Scudder
Growth and
Income Fund
Semiannual Report
June 30, 1999
No-Load Funds
A fund with a disciplined approach to common stock investing seeking long-term
growth of capital, current income, and growth of income.
A no-load fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Scudder Growth and Income Fund
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Date of Inception: 5/31/29 Total Net Assets as of Ticker Symbol: SCDGX
6/30/99: $7.7 billion
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o As value stocks returned to favor, fund performance improved markedly over the
six-month reporting period that ended June 30, 1999.
o Investor sentiment shifted away from many of the large-cap growth stocks and
broadened to include value stocks -- which are well represented in the fund's
portfolio -- and mid- and smaller-cap stocks.
o Scudder Growth and Income Fund's 12.16% return essentially matched the 12.39%
return of the S&P 500 Index for the six-month period, with the fund
significantly outperforming the index in the final three months of the period.
o The fund remains a solid core holding as evidenced by its overall 4-star
risk-adjusted Morningstar Rating(TM) among 3,043 domestic equity funds as of
June 30, 1999.^1
Table of Contents
3 Letter from the Fund's President 20 Financial Highlights
4 Performance Update 21 Notes to Financial Statements
5 Portfolio Summary 24 Officers and Trustees
6 Portfolio Management Discussion 25 Investment Products and Services
11 Investment Portfolio 26 Scudder Solutions
17 Financial Statements
^1 Morningstar proprietary ratings reflect historical risk-adjusted performance
as of 6/30/99. Ratings are subject to change every month 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 its
broad asset class, 10% of funds receive 5 stars and the next 22.5% receive 4
stars. In the domestic equity category, the fund received a 3-star rating for
the three-year period, and a 4-star rating for the five- and ten-year periods
among 3043, 1878, and 748 funds, respectively. Past performance is no
guarantee of future results.
2 - Scudder Growth and Income Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
Value stocks rallied dramatically toward the end of the six-month reporting
period and your fund's many holdings in this area benefited significantly from
the turnaround. After more than a year dominated by large-cap growth stocks, the
strong rebound in value stocks was a welcome tailwind to your fund's investment
approach.
While we are pleased with the fund's performance, especially in the final
three months of the period, we think this rebound serves as an important
reminder of the cyclical nature of investing and the value of sticking with a
consistent investment approach.
We know it is unrealistic to expect our shareholders to remain invested
indefinitely, but we remain concerned about the temptation to switch funds based
on short-term performance trends. In this age of instantaneous information,
buying and selling has become easy and inexpensive for many investors. Recent
innovations including on-line trading and the development of the Internet
provide investors with powerful tools to make better and more informed decisions
quickly and at low cost. However, these developments have increased the risk
that some investors will emphasize short-term gains at the expense of their
long-range goals.
While each individual's investment goals are unique to their particular
situation, following a well-thought-out, long-term strategy is of universal
importance to investors. As you review this report and the discussion with
Robert T. Hoffman, your fund's lead portfolio manager, we hope that you will
keep this in mind. It has been the foundation of our investment discipline for
years and we think our shareholders can benefit from this same approach.
For those of you who are interested in complementing your existing
holdings, we recently introduced two funds: Scudder Select 500 Fund -- which
invests in a subset of the stocks in the unmanaged S&P 500 Index, and Scudder
Select 1000 Growth Fund -- which invests in a subset of the stocks in the
unmanaged Russell 1000 Growth Index. For further information on these new funds,
please visit our Web site at www.scudder.com or call Scudder Investor Relations
at 1-800-SCUDDER (1-800-728-3337).
Thank you for your continued investment in Scudder Growth and Income Fund.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Growth and Income Fund
3 - Scudder Growth and Income Fund
<PAGE>
Performance Update as of June 30, 1999
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Fund Index Comparisons
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Total Return
- --------------------------------------------
Period Ended Growth of Average
6/30/1999 $10,000 Cumulative Annual
- --------------------------------------------
Scudder Growth and Income Fund
- --------------------------------------------
1 Year $ 10,821 8.21% 8.21%
5 Year $ 25,570 155.70% 20.66%
10 Year $ 43,272 332.72% 15.78%
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S&P 500 Index
- --------------------------------------------
1 Year $ 12,276 22.76% 22.76%
5 Year $ 34,191 241.91% 27.86%
10 Year $ 55,909 459.09% 18.77%
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- --------------------------------------------
Growth of a $10,000 Investment
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THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
S&P 500 Index Scudder Growth and Income Fund
'89 10000 10000
'90 11650 10689
'91 12509 11430
'92 14190 13744
'93 16125 15722
'94 16352 16923
'95 20613 20092
'96 25971 24871
'97 34987 33142
'98 45542 39989
'99 55909 43272
Yearly periods ended June 30
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees or expenses.
- ----------------------------------
Returns and Per Share Information
- ----------------------------------
Yearly Periods Ended June 30
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $13.56 $13.81 $16.04 $17.20 $17.00 $18.53 $21.85 $27.02 $29.50 $29.12
- ------------------------------------------------------------------------------------------------------------------------------
Income Dividends $ .71 $ .64 $ .52 $ .51 $ .47 $ .51 $ .56 $ .59 $ .74 $ .59
- ------------------------------------------------------------------------------------------------------------------------------
Capital Gains Distributions $ 2.11 $ -- $ -- $ .54 $ 1.04 $ .94 $ .42 $ 1.18 $ 2.09 $ 1.92
- ------------------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) 6.89 6.93 20.25 14.39 7.64 18.72 23.78 33.26 20.66 8.21
- ------------------------------------------------------------------------------------------------------------------------------
Index Total Return (%) 16.50 7.38 13.43 13.65 1.40 26.07 26.00 34.72 30.17 22.76
- ------------------------------------------------------------------------------------------------------------------------------
</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 June 30, 1999
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Asset Allocation
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A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Common Stocks 96%
Cash Equivalents 2%
Convertible Preferred Stocks 1%
Convertible Bonds 1%
------------------------------------
100%
------------------------------------
The fund seeks to remain fully invested in equity securities with attractive
valuations.
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Sector Diversification
(Excludes 2% Cash Equivalents)
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A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Financial 19%
Communications 18%
Manufacturing 18%
Energy 10%
Durables 8%
Health 6%
Consumer Staples 6%
Construction 4%
Utilities 3%
Other 8%
------------------------------------
100%
------------------------------------
Management's emphasis on attractive valuations and individual stock selection
resulted in significant weightings in industrial cyclicals which rebounded
strongly in the second quarter.
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Ten Largest Equity Holdings
(28% of Portfolio)
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1. Corning Inc.
Specialty glass manufacturer
2. Xerox Corp.
Manufacturer of copiers and
duplicators
3. Bell Atlantic Corp.
Telecommunication services
4. American Home Products Corp.
Diversified pharmaceutical company
5. Sprint Corp.
Telecommunication services
6. GTE Corp.
Telecommunication company
7. Bank of America Corp.
Bank
8. Avon Products, Inc.
Manufacturer and retailer of
cosmetics, jewelry and gift
products
9. Frontier Corp.
Diversified telecommunication
services
10. Ford Motor Co.
Automobile manufacturer
A number of communications companies are represented among the fund's top
holdings -- the sector that made the largest contribution to performance for the
past six months.
For more complete details about the Fund's investment portfolio, see page 11.
A quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Growth and Income Fund
<PAGE>
Portfolio Management Discussion
Robert T. Hoffman, lead portfolio manager of Scudder Growth and Income Fund,
recently reviewed the fund's performance for the six-month period ended June 30,
1999. Below are highlights of our discussion with him.
Q: Investors witnessed a dramatic change in stock market leadership over the six
months as the dominance of large-cap growth stocks faded and value stocks and
small- and mid-cap issues took the lead. What precipitated this change in
investor sentiment?
A: A shift in perception about the strength of the U.S. economy resulted in a
significant rotation in market leadership. At the beginning of 1999, the
prevailing economic outlook was restrained economic growth with virtually no
inflation and lower interest rates. By April, concerns about an overheating
economy with inflationary pressures and rising long-term interest rates took
center stage. Signs of a rebound in Asian economies, sharp increases in
depressed commodity prices, and earnings disappointments in several large growth
and technology companies were all primary drivers for the shift away from growth
stocks into value.
Q: When did you see signs of a shift?
A: The powerful rally among cyclical companies began in April, reversing the
trend of market dominance by the largest growth and technology shares that began
in 1998 and continued throughout the first three months of this year. In
addition to large value-oriented companies, small capitalization and
international (especially Asian) stocks, which had also been out of favor, were
among the strongest performers during the final three months of the period.
In contrast, high-flying Internet stocks were particularly hard hit as the
market sold the most expensive, momentum-oriented stocks in favor of companies
with improving fundamentals and compelling valuations that many believed would
benefit from the recovering global economy. On June 30th, as expected, the
Federal Reserve raised interest rates a minimal quarter point and signaled a
return to a "neutral bias" with regard to future rate increases, pleasing
investors and propelling the equity markets to record highs. While we have
always believed that value stocks would return to favor, we did not expect the
furious rally in value stocks that took place in the second quarter.
As long-term investors we know that sometimes we have to be patient as we wait
for the market to recognize the attractive valuations of many of our holdings.
That "waiting" sometimes can be painful when our value-oriented investment style
is out of favor, as it had been for the 15-month period that ended March 31st.
But in the second quarter we were rewarded for our commitment to investing in
stocks with attractive valuations and good fundamentals. Such shifts in investor
sentiment serve to remind us of the importance of a long-term perspective.
Q: How did the fund perform?
A: The fund performed well, returning 12.16% for the six-month reporting period
that ended June 30, 1999. This return was essentially earned during the second
quarter when the fund recorded its best relative quarterly performance in twelve
years. The fund's six-month return basically matched the
6 - Scudder Growth and Income Fund
<PAGE>
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Value Takes the Lead from Growth
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1st 2nd
quarter quarter
1999 1999
Scudder Growth and Income Fund -0.24% 12.42%
S&P 500 Index 4.98% 7.06%
Russell 1000 Value Index 1.44% 11.27%
Russell 1000 Growth Index 6.36% 3.85%
Investor sentiment reversed dramatically in the second quarter as value stocks
rose strongly.
12.39% return of the unmanaged S&P 500 Index and the 12.87% return of large-cap
value stocks as measured by the Russell 1000 Value Index.
While these numbers don't exactly sound like Internet stock returns (and the
fund does not assume the risks associated with Internet stocks), a closer look
at the first and second calendar quarter returns clearly shows the turnaround
for value stocks (see table above).
Q: What worked well for the portfolio during the six months?
A: Overall, our industry sector weights and individual stock selections were
both significant contributors to the fund's performance for the period. Holdings
in the energy, communications, and construction sectors made strong
contributions, while performance was held back by our lack of exposure to
growth-oriented technology stocks and our finance holdings.
Q: The fund's holdings of industrial cyclical stocks -- an area you were early
in last year -- were among the fund's best performers. Tell us about the fund's
holdings in this sector.
A: Our industrial cyclical holdings were principally responsible for the fund's
remarkable rebound. Freeport McMoRan (precious metals), Dow Chemical, Georgia
Pacific (forest and building products), and Phelps Dodge (steel and metals) are
included in this category and helped performance. While we used the early
strength in the sector to eliminate Boise Cascade (we were not as enthused about
the prospects of their paper grades versus our other paper holdings) and
Imperial Chemical Industries (where our conviction level in management had
deteriorated), our decision to stick with our overall valuation thesis clearly
paid off.
Two other stocks in the industrial cyclicals area also made important
contributions: Meritor, an auto parts manufacturer that was spun off from
Rockwell in late '97, and Lyondell, a chemical company that was one of our
weakest performers last year. Lyondell's earnings are highly correlated to the
price of ethylene, and both stocks rose smartly during the period. Even after
such good performance, each stock still ranks among the cheapest in the
portfolio, which we think bodes well for the stocks' future potential.
Q: With technology stocks getting much of investors' attention over the last
year, what has been your exposure to this area?
A: Given the high valuations of many technology stocks, the portfolio has been
underweighted in this
7 - Scudder Growth and Income Fund
<PAGE>
area. Most tech stocks that have driven the market recently have distinct growth
characteristics, which is not consistent with our value-oriented discipline.
Microsoft and Cisco Systems are two growth-tech examples, but we wouldn't hold
them in the portfolio given their currently high valuations. Our investment
discipline leads us to focus on tech stocks that are out of favor or have
valuations that do not fully reflect their fundamental prospects. We will
continue to monitor this area for opportunities that fit this criteria.
Q: Have you been able to participate in the technology sector in other ways?
A: Yes, we are continuing to invest in the "toll takers" of the information
superhighway. As gateways to the Internet, we believe these kinds of companies
will benefit from the Internet's rapid growth and need for infrastructure. Our
focus has been on local telephone companies, which we think will benefit as more
and more business (both internally and externally) migrates to the Internet. Our
holdings of Ameritech, Bell Atlantic, GTE, SBC Communications, and Frontier were
all up strongly over the six months. Generally these holdings were propelled
higher by the compelling picture painted by industry consolidation, a slightly
clearer regulatory environment, and the cheapest relative valuations (as
measured by price/earnings and price/cash flow) versus their relative growth
rates. In the case of Frontier, the stock has risen as a result of a bidding war
between Global Crossing and Qwest Communications.
Q: In the information superhighway category you have previously included
Corning, the fund's number one holding at the end of the period. With the stock
already up over 50% in the first half, is there more upside?
A: Corning's top ten position in the portfolio is both a reflection of the
stock's success and our conviction in it. We began adding shares of the stock to
the portfolio over a year ago and have increased our position since then. As you
may know, Corning is the world's leading producer of fiber optics, and as such,
falls into the "asphalt" (or infrastructure) category of our information
superhighway theme. We believe as the need for bandwidth or "the number of lanes
on the highway" continues to grow at an exponential rate, firms that provide
products to speed up Internet connections should benefit. We continue to see
strong demand for fiber optics even with other competing communication modes, as
many telecommunications companies remain committed to upgrading existing lines
with fiber optics. Corning has remained the leader in this field and recently
won a major contract to supply 80% of a new five-million-mile broadband fiber
optic network that will connect 17 European nations. This is one of many reasons
why we believe the stock continues to have potential.
Q: The financial sector continues to comprise the largest sector weight at 19%
of assets. How has the rising rate environment affected these companies?
A: Modestly rising rates are not necessarily bad for bank stocks because
slightly higher rates imply underlying strength in the domestic economy. As
8 - Scudder Growth and Income Fund
<PAGE>
long as the Federal Reserve does not embark on an aggressive campaign to fight
inflation by raising rates dramatically, we are not especially concerned about
our holdings in this area. We were, however, disappointed with First Union, a
top ten holding at the beginning of the period, which announced a profit
warning. The announcement was the result of the bank's higher than expected
expenses associated with a decision to invest in Internet banking services and
lower than expected synergies from its recent acquisitions of CoreStates
Financial and The Money Store. While we trimmed our exposure in the stock, we
are maintaining a position based on the bank's strong East Coast franchise and
attractive valuations.
Q: Historically you have had an underweight position in insurance companies. Are
there any opportunities there?
A: We have begun to see some positive signs in the property and casualty (P&C)
insurance sector. Over the past few years the pricing environment in the P&C
area has been dreadful, a fact that has clearly affected the performance of the
stocks in the category. While we see faint signs of a recovery, the prices of
most stocks are not reflecting such an event. Marsh & McLennan owns an asset
management business -- Putnam -- which is performing well. Consequently, we
believe that the valuation of their core business -- insurance brokerage -- is
severely undervalued. We expect Marsh & McLennan should see an upturn soon due
to the nature of insurance brokerage.
Q: Despite the generous yields of real estate investment trusts (REITs), this
sector has been beaten up over the last few years. How did the fund's REIT
holdings fare?
A: REITs rebounded strongly in both the first and second quarters. In the office
REIT sector, we continue to see very positive organic growth from increasing
rents rolling over from the early 1990s. However, in the health care REIT
sector, no such internal boosts exist, and the nursing home operators who "pay
the rent" continue to come under pressure from federal reimbursement programs.
While long-term fund holdings Health Care Properties and Nationwide Health
Properties have attractive valuations and yields of 7-8%, the catalyst for share
price appreciation was not there, and we eliminated these holdings early in the
period.
Elsewhere in the category we continued to focus on office REITs. Our focus
remains on Boston Properties and Equity Office Properties Trust where we see the
best fundamentals combined with attractive valuations. We think the worst may be
over for REITs, but for now we do not expect to increase our weighting in this
area.
Q: On June 30th you enlarged the "fishing pond" from which you select stocks for
the portfolio. Tell us about this enhancement and why you decided to implement
it now.
A: We have been managing large-cap value- oriented investment portfolios
successfully for more than 15 years. A key cornerstone of our investment
discipline has been -- and will continue to be -- the use of a relative dividend
yield approach.
9 - Scudder Growth and Income Fund
<PAGE>
However, over the past 20 years the number of companies electing to pay
dividends has declined significantly. As a result, many companies that we
believe are attractively valued and favorably ranked based on our valuation
measures and our internal research are excluded from the fund's portfolio
because the stocks do not meet our dividend yield requirement. At the end of the
period, 18% of the stocks contained in the S&P 500 Index did not pay dividends
and were excluded from our list of potential holdings and 25% of the stocks in
the Russell 1000 Value Index did not pay dividends. As a result, we have
broadened our universe of stocks beyond those with above-average yields by
including low and non-dividend-paying value stocks. By adding these stocks to
our investment universe, we have expanded the list of potential investment
ideas.
Q: What other valuation measures are you using?
A: We have simply added to our list of valuation components. We now include
price/cashflow and price/earnings ratios in addition to relative dividend yield
in determining if a company is an attractive buy or sell candidate for the
portfolio. This enhancement enables us to purchase stocks that pay little or no
dividends, but this does not mean that we are abandoning the fund's value
approach. While we have not set a limit on the percent of the fund that will
comprise non-dividend paying stocks, we anticipate that the majority of holdings
in the fund will still have above-average dividend yields. For the portfolio
overall, we expect the Fund's gross yield (before deducting expenses) will
remain at a premium versus the yield of the S&P 500 Index.
Q: With many market gurus forecasting a slowdown in the second half, what is
your outlook for the fund and the kinds of companies in which it invests?
A: We have believed for some time that the ingredients for a value rally were in
place, namely rising long-term interest rates, a steepening yield curve, a
cessation of deflationary expectations, an improving profit outlook for
industrial companies, and signs of an upturn among many Asian economies. We did
not envision the ferocity of the value rally that occurred in the second
quarter. Is this rotation toward value sustainable? While we don't necessarily
expect a repeat of the huge outperformance of value over growth stocks, we
believe that the foundation is in place for both value and growth to perform
well. The Federal Reserve's action in June (raising the federal funds rate by a
quarter point, but reverting to a neutral bias with regard to future rate
increases) leveled the playing field. At that time, the market got the rate
increase that it expected (good for value stocks) but the fear of further rate
hikes was removed (good for growth stocks). Everything else being equal, it is
our sense that stylistic differences between growth and value stocks will be
more muted through the rest of the year, with investment success driven more by
the individual fundamentals of specific stocks.
10 - Scudder Growth and Income Fund
<PAGE>
Investment Portfolio as of June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/1999 at 4.8%, to be
repurchased at $43,481,797 on 7/1/1999, collateralized by a $41,196,000 U.S. Treasury Bond, -----------
7.625%, 2/15/2007 (Cost $43,476,000) ................................................................ 43,476,000 43,476,000
-----------
Short Term Investments 1.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Barclays U.S. Funding Corp., 5.15%**, 7/13/1999 ....................................................... 50,000,000 49,914,167
Bell Atlantic Corp., 5.22%**, 7/8/1999 ................................................................ 25,000,000 24,974,625
J.P. Morgan & Co., Inc., 5.17%**, 7/22/1999 ........................................................... 20,000,000 19,939,683
UBS Finance Corp., 5.11%**, 7/15/1999 ................................................................. 30,000,000 29,940,383
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short Term Investments (Cost $124,768,858) 124,768,858
- -----------------------------------------------------------------------------------------------------------------------------------
Convertible Bonds 0.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Financial 0.1%
Real Estate
Security Capital Corp., Debenture, 6.5%, 3/29/2016 (b) (c) ............................................ 16,750,000 10,524,025
-----------
Media 0.3%
Advertising
Omnicom Group Inc., 2.25%, 1/6/2013 ................................................................... 12,500,000 21,156,250
- -----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $29,828,224) 31,680,275
- -----------------------------------------------------------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks 1.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Staples 0.7%
Food & Beverage
Suiza Foods Corp., 2.7% ............................................................................... 1,316,100 50,340,825
-----------
Health 0.5%
Biotechnology
Monsanto Co., 6.5% .................................................................................... 1,005,800 40,357,725
-----------
Financial 0.1%
Consumer Finance 0.0%
Advanta Corp., 6.75% .................................................................................. 4,000 56,000
-----------
Real Estate 0.1%
ProLogis Trust "B", 7% ................................................................................ 308,300 7,996,531
-----------
Metals & Minerals 0.1%
Precious Metals
Freeport McMoRan Copper & Gold, Inc., 7% .............................................................. 424,800 7,965,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $125,416,406) 106,716,081
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Growth and Income Fund
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Common Stocks 96.0%
- --------------------------------------------------------------------------------
Consumer Discretionary 1.5%
Department & Chain Stores
Rite Aid Corp. .................. 3,511,700 86,475,613
Sears, Roebuck & Co. ............ 708,600 31,576,988
-------------
118,052,601
-------------
Consumer Staples 5.3%
Alcohol & Tobacco 1.4%
Philip Morris Companies, Inc. ... 2,694,300 108,277,181
-------------
Food & Beverage 1.6%
Albertson's Inc. ................ 264,556 13,641,167
H.J. Heinz Co. .................. 2,124,750 106,503,094
-------------
120,144,261
-------------
Package Goods/Cosmetics 2.3%
Avon Products, Inc. ............. 3,162,900 175,540,950
-------------
Health 5.4%
Pharmaceuticals
American Home Products Corp. .... 3,937,000 226,377,500
Bristol-Myers Squibb Co. ........ 1,357,400 95,611,863
Glaxo Wellcome plc .............. 1,000,000 27,814,851
SmithKline Beecham plc (ADR) .... 1,035,100 68,381,294
-------------
418,185,508
-------------
Communications 17.2%
Telephone/Communications
Alltel Corp. .................... 1,825,400 130,516,100
Ameritech Corp. ................. 1,098,300 80,725,050
Bell Atlantic Corp. ............. 3,801,896 248,548,951
BellSouth Corp. ................. 3,388,600 158,840,625
Frontier Corp. .................. 2,745,500 161,984,500
GTE Corp. ....................... 2,504,700 189,731,025
SBC Communications, Inc. ........ 1,919,500 111,331,000
Sprint Corp. .................... 3,981,400 210,267,688
Telesp Participacoes S.A. (pfd.)* 1,292,142,000 29,750,853
-------------
1,321,695,792
-------------
The accompanying notes are an integral part of the financial statements.
12 - Scudder Growth and Income Fund
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Financial 18.0%
Banks 9.7%
BANK ONE CORP ............................ 1,598,762 95,226,262
Bank of America Corp. .................... 2,549,446 186,906,259
Chase Manhattan Corp. .................... 1,803,800 156,254,175
First Union Corp. ........................ 1,685,652 79,225,644
Fleet Financial Group Inc. ............... 1,867,600 82,874,750
J.P. Morgan & Co., Inc. .................. 238,700 33,537,350
KeyCorp .................................. 2,015,000 64,731,875
US Bancorp ............................... 1,401,900 47,664,600
-------------
746,420,915
-------------
Insurance 2.9%
Lincoln National Corp. ................... 833,600 43,607,700
Marsh & McLennan Companies, Inc. ......... 487,700 36,821,350
Safeco Corp. ............................. 1,163,700 51,348,263
XL Capital Ltd. "A" ...................... 1,633,910 92,315,915
-------------
224,093,228
-------------
Other Financial Companies 1.6%
Federal National Mortgage Association .... 1,785,100 122,056,213
-------------
Real Estate 3.8%
Arden Realty Group, Inc. ................. 1,123,400 27,663,725
Boston Properties, Inc. (REIT) ........... 1,073,200 38,501,050
Equity Office Properties Trust (REIT) .... 1,818,300 46,593,938
General Growth Properties, Inc. (REIT) (d) 1,939,800 68,862,900
Prentiss Properties Trust ................ 1,365,100 32,079,850
ProLogis Trust (REIT) .................... 2,935,645 59,446,811
Security Capital Group Inc. "A"* ......... 15,969 11,577,373
Spieker Properties, Inc. ................. 150,000 5,831,250
-------------
290,556,897
-------------
Service Industries 0.5%
Printing/Publishing
McGraw-Hill Companies, Inc. .............. 712,300 38,419,681
-------------
Durables 8.3%
Aerospace 4.1%
Lockheed Martin Corp. .................... 3,347,956 124,711,361
Northrop Grumman Corp. ................... 1,054,600 69,933,163
The accompanying notes are an integral part of the financial statements.
13 - Scudder Growth and Income Fund
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Rockwell International Corp. ........... 2,007,300 121,943,475
-----------
316,587,999
-----------
Automobiles 2.8%
Ford Motor Co. ......................... 2,868,100 161,868,394
Meritor Automotive, Inc. ............... 1,937,800 49,413,900
-----------
211,282,294
-----------
Construction/Agricultural Equipment 1.4%
Caterpillar Inc. ....................... 746,900 44,814,000
PACCAR, Inc. ........................... 1,146,100 61,173,088
-----------
105,987,088
-----------
Manufacturing 17.2%
Chemicals 4.3%
Akzo Nobel N.V ......................... 1,862,940 78,668,196
Dow Chemical Co. ....................... 601,700 76,340,688
E.I. du Pont de Nemours & Co. .......... 1,065,800 72,807,463
Eastman Chemical Co. ................... 644,700 33,363,225
Lyondell Petrochemical Co. ............. 3,494,900 72,082,313
-----------
333,261,885
-----------
Containers & Paper 1.0%
Temple-Inland Inc. ..................... 1,094,300 74,685,975
-----------
Diversified Manufacturing 0.9%
Canadian Pacific Ltd. (Ord.) ........... 2,545,700 60,785,578
St. Joe Paper Co. ...................... 279,300 7,541,100
-----------
68,326,678
-----------
Electrical Products 1.5%
Emerson Electric Co. ................... 900,600 56,625,225
Thomas & Betts Corp. ................... 1,258,100 59,445,225
-----------
116,070,450
-----------
Industrial Specialty 4.7%
Corning Inc. ........................... 5,142,750 360,635,344
-----------
Machinery/Components/Controls 1.4%
Parker-Hannifin Corp. .................. 2,364,900 108,194,175
-----------
Office Equipment/Supplies 3.4%
Xerox Corp. ............................ 4,381,800 258,800,063
-----------
The accompanying notes are an integral part of the financial statements.
14 - Scudder Growth and Income Fund
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Technology 0.5%
Semiconductors
Conexant Systems, Inc.* ................... 647,750 37,609,984
-----------
Energy 10.1%
Oil & Gas Production 2.0%
Conoco Inc. "A" ........................... 2,755,100 76,798,413
Royal Dutch Petroleum Co. (New York shares) 1,334,500 80,403,625
-----------
157,202,038
-----------
Oil Companies 6.7%
BP Amoco plc .............................. 4,657,246 83,470,301
Chevron Corp. ............................. 471,800 44,909,463
Elf Aquitaine S.A ......................... 816,000 120,180,835
Mobil Corp. ............................... 916,300 90,713,700
Texaco Inc. ............................... 1,704,900 106,556,250
Total S.A. "B" ............................ 510,323 66,075,827
-----------
511,906,376
-----------
Oil/Gas Transmission 1.4%
Williams Cos., Inc. ....................... 2,549,000 108,491,813
-----------
Metals & Minerals 1.6%
Precious Metals 0.1%
Freeport McMoRan Copper & Gold, Inc. "A" .. 511,890 8,574,158
-----------
Steel & Metals 1.5%
Allegheny Teledyne Inc. ................... 4,193,815 94,885,060
Phelps Dodge Corp. ........................ 128,100 7,934,194
Reynolds Metals Co. ....................... 196,400 11,587,600
-----------
114,406,854
-----------
Construction 3.8%
Building Products 1.5%
Georgia Pacific Group ..................... 2,328,500 110,312,688
-----------
Forest Products 2.3%
Georgia Pacific Timber Group .............. 1,289,200 32,552,300
Weyerhaeuser Co. .......................... 2,109,000 144,993,750
-----------
177,546,050
-----------
Transportation 3.3%
Railroads
CSX Corp. ................................. 3,286,900 148,937,656
The accompanying notes are an integral part of the financial statements.
15 - Scudder Growth and Income Fund
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Canadian National Railway Co. 623,200 42,048,356
Norfolk Southern Corp. ...................... 2,046,800 61,659,850
------------
252,645,862
------------
Utilities 3.3%
Electric Utilities
CINergy Corp. ............................... 2,494,100 79,811,200
PacifiCorp .................................. 3,927,500 72,167,813
Unicom Corp. ................................ 2,642,300 101,893,694
-------------
253,872,707
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $5,053,981,996) 7,369,843,708
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $5,377,471,484) (a) 7,676,484,922
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $5,376,624,855. At June
30, 1999, net unrealized appreciation for all securities based on tax
cost was $2,299,860,067. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $2,425,519,737 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $125,659,670.
(b) Securities, in part or whole, valued in good faith by the Valuation
Committee of the Board of Trustees at fair value amounted to
$10,524,025 (0.14% 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 June
30, 1999 aggregated $16,750,000. These securities may also have certain
restrictions as to resale.
(c) Restricted Securities are securities which have not been registered
with the Securities and Exchange Commission under the Securities Act of
1933. The aggregate fair value of restricted securities at June 30,
1999 amounted to $10,524,025, which represents 0.14% of net assets.
Information concerning such restricted securities at June 30, 1999 is
as follows:
<TABLE>
<CAPTION>
Security Acquisition Date Cost ($)
-------- ---------------- --------
<S> <C> <C>
Security Capital Corp., Debenture, 6.5%,3/29/2016 4/18/1996 16,750,000
</TABLE>
(d) Affiliated Issuer (See Notes to Financial Statements)
* Non income producing security.
** Annualized yield at time of purchase; not a coupon rate.
The accompanying notes are an integral part of the financial statements.
16 - Scudder Growth and Income Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Assets
- --------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market:
Unaffiliated issuers (identified cost $5,328,829,572) ......... $7,607,622,022
Affiliated issuers (identified cost $48,641,912) .............. 68,862,900
--------------
Total investments, at market (identified cost $5,377,471,484) .... 7,676,484,922
Cash ............................................................. 851
Receivable for investments sold .................................. 43,273,064
Dividends and interest receivable ................................ 15,181,599
Receivable for Fund shares sold .................................. 5,952,705
Receivable for foreign tax recoverable ........................... 1,190,749
Other assets ..................................................... 72,617
--------------
Total assets ..................................................... 7,742,156,507
Liabilities
- --------------------------------------------------------------------------------------------------------
Payable for investments purchased ................................ 3,490,931
Payable for Fund shares redeemed ................................. 28,553,413
Accrued management fee ........................................... 2,654,737
Other payables and accrued expenses .............................. 863,285
--------------
Total liabilities ................................................ 35,562,366
-----------------------------------------------------------------------------------
Net assets, at market value $7,706,594,141
-----------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .............................. 6,764,598
Net unrealized appreciation (depreciation) on:
Investments ................................................... 2,299,013,438
Foreign currency related transactions ......................... 146,038
Accumulated net realized gain (loss) ............................. 110,288,879
Paid-in capital .................................................. 5,290,381,188
-----------------------------------------------------------------------------------
Net assets, at market value $7,706,594,141
-----------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($7,706,594,141 / 264,679,710 outstanding shares of beneficial --------------
interest, $.01 par value, unlimited number of shares authorized) .. $ 29.12
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Growth and Income Fund
<PAGE>
Statement of Operations
six months ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Investment Income
- ------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Dividends -- Unaffiliated issuers (net of foreign taxes
withheld of $1,872,968) ........................................ $ 96,801,019
Dividends -- Affiliated issuers .................................. 1,862,208
Interest ......................................................... 3,059,429
-------------
101,722,656
-------------
Expenses:
Management fee ................................................... 16,402,984
Services to shareholders ......................................... 9,807,800
Custodian and accounting fees .................................... 406,196
Trustees' fees and expenses ...................................... 14,774
Reports to shareholders .......................................... 670,526
Registration fees ................................................ 67,106
Auditing ......................................................... 29,014
Legal ............................................................ 28,480
Other ............................................................ 309,994
-------------
27,736,874
----------------------------------------------------------------------------------
Net investment income 73,985,782
----------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ...................................................... 113,488,597
Foreign currency related transactions (Includes CPMF tax $10,600) (1,103,761)
-------------
112,384,836
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments ...................................................... 659,399,587
Foreign currency related transactions ............................ 44,216
-------------
659,443,803
----------------------------------------------------------------------------------
Net gain (loss) on investment transactions 771,828,639
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 845,814,421
----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder Growth and Income Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1999 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................ $ 73,985,782 $ 168,785,409
Net realized gain (loss) from investment transactions 112,384,836 517,286,022
Net unrealized appreciation (depreciation) on
investment transactions during the period ........ 659,443,803 (286,105,331)
--------------- ---------------
Net increase (decrease) in net assets resulting from
operations........................................ 845,814,421 399,966,100
--------------- ---------------
Distributions to shareholders from:
Net investment income ............................... (74,821,328) (166,588,779)
--------------- ---------------
Net realized gains on investment transactions ....... (21,582,441) (564,589,614)
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ........................... 856,849,971 2,391,306,573
Net asset value of shares issued to shareholders in
reinvestment of distributions..................... 90,730,206 685,005,575
Cost of shares redeemed ............................. (1,572,648,050) (1,996,432,615)
--------------- ---------------
Net increase (decrease) in net assets from Fund share
transactions ..................................... (625,067,873) 1,079,879,533
--------------- ---------------
Increase (decrease) in net assets ................... 124,342,779 748,667,240
Net assets at beginning of period ................... 7,582,251,362 6,833,584,122
Net assets at end of period (including undistributed
net investment income of $6,764,598 and $7,600,144, ----------------- -----------------
respectively) .................................... $ 7,706,594,141 $ 7,582,251,362
----------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ........... 288,145,757 250,081,688
--------------- ---------------
Shares sold ......................................... 31,782,900 84,380,304
Shares issued to shareholders in reinvestment of
distributions..................................... 3,351,834 25,378,540
Shares redeemed ..................................... (58,600,781) (71,694,775)
--------------- ---------------
Net increase (decrease) in Fund shares .............. (23,466,047) 38,064,069
----------------- ----------------
Shares outstanding at end of period ................. 264,679,710 288,145,757
----------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - 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>
Six Months Ended
June 30 1999(a) Years Ended December 31,
(Unaudited) 1998(a) 1997(a) 1996(a) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------
Net asset value, beginning of period ............................ $26.31 $ 27.33 $ 23.23 $ 20.23 $ 16.26 $ 17.24
-----------------------------------------------------------------
Income from investment operations:
Net investment income ........................................... .27 .62 .62 .60 .55 .49
Net realized and unrealized gain (loss) on investment
transactions................................................... 2.90 1.06 6.26 3.84 4.46 (.05)
-----------------------------------------------------------------
Total from investment operations ................................ 3.17 1.68 6.88 4.44 5.01 .44
-----------------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.28) (.61) (.58) (.57) (.56) (.51)
Net realized gains on investment transactions ................... (.08) (2.09) (2.20) (.87) (.48) (.91)
-----------------------------------------------------------------
Total distributions ............................................. (.36) (2.70) (2.78) (1.44) (1.04) (1.42)
-----------------------------------------------------------------
-----------------------------------------------------------------
Net asset value, end of period .................................. $29.12 $ 26.31 $ 27.33 $ 23.23 $ 20.23 $ 16.26
-----------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................................................ 12.16** 6.07 30.31 22.18 31.18 2.60
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......................... 7,707 7,582 6,834 4,186 3,061 1,992
Ratio of operating expenses to average daily net
assets (%) .................................................... .75* .74 .76 .78 .80 .86
Ratio of net investment income to average net daily assets (%) .. 2.01* 2.20 2.31 2.77 3.10 2.98
Portfolio turnover rate (%) ..................................... 20.1* 40.8 22.2 26.6 26.9 42.3
</TABLE>
(a) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
20 - Scudder Growth and Income Fund
<PAGE>
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
Scudder Growth and Income Fund (the "Fund") is a diversified series of
Investment Trust (the "Trust") which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust.
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. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. 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
Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sale price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Fund whose
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. Money market instruments purchased with an original 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 or
sub-custodian bank, 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 is equal to at least the
principal amount of the repurchase price plus accrued interest.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
21 - Scudder Growth and Income Fund
<PAGE>
Taxes. The Fund's policy is to comply with the requirements of the
Internal Revenue Code, as amended, 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.
The Fund is subject to a 0.20% Contirbuicao Provisoria sobre Movimentacoes
Financieras (CPMF) tax which is applied to foreign exchange transactions
representing capital inflows or outflows to the Brazilian market.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made quarterly. 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 at least
annually.
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. 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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Certain dividends
from foreign securities may be recorded subsequent to the ex-dividend date as
soon as the Fund is informed of such dividends. Realized gains and losses from
investment transactions are recorded on an identified cost basis.
B. Purchases and Sales of Securities
During the six months ended June 30, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $733,882,381 and
$1,577,064,181, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), 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 management fee
payable under the Agreement is equal to an annual rate of approximately 0.60% on
the first $500,000,000 of the Fund's average daily net assets, 0.55% on the next
$500,000,000, 0.50% on the next $500,000,000, 0.475% on the next $500,000,000,
0.45% on the next $1,000,000,000, 0.425% on the next $1,500,000,000, 0.405% on
the next $1,500,000,000, 0.3875% on the next $4,000,000,000 and 0.37% of such
net assets in excess of $10,000,000,000, computed and accrued daily and payable
monthly. For the six months ended June 30, 1999, the fee pursuant to the
Agreement amounted to $16,402,984, which was equivalent to an annual effective
rate of 0.45% of the Fund's average daily net assets.
22 - Scudder Growth and Income Fund
<PAGE>
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended June 30, 1999, the amount charged to the Fund by SSC aggregated
$3,499,800, of which $558,120 is unpaid at June 30, 1999.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. For the six months ended June
30, 1999, the Special Servicing Agreement expense charged to the Fund amounted
to $249,556.
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 six months ended June 30,
1999, the amount charged to the Fund by STC aggregated $4,419,661, of which
$770,368 is unpaid at June 30, 1999.
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 six months
ended June 30, 1999, the amount charged to the Fund by SFAC aggregated $207,038,
of which $34,775 is unpaid at June 30, 1999.
The Fund pays each of its Trustees not affiliated with the Adviser an annual
retainer, plus specified amounts for attended board and committee meetings. For
the six months ended June 30, 1999, Trustees' fees and expenses aggregated
$14,774.
D. Transactions in Securities of Affiliated Issuers
An affiliated issuer is a company in which the Fund has ownership of at least 5%
of the voting securities. A summary of the Fund's transactions with companies
which are or were affiliates for the six months ended June 30, 1999 are as
follows:
<TABLE>
<CAPTION>
Purchases Sales Dividend Market
Affiliate Cost ($) Cost ($) Income ($) Value ($)
-----------------------------------------------------------------------------------------------------------
<S> ,C> <C> <C> <C>
General Growth Properties, Inc -- -- 1,862,208 68,862,900
========================================================================
</TABLE>
E. Line of Credit
The Fund and several other Scudder Funds (the "Participants") share in a $850
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The Fund may
borrow up to a maximum of 33 percent of its net assets under the agreement.
23 - 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
Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
Trustee, Corporate Director
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, Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Venture Partner,
Venture Capital Group
Bruce F. Beaty*
Vice President
Jennifer P. Carter*
Vice President
Philip S. Fortuna*
Vice President
William F. Gadsden*
Vice President
Robert T. Hoffman*
Vice President
Thomas W. Joseph*
Vice President
Valerie F. Malter*
Vice President
Ann M. McCreary*
Vice President
John Millette*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
24 - 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
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market^+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
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 GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment 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 Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth 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, Inc.
Industry Sector Funds
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Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
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Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
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Retirement Programs
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Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
Education Accounts
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Education IRA
UGMA/UTMA
Closed-End Funds#
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The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe 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 in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. ***Only the Scudder Shares of
the Fund are part of the Scudder Family of Funds. ++Only the International
Shares of the Fund are part of the Scudder Family of Funds. +++ +++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. +++
+++ +++A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder Kemper
Investments, Inc., are traded on the New York Stock Exchange and, in some cases,
on various other stock exchanges.
25 - Scudder Growth and Income Fund
<PAGE>
Scudder Solutions
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<CAPTION>
Convenient ways to invest, quickly and reliably:
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<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
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Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
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Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
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26 - Scudder Growth and Income Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
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Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder
Brokerage account already reserved for them, with
no minimum investment. For information about
Scudder Brokerage Services, call 1-800-700-0820.
Fund Folio funds held less than six months will be charged a transaction fee. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
For more information about these services, call a Scudder representative at 1-800-225-5163
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Additional Information on How to Contact Scudder:
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For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
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27 - Scudder Growth and Income Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $280 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
