURN (%)........ 3.50 12.01 26.36 -2.33 28.16 9.57 15.59 2.60 31.18 22.18
INDEX TOTAL
RETURN (%)........ 5.25 16.56 31.63 -3.11 30.40 7.61 10.06 1.32 37.58 22.96
</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 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
PORTFOLIO SUMMARY as of December 31, 1996
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Common Stocks 94%
Convertible Bonds 3%
Convertible Stocks 2%
Cash Equivalents 1%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund focuses on stocks with
above-average dividends and
attractive valuations.
- --------------------------------------------------------------------------
SECTOR DIVERSIFICATION
(Excludes 1% Cash Equivalents)
- --------------------------------------------------------------------------
Financial 21%
Manufacturing 20%
Consumer Staples 10%
Health 8%
Energy 8%
Durables 8%
Communications 7%
Utilities 6%
Consumer Discretionary 5%
Other 7%
- ---------------------------------------------
100%
- ---------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
During the year the Funds
weighting in manufacturing
increased and health decreased.
- --------------------------------------------------------------------------
10 LARGEST EQUITY HOLDINGS
(19% OF PORTFOLIO)
- --------------------------------------------------------------------------
1. XEROX CORP.
Leading manufacturer of copiers and duplicators
2. POWERGEN PLC
Electric utility in the United Kingdom
3. STUDENT LOAN MARKETING ASSOCIATION
Student loan financing programs
4. PHILLIP MORRIS COMPANIES INC.
Tobacco, food products and brewing
5. TRW INC.
Defense electronics, automotive parts and systems
6. UNITED TECHNOLOGIES CORP.
Manufacturer of areospace equipment, climate control systems, and elevators
7. E.I. DU PONT DE NEMOURS & CO.
Chemical producer
8. PHILIPS ELECTRONICS NV
Leading manufacturer of electrical equipment
9. KIMBERLY-CLARK CORP.
Consumer paper products and newsprint
10. RITE AID CORP.
Discount drug store chain
Philip Morris and Student Loan
Marketing Association were strong
contributors to performance.
- -----------------------------------------------------------------------------
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 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
For the second year in a row, both the Dow Jones Industrial Average and the S&P
500 reached new heights. Scudder Growth and Income Fund returned 22.18% for the
year, almost even with the overall market return of 22.96% as represented by the
S&P 500 Index. Of particular note was the month of December, when the Fund
outperformed the S&P 500 by about 1.5 percentage points, demonstrating one of
the key characteristics of our investment style: the ability to outperform in
declining markets. The Fund's total return represents an increase in its net
asset value from $20.23 at the end of 1995 to $23.23 on December 31, 1996, as
well as per share income and capital gain distributions of $0.57 and $0.865,
respectively.
Strong Performance During a Period of Increased Volatility
The Fund ended the year essentially in line with the S&P 500 due, in part, to
the strong relative performance of some of our largest holdings, including
Philip Morris, Warner Lambert, and Student Loan Marketing Association (Sallie
Mae). The environment was characterized by sector rotation out of stocks with
small market capitalizations (small-cap) into larger, more value-oriented names
during the second half of 1996. For the first half of the year, the unmanaged
Russell 2000 Index^1 of small-cap stocks steadily gained on the larger-cap
unmanaged Russell 1000 Index, a continuation of what we witnessed in 1995. In
July, earnings disappointments initiated a rotation into more liquid blue chip
names, and by the end of 1996 the trend had completely reversed: the Russell
1000 Index jumped ahead to outperform the Russell 2000 Index.
Unlike 1995, when the market was driven largely by a one percentage point drop
in long-term interest rates and 18% growth in corporate profits, 1996 was
characterized by market forecasts which seemed to flip-flop with each new
release of corporate earnings or economic data. In the end, however, nothing
could keep stocks from rising: not the negative earnings surprises in high tech,
which drove the S&P 500 down 9% and the NASDAQ down nearly 20% in the volatile
June/July period, nor the warnings of "irrational exuberance" by Federal Reserve
Chairman Alan Greenspan, which soured the global markets for two weeks in early
December.
The performance of your Fund was driven by several factors, led by a relative
underweighting in the telecommunications sector, specifically in the Regional
Bell Operating Companies (RBOCs). A decision to focus the telecom exposure in
long distance and foreign telecommunications companies benefited the Fund for
much of the year, as the local operators underperformed the S&P 500. During the
fourth quarter, however, we began to increase exposure to the RBOCs, given our
belief that much of the competitive risk in the market was already reflected in
stock prices. We initiated positions in BellSouth and Frontier, and increased
our weighting in Bell Atlantic and NYNEX.
An underweighting in the U.S. electric utility sector also boosted performance
for the year. Continued
^1 The Russell 1000 Index is comprised of the largest 1000 companies in the
Russell 3000 Index. The Russell 2000 Index represents the smallest 2000
companies in the Russell 3000 Index.
6 - Scudder Growth and Income Fund
<PAGE>
concerns over industry deregulation, competition, and nuclear power caused these
stocks to be among the worst performers for the third year in a row. While
domestic utilities languished, concentration in foreign utilities such as
National Power and Powergen was a tremendous benefit. Like the RBOCs, however,
valuations in domestic utilities are becoming more compelling, and we have been
slowly increasing exposure to that group by initiating positions in Duke Power
and Boston Edison. It is our belief that while uncertainty remains in the
restructuring of the electric industry, the process is proceeding at an
appropriate pace, with many states allowing utilities ample time to make the
transition.
The Fund's health care weighting, concentrated in pharmaceuticals, also
contributed strongly to Fund returns. Pharmaceuticals were up nearly 25% for the
year thanks to holdings such as Warner Lambert, which gained 57% due to strong
earnings momentum and the excitement over revenue enhancements from two new
drugs to treat diabetes and high cholesterol. Other strong performers were
Zeneca Group, a U.K. pharmaceutical holding company, Eli Lilly, and Bristol
Myers. We trimmed holdings as the market strengthened, although the Fund's
health care position remained in proportion to the S&P 500's health care
weighting.
Financial stocks were also strong performers in 1996. Regional banks led the
group, particularly in the latter half of the year as inflationary fears were
quelled by evidence of a slowing and stable economy. Given the strong
performance in banks, we have used the opportunity to trim holdings in
================================================================================
Higher Yields and Attractive Valuations
- --------------------------------------------------------------------------------
Fund S&P 500
Yield 2.4% 1.9%
The Fund's dividend yields exceeded
the market as measured by the S&P 500
- --------------------------------------------------------------------------------
Price-to-Earnings per share 13.7x 21.5x
Valuations were also attractive (1997
compared to the S&P 500. estimates)
================================================================================
stocks such as CoreStates Financial and First Bank Systems. While we continue to
find opportunities in banks, evidenced by a newly initiated position in BancOne,
bank stocks have bounced back considerably from historically low valuations and
are no longer cheap, particularly in the wake of rising consumer credit
concerns.
Consumer staples holdings closed 1996 with mixed performance, resulting in a
slight drag on the Fund's return. On the positive side, holdings benefited from
a strong rally in the fourth quarter driven by positive price momentum in Avon
Products, Clorox, and General Mills. Philip Morris and RJR Nabisco also
rebounded nicely to return 29% and 31%, respectively, in the fourth quarter
after a volatile year driven by tobacco litigation concerns.
For the first nine months of the year, many of the portfolio changes were
concentrated in cyclical areas where we used attractive valuations in chemicals,
paper, and retailing as an opportunity to increase holdings. In chemicals, we
initiated a position in Eastman Chemical in the third quarter to take advantage
of what we believed was a price decline and subsequently increased holdings in
the fourth quarter. At the same time we increased
7 - Scudder Growth and Income Fund
<PAGE>
positions in Allegheny Teledyne, Imperial Chemical, Louisiana Pacific, and
Westvaco. Despite recession concerns, we believe that a possible threat of
negative economic news is already reflected in the prices of these issues.
A Limited Exposure To Technology
Given the Fund's strict relative yield discipline, holdings in the technology
area are minimal. Our exposure to technology was achieved by owning
well-established, rapidly growing firms with above-average dividend yields. We
include companies such as Rockwell (industrial automation and semiconductor
systems), TRW (defense electronic and automotive safety sensors), and Philips
Electronics (medical equipment and communications systems) in this category.
Although these companies may never be the lead story in Wired magazine, we
believe they offer capital appreciation potential with downside protection
stemming from their high relative dividend yields, a feature that more glamorous
technology issues typically do not provide.
And, finally, a word about Xerox, the Fund's largest holding. The stock's 18%
gain for the year masks a drop in mid October when the company indicated third
quarter earnings would be below consensus expectations. We took advantage of
this price weakness and added to the Fund's position. The stock has fully
recovered since its initial decline. Our fundamental thesis for Xerox remains
intact, namely, that digital and other high-end color products will be the key
to long-term growth and profitability at the company.
8 - Scudder Growth and Income Fund
<PAGE>
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 1991. Rob joined Scudder in 1990 and has 12 years of investment industry
experience. Kathleen T. Millard, Portfolio Manager, has focused on strategy and
stock selection since she joined Scudder and the team in 1991. Benjamin W.
Thorndike, Portfolio Manager, is the Fund's chief analyst and strategist for
convertible securities. Ben 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. Lori has worked in the
investment industry since 1983 and at Scudder since 1993.
Your Portfolio Management Team: Robert T. Hoffman, Kathleen T. Millard, Benjamin
W. Thorndike and Lori J. Ensinger
Looking Ahead
While we watch the endless stream of economic data and the trends in corporate
profit growth, and remain cautious with respect to the current level of the
stock market, we will not make large sector commitments based on financial
market forecasts. We have seen, particularly in 1996, how expectations can shift
overnight, only to come full circle in as short a time period. Rather than
attempt to outguess the market, we remain focused on investing in attractively
valued securities with premium dividend yields, which we believe is a superior
strategy in any market environment.
Sincerely,
Your Portfolio Management Team
/s/Robert T. Hoffman /s/Kathleen T. Millard
Robert T. Hoffman Kathleen T. Millard
/s/Benjamin W. Thorndike /s/Lori J. Ensinger
Benjamin W. Thorndike Lori J. Ensinger
9 - Scudder Growth and Income Fund
<PAGE>
Invesment Portfolio as of December 31, 1996
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------
Repurchase Agreements 0.1%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated
12/31/96 at 6.7%, to be repurchased at $3,143,170 on 1/2/97,
collateralized by a $3,020,000 U.S. Treasury Note, 8.625%, -----------
8/15/97 (Cost $3,142,000) ................................................. 3,142,000 3,142,000
-----------
Commercial Paper 1.2%
- -----------------------------------------------------------------------------------------------------------------
Financial
Other Financial Companies
Centric Funding Corp. 5.62%, 1/6/97 ......................................... 15,000,000 14,988,292
Dresdner US Finance Inc., 5.62%, 1/2/97 ..................................... 25,000,000 24,996,097
Prudential Funding Corp., 5.62% 1/8/97 ...................................... 10,000,000 9,989,072
- -----------------------------------------------------------------------------------------------------------------
Total Commercial Paper (Cost $49,973,461) 49,973,461
- -----------------------------------------------------------------------------------------------------------------
Corporate Bonds 0.2%
- -----------------------------------------------------------------------------------------------------------------
Financial -----------
Siemens Capital Corp. with warrants, 8%, 6/24/02 (Cost $7,177,934) .......... 5,500,000 7,046,875
-----------
Convertible Bonds 2.7%
- -----------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.7%
Department & Chain Stores
Federated Department Stores, Inc., Debenture, 5%, 10/1/03 ................... 11,000,000 12,705,000
Home Depot Inc. Convertible until 10/1/2001, 3.25%, 10/1/01 ................. 16,500,000 16,252,500
-----------
28,957,500
Health 0.1% -----------
Pharmaceuticals
Sandoz Capital BVI Ltd., Debenture, 2%, 10/6/02 ............................. 5,810,000 6,245,750
-----------
Financial 1.0%
Banks 0.4%
MBL International Finance Bermuda, 3%, 11/30/02 ............................. 16,140,000 17,108,400
-----------
Other Financial Companies 0.2%
First Financial Management Corp., Debenture, 5%, 12/15/99 ................... 4,560,000 8,014,200
-----------
Real Estate 0.4%
Security Capital Corp., Debenture, 6.5%, 3/29/16 (b) (c) .................... 16,750,000 16,750,000
-----------
Service Industries 0.5%
Miscellaneous Commercial Services
ADT Operations Inc. Liquid Yield Option Note, 7/6/10 ........................ 24,000,000 15,510,000
Jardine Strategic Holdings Ltd., Debenture, 7.5%, 5/7/49 .................... 6,151,000 7,381,200
-----------
22,891,200
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Durables 0.2%
Automobiles
Magna International, Inc., Debenture, 5%, 10/15/02 .......................... 6,700,000 7,688,250
-----------
Manufacturing 0.1%
Diversified Manufacturing
Thermo Electron Corp., 4.25%, 1/1/03 ........................................ 5,000,000 5,875,000
-----------
Technology 0.1%
Electronic Data Processing
Silicon Graphics Inc., Debenture, 11/2/13 ................................... 7,500,000 3,946,875
- -----------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $104,295,344) 117,477,175
- -----------------------------------------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks 1.9%
- -----------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.5%
Department & Chain Stores
K Mart 7.75% ................................................................ 392,900 19,153,875
Health 0.0% -----------
Medical Supply & Specialty 0.0%
U.S. Surgical Corp. "A" Cum $2.20 ........................................... 25,000 956,250
Financial 0.2% -----------
Consumer Finance 0.0%
Advanta Corp. 6.75% ......................................................... 7,500 303,750
Real Estate 0.2% -----------
Security Capital Industrial Trust "B", 7% ................................... 278,000 7,575,500
Manufacturing 0.6% -----------
Containers & Paper 0.1%
Boise Cascade Corp. "G", Cum $1.58 .......................................... 60,100 1,570,113
International Paper Co. 5.25% ............................................... 47,000 2,150,250
-----------
3,720,363
Industrial Specialty 0.3% -----------
Cooper Industries, Inc. 6% .................................................. 606,300 11,747,063
Wholesale Distributors 0.2% -----------
Alco Standard Corp. 6.50% ................................................... 96,100 9,177,550
Energy 0.3% -----------
Oil & Gas Production
Parker & Parsley Capital Corp., 6.25% ....................................... 180,500 11,822,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Metals & Minerals 0.3%
Precious Metals
Freeport McMoRan Copper & Gold, Inc., Cum. $1.25 ............................ 500,000 13,875,000
- -----------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $69,469,658) 78,332,101
- -----------------------------------------------------------------------------------------------------------------
Common Stocks 93.9%
- -----------------------------------------------------------------------------------------------------------------
Consumer Discretionary 3.6%
Department & Chain Stores
J.C. Penney Co., Inc. ....................................................... 745,600 36,348,000
May Department Stores ....................................................... 520,100 24,314,675
Rite Aid Corp. .............................................................. 1,488,700 59,175,825
Sears, Roebuck & Co. ........................................................ 715,300 32,993,202
------------
152,831,702
------------
Consumer Staples 10.2%
Alcohol & Tobacco 3.7%
Anheuser-Busch Companies, Inc. .............................................. 1,030,400 41,216,000
Philip Morris Companies, Inc. ............................................... 761,300 85,741,413
RJR Nabisco Holdings Corp. .................................................. 788,580 26,811,720
------------
153,769,133
------------
Consumer Electronic & Photographic Products 1.0%
Whirlpool Corp. ............................................................. 903,700 42,135,013
------------
Food & Beverage 3.4%
General Mills, Inc. ......................................................... 559,500 35,458,313
H.J. Heinz Co. .............................................................. 1,526,850 54,584,888
Unilever NV (New York shares) ............................................... 305,700 53,573,925
------------
143,617,126
------------
Package Goods/Cosmetics 2.1%
Avon Products Inc. .......................................................... 220,500 12,596,063
Kimberly-Clark Corp. ........................................................ 624,800 59,512,200
Tambrands Inc. .............................................................. 431,000 17,617,125
------------
89,725,388
------------
Health 8.1%
Pharmaceuticals
American Home Products Corp. ................................................ 705,800 41,377,525
Baxter International Inc. ................................................... 1,088,100 44,612,100
Bristol-Myers Squibb Co. .................................................... 511,800 55,658,250
Eli Lilly & Co. ............................................................. 77,900 5,686,700
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Schering-Plough Corp. ....................................................... 844,500 54,681,375
SmithKline Beecham PLC (ADR) ................................................ 590,200 40,133,600
Warner-Lambert Co. .......................................................... 787,300 59,047,500
Zeneca Group PLC ............................................................ 1,356,100 38,191,040
------------
339,388,090
------------
Communications 6.9%
Telephone/Communications
Alltel Corp. ................................................................ 1,239,600 38,892,450
Bell Atlantic Corp. ......................................................... 641,500 41,537,125
BellSouth Corp. ............................................................. 489,700 19,771,638
Frontier Corp. .............................................................. 996,100 22,536,763
GTE Corp. ................................................................... 990,000 45,045,000
Koninklijke PTT Nederland ................................................... 810,000 30,897,777
NYNEX Corp. ................................................................. 773,700 37,234,313
Sprint Corp. ................................................................ 1,058,100 42,191,738
Telecom Corp. of New Zealand ................................................ 1,901,000 9,703,046
------------
287,809,850
------------
Financial 19.1%
Banks 9.2%
AmSouth Bancorp. ............................................................ 235,000 11,368,125
Argentaria Corporacion Bancaria de Espana ................................... 474,000 21,212,709
Banc One Corp. .............................................................. 668,700 28,754,100
BankAmerica Corp. ........................................................... 111,500 11,122,125
Bankers Trust New York Corp. ................................................ 594,000 51,232,500
Chase Manhattan Corp. New ................................................... 607,400 54,210,450
CoreStates Financial Corp. .................................................. 877,800 45,535,875
First Bank System Inc. ...................................................... 584,700 39,905,775
First Chicago NBD Corp. ..................................................... 273,600 14,706,000
J.P. Morgan & Co., Inc. ..................................................... 503,300 49,134,663
KeyCorp, New ................................................................ 869,800 43,924,900
NationsBank Corp. ........................................................... 107,300 10,488,575
Nordbanken AB ............................................................... 128,500 3,891,113
------------
385,486,910
------------
Insurance 2.6%
EXEL, Ltd. .................................................................. 916,000 34,693,500
Hartford Steam Boiler Inspection & Insurance Co. ............................ 287,400 13,328,175
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lincoln National Corp. ....................................................... 968,200 50,830,500
Mid Ocean Limited ............................................................ 101,400 5,323,500
Transamerica Corp. ........................................................... 45,200 3,570,800
------------
107,746,475
------------
Other Financial Companies 3.0%
Federal National Mortgage Association ........................................ 1,044,400 38,903,900
Student Loan Marketing Association ........................................... 942,800 87,798,250
------------
126,702,150
------------
Real Estate 4.3%
Avalon Properties, Inc. (REIT) ............................................... 217,100 6,241,625
Camden Property Trust (REIT) ................................................. 338,500 9,689,563
Charles E. Smith Residential Realty, Inc. (REIT) ............................. 73,800 2,158,650
Developers Diversified Realty Corp. .......................................... 224,700 8,341,988
Equity Residential Properties Trust (REIT) ................................... 28,100 1,159,125
General Growth Properties, Inc. (REIT) ....................................... 1,588,600 51,232,350
Health Care Property Investment Inc. (REIT) .................................. 359,300 12,575,500
Mark Centers Trust (REIT) .................................................... 31,400 317,925
Meditrust SBI (REIT) ......................................................... 468,400 18,736,000
Nationwide Health Properties Inc. (REIT) ..................................... 604,800 14,666,400
Post Properties Inc. (REIT) .................................................. 61,900 2,491,475
Security Capital Corp. (b) (c) ............................................... 15,968 19,847,712
Security Capital Industrial Trust (REIT) ..................................... 424,125 9,065,672
Security Capital US Realty (REIT) ............................................ 1,205,788 15,434,086
Spieker Properties, Inc. ..................................................... 150,000 5,400,000
Vornado Realty Trust (REIT) .................................................. 88,800 4,662,000
------------
182,020,071
------------
Durables 7.3%
Aerospace 4.0%
Boeing Co. ................................................................... 30,634 3,258,692
Lockheed Martin Corp. ........................................................ 472,328 43,218,012
Northrop Grumman Corp. ....................................................... 71,000 5,875,250
Rockwell International Corp. ................................................. 729,400 44,402,225
United Technologies Corp. .................................................... 1,093,800 72,190,800
------------
168,944,979
------------
Automobiles 2.6%
Dana Corp. ................................................................... 994,700 32,452,088
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eaton Corp. .................................................................. 290,100 20,234,475
Ford Motor Co. ............................................................... 1,077,500 34,345,313
Genuine Parts Co. ............................................................ 429,100 19,094,950
------------
106,126,826
------------
Construction/Agricultural Equipment 0.7%
PACCAR, Inc. ................................................................. 449,600 30,572,800
------------
Manufacturing 18.7%
Chemicals 5.8%
DSM NV ....................................................................... 356,100 35,123,547
Dow Chemical Co. ............................................................. 484,700 37,988,363
E.I. du Pont de Nemours & Co. ................................................ 652,400 61,570,250
Eastman Chemical Co. ......................................................... 852,100 47,078,525
Imperial Chemical Industries PLC ............................................. 3,032,000 39,943,093
Lyondell Petrochemical Co. ................................................... 948,900 20,875,800
------------
242,579,578
------------
Containers & Paper 1.6%
Bowater, Inc. ................................................................ 502,900 18,921,613
Stone Container Corp. ........................................................ 1,332,900 19,826,888
Westvaco Corp. ............................................................... 890,100 25,590,375
------------
64,338,876
------------
Diversified Manufacturing 3.3%
Dresser Industries Inc. ...................................................... 301,600 9,349,600
Olin Corp. ................................................................... 1,061,200 39,927,650
St. Joe Paper Co. ............................................................ 93,100 6,051,500
TRW Inc. ..................................................................... 1,666,200 82,476,900
------------
137,805,650
------------
Electrical Products 2.7%
Philips Electronics NV ....................................................... 1,487,800 60,283,630
Philips NV (New York shares) ................................................. 387,700 15,508,000
Thomas & Betts Corp. ......................................................... 830,800 36,866,750
------------
112,658,380
------------
Industrial Specialty 0.4%
Corning Inc. ................................................................. 320,300 14,813,875
------------
Machinery/Components/Controls 0.4%
S.K.F. AB "B" (Free) ......................................................... 785,000 18,590,575
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Office Equipment/Supplies 3.1%
Xerox Corp. .................................................................. 2,470,400 130,004,800
------------
Specialty Chemicals 1.4%
ARCO Chemical Co. ............................................................ 180,000 8,820,000
BetzDearborn Inc. ............................................................ 613,800 35,907,300
Witco Corp. .................................................................. 458,200 13,975,100
------------
58,702,400
------------
Technology 0.1%
Electronic Data Processing
Ceridian Corp.* .............................................................. 110,000 4,455,000
------------
Energy 7.6%
Oil & Gas Production 0.2%
Union Pacific Resources Group ................................................ 265,771 7,773,802
------------
Oil Companies 7.2%
Exxon Corp. .................................................................. 294,800 28,890,400
Murphy Oil Corp. ............................................................. 372,800 20,737,000
Pennzoil Co. ................................................................. 475,600 26,871,400
Repsol SA (ADR) .............................................................. 484,000 18,452,500
Royal Dutch Petroleum Co. .................................................... 229,000 39,101,750
Societe Nationale Elf Aquitaine .............................................. 506,000 46,073,607
Texaco Inc. .................................................................. 234,900 23,049,563
Total SA "B" ................................................................. 510,323 41,518,470
Total SA (ADR) ............................................................... 396,253 15,949,183
YPF S.A. "D" (ADR) ........................................................... 1,580,200 39,900,050
------------
300,543,923
------------
Oil/Gas Transmission 0.2%
PanEnergy Corp. .............................................................. 218,000 9,810,000
------------
Metals & Minerals 2.3%
Steel & Metals
Allegheny Teledyne Inc. ...................................................... 1,879,015 43,217,345
Freeport McMoRan Copper & Gold, Inc. "A" ..................................... 542,590 15,260,344
J & L Specialty Steel, Inc. .................................................. 1,709,700 19,447,838
Phelps Dodge Corp. ........................................................... 268,400 18,117,000
------------
96,042,527
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Construction 1.8%
Building Materials 0.3%
Martin Marietta Materials, Inc. .............................................. 488,449 11,356,439
-------------
Forest Products 1.5%
Georgia Pacific Corp. ........................................................ 470,400 33,868,800
Louisiana-Pacific Corp. ...................................................... 461,900 9,757,638
Weyerhaeuser Co. ............................................................. 364,500 17,268,188
-------------
60,894,626
-------------
Transportation 2.2%
Airlines 0.3%
Delta Air Lines, Inc. ........................................................ 172,448 12,222,252
-------------
Railroads 1.9%
CSX Corp. .................................................................... 512,600 21,657,350
Canadian National Railway Co. ................................................ 809,800 30,803,913
Norfolk Southern Corp. ....................................................... 120,100 10,508,750
Union Pacific Corp. .......................................................... 313,800 18,867,225
-------------
81,837,238
-------------
Utilities 6.0%
Electric Utilities
Boston Edison Co. ............................................................ 81,100 2,179,563
CINergy Corp. ................................................................ 494,500 16,503,938
CMS Energy Corp. ............................................................. 227,600 7,653,050
China Light & Power Co., Ltd. (ADR) .......................................... 2,332,800 10,380,960
Duke Power Co. ............................................................... 119,900 5,545,375
National Power PLC ........................................................... 577,367 4,823,648
National Power PLC (GDR) ..................................................... 239,500 8,113,063
PacifiCorp ................................................................... 740,000 15,170,000
Pacific Gas & Electric Co. ................................................... 1,773,200 37,237,200
PowerGen PLC ................................................................. 5,112,000 50,059,989
PowerGen PLC (ADR) ........................................................... 970,200 38,322,900
Southern Company ............................................................. 606,000 13,710,750
Texas Utilities Co., Inc. .................................................... 210,000 8,557,500
Unicom Corp. ................................................................. 1,212,100 32,878,213
-------------
251,136,149
- -----------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $2,837,247,293) 3,932,442,603
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $3,071,305,690) (a) 4,188,414,215
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $3,068,594,400. At December
31, 1996, net unrealized appreciation for all securities based on tax cost
was $1,119,819,815. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $1,138,883,535 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $19,063,720.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $36,597,712 (.87% of net assets). Their
values have been estimated by the Board of Trustees in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of
these securities at December 31, 1996 aggregated $33,500,000. These
securities may also have certain restrictions as to resale.
(c) Restricted Securities -- securities which have not been registered with
the Securities and Exchange Commission under the Securities Act of 1933.
Information concerning such restricted securities at December 31, 1996 is
as follows:
<TABLE>
<CAPTION>
Security Acquisition Date Cost ($)
-------- ---------------- --------
<S> <C> <C>
Security Capital Corp., Debenture,
6.5%, 3/29/16 4/18/96 16,750,000
Security Capital Corp. 4/18/96 16,750,000
</TABLE>
Transactions in written call options on securities during the twelve
months ended December 31, 1996 were:
<TABLE>
<CAPTION>
Number of Contracts Premiums Received ($)
------------------- ---------------------
<S> <C> <C>
Outstanding at December 31, 1995 ............... -- --
Contracts written .............................. 500 23,999
Contracts expired .............................. (500) (23,999)
---------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 ............... -- --
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1996
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $3,071,305,690) (Note A) ...... $4,188,414,215
Collateral held for securities loaned (Note A) ........................ 258,790,700
Dividends and interest receivables .................................... 12,855,207
Receivable for investments sold ....................................... 16,383,366
Receivable for fund shares sold ....................................... 7,036,358
Receivable for foreign tax recoverable ................................ 1,395,195
Foreign currency, at value (cost $1,022,226) .......................... 1,034,614
Other assets .......................................................... 20,224
--------------
Total assets .......................................................... 4,485,929,879
Liabilities
----------------------------------------------------------------------------------------------------------
Collateral on securities loaned (Note A) .............................. 258,790,700
Due to custodian bank ................................................. 145,365
Payable for investments purchased ..................................... 10,050,401
Payable for fund shares redeemed ...................................... 27,128,682
Accrued management fee (Note C) ....................................... 1,682,044
Other accrued expenses (Note C) ....................................... 1,553,336
Other payables ........................................................ 98,146
--------------
Total liabilities ..................................................... 299,448,674
-----------------------------------------------------------------------------------------
Net assets, at market value $4,186,481,205
-----------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................... $ 6,401,797
Net unrealized appreciation on:
Investments ........................................................ 1,117,108,525
Foreign currency related transactions .............................. 14,357
Accumulated net realized gain ......................................... 70,381,341
Paid-in capital ....................................................... 2,992,575,185
-----------------------------------------------------------------------------------------
Net assets, at market value $4,186,481,205
-----------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($4,186,481,205 / 180,244,068 shares of capital stock
outstanding, $.01 par value, unlimited number of --------------
shares authorized) .................................................... $23.23
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
Statement of Operations
year ended December 31, 1996
<TABLE>
<CAPTION>
Investment Income
---------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Dividends (net of foreign taxes withheld of $2,632,557) ............ $ 117,546,539
Interest ........................................................... 9,381,108
-------------
126,927,647
Expenses:
Management fee (Note C) ............................................ $ 17,628,873
Services to shareholders (Note C) .................................. 8,105,791
Custodian and accounting fees (Note C) ............................. 837,262
Trustees' fees and expenses (Note C) ............................... 38,083
Reports to shareholders ............................................ 640,002
Legal .............................................................. 52,870
Auditing ........................................................... 53,529
Registration ....................................................... 282,702
Other .............................................................. 99,531
-------------
27,738,643
----------------------------------------------------------------------------------------
Net investment income 99,189,004
----------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
---------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ........................................................ 212,888,290
Options ............................................................ 23,999
Foreign currency related transactions .............................. (170,703)
-------------
212,741,586
Net unrealized appreciation during the period on:
Investments ........................................................ 415,531,437
Foreign currency related transactions .............................. 19,314
-------------
415,550,751
----------------------------------------------------------------------------------------
Net gain on investment transactions 628,292,337
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 727,481,341
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................ $ 99,189,004 $ 78,522,376
Net realized gain from investment transactions ............... 212,741,586 63,930,236
Net unrealized appreciation on investment transactions
during the period .......................................... 415,550,751 546,323,308
-------------- --------------
Net increase in net assets resulting from operations ......... 727,481,341 688,775,920
-------------- --------------
Distributions to shareholders from:
Net investment income ........................................ (95,258,805) (78,569,568)
-------------- --------------
Net realized gains on investment transactions ................ (149,937,532) (69,054,578)
-------------- --------------
Fund share transactions:
Proceeds from shares sold .................................... 1,116,527,351 829,474,858
Net asset value of shares issued to shareholders in
reinvestment of distributions .............................. 224,992,117 133,306,288
Cost of shares redeemed ...................................... (698,530,847) (434,428,526)
-------------- --------------
Net increase in net assets from Fund share transactions ...... 642,988,621 528,352,620
-------------- --------------
Increase in net assets ....................................... 1,125,273,625 1,069,504,394
Net assets at beginning of period ............................ 3,061,207,580 1,991,703,186
Net assets at end of period (including undistributed
net investment income of $6,401,797 and $2,471,598, -------------- --------------
respectively) .............................................. $4,186,481,205 $3,061,207,580
-------------- --------------
Other Information
------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares ...........................
Shares outstanding at beginning of period .................... 151,318,741 122,454,972
-------------- --------------
Shares sold .................................................. 51,282,565 45,610,829
Shares issued to shareholders in reinvestment of
distributions .............................................. 9,848,328 6,927,513
Shares redeemed .............................................. (32,205,566) (23,674,573)
-------------- --------------
Net increase in Fund shares .................................. 28,925,327 28,863,769
-------------- --------------
Shares outstanding at end of period .......................... 180,244,068 151,318,741
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 - SCUDDER GROWTH AND INCOME 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>
Years Ended December 31,
1996(d) 1995 1994 1993(b) 1992 1991 1990 1989 1988 1987
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of -------------------------------------------------------------------------------------
period ........................ $20.23 $16.26 $17.24 $16.20 $15.76 $12.77 $14.14 $13.18 $12.31 $15.02
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ............ .60 .55 .49 .49 .57 .57 .65 .67 .60 .68
Net realized and unrealized gain
(loss) on investment
transactions .................. 3.84 4.46 (.05) 2.01 .90 2.97 (1.01) 2.75 .86 (.07)
-------------------------------------------------------------------------------------
Total from investment operations.. 4.44 5.01 .44 2.50 1.47 3.54 (.36) 3.42 1.46 .61
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income ............ (.57) (.56) (.51) (.45) (.53) (.55) (.67) (.69) (.59) (.68)
Net realized gains on investment
transactions .................. (.87) (.48) (.91) (1.01) (.50) -- (.34) (1.77) -- (2.64)
-------------------------------------------------------------------------------------
Total distributions .............. (1.44) (1.04) (1.42) (1.46) (1.03) (.55) (1.01) (2.46) (.59) (3.32)
-------------------------------------------------------------------------------------
Net asset value, -------------------------------------------------------------------------------------
end of period ................. $23.23 $20.23 $16.26 $17.24 $16.20 $15.76 $12.77 $14.14 $13.18 $12.31
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................. 22.18 31.18 2.60 15.59 9.57 28.16 (2.33) 26.36 12.01 3.50
Ratios and Supplemental Data
Net assets, end of period
($ millions) .................. 4,186 3,061 1,992 1,624 1,166 723 491 490 402 392
Ratio of operating expenses to
average net assets (%) ........ .78 .80 .86 .86 .94(a) .97 .95 .87 .92 .89
Ratio of net investment income to
average net assets (%) ........ 2.77 3.10 2.98 2.93 3.60 4.03 5.03 4.47 4.63 4.24
Portfolio turnover rate (%) ...... 26.6 26.9 42.3 35.5 27.5 44.7 64.7 76.6 47.6 59.5
Average commission rate .......... $.0572 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
paid (c)
</TABLE>
(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.
(c)Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after September 1, 1995.
(d)Based on monthly average shares outstanding during the period.
22 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
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 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.
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.
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.
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 a call option 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.
23 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
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 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.
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, U.S
Government Securities or liquid high grade debt obligations 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, 1996, the Fund loaned securities with an aggregate
market value of $252,770,463 which represents 6.0% of total net assets.
Restricted Securities. The Fund may not purchase restricted securities (for
these purposes, restricted security means a security which cannot be sold to the
public without registration under the Securities Act of 1933 or the availability
of an exemption from registration, or which is subject to other legal or
contractual delays in or restrictions on resale), if, as a result thereof, more
than 5% of the value of the Fund's total assets would be invested in restricted
securities. The aggregate fair value of restricted securities at December 31,
1996, amounted to $36,597,712 which represents .87% of net assets.
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 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
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.
B. Purchases and Sales of Securities
For the year ended December 31, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $1,489,158,420 and
$965,117,003, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser") the Fund has agreed to pay the Adviser an
amount equal to an annual rate of 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, 0.45% on the next $1,000,000,000,
and 0.425% of such net assets in excess of $3,000,000,000, 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 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 Agreement. The
Agreement also 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
25 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
management fee, will be paid by the Adviser. For the year ended December 31,
1996, the fee pursuant to the Agreement amounted to $17,628,873, which was
equivalent to an annual effective rate of .49% of the Fund's average daily net
assets.
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, 1996, the amount charged to the Fund by SSC aggregated
$4,264,447, of which $453,051 is unpaid at December 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 December 31,
1996, the amount charged to the Fund by STC aggregated $2,482,721, of which
$273,253 is unpaid at December 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
December 31, 1996, the amount charged to the Fund by SFAC aggregated $249,566 of
which $23,174 is unpaid at December 31, 1996.
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, 1996, Trustees' fees and expenses aggregated $38,083.
26 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
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,
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 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, 1996 by correspondence with the custodian. 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, 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 ten years in the period then ended in conformity with generally accepted
accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 14, 1997
27 - SCUDDER GROWTH AND INCOME FUND
<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 $.733 per share from net long-term capital gains
during its fiscal year ended December 31, 1996. Pursuant to Section 852 of the
Internal Revenue Code, the Fund designates $191,399,782 as capital gain
dividends for its fiscal year ended December 31, 1996.
For corporate shareholders, 98.88% of the income dividends paid during the
Fund's year ended December 31, 1996 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.
28 - SCUDDER GROWTH AND INCOME FUND
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
David S. Lee*
Vice President
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
Kathryn L. Quirk*
Trustee
Jean C. Tempel
Trustee; General Partner,
TL Ventures
Bruce F. Beaty*
Vice President
William F. Gadsden*
Vice President
Jerard K. Hartman*
Vice President
Robert T. Hoffman*
Vice President
Thomas W. Joseph*
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
*Scudder, Stevens & Clark, Inc
29 - Scudder Growth and Income Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
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 Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U. S. Income
- ------------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Quality Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
Retirement Programs
- -------------------
IRA
SEP IRA
SIMPLE IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
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.
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. +++Funds within categories are listed from expected
least to most risk. +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.
30 - Scudder Growth and Income Fund
<PAGE>
How to Contact Scudder
Account Service and Information
- --------------------------------------------------------------------------------
For existing account services and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For information about your Scudder accounts, exchanges and redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------
For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services
- --------------------------------------------------------------------------------
To receive information about this discount brokerage service and to obtain
an application
Scudder Brokerage Services* -- 1-800-700-0820
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 Chicago San Francisco
Boston New York
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.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061 --
Member NASD/SIPC.
** Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus
with more complete information, including management fees and expenses.
Please read it carefully before you invest or send money. Celebrating Over 75
Years of Serving Investors
31 - Scudder Growth and Income Fund
<PAGE>
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.
