Filed with the Securities and Exchange Commission on July 30, 1999.
File No. 2-13628
File No. 811-43
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 /___/
Pre-Effective Amendment No /___/
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Post-Effective Amendment No. 106 / X /
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And/or
REGISTRATION STATEMENT UNDER THE /___/
INVESTMENT COMPANY ACT OF 1940
Amendment No. 58 / X /
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Investment Trust
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(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
John Millette
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Scudder Kemper Investments, Inc.
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Two International Place, Boston, MA 02110
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(Name and Address of Agent for Service)
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It is proposed that this filing will become effective (check appropriate box):
/___/ Immediately upon filing pursuant to paragraph (b) /___/ days after filing pursuant to paragraph (a) (1)
/___/ days after filing pursuant to paragraph (a) (2) /___/ On (date) pursuant to paragraph (a) (2) of Rule 485.
/___/ On (date) pursuant to paragraph (a) (1) / X / On August 1, 1999 pursuant to paragraph (b)
/___/ If Appropriate, check the following box:
This post-effective amendment designates a new effective date for a previously filed post-effective amendment
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Scudder Growth and Income Fund
Supplement to Prospectus
Dated March 1, 1999
Scudder Growth and Income Fund (the "fund") currently offers two classes of
shares to provide investors with different purchase options. The two options
are: Scudder shares and Class R shares. Class R shares are described in this
supplement to the prospectus.
Class R shares are available for purchase by participants of certain
employer-sponsored retirement plans. Class R shares currently are available for
purchase through certain financial intermediaries as well as third-party
providers and other entities. Share certificates are not available for Class R
shares.
The following information supplements the following indicated sections of the
prospectus:
Past performance
As Class R shares do not have a full calendar year of performance, no past
performance data is provided. However, the chart and table on page 3 of the
prospectus show how the total returns for the fund's Scudder shares have varied
from year to year, which may give some idea of risk. Scudder shares are not
offered in this supplement to the prospectus but have substantially similar
returns because the shares are invested in the same portfolio of securities and
the annual returns would differ only to the extent that the classes have
different expenses.
August 1, 1999
<PAGE>
Fee and expense information
The following information is designed to help you understand the estimated fees
and expenses that you may pay if you buy and hold Class R shares of the fund.
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Shareholder fees: Fees paid directly from your investment.
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Maximum sales charge (load) imposed on purchases (as % of NONE
offering price)
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Maximum deferred sales charge (load) NONE
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Maximum sales charge (load) imposed on reinvested NONE
dividends/distributions
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Redemption fee (as % of amount redeemed, if applicable) NONE*
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Exchange fee NONE
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Annual fund operating expenses (expenses that are deducted from fund assets):
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Management fee 0.44%
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Distribution (12b-1) and service fees 0.00%**
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Other expenses 0.69%***
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Total annual fund operating expenses 1.13%
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* If you wish to receive your redemption proceeds via wire, there is a $5
wire service fee. For additional information, please refer to "About Your
Investment -- Exchanges and redemptions."
** The Class R shares are subject to a Rule 12b-1 and Administrative Services
Plan (the "Plan"), which allows for payment of a fee of up to 0.25% for
distribution-related services. Currently, the fund's Board of Trustees (the
"Board") has not authorized payment under the Plan. The Board, however, may
authorize payment under the Plan at any time. If payment under the Plan is
authorized, the administrative services fee described below would be
reduced.
*** Includes an administrative services fee of 0.25% in addition to other class
specific expenses, such as transfer agent and certain registration fees,
which amounts may vary with class size and other factors. Because the
inception date of the Class R shares is August 1, 1999, "Other expenses"
are estimated based upon the amounts incurred by the Scudder shares of the
fund during the fiscal year ended December 31, 1998.
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Example
This example is intended to help you compare the cost of investing in Class R
shares of the fund with the cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The expenses
would be the same whether you sold your shares at the end of each period or
continued to hold them.
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One Year $ 116
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Three Years $ 360
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Five Years $ 623
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Ten Years $1,375
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Distributions
Dividends and other distributions in the aggregate amount of $10 or less are
automatically reinvested in shares of the same fund unless you request that such
policy not be applied to your account.
Financial highlights
As Class R is a new class of the fund, no financial highlight data is available.
Transaction information
Share price
Net asset value per share is calculated separately for each class of the Fund
and is calculated by dividing the value of the total fund assets attributable to
a class, less all liabilities attributable to that class, by the total number of
shares of that class outstanding. Market prices are used to determine the value
of the fund's assets. If market prices are not readily available for a security
or if a security's price is not considered to be market indicative, that
security may be valued by another method that the Board or its delegate believes
accurately reflects fair value. In those circumstances where a security's price
is not considered to be market indicative, the security's valuation may differ
from an available market quotation.
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To the extent that the fund invests in foreign securities, these securities may
be listed on foreign exchanges that trade on days when the fund does not price
its shares. As a result, the net asset value of the fund may change at a time
when shareholders are not able to purchase or redeem their shares.
Purchases
To open an account
Class R shares are available only through employer-sponsored retirement plans.
Please consult your plan administrator or plan representative for more
information on how to purchase shares.
To buy additional shares
Please consult your plan administrator or plan representative for more
information on how to purchase shares.
Exchanges and redemptions
To exchange shares
Shareholders of Class R shares may exchange their Class R shares only for shares
of funds authorized for exchange by the applicable plan. Please consult your
plan administrator or plan representative for more information concerning
exchanges of shares.
To sell shares
Please consult your plan administrator or plan representative for more
information on how to sell your shares.
<PAGE>
Part A (the Prospectus for Scudder Growth & Income Fund)
Part A of this Post-Effective Amendment No.106 to the Registration Statement is
incorporated by reference in its entirety to the Investment Trust's
Post-Effective Amendment No. 102 on Form N-1A filed on March 1, 1999 and to its
definitive Rule 497 (c) filing on March 5, 1999.
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SCUDDER GROWTH AND INCOME FUND
A series of Investment Trust
CLASS R SHARES
A No-Load (No Sales Charges) Diversified
Mutual Fund Seeking Long-Term Growth of
Capital, Current Income and
Growth of Income
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STATEMENT OF ADDITIONAL INFORMATION
August 1, 1999
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This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Scudder Growth and Income Fund dated March
1, 1999, as amended from time to time, a copy of which may be obtained without
charge by writing to Scudder Investor Services, Inc., Two International Place,
Boston, Massachusetts 02110-4103.
The Annual Report to Shareholders of Scudder Growth and Income Fund dated
December 31, 1998 is incorporated by reference and is hereby deemed to be part
of this Statement of Additional Information.
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TABLE OF CONTENTS
Page
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THE FUND'S INVESTMENT OBJECTIVE AND POLICIES.............................................................1
General Investment Objective and Policies.......................................................1
Investment Process..............................................................................2
Investment Restrictions.......................................................................13
PURCHASES...............................................................................................14
Additional Information About Purchasing Class R shares.........................................14
Share Price....................................................................................14
Share Certificates.............................................................................14
Other Information..............................................................................14
EXCHANGES AND REDEMPTIONS...............................................................................15
Additional Information About Exchanging or Redeeming Class R shares...........................15
Other Information..............................................................................15
FEATURES AND SERVICES OFFERED BY THE FUND...............................................................15
No-Load Concept...............................................................................15
Diversification................................................................................16
Reports to Shareholders........................................................................16
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS................................................................16
PERFORMANCE INFORMATION.................................................................................16
Average Annual Total Return....................................................................16
Cumulative Total Return........................................................................17
Total Return...................................................................................18
Performance Indices............................................................................18
Comparison of Fund Performance.................................................................18
FUND ORGANIZATION.......................................................................................19
INVESTMENT ADVISER......................................................................................20
Personal Investments by Employees of the Adviser...............................................24
TRUSTEES AND OFFICERS..................................................................................24
REMUNERATION............................................................................................26
Responsibilities of the Board -- Board and Committee Meetings..................................26
Compensation of Officers and Trustees..........................................................26
DISTRIBUTOR.............................................................................................27
TAXES...................................................................................................28
PORTFOLIO TRANSACTIONS..................................................................................31
Brokerage Commissions..........................................................................31
Portfolio Turnover.............................................................................32
NET ASSET VALUE.........................................................................................32
ADDITIONAL INFORMATION..................................................................................33
Experts........................................................................................33
Shareholder Indemnification....................................................................34
Other Information..............................................................................34
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THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
General Investment Objective and Policies
Scudder Growth and Income Fund (the "Fund") is a diversified series of
Investment Trust (the "Trust"), a registered open-end management investment
company which continuously offers and redeems its shares. It is a company of the
type commonly known as a mutual fund.
The Fund seeks long-term growth of capital, current income and growth
of income.
Scudder Growth and Income Fund offers two classes of shares: Scudder
Shares and Class R shares. Only the Class R shares are described herein.
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which the Fund may engage (such
as short selling, hedging, etc.) or a financial instrument which the Fund may
purchase (such as options, forward foreign currency contracts, etc.) are meant
to describe the spectrum of investments that Scudder Kemper Investments, Inc.
(the "Adviser"), in its discretion, might, but is not required to, use in
managing the Fund's portfolio assets. The Adviser may, in its discretion, at any
time employ such practice, technique or instrument for the Fund but not for all
funds advised by it. Furthermore, it is possible that certain types of financial
instruments or investment techniques described herein may not be available,
permissible, economically feasible or effective for their intended purposes in
all markets. Certain practices, techniques, or instruments may not be principal
activities of the Fund, but, to the extent employed, could from time to time
have a material impact on the Fund's performance.
The Fund invests primarily in common stocks, preferred stocks, and
securities convertible into common stocks of companies which, the Fund's
management believes, offer the prospect for growth of earnings while paying
current dividends. Over time, continued growth of earnings tends to lead to
higher dividends and enhancement of capital value. The Fund allocates its
investments among different industries and companies, and adjusts its portfolio
securities for investment considerations and not for trading purposes.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the Fund's
objective will be met.
The Fund attempts to achieve its investment objective by investing
primarily in dividend-paying common stocks, preferred stocks and securities
convertible into common stocks. The Fund may also purchase such securities which
do not pay current dividends but which, the Fund's management believes, offer
prospects for growth of capital and future income. Convertible securities (which
may be current coupon or zero coupon securities) are bonds, notes, debentures,
preferred stocks and other securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The Fund may also invest in nonconvertible preferred stocks consistent with the
Fund's objective. From time to time, for temporary defensive purposes, when the
Fund's management feels such a position is advisable in light of economic or
market conditions, the Fund may invest, without limit, in cash and cash
equivalents. It is impossible to predict how long such alternative strategies
will be utilized. The Fund may invest in foreign securities, real estate
investment trusts, illiquid securities, repurchase agreements and reverse
repurchase agreements. It may also loan securities and may engage in strategic
transactions. More information about investment techniques is provided under
"Additional information about policies and investments."
The Fund's share price fluctuates with changes in interest rates and
market conditions. These fluctuations may cause the value of shares to be higher
or lower than when purchased.
<PAGE>
Investment Process
The Adviser applies a disciplined investment approach for selecting
stocks for the Fund. The first stage of this process involves analyzing a
selected pool of dividend-paying equity securities, to identify the stocks that
have high yields relative to the yield of the Standard & Poor Corporation 500
Index (the "S&P 500"), a commonly-accepted benchmark for the U.S. stock market.
Also, the Adviser screens for stocks that have yields at the upper end of the
stock's historical yield range. The Fund's portfolio will consist primarily of
stocks of established, dividend-paying U.S. companies, but it may include
foreign stocks which meet its relative yield criteria.
In the Adviser's opinion, this subset of higher-yielding stocks
identified by applying these criteria offers the potential for returns that are
greater than or equal to those of the S&P 500, at less risk than that market
index. In the Adviser's opinion, these favorable risk and return characteristics
exist because the higher dividends offered by these stocks may act as a
"cushion" when markets are volatile and because stocks with higher yields tend
to sell at more attractive valuations (e.g., lower price-to-earning ratios and
lower price-to-book ratios).
Once this subset of higher-yielding stocks is identified, the Adviser
conducts a fundamental analysis of each company's financial strength,
profitability, projected earnings, sustainability of dividends, and ability of
management. The Fund's portfolio may include stocks which are out of favor in
the market, but which, in the opinion of the Adviser, offer compelling
valuations and potential for long-term appreciation in price and dividends. In
order to diversify the Fund's portfolio among different industry sectors, the
Adviser evaluates how each sector tends to react to economic factors such as
interest rates, inflation, Gross Domestic Product, and consumer spending. The
Fund's portfolio is constructed by attaining a proper balance of stocks in these
sectors based on the Adviser's economic forecasts.
The Adviser applies a disciplined criteria for selling stocks in the
Fund's portfolio as well. When the Adviser determines that the relative yield of
a stock has declined excessively below the yield of the S&P 500, or that the
yield is at the lower end of the stock's historic range, the stock generally is
sold from the Fund's portfolio. Similarly, if the Adviser's fundamental analysis
determines that the payment of the stock's dividend is at risk, or that market
expectations for the stock are unreasonable, the stock is targeted for potential
sale. In summary, the Adviser applies disciplined buy and sell criteria,
fundamental company and industry analysis, and economic forecasts in managing
the Fund to pursue long-term price appreciation and income with a tendency for
lower overall volatility than the market, as measured by the S&P 500.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net
asset value of the Fund's shares will increase or decrease with changes in the
market prices of the Fund's investments and there is no assurance that the
Fund's objective will be achieved.
Master/feeder fund structure. The Board of Trustees has the discretion to retain
the current distribution arrangement for the Fund while investing in a master
fund in a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Convertible Securities. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks. Investments in convertible securities may
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest include
fixed-income or zero coupon debt securities which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits,
2
<PAGE>
dividends, spin-offs, other corporate distributions, or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities generally, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stocks changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis and so may not experience
market value declines to the same extent as the underlying common stock. When
the market price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the
underlying common stock, although typically not as much as the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes (LYONS). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities," "not readily marketable," or
"illiquid" restricted securities (i.e., which cannot be sold to the public
without registration under the Securities Act of 1933 (the "1933 Act") or the
availability of an exemption from registration, such as Rules 144 or 144A, or
because they are subject to other legal or contractual delays in or restrictions
on resale).
The absence of a trading market can make it difficult to ascertain a
market value for illiquid securities. Disposing of illiquid securities may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price. The
Fund may have to bear the extra expense of registering such securities for
resale and the risk of substantial delay in effecting such registration. Also
market quotations are less readily available. The judgment of the Adviser may at
times play a greater role in valuing these securities than in the case of
illiquid securities.
Generally speaking, restricted securities may be sold in the U.S. only
to qualified institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have been held
for a specified period of time and other conditions are met pursuant to an
exemption from registration, or in a public offering for which a registration
statement is in effect under the 1933 Act. The Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
3
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Zero Coupon Securities. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in the market value of such
securities closely follow the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the Securities and Exchange Commission (the "SEC") no longer
considers such privately stripped obligations to be U.S. Government securities,
as defined in the 1940 Act; therefore, the Fund intends to adhere to this staff
position and will not treat such privately stripped obligations to be U.S.
Government securities for the purpose of determining if the Fund is
"diversified" under the 1940 Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
Foreign Securities. While the Fund generally emphasizes investments in companies
domiciled in the U.S., it may invest in listed and unlisted foreign securities
that meet the same criteria as the Fund's domestic holdings. The Fund may invest
in foreign securities when the anticipated performance of the foreign securities
is believed by the Adviser to offer more potential than domestic alternatives in
keeping with the investment objective of the Fund.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than the New York
Stock Exchange, Inc. (the "Exchange") and securities of some foreign companies
are less liquid and more volatile than securities of domestic companies.
Similarly, volume and liquidity in most foreign bond markets are less than the
volume and liquidity in the U.S. and at times, volatility of price can be
greater than in the U.S. Further, foreign markets
4
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have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Fixed commissions on some foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges, although the
Fund will endeavor to achieve the most favorable net results on its portfolio
transactions. Further, the Fund may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. There is generally
less government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the U.S. It may be more
difficult for the Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters which may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. In addition, with respect to certain foreign countries, there is the
possibility of nationalization, expropriation, the imposition of withholding or
confiscatory taxes, political, social, or economic instability or diplomatic
developments which could affect U.S. investments in those countries. Investments
in foreign securities may also entail certain risks, such as possible currency
blockages or transfer restrictions and the difficulty of enforcing rights in
other countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
Investments in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
the value of these assets for the Fund as measured in U.S. dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund values its assets
daily in terms of U.S. dollars, it does not intend to convert its holdings of
foreign currencies, if any, into U.S. dollars on a daily basis. It may do so
from time to time and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions, if any, either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward foreign
currency exchange contracts. (See "Currency Transactions" for more information.)
To the extent that the Fund invests in foreign securities, the Fund's
share price could reflect the movements of both the different stock and bond
markets in which it is invested and the currencies in which the investments are
denominated; the strength or weakness of the U.S. dollar against foreign
currencies could account for part of that Fund's investment performance.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms
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deemed by the Adviser to be of good standing. The value of the securities loaned
will not exceed 30% of the value of the Fund's total assets at the time any loan
is made.
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P").
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
Fund acquires a security ("Obligation") and the seller agrees, at the time of
sale, to repurchase the Obligation at a specified time and price. Obligations
subject to a repurchase agreement are held in a segregated account and the value
of such obligations kept at least equal to the repurchase price on a daily
basis. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
held by the Fund's custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), a repurchase agreement is deemed to be a loan from the Fund to the
seller of the Obligation subject to the repurchase agreement and is therefore
subject to the Fund's investment restriction applicable to loans. It is not
clear whether a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may result in loss of interest or decline in price of
the Obligation. If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case the Fund may incur a loss if the proceeds to the Fund of its sale of the
securities underlying the repurchase agreement to a third party are less than
the repurchase price. To protect against such potential loss, if the market
value (including interest) of the Obligation subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the Obligation to deliver additional securities so that the
market value (including interest) of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Fund will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
will maintain a segregated account, as described under "Use of Segregated and
Other Special Accounts" in connection with outstanding reverse repurchase
agreements. Reverse repurchase agreements are deemed to be borrowings subject to
the Fund's investment restrictions applicable to that activity. The Fund will
enter into a reverse repurchase agreement only when the Adviser believes that
the interest income to be earned from the investment of the proceeds of the
transaction will be greater than the interest expense of the transaction.
Real Estate Investment Trusts ("REITS"). The Fund may invest in REITs. REITs are
sometimes informally characterized as equity REITs, mortgage REITs and hybrid
REITs. Investment in REITs may subject the Fund to risks associated with the
direct ownership of real estate, such as decreases in real estate values,
overbuilding, increased competition and other risks related to local or general
economic conditions, increases in operating costs and property taxes, changes in
zoning laws, casualty or condemnation losses, possible environmental
liabilities, regulatory limitations on rent and fluctuations in rental income.
Equity REITs generally experience these risks directly through fee or leasehold
interests, whereas mortgage REITs generally experience these risks indirectly
through mortgage interests, unless the mortgage REIT forecloses on the
underlying real estate. Changes in interest rates may also affect the value of
the Fund's investment in REITs. For instance, during periods of declining
interest rates, certain mortgage REITs may
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hold mortgages that the mortgagors elect to prepay, which prepayment may
diminish the yield on securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may
tend to increase the volatility of the market price of their securities.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. REITs are also subject to
heavy cash flow dependency, defaults by borrowers and the possibility of failing
to qualify for tax-free pass-through of income under the Internal Revenue Code
of 1986, as amended (the "Code") and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his or her proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of the REITs. In addition,
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks managing the effective maturity
or duration of the Fund's portfolio, or enhancing potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, currency futures and various
other currency transactions (collectively, all the above are called "Strategic
Transactions"). In addition, strategic transactions may also include new
techniques, instruments or strategies that are permitted as regulatory changes
occur. Strategic Transactions may be used without limit to attempt to protect
against possible changes in the market value of securities held in or to be
purchased for the Fund's portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect the Fund's unrealized gains in the value
of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio, or to establish a position in
the derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter the fundamental investment purposes and characteristics of the fund,
and the fund will segregate assets (or as provided by applicable regulations,
enter into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of the fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily
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variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
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Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio), and
on securities, indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management, and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed,
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging, risk management (including duration management) or
other portfolio management and return enhancement purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment
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of a premium for the option without any further obligation on the part of the
Fund. If the Fund exercises an option on a futures contract it will be obligated
to post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties, primarily in order to hedge, or manage the risk of, the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or are
determined to be of equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a
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commitment or option to sell a currency whose changes in value are generally
considered to be correlated to a currency or currencies in which some or all of
the Fund's portfolio securities are or are expected to be denominated, in
exchange for U.S. dollars. The amount of the commitment or option would not
exceed the value of the Fund's securities denominated in correlated currencies.
For example, if the Adviser considers that the Austrian schilling is correlated
to the German deutschemark (the "D-mark"), the Fund holds securities denominated
in schillings and the Adviser believes that the value of schillings will decline
against the U.S. dollar, the Adviser may enter into a commitment or option to
sell D-marks and buy dollars. Currency hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to the Fund if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, there is the risk that the perceived correlation between various
currencies may not be present or may not be present during the particular time
that the Fund is engaging in proxy hedging. If the Fund enters into a currency
hedging transaction, the Fund will comply with the asset segregation
requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency, index, and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the fund will segregate
assets (or enter into offsetting positions) to cover its obligations under
swaps, the Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions.
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The Fund will not enter into any swap, cap, floor or collar transaction unless,
at the time of entering into such transaction, the unsecured long-term debt of
the Counterparty, combined with any credit enhancements, is rated at least A by
S&P or Moody's or has an equivalent rating from a NRSRO or is determined to be
of equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
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In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Investment Restrictions
Unless specified to the contrary, the following fundamental policies
may not be changed without the approval of a majority of the outstanding voting
securities of the Fund involved which, under the 1940 Act and the rules
thereunder and as used in this Statement of Additional Information, means the
lesser of (1) 67% or more of the voting securities present at a meeting, if the
holders of more than 50% of the outstanding voting securities of the Fund are
present or represented by proxy; or (2) more than 50% of the outstanding voting
securities of the Fund.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Fund.
As a matter of fundamental policy, the Fund may not:
(a) borrow money, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having
jurisdiction from time to time;
(b) issue senior securities, except as permitted under the 1940
Act and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
(c) purchase physical commodities or contracts relating to
physical commodities;
(d) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(e) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(f) make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
(g) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, and as interpreted or modified
by regulatory authority having jurisdiction, from time to
time.
The Fund may not, as a nonfundamental policy:
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(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(5) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(7) lend portfolio securities in an amount greater than 30% of its
total assets.
PURCHASES
Additional Information About Purchasing Class R shares
For more information on how to purchase Class R shares of the Fund,
contact your plan administrator/plan representative.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on the Exchange on
each day during which the Exchange is open for trading. Orders received after
the close of regular trading on the Exchange will receive the next day's net
asset value. If the order has been placed by a member of the NASD, other than
the Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to the Fund's transfer agent in Kansas City
(for Class R shares) by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of Trust management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund.
Other Information
If purchases or redemptions of Fund shares are arranged and settlement
is made at an investor's election through a member of the NASD other than the
Distributor , that member may, at its discretion, charge a fee for that service.
The Board of Trustees and the Distributor, the Trust's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor each may suspend or terminate
the offering of shares of the Fund at any time for any reason.
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The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times during which (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted for any reason, (c)
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) the SEC has
by order permitted such a suspension for the protection of the Trust's
shareholders; provided that applicable rules and regulations of the SEC (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b) or (c) exist.
The Trust may issue shares of the Fund at net asset value in connection
with any merger or consolidation with, or acquisition of the assets of, any
investment company (or series thereof) or personal holding company, subject to
the requirements of the 1940 Act.
EXCHANGES AND REDEMPTIONS
Additional Information About Exchanging or Redeeming Class R shares
For more information on how to exchange or redeem Class R shares of the
Fund, contact your plan administrator/plan sponsor.
Other Information
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. The
Fund does not impose a redemption or repurchase charge although a wire charge
may be applicable for redemption proceeds wired to an investor's bank account.
Redemption of shares, including an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (See "Taxes".)
FEATURES AND SERVICES OFFERED BY THE FUND
No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can charge a
small 12b-1 fee and/or service fee against fund assets. Under the National
Association of Securities Dealers Conduct Rules, a mutual fund can call itself a
"no-load" fund only if the 12b-1 fee and/or service fee does not exceed 0.25% of
a fund's average annual net assets.
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Scudder pioneered the no-load concept when it created the nation's first no-load
fund in 1928, and later developed the nation's first family of no-load mutual
funds.
Investors are encouraged to review the fee tables in the Fund's
prospectus for more specific information about the rates at which management
fees and other expenses are assessed.
Diversification
An investment in the Class R shares of the Fund represents an interest
in a large, diversified portfolio of carefully selected securities.
Diversification may protect the shareholder against the possible risks
associated with concentrating in fewer securities or in a specific market
sector.
Reports to Shareholders
The Fund issues shareholders financial statements examined by
independent accountants on a semiannual basis and audited annually. These
include a list of investments held and statements of assets and liabilities,
operations, changes in net assets and supplementary information for Class R
shares of the Fund.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Any dividends from net investment income or distributions from realized
capital gains are automatically reinvested in additional Class R shares of the
Fund. Reinvestment is usually made at the closing net asset value determined on
the business day following the record date.
The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, if it appears to be in the best interest of the Fund and its
shareholders, the Fund may retain all or part of such gain for reinvestment,
after paying the related federal taxes for which shareholders may then be able
to claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Internal Revenue Code, the Fund
may be subject to that excise tax. In certain circumstances, the Fund may
determine that it is in the interest of shareholders to distribute less than the
required amount. (See "Taxes".)
The Fund intends to distribute investment company taxable income in
December each year. The Fund intends to declare in December any net realized
capital gains resulting from its investment activity. The Fund intends to
distribute the December dividends and capital gains either in December or in the
following January. Any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. Additional
distributions may be made if necessary. Both types of distributions will be made
in shares of the Fund and confirmations will be mailed to each shareholder .
PERFORMANCE INFORMATION
From time to time, quotations of the performance of Class R shares of
the Fund may be included in advertisements, sales literature or reports to
shareholders or prospective investors. These performance figures are calculated
in the following manners:
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for periods of one year, five years, and ten years (or such shorter
periods as may be applicable dating from the commencement of the Fund's
operations ), all ended on the last day of a recent calendar quarter. Average
annual total return quotations reflect changes in the price of Class R shares of
the Fund and assume that all dividends and capital gains distributions during
the respective periods were reinvested in Class R shares. Average annual total
return is calculated by computing the average annual compound rates of return of
a hypothetical investment over such periods according to the following formula
(average annual total return is then expressed as a percentage):
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T = (ERV/P)^1/n - 1
Where:
T = Average annual total return
P = a hypothetical initial investment of $1,000
N = Number of years
ERV = Ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
As Class R shares are a new class of shares of the fund, no past
performance data is available. However, the table below shows how the total
returns for the fund's Scudder Shares have varied from year to year, which may
give some idea of risk. Scudder Shares are not offered in this supplement to the
prospectus but have substantially similar returns because the shares are
invested in the same portfolio of securities and the annual returns would differ
only to the extent that the classes have different expenses.
Average Annual Total Return of Scudder Shares of the Fund for periods ended
December 31, 1998
One Year Five Years Ten Years
6.07% 17.85% 16.37%
As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for the Fund will vary based on changes in market conditions and
the level of the Fund's expenses.
In connection with communicating its average annual total return to
current or prospective shareholders, the Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of Class R shares of the
Fund and assume that all dividends and capital gains distributions during the
period were reinvested in Class R shares. Cumulative total return is calculated
by computing the cumulative rates of return of a hypothetical investment over
such periods, according to the following formula (cumulative total return is
then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative total return
P = a hypothetical initial investment of $1,000
ERV = Ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
As Class R shares are a new class of shares of the fund, no past
performance data is available. However, the table below shows how the cumulative
total returns for the fund's Scudder Shares have varied from year to year, which
may give some idea of risk. Scudder Shares are not offered in this supplement to
the prospectus but have substantially similar returns because the shares are
invested in the same portfolio of securities and the annual returns would differ
only to the extent that the classes have different expenses.
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Cumulative Total Return of Scudder Shares of the Fund for periods ended
December 31, 1998
One Year Five Years Ten Years
6.07% 127.28% 355.29%
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.
Quotations of the Class R shares of the Fund's performance are based on
historical earnings and show the performance of a hypothetical investment and
are not intended to indicate future performance of the Class R shares of the
Fund. An investor's shares when redeemed may be worth more or less than their
original cost. Performance of Class R shares of the Fund will vary based on
changes in market conditions and the level of expenses of Class R shares of the
Fund.
Because some of the Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar against these currencies
may account for part of the Class R shares investment performance. Information
on the value of the dollar versus foreign currencies may be used from time to
time in advertisements concerning the Fund. Such historical information is not
indicative of future performance.
Performance Indices
The performance of the Class R shares of the Fund will, from time to
time, be compared to the percentage changes of unmanaged performance indices.
Such indices may include the Dow Jones Industrial Average ("DJIA"), S&P 500 and
the Consumer Price Index ("CPI"). The DJIA and S&P 500 are unmanaged indices
widely regarded as representative of the equity market in general. The CPI is a
commonly used measure of inflation.
Comparison of Fund Performance
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate.
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<PAGE>
The description may also compare the Fund to bank products, such as certificates
of deposit. Unlike mutual funds, certificates of deposit are insured up to
$100,000 by the U.S. Government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical information made by
independent sources may also be used in advertisements concerning the Fund,
including reprints of, or selections from, editorials or articles about this
Fund.
FUND ORGANIZATION
The Fund is a diversified series of Investment Trust, a Massachusetts
business trust established under a Declaration of Trust dated September 20,
1984, as amended. The name of the Trust was changed effective May 15, 1991 from
Scudder Growth and Income Fund, and again effective June 10, 1998, from Scudder
Investment Trust. The Trust's authorized capital consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share. The Trust's shares
are currently divided into eight series, Scudder Growth and Income Fund, Scudder
Large Company Growth Fund, Classic Growth Fund, Scudder S&P 500 Index Fund,
Scudder Real Estate Investment Fund, Scudder Dividend & Growth Fund, Scudder Tax
Managed Growth Fund and Scudder Tax Managed Small Company Fund. The Fund's
shares are currently divided into two classes: the Scudder Shares and the R
shares.
The Trustees have the authority to issue additional series of shares
and to designate the relative rights and preferences as between the different
series. Each share of the Fund has equal rights with each other share of the
Fund as to voting, dividends and liquidation. All shares issued and outstanding
will be fully paid and nonassessable by the Trust, and redeemable as described
in this Statement of Additional Information and in the Fund's prospectus.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
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Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to other series.
The Fund's activities are supervised by the Trust's Board of Trustees.
The Trust has adopted a plan on May 3, 1999 pursuant to Rule 18f-3 (the "Plan")
under the 1940 Act to permit the Trust to establish a multiple class
distribution system.
Under the Plan, shares of each class represent an equal pro rata
interest in the Fund and, generally, shall have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions, limitations,
qualifications and terms and conditions, except that: (1) each class shall have
a different designation; (2) each class of shares shall bear its own "class
expenses;" (3) each class shall have exclusive voting rights on any matter
submitted to shareholders that relates to its administrative services,
shareholder services or distribution arrangements; (4) each class shall have
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class; (5) each
class may have separate and distinct exchange privileges; (6) each class may
have different conversion features, and (7) each class may have separate account
size requirements. Expenses currently designated as "Class Expenses" by the
Trust's Board of Trustees under the Plan include, for example, transfer agency
fees attributable to a specific class, and certain securities registration fees.
Each share of each class of the Fund shall be entitled to one vote (or
fraction thereof in respect of a fractional share) on matters that such shares
(or class of shares) shall be entitled to vote. Shareholders of the Fund shall
vote together on any matter, except to the extent otherwise required by the 1940
Act, or when the Board of Trustees has determined that the matter affects only
the interest of shareholders of one or more classes of the Fund, in which case
only the shareholders of such class or classes of the Fund shall be entitled to
vote thereon. Any matter shall be deemed to have been effectively acted upon
with respect to the Fund if acted upon as provided in Rule 18f-2 under the 1940
Act, or any successor rule, and in the Fund's Declaration of Trust. As used in
the Prospectus and in this Statement of Additional Information, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Trust and all additional
portfolios (e.g., election of directors), means the vote of the lesser of (i)
67% of the Trust's shares represented at a meeting if the holders of more than
50% of the outstanding shares are present in person or by proxy, or (ii) more
than 50% of the Fund's outstanding shares. The term "majority", when referring
to the approvals to be obtained from shareholders in connection with matters
affecting a single Fund or any other single portfolio (e.g., annual approval of
investment management contracts), means the vote of the lesser of (i) 67% of the
shares of the portfolio represented at a meeting if the holders of more than 50%
of the outstanding shares of the portfolio are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the portfolio. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. Nothing in the Declaration of Trust, however,
protects or indemnifies a Trustee or officer against any liability to which that
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
that person's office.
INVESTMENT ADVISER
Scudder Kemper Investments, Inc., an investment counsel firm
incorporated under Delaware law, acts as investment adviser to the Fund. This
organization, the predecessor of which is Scudder, Stevens & Clark, Inc., is one
of the most experienced investment counsel firms in the U. S. It was established
as a partnership in 1919 and pioneered the practice of providing investment
counsel to individual clients on a fee basis. In 1928 it introduced the first
no-load mutual fund to the public. In 1953 the Adviser introduced Scudder
International Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The
predecessor firm reorganized from a partnership to a corporation on June 28,
1985. On June 26, 1997, Scudder, Stevens & Clark, Inc.
20
<PAGE>
("Scudder") entered into an agreement with Zurich Insurance Company ("Zurich")
pursuant to which Scudder and Zurich agreed to form an alliance. On December 31,
1997, Zurich acquired a majority interest in Scudder, and Zurich Kemper
Investments, Inc., a Zurich subsidiary, became part of Scudder. Scudder's name
has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Investment Trust, Montgomery Street
Income Securities, Inc., Scudder California Tax Free Trust, Scudder Cash
Investment Trust, Value Equity Trust, Scudder Fund, Inc., Scudder Funds Trust,
Global/International Fund, Inc., Scudder Global High Income Fund, Inc., Scudder
GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund, Inc., Scudder
International Fund, Inc., Scudder Municipal Trust, Scudder Mutual Funds, Inc.,
Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder Pathway
Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free
Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder
Variable Life Investment Fund, The Argentina Fund, Inc., The Brazil Fund, Inc.,
The Korea Fund, Inc., The Japan Fund, Inc. and Scudder Spain and Portugal Fund,
Inc. Some of the foregoing companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
The Adviser maintains a large research department, which conducts
ongoing studies of the factors that affect the position of various industries,
companies and individual securities. In this work, the Adviser utilizes certain
reports and statistics from a wide variety of sources, including brokers and
dealers who may execute portfolio transactions for the Fund and for clients of
the Adviser, but conclusions are based primarily on investigations and critical
analyses by its own research specialists.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
date. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.
21
<PAGE>
The transaction between Scudder and Zurich resulted in the assignment
of the Fund's investment management agreement with Scudder, that agreement
automatically terminated at the consummation of the transaction. In anticipation
of the transaction, however, a new investment management agreement (the
"Agreement") between the Fund and the Adviser was approved by the Trust's
Trustees on August 12, 1997. At the special meeting of the Fund's shareholders
held on October 24, 1997, the shareholders also approved the Agreement. The
Agreement became effective as of December 31, 1997.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in Scudder Kemper) and the financial services businesses of B.A.T
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement (the "Agreement") with Scudder Kemper, which is substantially
identical to the current investment management agreement, except for the dates
of execution and termination and the addition of a breakpoint in the fee
structure. The agreement became effective September 7, 1998, upon the
termination of the then current investment management agreement and was approved
at a shareholder meeting held in December 1998.
The Agreement dated September 7, 1998, was approved by the Trustees of
the Trust on August 11, 1998. The Agreement will continue in effect until
September 30, 1999 and from year to year thereafter only if its continuance is
approved annually by the vote of a majority of those Trustees who are not
parties to such Agreement or interested persons of the Adviser or the Fund, cast
in person at a meeting called for the purpose of voting on such approval, and
either by a vote of the Trust's Trustees or of a majority of the outstanding
voting securities of the Fund. The Agreement may be terminated at any time
without payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.
Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objectives, policies and restrictions and determines what securities
shall be purchased for the portfolio of the Fund, what portfolio securities
shall be held or sold by the Fund and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Trust's Declaration of
Trust and By-Laws, the 1940 Act and the Code and to the Fund's investment
objectives, policies and restrictions and subject, further, to such policies and
instructions as the Trustees of the Trust may from time to time establish. The
Adviser also advises and assists the officers of the Trust in taking such steps
as are necessary or appropriate to carry out the decisions of its Trustees and
the appropriate committees of the Trustees regarding the conduct of the business
of the Fund.
The Adviser also renders significant administrative services (not
otherwise provided by third parties) necessary for the Fund's operations as an
open-end investment company including, but not limited to, preparing reports and
notices to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns; preparing and filing the Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value; monitoring the
registration of shares of the Fund under applicable federal and state securities
laws; maintaining the Fund's books and records to the extent not otherwise
maintained by a third party; assisting in establishing accounting policies of
the Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring the Fund's operating budget; processing the payment
of the Fund's bills; assisting the Fund in, and otherwise arranging for, the
payment of distributions and dividends; and otherwise assisting the Fund in the
conduct of its business, subject to the direction and control of the Trustees.
The Adviser pays the compensation and expenses (except those for
attending Board and Committee meetings outside New York, New York and Boston,
Massachusetts) of all Trustees, officers and executive employees of the Trust
affiliated with the Adviser and makes available, without expense to the Trust,
the services of such Trustees, officers and employees of the Adviser as may duly
be elected officers or Trustees of the Trust, subject to their individual
consent to serve and to any limitations imposed by law, and provides the Trust's
office space and facilities.
22
<PAGE>
For the Adviser's services from August 13, 1996 to May 1, 1997, the
Fund paid the Adviser an annual fee of 0.60% of the first $500 million of
average daily net assets, 0.55% of such assets in excess of $500 million, 0.50%
of such assets in excess of $1 billion, 0.475% of such assets in excess of $1.5
billion, 0.45% of such assets in excess of $2 billion, 0.425% of such assets in
excess of $3 billion.
For the Adviser's services after May 1, 1997 to September 7, 1998, the
Fund paid the Adviser an annual fee of 0.60% of the first $500 million of
average daily net asset, 0.55% of such assets in excess of $500 million, 0.50%
of such assets in excess of $1 billion, 0.475% of such assets in excess of $1.5
billion, 0.45% of such assets in excess of $2 billion, 0.425% of such assets in
excess of $3 billion and 0.405% of such assets in excess of $4.5 billion.
For the Adviser's services after September 7, 1998, the Fund paid the
Adviser an annual fee of 0.60% of the first $500 million of average daily net
asset, 0.55% of such assets in excess of $500 million, 0.50% of such assets in
excess of $1 billion, 0.475% of such assets in excess of $1.5 billion, 0.45% of
such assets in excess of $2 billion, 0.425% of such assets in excess of $3
billion, 0.405% of such assets in excess of $4.5 billion, 0.3875% of such assets
in excess of $6 billion, and 0.37% of such assets in excess of $10 billion. The
fee is graduated so that increases in the Fund's net assets may result in a
lower annual fee rate and decreases in the Fund's net assets may result in a
higher annual fee rate. The fee is payable monthly, provided that the Fund will
make such interim payments as may be requested by the Adviser not to exceed 75%
of the amount of the fee then accrued on the books of the Fund and unpaid.
For the years ended December 31, 1998, 1997, and 1996, the Fund was
charged by the Adviser aggregate fees pursuant to its then effective investment
advisory agreement of $34,062,247, $26,072,293, and $17,628,873, respectively.
Under the Agreement the Fund is responsible for all of its other
expenses including organizational costs, fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; legal, auditing and accounting expenses; the calculation of Net
Asset Value; taxes and governmental fees; the fees and expenses of the transfer
agent; the cost of preparing stock certificates and any other expenses including
clerical expenses of issue, redemption or repurchase of shares; the expenses of
and the fees for registering or qualifying securities for sale; the fees and
expenses of Trustees, officers and employees of the Trust who are not affiliated
with the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. The Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for its
expenses incurred in connection with litigation, proceedings and claims and the
legal obligation it may have to indemnify its officers and Trustees with respect
thereto.
The Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of the Fund for portfolio pricing services, if any.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder, Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Trust who are not
"interested persons" of the Trust have been represented by independent counsel
at the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
23
<PAGE>
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
None of the officers or Trustees of the Trust may have dealings with
the Fund as principals in the purchase or sale of securities, except as
individual subscribers or holders of shares of the Trust.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- -------------------- -----------------------
<S> <C> <C> <C>
Lynn S. Birdsong (52)++*= President and Trustee Managing Director of Scudder Director, Vice President
Kemper Investments, Inc. and Assistant Treasurer
Henry P. Becton, Jr. (55) Trustee President and General Manager, --
WGBH WGBH Educational Foundation
125 Western Avenue
Allston, MA 02134
Dawn-Marie Driscoll (52) Trustee Executive Fellow, Center for --
4909 SW 9th Place Business Ethics, Bentley
Cape Coral, FL 33914 College; President, Driscoll
Associates
Peter B. Freeman (66) Trustee Director, The A.H. Belo --
100 Alumni Avenue Company; Trustee, Eastern
Providence, RI 02906 Utilities Associates (public
utility holding company);
Director, AMICA Life Insurance
Co.; Director, AMICA Insurance
Co.
George M. Lovejoy, Jr. (69)= 50 Trustee President and Director, Fifty --
Congress Street Associates (real estate
Suite 543 investment trust)
Boston, MA 02109
Wesley W. Marple, Jr. (67)= 413 Trustee Professor of Business --
Hayden Hall Administration, Northeastern
360 Huntington Ave. University, College of Business
Boston, MA 02115 Administration
24
<PAGE>
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- -------------------- -----------------------
Kathryn L. Quirk (46)++*= Trustee, Vice President Managing Director of Scudder Director, Assistant
and Assistant Secretary Kemper Investments, Inc. Treasurer and Senior Vice
President
Jean C. Tempel (56) Trustee Managing Partner, Internet --
Ten Post Office Square Suite Capital Group
1325Boston, MA 02109
Bruce F. Beaty (40)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Philip S. Fortuna (41)++ Vice President Managing Director of Scudder Vice President
Kemper Investments, Inc.
William F. Gadsden (44)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
John R. Hebble (41)+ Treasurer Senior Vice President of --
Scudder Kemper Investments, Inc.
Robert T. Hoffman (40)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Thomas W. Joseph (60)+ Vice President Senior Vice President of Director, Vice President,
Scudder Kemper Investments, Inc. Treasurer and Assistant
Clerk
Ann M. McCreary (42) Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Valerie F. Malter (40)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
John Millette (36)+ Vice President and Assistant Vice President , --
Secretary Scudder Kemper Investments, Inc.
Caroline Pearson (37)+ Assistant Secretary Vice President, Scudder Kemper --
Investments, Inc.; Associate,
Dechert Price & Rhoads (law
firm) 1989 to 1997
</TABLE>
* Mr. Birdsong and Ms. Quirk are considered by the Fund and counsel to be
persons who are "interested persons" of the Adviser or of the Trust,
within the meaning of the Investment Company Act of 1940, as amended.
** Unless otherwise stated, all of the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
= Messrs. Lovejoy, Pierce, Marple and Ms. Quirk are members of the
Executive Committee for the Trust, which has the power to declare
dividends from ordinary income and distributions of realized capital
gains to the same extent as the Board is so empowered.
+ Address: Two International Place, Boston, Massachusetts
25
<PAGE>
++ Address: 345 Park Avenue, New York, New York
As of June 30, 1999, all Trustees and officers of the Fund as a group
owned beneficially (as that term is defined in Section 13(d) of the Securities
Exchange Act of 1934) less than 1% of the Fund.
To the best of the Fund's knowledge, as of June 30, 1999, no person
owned beneficially more than 5% of the Fund's outstanding Class R shares.
The Trustees and officers of the Fund also serve in similar capacities
with other respect to Scudder funds.
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Trustees" have primary
responsibility for assuring that each Fund is managed in the best interests of
its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, each
Funds' investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by each Fund's independent public accountants and
by independent legal counsel selected by the Independent Trustees.
All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation
from the Funds of Investment Trust: an annual trustee's fee of $2,400 for a Fund
in which assets do not exceed $100 million, $4,800 for assets which exceed $100
million, but not exceeding $1 billion, and $7,200 if assets exceed $1 billion; a
fee of $150 for attendance at each board meeting, audit committee meeting, or
other meeting held for the purposes of considering arrangements between the
Trust on behalf of the Fund and the Adviser or any affiliate of the Adviser; $75
for any other committee meeting (although in some cases the Independent Trustees
have waived committee meeting fees); and reimbursement of expenses incurred for
travel to and from Board Meetings. The Independent Trustee who serves as lead or
liaison Trustee receives an additional annual retainer fee of $500 from each
Fund. No additional compensation is paid to any Independent Trustee for travel
time to meetings, attendance at directors' educational seminars or conferences,
service on industry or association committees, participation as speakers at
directors' conferences, service on special trustee task forces or subcommittees
or service as lead or liaison trustee. Independent Trustees do not receive any
employee benefits such as pension, retirement benefits or health insurance. The
Independent Trustees have in the past, and may in the future, waive a portion of
their compensation.
The Independent Trustees of the Fund also serve as Independent Trustees
of certain other Scudder Funds, which enables them to address investment and
operational issues that are common to many of the Funds in a cost-efficient and
effective manner. During 1998, the Independent Trustees participated in 26
meetings of the Fund's board or board committees, which were held on 21
different days during the year.
The Independent Trustees also serve in the same capacity for other
funds managed by Scudder. These funds differ broadly in type and complexity and
in some cases have substantially different Trustee fee schedules. The following
table shows the aggregate compensation received by each Independent Trustee
during 1998 from the Trust and from all of Scudder funds as a group.
26
<PAGE>
<TABLE>
<CAPTION>
Name Investment Trust* All Scudder Funds
---- ----------------- -----------------
<S> <C> <C>
Henry P. Becton, Jr. Trustee $28,070 $135,000 (28 funds)
Dawn-Marie Driscoll Trustee $28,977 $145,000 (28 funds)
Peter B. Freeman Trustee $29,736 $172,425 (46 funds)
George M. Lovejoy, Jr. Trustee $28,069 $148,600 (29 funds)
Wesley M. Marple, Jr. Trustee $28,069 $135,000 (28 funds)
Jean C. Temple Trustee $27,309 $135,000 (29 funds)
</TABLE>
* In 1998, Investment Trust consisted of eight funds: Scudder Growth and
Income Fund, Scudder Large Company Growth Fund, Classic Growth Fund,
Scudder S&P 500 Index Fund, Scudder Real Estate Investment Fund,
Scudder Dividend and Growth Fund, Scudder Tax Managed Growth Fund and
Scudder Tax Managed Small Company Fund. Scudder Real Estate Investment
Fund commenced operations on March 2, 1998, Scudder Dividend & Growth
Fund commenced operations on June 1, 1998, and Scudder Tax Managed
Growth Fund and Scudder Tax Managed Small Company Fund commenced
operations on September 18, 1998.
No fees were incurred by the funds with respect to the alliance with B.A.T.
DISTRIBUTOR
The Trust, on behalf of the Fund, has an underwriting agreement with
Scudder Investor Services, Inc., Two International Place, Boston, MA 02110 (the
"Distributor"), a Massachusetts corporation, which is a subsidiary of the
Adviser, a Delaware Corporation. The Trust's underwriting agreement dated
September 7, 1998 will remain in effect until September 30, 1999 and from year
to year thereafter only if its continuance is approved annually by a majority of
the members of the Board of Trustees who are not parties to such agreement or
interested persons of any such party and either by vote of a majority of the
Board of Trustees or a majority of the outstanding voting securities of the
Fund. The underwriting agreement was last approved by the Trustees on September
7, 1998.
Under the principal underwriting agreement, the Trust is responsible
for: the payment of all fees and expenses in connection with the preparation and
filing with the SEC of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Trust or Fund as a
broker/dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor), notices, proxy
statements, reports or other communications to shareholders of the Fund; the
cost of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of customer service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
service representatives, a portion of the cost of computer terminals and
expenses of any activity which is primarily intended to result in the sale of
shares issued by the Fund, unless a Rule 12b-1 plan is in effect which provides
that each Fund shall bear some or all of such expenses.
To provide compensation to financial services firms for performing
administrative support services to its customers who are shareholders of Class R
shares of the Fund , the Trust, on behalf of Class R shares of the Fund, has
approved an Administrative Services Agreement. These services include, but are
not limited to: providing information on shareholder accounts and transactions,
answering inquiries regarding the Fund, resolving account problems, and
explaining mutual fund performance and rankings. For services provided under the
Administrative Services Agreement, the Fund, on behalf of Class R shares, would
pay the Distributor an administrative service fee of up to 0.25% of the average
daily net assets of that class of the Fund. The Distributor would then
distribute this fee to financial representatives that provide services for their
clients who are investors through applicable group retirement plans. The
administrative service fee is calculated monthly.
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With respect to the Class R shares, the Fund has adopted a distribution
plan in accordance with Rule 12b-1 under the 1940 Act (the "Plan"), which allows
for the payment of distribution fees by the Fund to the Distributor. Currently,
the Plan is inactive and no payments will be made under the Plan by the Fund.
However, the Plan will be activated and payments made under the Plan in the
event that payments made under the Administrative Services Agreement to the
Distributor are deemed to be the indirect financing of the distribution of Fund
shares. If the Plan were made operative, the Distributor would compensate
various financial services firms for sales of Fund shares and may pay
commissions, fees and concessions to such firms. Moreover, the distribution fee
paid under the operative Plan would be used to compensate the Distributor for
expenses incurred in connection with activities primarily intended to result in
the sale of Class R shares, including the printing of prospectuses and reports
for persons other than existing shareholders and the preparation, printing and
distribution of sales literature and advertising materials. Under the Plan, the
Distributor may appoint Kemper Distributors, Inc., an affiliate of the Adviser,
as its agent to carry out its duties involving the Plan.
As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
Underwriting Agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. Such qualification does not involve governmental
supervision or management of investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Fund.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between such gains reported and the
shareholder's tax credit. If the Fund makes such an election, it may not be
treated as having met the excise tax distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of the Fund's gross income. If any such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
the Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those
shares or the shares of the Fund are deemed to have been held by the Fund or the
shareholder,
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<PAGE>
as the case may be, for less than 46 days during the 90-day period beginning 45
days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gains, regardless of the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA ($2,000 per
individual for married couples if only one spouse has earned income) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by
the Fund will be subject to tax under Section 1234 of the Code. In general, no
loss will be recognized by the Fund upon payment of a premium in connection with
the purchase of a put or call option. The character of any gain or loss
recognized (i.e. long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on the Fund's holding period for the option, and
in the case of the exercise of a put option, on the Fund's holding period for
the underlying property. The purchase of a put option may constitute a short
sale for federal income tax purposes, causing an adjustment in the holding
period of any property in the Fund's portfolio similar to the property
underlying the put option. If the Fund writes an option, no gain is recognized
upon its receipt of a premium. If the a call lapses or is closed out, any gain
or loss is treated as short-term capital gain or loss. If the option is
exercised, the character of the gain or loss depends on the holding period of
the underlying stock.
Positions of the Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of
29
<PAGE>
losses, adjustments in the holding periods of stocks or securities and
conversion of short-term capital losses into long-term capital losses. An
exception to these straddle rules exists for certain "qualified covered call
options" on stock written by the Fund.
Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term capital gain or loss, and on the last trading day of the
Fund's fiscal year, all outstanding Section 1256 positions will be marked to
market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
Similarly, if the Fund enters into a short sale of property that
becomes substantially worthless, the Fund will be required to recognize gain at
that time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options, futures
and forward contracts, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark-to-market losses and any loss from an actual disposition of
shares would be deductible as ordinary losses to the extent of any net
mark-to-market gains included in income in prior years. The effect of the
election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a fund-level tax when distributed to
shareholders as a dividend. Alternatively, the Fund may elect to include as
income and gain its share of the ordinary earnings and net capital gain of
certain foreign investment companies in lieu of being taxed in the manner
described above.
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<PAGE>
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount imputed
income will comprise a part of the investment company taxable income of the Fund
which must be distributed to shareholders in order to maintain the qualification
of the Fund as a regulated investment company and to avoid federal income tax at
the Fund's level. In addition, if the Fund invests in certain high yield
original issue discount obligations issued by corporations, a portion of the
original issue discount accruing on the obligation may be eligible for the
deduction for dividends received by corporations. In such event, dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of accrued original
issue discount, may be eligible for this deduction for dividends received by
corporations if so designated by the Fund in a written notice to shareholders.
The Fund will be required to report to the Internal Revenue Service
(the "IRS") all distributions of investment company taxable income and capital
gains as well as gross proceeds from the redemption or exchange of Fund shares,
except in the case of certain exempt shareholders. Under the backup withholding
provisions of Section 3406 of the Code, distributions of investment company
taxable income and capital gains and proceeds from the redemption or exchange of
the shares of a regulated investment company may be subject to withholding of
federal income tax at the rate of 31% in the case of non-exempt shareholders who
fail to furnish the investment company with their taxpayer identification
numbers and with required certifications regarding their status under the
federal income tax law. Withholding may also be required if the Fund is notified
by the IRS or a broker that the taxpayer identification number furnished by the
shareholder is incorrect or that the shareholder has previously failed to report
interest or dividend income. If the withholding provisions are applicable, any
such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Dividend and interest income received by the Fund from sources outside
the U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
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The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction on account of execution services and the
receipt of research, market or statistical information. The Adviser will not
place orders with broker/dealers on the basis that the broker/dealer has or has
not sold shares of the Fund. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless, after exercising care, it appears that more favorable
results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund, and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Trustees review from time to time whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
For the fiscal years ended December 31, 1998, 1997 and 1996, the Fund
paid total brokerage commissions of $8,362,533, $4,072,780 and $3,595,644,
respectively. In the fiscal year ended December 31, 1998, the Fund paid
brokerage commissions of $5,350,357 (63.98% of the total brokerage commissions),
resulting from orders placed, consistent with the policy of obtaining the most
favorable net results, with brokers and dealers who provided supplementary
research, market and statistical information to the Trust or Adviser. The total
amount of brokerage transactions aggregated $6,957,446,363, of which 55.39% of
all brokerage transactions were transactions which included research
commissions.
Portfolio Turnover
The Fund's average annual portfolio turnover rates, i.e. the ratio of
the lesser of sales or purchases to the monthly average value of the portfolio
(excluding from both the numerator and the denominator all securities with
maturities at the time of acquisition of one year or less), for the fiscal years
ended December 31, 1998 and 1997 were 40.8% and 22.2%, respectively. Purchases
and sales are made for the Fund's portfolio whenever necessary, in management's
opinion, to meet the Fund's objective.
NET ASSET VALUE
The net asset value of Class R shares of the Fund is computed as of the
close of regular trading on the Exchange on each day the Exchange is open for
trading. The Exchange is scheduled to be closed on the following holidays: New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas and on the
preceding Friday or subsequent Monday when one of these holidays falls
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<PAGE>
on Saturday or Sunday, respectively. Net asset value per share is determined by
dividing the value of the total assets of the Fund, less all liabilities, by the
total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid quotation on such exchange as of the Value Time. An equity
security which is traded on the Nasdaq Stock Market Inc. ("Nasdaq") system will
be valued at its most recent sale price on such system as of the Value Time.
Lacking any sales, the security will be valued at the most recent bid quotation
as of the Value Time. The value of an equity security not quoted on the Nasdaq
system, but traded in another over-the-counter market, is its most recent sale
price if there are any sales of such security on such market as of the Value
Time. Lacking any sales, the security is valued at the Calculated Mean quotation
for such security as of the Value Time. Lacking a Calculated Mean quotation the
security is valued at the most recent bid quotation as of the Value Time.
Debt securities, other than money-market instruments, are valued at
prices supplied by the Fund's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money-market
instruments with an original maturity of sixty days or less maturing at par
shall be valued at amortized cost, which the Board believes approximates market
value. If it is not possible to value a particular debt security pursuant to
these valuation methods, the value of such security is the most recent bid
quotation supplied by a bona fide marketmaker. If it is not possible to value a
particular debt security pursuant to the above methods, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Fund included in the Fund's prospectus
and the Financial Statements incorporated by reference in this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, l60 Federal Street,
Boston, Massachusetts 02110, independent accountants, and given on the authority
of that firm as experts in accounting and auditing. PricewaterhouseCoopers, LLP
is responsible for performing annual audits of the financial statements and
financial highlights of the Fund in accordance with generally accepted auditing
standards, and the preparation of federal tax returns.
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<PAGE>
Shareholder Indemnification
The Trust is an organization of the type commonly known as a
"Massachusetts business trust". Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Fund. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund property or the
acts, obligations or affairs of the Fund. The Declaration of Trust also provides
for indemnification out of the Fund property of any shareholder held personally
liable for the claims and liabilities to which a shareholder may become subject
by reason of being or having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
Other Information
The CUSIP number for the Scudder Shares of the Fund is 811167-10-5.
The CUSIP number for the Class R shares of the Fund is ____________.
The Fund has a fiscal year ending December 31.
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the Fund's investment objectives and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Fund's custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The name "Scudder Growth and Income Fund" is the designation of the
Trust for the time being under a Declaration of Trust dated September 20, 1984,
as amended from time to time, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents, shareholders nor other series of
the Trust assume any personal liability for obligations entered into on behalf
of the Fund. No other series of the Trust assumes any liabilities for
obligations entered into on behalf of the Fund. Upon the initial purchase of
shares, the shareholder agrees to be bound by the Fund's Declaration of Trust,
as amended from time to time. The Declaration of Trust is on file at the
Massachusetts Secretary of State's Office in Boston, Massachusetts.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Fund. The Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.025% of the first $150 million of average daily net assets, 0.0075%
of such assets in excess of $150 million, 0.0045% of such assets in excess of $1
billion, plus holding and transaction charges for this service. For the years
ended December 31, 1998, 1997, and 1996, Scudder Fund Accounting Corporation's
fee amounted to $424,247, $338,966 and $249,566, respectively, of which $35,517
was unpaid at December 31, 1998.
Kemper Service Corporation ("KSvC"), 811 Main Street, Kansas City,
Missouri, 64105-2005, a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for Class R shares of the Fund and
also provides subaccounting and recordkeeping services for shareholder accounts
in certain retirement and employee benefit plans. The Fund pays KSvC an annual
fee of $18.00 for each account maintained for a participant.
The Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Scudder Trust Company, an affiliate of the Adviser, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Annual service fees are paid by the Fund
to
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<PAGE>
Scudder Trust Company, Two International Place, Boston, Massachusetts
02110-4103, an affiliate of the Adviser, for such accounts. The Fund incurred
fees of $7,455,505, $4,655,851 and $2,482,721 during the years ended December
31, 1998, 1997, and 1996, respectively, of which $679,629 was unpaid on December
31, 1998.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statement for further information
with respect to the Fund and the securities offered hereby. The Registration
Statement and its amendments, are available for inspection by the public at the
SEC in Washington, D.C.
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<PAGE>
Part B (the Statement of Additional Information for Scudder Growth &
Income Fund)
Part B of this Post-Effective Amendment No. 106 to the Registration Statement is
incorporated by reference in its entirety to the Investment Trust's
Post-Effective Amendment No. 102 on Form N-1A filed on March 1, 1999 and to its
definitive Rule 497 (c) filing on March 5, 1999.
<PAGE>
Scudder
Growth and
Income Fund
Annual Report
December 31, 1998
Pure No-Load(TM) Funds
A fund with a disciplined approach to common stock investing seeking 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 (logo)
<PAGE>
Scudder Growth and Income Fund
- --------------------------------------------------------------------------------
Date of Inception: 5/31/29 Total Net Assets as of Ticker Symbol: SCDGX
12/31/98: $7.6 billion
- --------------------------------------------------------------------------------
o Scudder Growth and Income Fund returned 6.07% for the 12-month period ended
December 31, 1998, reflecting the modest performance of the Fund's
value-oriented investment style in a market dominated by a small number of
large-cap growth stocks.
o Despite the unfavorable market environment, the Fund maintained its overall
4-star risk-adjusted rating from Morningstar among 2,802 domestic equity funds
as of December 31, 1998.^1
Table of Contents
3 Letter from the Fund's President 24 Notes to Financial Statements
4 Performance Update 28 Report of Independent Accountants
5 Portfolio Summary 29 TaxInformation
6 Portfolio Management Discussion 30 Shareholder Meeting Results
12 Glossary of Investment Terms 32 Officers and Trustees
13 Investment Portfolio 33 Investment Products and Services
20 Financial Statements 34 Scudder Solutions
23 Financial Highlights
^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 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 2,802, 1,702, and 732 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,
The past year has been a difficult one for funds offering a disciplined value
approach such as the Scudder Growth and Income Fund. The Portfolio Management
Discussion which follows highlights the dichotomy of the U.S. stock market in
1998 where high growth and large size were favored and priced at premium
valuations versus more mundane and value oriented investments. For instance, the
seventeen best performers in the S&P 500 accounted for 50% of the gains in this
index. How long investors will continue to buy growth at any price is anyone's
guess. However, we remain convinced that the growth and income style of
investing is viable and a sound building block for many investor portfolios.
Despite its disappointing performance in the past year, the Fund's long-term
record is commendable. In fact, SmartMoney magazine rated the Fund among its top
seven of 500 domestic equity funds for dependable returns in their February 1999
issue^1. Going forward, the management team will continue to utilize the
investment discipline that has proven so successful over the long-term,
believing that it is only a matter of time before investors once again place an
emphasis on fundamentals.
As we evaluate another year of strong performance in the stock market and
ponder what lies ahead, the importance of diversification cannot be overstated.
This straightforward principle is particularly important following eight
consecutive years of strong returns in domestic equities. In such an
environment, investors can be easily lulled into believing that annual gains of
20% or higher are normal, when long-run returns have averaged half of that
amount. While it is possible that the U.S. stock market could record yet another
period of strong performance in 1999, we believe that investors with adequate
exposure to several asset classes, such as fixed income, small cap, and
international equities, will be the most successful over the long term.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Growth and Income Fund
^1 SmartMoney screened a universe of 500 domestic equity funds for
above-average, load-adjusted five-year performance (making an exception for
small-cap funds not yet five years old, since they often perform better in
their early years) as well as below-average expenses, turnover and risk.
The resulting funds were assigned 0 to 10 points in six categories --
performance, susceptibility to market timers, expenses, tax efficiency,
experience, and stock-picking ability. SmartMoney also eliminated a few
finalists, for reasons such as rapid asset growth.
3 - Scudder Growth and Income Fund
<PAGE>
Performance Update as of December 31, 1998
Fund Index Comparisons
- -----------------------------------------
Total Return
-------------------
Period Growth
Ended of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------------
Scudder Growth and Income Fund
--------------------------------------------
1 Year $ 10,607 6.07% 6.07%
5 Year $ 22,728 127.28% 17.85%
10 Year $ 45,529 355.29% 16.37%
--------------------------------------------
S&P 500 Index
--------------------------------------------
1 Year $ 12,858 28.58% 28.58%
5 Year $ 29,393 193.93% 24.05%
10 Year $ 57,974 479.74% 19.20%
--------------------------------------------
Growth of a $10,000 Investment
- --------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Yearly periods ended December 31
Scudder Growth and Income Fund
Year Amount
- ---------------------------
'88 $10,000
'89 $12,636
'90 $12,341
'91 $15,817
'92 $17,330
'93 $20,032
'94 $20,552
'95 $26,960
'96 $32,939
'97 $42,922
'98 $45,529
S&P 500 Index
Year Amount
- ---------------------------
'88 $10,000
'89 $13,167
'90 $12,759
'91 $16,646
'92 $17,920
'93 $19,724
'94 $19,984
'95 $27,493
'96 $33,804
'97 $45,087
'98 $57,974
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.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
Yearly periods ended December 31
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 14.14 $ 12.77 $ 15.76 $ 16.20 $ 17.24 $ 16.26 $ 20.23 $ 23.23 $ 27.33 $ 26.31
- -----------------------------------------------------------------------------------------------------------------------------
Income Dividends $ .69 $ .67 $ .55 $ .53 $ .45 $ .51 $ .56 $ .57 $ .58 $ .61
- -----------------------------------------------------------------------------------------------------------------------------
Capital Gains Distributions $ 1.77 $ .34 $ -- $ .50 $ 1.01 $ .91 $ .48 $ .87 $ 2.20 $ 2.09
- -----------------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) 26.36 -2.33 28.16 9.57 15.59 2.60 31.18 22.18 30.31 6.07
- -----------------------------------------------------------------------------------------------------------------------------
Index Total Return (%) 31.63 -3.11 30.40 7.61 10.06 1.32 37.58 22.96 33.38 28.58
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased.
4 - Scudder Growth and Income Fund
<PAGE>
Portfolio Summary as of December 31, 1998
Asset Allocation
- ----------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Common Stocks 97%
Convertible Stocks 2%
Convertible Bonds 1%
--------------------------------------
100%
--------------------------------------
The Fund is fully invested in stocks with relatively high dividend yields and
below-average valuations.
Sector Diversification
(Excludes 0.4% Cash Equivalents)
- ---------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Financial 19%
Manufacturing 18%
Communications 13%
Energy 10%
Durables 9%
Consumer Staples 8%
Health 7%
Utilities 6%
Construction 4%
Other 6%
--------------------------------------
100%
--------------------------------------
The Fund's relative dividend yield strategy precluded it from significant
weightings in growth-oriented sectors such as technology, which was among the
best performing.
Ten Largest Equity Holdings
(25% of Portfolio)
- ---------------------------
1. Xerox Corp.
Leading manufacturer of copiers
and duplicators
2. Corning Inc.
Specialty glass manufacturer
3. Bell Atlantic Corp.
Telecommunications services
4. American Home Products Corp.
Major diversified pharmaceutical
company
5. H.J. Heinz Co.
Major manufacturer of processed
foods
6. Bristol-Myers Squibb Co.
Diversified pharmaceutical and
consumer products company
7. GTE Corp.
Nationwide telecommunications
company
8. Sprint Corp.
Diversified local and long
distance telecommunications
services
9. First Union Corp.
Commercial banking
10. BellSouth Corp.
Telecommunications services,
systems, and products
Management selects securities for the portfolio by choosing individual
companies with attractive fundamentals that offer above-average dividend
yields.
For more complete details about the Fund's investment portfolio, see page 13. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Growth and Income Fund
<PAGE>
Portfolio Management Discussion
We asked Rob Hoffman, lead portfolio manager of Scudder Growth and Income Fund,
to review the market environment and fund performance for the 12-month period
ended December 31, 1998. His comments follow.
Q: For 1998, the U.S. stock market posted another 20%+ return. How do
you explain another year of strong performance for U.S. stocks?
When you consider that profit growth actually decelerated over the course of
1998, the market's rise is hard to justify. However, a closer look reveals that
most of the market's performance, as measured by the unmanaged S&P 500 Index,
was driven by a handful of very large growth stocks. These stocks, due to their
substantial market capitalization, were a heavy influence on the return of the
index. Because the S&P 500 is a market-cap-weighted index, the largest stocks
have had the greatest impact on its performance. When you examine the S&P's
return on an equal-weighted basis, we see that the average stock returned about
half that of the market-cap-weighted return. (The equal-weighted return was
13.8%, versus 28.58% for the market-cap-weighted return.) In fact, 70% of the
stocks in the S&P 500 underperformed the market-cap-weighted return and 40% of
the stocks actually had negative returns for 1998.
Q: With market leadership confined to a handful of large-cap growth
stocks, how did the Fund's ongoing emphasis on relatively high yielding
stocks fare?
The Fund's discipline of investing in stocks with above-average dividend yields
was out of favor for most of the year. Our relative dividend yield strategy
typically puts us in "value stock" territory -- a sector that underperformed
growth stocks by a substantial margin in 1998. The spread between the
performance of "growth" and "value" stocks is clearly evident in the returns of
the large-cap Russell 1000 indices. For the year, the Russell 1000 Growth Index
returned 38.71%, while the Russell 1000 Value Index returned less than half --
15.63% for the same period. Over the 15 years that we have been managing the
Fund with our relative dividend yield strategy, we have never seen such a wide
disparity between growth and value investing styles.
Q: How did the Fund perform in this environment?
While the Fund historically has outperformed during market declines -- as it did
during the brief 15% market correction in August -- stocks continued to rally
for most of the year. With the market led by a few big growth stocks, funds that
are managed with a relative dividend yield strategy, such as Scudder Growth and
Income Fund, faced a substantial headwind. For the 12-month period ended
December 31, 1998, the Fund returned 6.07% versus a 28.58% return for the S&P
500.
Q: Many stocks that fell into the Fund's investment universe of high dividend
yield stocks were trading at valuation levels usually associated with a
recession. Yet, the U.S. economy remained healthy, and inflation and interest
rates reached record lows. Why wasn't there more interest in these attractively
valued stocks?
Concerns regarding a slowdown in global economic growth and U.S. profit growth
resulted in willingness on the part of investors to pay a high premium for the
6 - Scudder Growth and Income Fund
<PAGE>
largest and most liquid companies with the strongest earnings growth. In this
environment, many investors adopted a strategy of "growth at any price,"
resulting in unusually high price-to-earnings (P/E) ratios for a limited number
of stocks, especially growth stocks with the largest market-caps. This
phenomenon was evident in the 20 largest stocks in the S&P 500, which traded at
a P/E of 41x based on 1998 estimated earnings. In contrast, the bottom 480
stocks in the index traded at a P/E of 27.3x. We believe that, as corporate
profit growth has slowed over the last six calendar quarters and as many
companies are facing increasing competition and an inability to raise prices,
some investors think large growth companies are best positioned to weather a
profit slowdown. While this has been the case over the last year (and may
continue in the near-term), we believe that investors will eventually return to
investing in companies with solid fundamentals and attractive valuations.
Q: Market sentiment turned negative in the third quarter. How did
events in Russia and at Long Term Capital Management affect the
domestic equity markets?
The third quarter brought the announcement of the Russian currency devaluation
and debt moratorium, and the bailout of Long Term Capital Management's hedge
fund. These events sent shock waves through the domestic and world markets, as
investors feared the events would spread to other markets. The result was an
evaporation of liquidity and confidence, which sent investors fleeing to the
safest and most liquid investments, namely U.S. Treasury securities and blue
chip growth stocks.
THE PRINTED DOCUMENT CONTAINS A TABLE HERE:
===============================================================
Attractive Valuations
===============================================================
Fund's
Portfolio S&P 500^1
--------- ---------
Dividend Yield 2.7% 1.31%
Price-to-Earnings per share^2 17x 24x
The Fund's above-average dividend
yield and below-average P/E indicate
attractive value relative to the market.
===============================================================
^1 The S&P 500 index yield does not reflect the effect of fund expenses and the
transaction costs which would otherwise lower its yield.
^2 P/E based on 1999 projected earnings as of 12/31/98.
Again, value stocks -- or stocks with high dividend yields -- were not at the
top of investors' lists. In an effort to head off further slowing of the U.S.
economy, the Federal Reserve cut short-term interest rates three times in the
August-October period. The rate cuts restored liquidity and confidence to the
stock and bond markets, and the S&P 500 went on to record its best quarterly
return since the beginning of the decade. In addition, reports of better than
expected earnings helped growth stocks finish the year with unusually strong
performance.
Q: What did this mean to investors?
We think it became increasingly apparent during this period that liquidity and
investor confidence are driving the market rather than good fundamentals at
individual companies. At some point we expect investors to return to investing
in companies with attractive fundamentals, which should work to the Fund's
advantage. However, the timing of that reversal is hard to predict, even given
7 - Scudder Growth and Income Fund
<PAGE>
the current record low valuations for many companies in the Fund's investment
universe.
Q: How did you manage the Fund in this environment?
Our investment strategy continued to focus on stocks with a high dividend yield
and our analysis of individual company fundamentals. Typically stocks with
dividends that are 120% or more of the S&P 500 yield are "buy" candidates for
the Fund. "Sell" candidates are stocks with yields that have fallen to about 75%
of the index. In looking at performance for the year, we can see that stocks
with essentially little or no yield were among the best performers -- stocks
that were not in our "buy" or "hold" range.
Q: What worked well for the portfolio during the year?
In general, the Fund's top ten holdings at the beginning of the year
dramatically outperformed our investment universe of relatively high yielding
stocks as well as modestly outperforming the market overall. In fact Ford, one
of our ten largest holdings was the best performing stock of those with yields
greater than 120% of the S&P, returning over 87% for the year. Other top ten
success stories included Xerox up 62%, Unilever up 35%, and
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
The Best Performing Stocks Were Outside of Our Investment Universe
BAR CHART DATA:
Total Return (%)
- --------------------------------------------------------------------------------
"Buy" "Hold" "Sell"
-------------------------- -------------------------
10.6% 10.4% 8.2% 14.1% 26.0%
- -----------------------------------------------------------------------
>150% 120-150% 80-120% >0-80% 0%
Stock yield as a percent of S&P 500
(The "Sell" area is shaded.)
BAR CHART FOOTNOTE:
Our relative dividend yield discipline placed stocks with little or no yield
(growth stocks) in the "sell" range -- the best performing sector in 1998. Over
the long term, the Fund's emphasis on stocks with above-average yields has
resulted in outperformance, especially during market declines.
8 - Scudder Growth and Income Fund
<PAGE>
Chase Manhattan Corp. up 32%. We also started out the year with Philips
Morris and TRW in the top ten. Both of these stocks were sold at prices
higher than their year-end close due to deteriorating fundamental
business prospects.
Q: Technology was a top-performing sector in 1998, but the Fund's
yield discipline usually precludes investing in tech stocks. Were you
able to participate in the tech rally in other ways?
The Internet is a powerful tool, which will change the face of commerce forever.
However, we have preferred to participate in the companies that "collect the
tolls" and produce the "asphalt" for the information superhighway. Our decision
to overweight the "toll taker" telecommunication companies helped the portfolio
dramatically, as the sector rose an aggregate 43%. Standout performers were
BellSouth up 81%, Sprint up 62%, Alltel up 50%, and Frontier up 46%. A
combination of low relative valuations at the beginning of the year, and the
increasing recognition that the local telephone companies' revenues and earnings
growths were being enhanced by the growth in value-added services helped these
stocks outperform.
In the "asphalt" category, we have focused on the increasing demand for
bandwidth, or "the number of lanes on the highway" through which electronic
information passes. As the Internet has grown, an increasing amount of
information must pass over conventional copper phone lines. These lines do not
offer enough capacity or speed to keep up with faster computers. The wider
bandwidth of fiber optic cable provides a solution. We think this will benefit
Corning, a producer of both fiber optic cable and photonics. We built our
position in Corning over the course of the year at prices substantially below
its year-end closing price. We believe Corning's 23% return in 1998, and 53%
return in the fourth quarter is just the beginning of a period of dramatic
outperformance.
Q: What other areas contributed to performance over the year?
The fourth quarter of 1997 saw the relative yields of electric utilities rise to
all time highs, even higher than the bleakest period of nuclear cost overruns
ten years earlier. New purchases and increased weights in the portfolio during
that time and early in 1998 resulted in positive contributions from Unicom, Duke
Energy, and Southern Company, which were up 31%, 20%, and 17.7%, respectively.
Finally, our underweight position in the consumer staple sector, as well as
specific stock selection, also added value as our discipline enabled us to avoid
weakness in Coke, Procter & Gamble, and Gillette. Instead, this area was led by
such Fund holdings as Avon up 47%, Philip Morris up 23%, and Unilever.
Q: The Fund's overweight position in industrial cyclicals was perhaps
one of the most significant detractors from performance. What happened
in this sector?
Over the year we gradually increased our holdings in industrial cyclicals,
largely chemical, paper/forest product, and metals stocks. This overweight
position had been in place since 1997, which was driven by recession level
valuations (including all time high relative yields), as well as extremely
favorable supply characteristics -- supply growth was contracting dramatically.
With perfect hindsight, we underestimated not only the impact of contracting
9 - Scudder Growth and Income Fund
<PAGE>
Asian economies on the supply/demand balance, and consequently the pricing of
the underlying commodities (e.g. ethylene, copper, pulp), but more importantly,
the negative investor perception that continued to depress these stocks.
A holding that had commodity exposure and also was in the process of
restructuring its business activities was among the hardest hit. Imperial
Chemical, a top ten holding at the beginning of the year and a position we added
to during the period, declined 46% on falling commodity prices and a capital
market that froze its ability to sell many of its non-core assets. Witco and
Lyondell, both relatively small positions in the portfolio, were affected
similarly. Paper stocks fared better than chemicals and metals, largely because
of their year end rally. In this area, our portfolio holdings actually
outperformed the fourth quarter S&P 500 return of 21%. The rally in paper stocks
was driven by a positive sentiment shift that occurred at the depths of the
September market. The global oversupply of pulp had become so severe that U.S.
companies began to respond with meaningful reductions in capacity in an attempt
to stabilize pricing.
Q: Real estate investment trusts (REITs) and bank stocks typically
perform well in a declining interest rate environment. How did the
Fund's holdings in these areas perform?
Perhaps the most frustrating move over the year was our decision to own a 5%
position in REITs. This strategy was driven by our desire to control the
downside volatility of the portfolio at a time when the valuation of the broad
market had reached what we viewed as an unsustainable level. The REITs we
selected appeared to have the necessary downside risk control characteristics:
low valuations, high absolute yields, and the likelihood that they would be able
to successfully manage their income through a potential real estate downturn. In
aggregate, our REITs grew their funds from operations anywhere from 13% to 18%
for the year, yet all REITs declined 10% and 20%.
For banks, we believed that recent interest rate cuts, unlike the cuts in the
early 1990s, would not increase profitability since the relatively flat yield
curve would not enable banks to borrow from the Fed, buy three-year Treasuries
and earn a positive spread as they did during the last banking crisis.
Consequently, we began reducing our bank exposure in mid-summer. In early fall,
on the heels of the Russia default and the virtual failure of Long Term Capital
Management, the Federal Reserve moved aggressively to cut short-term interest
rates. As it turned out, we underestimated the power of perception over
fundamentals. The market's powerful rebound from the early October lows (and the
corresponding rally in bank shares) was not driven by the drop in the Fed Funds
rate, but rather the perception that the Fed would continue to cut rates to
avoid a loss of confidence in the economy. In the fourth quarter, bank stocks
rallied strongly and we had already reduced our position there.
Q: Given the challenging year, why should investors stay invested in
the Fund?
For 15 years we have been running this Fund with the relative dividend yield
strategy, a benefit of which is providing some protection if the market
declines. In 1998 we saw that this approach still works, as the Fund
outperformed when the market corrected in August. The Fund has continued to
10 - Scudder Growth and Income Fund
<PAGE>
provide this benefit to shareholders over the long term, while also providing
top quartile returns in 1994, 1996, and 1997. In our opinion, the strategy is
not broken, but faced a strong headwind in 1998.
When, you may ask, will value stocks return to favor? The timing of this change
is difficult to predict, but value stocks have come back into favor after every
period of strong performance by growth stocks. With the recent strong
performance of growth stocks and the very attractive valuations of stocks we
hold in the portfolio, we do not think it is a good time to abandon the Fund's
relative dividend yield approach.
In addition, corporate profit growth is decelerating and current market
valuations are, in our view, clearly stretched to the limit. Given this
environment, the market could correct. If that occurs, we believe the Fund's
relative yield strategy should provide a significant level of downside
protection.
While we are not satisfied with the Fund's performance last year, we intend to
continue with our focus on those stocks which we believe already reflect a
difficult operating environment since they are less likely to disappoint
further. We think our relative yield approach, supported by the fundamental
research of our analysts, will ultimately benefit the Fund in a variety of
market environments by providing downside protection and the potential for price
appreciation over the long term.
Scudder Growth and
Income Fund:
A Team Approach to Investing
Scudder Growth and Income Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays 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 the Adviser's large staff of economists, research
analysts, traders, and other investment specialists who work in our offices
across the United States and abroad. We believe our team approach benefits Fund
investors by bringing together many disciplines and leveraging our 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 the Adviser in 1990 and has 14 years of investment
industry experience. Kathleen T. Millard, Portfolio Manager, has focused on
strategy and stock selection since she joined the firm and the team in 1991.
Benjamin W. Thorndike, Portfolio Manager, is the Fund's chief analyst and
strategist for convertible securities. Ben joined the Adviser 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 the Adviser since
1993.
11 - Scudder Growth and Income Fund
<PAGE>
Glossary of Investment Terms
DIVIDEND YIELD With stocks, a company's payment of earnings to
shareholders divided by its share price. For
example, a stock that sells for $10 and pays annual
dividends totaling $1 has a yield of 10%; if the
stock price goes up to $20, the yield would fall to
5%.
FUNDAMENTAL RESEARCH Analysis of a company's financial statements to
project future stock price changes. Considers past
records of sales and earnings as well as the future
impact of products, consumer markets, and management
in weighting a company's prospects. Distinct from
technical analysis, which evaluates the
attractiveness of a stock based on historical price
and trading volume movements.
LIQUIDITY A characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.
MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, determined by multiplying the
number of shares outstanding by the share price
(shares x price = market capitalization). The
universe of publicly traded companies is frequently
divided into large-, mid-, and small-capitalizations.
OVER/UNDER WEIGHTING Refers to the allocation of assets -- usually by
sector, industry, or country -- within an
investment portfolio relative to a benchmark index or
investment universe.
PRICE/EARNINGS RATIO (P/E) A widely used gauge of a stock's valuation that
(also "earnings multiple") indicates what investors are paying for a company's
earning power at the current stock price. Often
based on a company's projected earnings for the
coming 12 months. A higher "earnings multiple"
indicates higher expected earnings growth and greater
risk; a lower multiple is usually associated with
mature or out-of-favor companies, and lower stock
price volatility.
VALUE STOCK A company whose stock price does not fully reflect
its intrinsic value. A stock's relative value is
often measured by price/earnings ratio, price/book
value ratio, dividend yield, or some other valuation
measure, relative to its industry or the market
overall. Value stocks tend to display lower price
volatility and carry higher dividend yields.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
12 - Scudder Growth and Income Fund
<PAGE>
Investment Portfolio as of December 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 0.1%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/1998 at 5%, to be
repurchased at $6,110,393 on 1/4/1999, collateralized by a $6,061,000 U.S. Treasury -------------
Bond, 3.625%, 1/15/2008 (Cost $6,107,000) .............................................. 6,107,000 6,107,000
-------------
Short Term Investments 0.3%
- ------------------------------------------------------------------------------------------------------------------------------
Bell Atlantic Network Funding Corp., 5.18%**, 1/21/1999 (Cost $19,943,000) ............... 20,000,000 19,943,000
-------------
Convertible Bonds 0.4%
- ------------------------------------------------------------------------------------------------------------------------------
Financial 0.1%
Real Estate
Security Capital Corp., Debenture, 6.5%, 3/29/2016 (b) (c) ............................... 16,750,000 9,388,375
-------------
Durables 0.1%
Automobiles
Magna International, Inc., 5%, 10/15/2002 ................................................ 6,700,000 7,638,000
-------------
Media 0.2%
Advertising
Omnicom Group Inc., 2.25%, 1/6/2013 ...................................................... 12,500,000 16,812,500
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $36,769,432) 33,838,875
- ------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks 1.9%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Staples 1.1%
Food & Beverage 0.8%
Suiza Foods Corp., 2.7% .................................................................. 1,316,100 56,921,325
-------------
Miscellaneous 0.3%
Ralston Purina Co., 7% ................................................................... 470,000 24,557,500
-------------
Health 0.6%
Biotechnology
Monsanto Co., 6.5% ....................................................................... 1,005,800 49,284,200
-------------
Financial 0.1%
Consumer Finance 0.0%
Advanta Corp., 6.75% ..................................................................... 4,000 56,000
-------------
Real Estate 0.1%
ProLogis Trust "B", 7.0% ................................................................. 308,300 8,131,413
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Growth and Income Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Metals & Minerals 0.1%
Precious Metals
Freeport McMoRan Copper & Gold, Inc., 7% ................................................. 500,000 7,437,500
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $156,407,031) 146,387,938
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 97.3%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.8%
Department & Chain Stores
May Department Stores .................................................................... 1,212,400 73,198,650
Sears, Roebuck & Co. ..................................................................... 1,540,600 65,475,500
-------------
138,674,150
-------------
Consumer Staples 6.8%
Alcohol & Tobacco 1.9%
Philip Morris Companies, Inc. ............................................................ 2,694,300 144,145,050
-------------
Consumer Specialties 0.0%
Pennzoil-Quaker State Co. ................................................................ 58,000 859,125
-------------
Food & Beverage 3.3%
H.J. Heinz Co. ........................................................................... 3,095,050 175,257,206
Unilever NV (New York shares) ............................................................ 903,400 74,925,738
-------------
250,182,944
-------------
Package Goods/Cosmetics 1.6%
Avon Products Inc. ....................................................................... 2,660,100 117,709,425
-------------
Health 6.5%
Pharmaceuticals
American Home Products Corp. ............................................................. 3,640,300 204,994,394
Bristol-Myers Squibb Co. ................................................................. 1,281,000 171,413,813
SmithKline Beecham PLC (ADR) ............................................................. 1,180,400 82,037,800
Zeneca Group PLC ......................................................................... 862,621 37,613,600
-------------
496,059,607
-------------
Communications 12.5%
Telephone/Communications
Alltel Corp. ............................................................................. 1,825,400 109,181,738
Bell Atlantic Corp. ...................................................................... 3,651,896 207,473,342
BellSouth Corp. .......................................................................... 3,082,800 153,754,650
Frontier Corp. ........................................................................... 2,745,500 93,347,000
GTE Corp. ................................................................................ 2,504,700 168,910,706
</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>
Sprint Corp.* ............................................................................ 1,990,700 167,467,638
Telesp Participacoes S.A. (pfd.)* ........................................................ 2,363,550,000 53,794,848
-------------
953,929,922
-------------
Financial 18.8%
Banks 9.5%
BANC ONE CORP ............................................................................ 1,598,762 81,636,785
BankAmerica Corp. ........................................................................ 2,549,446 153,285,441
Bankers Trust New York Corp. ............................................................. 557,600 47,639,950
Chase Manhattan Corp. .................................................................... 1,509,800 102,760,763
First Union Corp. ........................................................................ 2,529,952 153,852,706
Fleet Financial Group Inc. ............................................................... 1,493,800 66,754,188
KeyCorp .................................................................................. 2,210,600 70,739,200
US Bancorp ............................................................................... 1,401,900 49,767,450
-------------
726,436,483
-------------
Insurance 2.9%
EXEL Ltd. "A" ............................................................................ 1,633,910 122,543,250
Lincoln National Corp. ................................................................... 577,100 47,213,994
Safeco Corp. ............................................................................. 1,163,700 49,966,369
-------------
219,723,613
-------------
Other Financial Companies 1.6%
Federal National Mortgage Association .................................................... 1,611,700 119,265,800
-------------
Real Estate 4.8%
Acadia Realty Trust (REIT)* .............................................................. 31,400 164,850
Arden Realty Group, Inc. ................................................................. 1,351,100 31,328,631
Avalon Bay Communities, Inc. (REIT) ...................................................... 358,872 12,291,366
Boston Properties, Inc. (REIT) ........................................................... 1,073,200 32,732,600
Camden Property Trust (REIT) ............................................................. 338,500 8,801,000
Equity Office Properties Trust (REIT) .................................................... 1,818,300 43,639,200
General Growth Properties, Inc. (REIT) (d) ............................................... 1,939,800 73,469,925
Health Care Property Investment Inc. (REIT) .............................................. 359,300 11,048,475
Nationwide Health Properties Inc. (REIT) ................................................. 804,800 17,353,500
Prentiss Properties Trust ................................................................ 1,365,100 30,458,794
ProLogis Trust (REIT) .................................................................... 2,935,645 60,914,634
Security Capital Group, Inc. (b) (c)* .................................................... 15,969 10,328,613
Security Capital US Realty (REIT)* ....................................................... 2,889,152 27,446,944
Spieker Properties, Inc. ................................................................. 150,000 5,193,750
-------------
365,172,282
-------------
</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>
Service Industries 0.2%
Environmental Services
Browning Ferris Industries ............................................................... 654,600 18,615,188
-------------
Durables 8.8%
Aerospace 3.5%
Lockheed Martin Corp. .................................................................... 1,288,728 109,219,698
Northrop Grumman Corp. ................................................................... 809,400 59,187,375
Rockwell International Corp. ............................................................. 2,007,300 97,479,506
-------------
265,886,579
-------------
Automobiles 3.6%
Dana Corp. ............................................................................... 2,175,342 88,917,104
Ford Motor Co. ........................................................................... 2,337,100 137,158,556
Meritor Automotive, Inc. ................................................................. 2,112,800 44,764,950
-------------
270,840,610
-------------
Construction/Agricultural Equipment 1.1%
Caterpillar Inc. ......................................................................... 746,900 34,357,400
PACCAR, Inc. ............................................................................. 1,146,100 47,133,363
-------------
81,490,763
-------------
Tires 0.6%
Goodyear Tire & Rubber Co. ............................................................... 948,700 47,850,056
-------------
Manufacturing 17.4%
Chemicals 5.9%
Akzo-Nobel N.V. .......................................................................... 1,862,940 84,796,300
Dow Chemical Co. ......................................................................... 765,000 69,567,188
E.I. du Pont de Nemours & Co. ............................................................ 1,065,800 56,554,013
Eastman Chemical Co. ..................................................................... 1,133,600 50,728,600
Imperial Chemical Industries PLC ......................................................... 15,020,575 130,266,593
Lyondell Petrochemical Co. ............................................................... 2,928,500 52,713,000
-------------
444,625,694
-------------
Containers & Paper 1.6%
Boise Cascade Corp. ...................................................................... 1,323,240 41,020,440
Temple-Inland, Inc. ...................................................................... 1,290,700 76,554,644
-------------
117,575,084
-------------
</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>
Diversified Manufacturing 1.2%
Canadian Pacific Ltd. (Ord.) ............................................................. 2,545,700 47,696,560
Olin Corp. ............................................................................... 1,336,100 37,828,331
St. Joe Paper Co. ........................................................................ 279,300 6,546,094
-------------
92,070,985
-------------
Electrical Products 1.4%
Emerson Electric Co. ..................................................................... 900,600 54,486,300
Thomas & Betts Corp. ..................................................................... 1,258,100 54,491,456
-------------
108,977,756
-------------
Industrial Specialty 2.9%
Corning Inc. ............................................................................. 4,727,350 212,730,737
Wyman-Gordon Co. ......................................................................... 606,300 6,214,575
-------------
218,945,312
-------------
Machinery/Components/Controls 0.7%
Parker-Hannifin Group .................................................................... 1,727,900 56,588,725
-------------
Office Equipment/Supplies 3.4%
Xerox Corp. .............................................................................. 2,175,650 256,726,700
-------------
Specialty Chemicals 0.3%
Witco Corp. .............................................................................. 1,537,500 24,503,906
-------------
Energy 10.0%
Oil & Gas Production 0.8%
Conoco Inc. "A"* ......................................................................... 2,755,100 57,512,713
PennzEnergy Co. .......................................................................... 58,000 946,125
-------------
58,458,838
-------------
Oil Companies 7.7%
British Petroleum PLC .................................................................... 5,703,062 84,978,349
Chevron Corp. ............................................................................ 471,800 39,129,913
Mobil Corp. .............................................................................. 916,300 79,832,638
Royal Dutch Petroleum Co. (New York shares) .............................................. 815,600 39,046,850
Societe Nationale Elf Aquitaine .......................................................... 816,000 94,282,955
Texaco Inc. .............................................................................. 1,951,100 103,164,413
Total S.A. "B" ........................................................................... 510,323 51,662,103
Total S.A. (ADR) ......................................................................... 396,253 19,713,587
YPF S.A. "D" (ADR) ....................................................................... 2,753,400 76,923,113
-------------
588,733,921
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Growth and Income Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil/Gas Transmission 1.5%
Williams Cos., Inc. ...................................................................... 3,579,000 111,620,063
-------------
Metals & Minerals 1.5%
Precious Metals 0.1%
Freeport McMoRan Copper & Gold, Inc. "A" ................................................. 542,590 5,256,341
-------------
Steel & Metals 1.4%
Allegheny Teledyne Inc. .................................................................. 3,860,915 78,907,450
Phelps Dodge Corp. ....................................................................... 211,000 10,734,625
Reynolds Metals Co. ...................................................................... 377,400 19,884,263
-------------
109,526,338
-------------
Construction 3.7%
Building Products 1.5%
Georgia Pacific Group .................................................................... 1,913,300 112,047,631
-------------
Forest Products 2.2%
Georgia Pacific Timber Group ............................................................. 1,289,200 30,699,075
Westvaco Corp. ........................................................................... 1,029,800 27,611,513
Weyerhaeuser Co. ......................................................................... 2,217,800 112,691,963
-------------
171,002,551
-------------
Transportation 2.8%
Railroads
CSX Corp. ................................................................................ 3,286,900 136,406,350
Norfolk Southern Corp. ................................................................... 2,303,000 72,976,313
-------------
209,382,663
-------------
Utilities 6.5%
Electric Utilities
CINergy Corp. ............................................................................ 2,494,100 85,734,688
Duke Energy Corp. ........................................................................ 1,729,736 110,811,213
PacifiCorp ............................................................................... 3,872,300 81,560,319
Southern Company ......................................................................... 2,573,500 74,792,344
Unicom Corp. ............................................................................. 2,642,300 101,893,694
Wisconsin Energy Corp. ................................................................... 1,306,700 41,079,381
-------------
495,871,639
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $5,746,192,243) 7,398,755,744
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $5,965,418,706) (a) 7,605,032,557
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder Growth and Income Fund
<PAGE>
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $5,963,248,302. At December
31, 1998, net unrealized appreciation for all securities based on tax cost
was $1,641,784,255. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $1,954,238,232 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $312,453,977.
(b) Securities, in part or whole, valued in good faith by the Valuation
Committee of the Board of Trustees at fair value amounted to $11,285,325
(.15% 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, 1998 aggregated
$20,100,000. 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 December 31, 1998,
amounted to $11,285,325, which represents .15% of net assets. Information
concerning such restricted securities at December 31, 1998 is as follows:
Security Acquisition Date Cost ($)
-------- ---------------- --------
Security Capital Corp., Debenture,
6.5%, 3/29/2016 4/18/1996 16,750,000
Security Capital Corp. 4/18/1996 3,350,000
(d) Affiliated Issuer (See Notes to Financial Statements)
* Non income producing.
** Annualized yield at time of purchase; not a coupon rate.
The accompanying notes are an integral part of the financial statements.
19 - Scudder Growth and Income Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1998
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market:
Unaffiliated issuers (identified cost $5,916,776,794) ............. $7,531,562,632
Affiliated issuers (identified cost $48,641,912) .................. 73,469,925
----------------
Total investments, at market (identified cost $5,965,418,706) ........ 7,605,032,557
Cash ................................................................. 488
Receivable for investments sold ...................................... 13,658,839
Dividends and interest receivable .................................... 17,106,418
Receivable for Fund shares sold ...................................... 14,875,733
Receivable for foreign tax recoverable ............................... 1,738,638
Other assets ......................................................... 36,395
----------------
Total assets ......................................................... 7,652,449,068
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed ..................................... 64,754,310
Accrued management fee ............................................... 2,793,015
Other payables and accrued expenses .................................. 2,650,381
----------------
Total liabilities .................................................... 70,197,706
------------------------------------------------------------------------------------------
Net assets, at market value $7,582,251,362
------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................. 7,600,144
Net unrealized appreciation (depreciation) on:
Investments ....................................................... 1,639,613,851
Foreign currency related transactions ............................. 101,822
Accumulated net realized gain (loss) ................................. 19,486,484
Paid-in capital ...................................................... 5,915,449,061
------------------------------------------------------------------------------------------
Net assets, at market value $7,582,251,362
------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($7,582,251,362 / 288,145,757 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ... $26.31
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - Scudder Growth and Income Fund
<PAGE>
Statement of Operations
year ended December 31, 1998
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends -- Unaffiliated issuers (net of foreign taxes
withheld of $2,372,248) ............................................ $ 206,684,055
Dividends -- Affiliated issuers ...................................... 2,735,118
Interest ............................................................. 16,432,153
----------------
225,851,326
----------------
Expenses:
Management fee ....................................................... 34,062,247
Services to shareholders ............................................. 20,003,325
Custodian and accounting fees ........................................ 833,171
Trustees' fees and expenses .......................................... 51,072
Reports to shareholders .............................................. 1,431,547
Registration fees .................................................... 393,962
Auditing ............................................................. 57,620
Legal ................................................................ 65,219
Other ................................................................ 167,754
----------------
57,065,917
-------------------------------------------------------------------------------------------
Net investment income 168,785,409
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .......................................................... 493,463,043
Futures .............................................................. 24,424,234
Foreign currency related transactions (Net of CPMF tax $126,858) ..... (601,255)
----------------
517,286,022
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments .......................................................... (286,234,888)
Foreign currency related transactions ................................ 129,557
----------------
(286,105,331)
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 231,180,691
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 399,966,100
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 - Scudder Growth and Income Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ....................... $ 168,785,409 $ 129,959,345
Net realized gain (loss) from investment
transactions .................................... 517,286,022 491,947,652
Net unrealized appreciation (depreciation) on
investment transactions during the period ....... (286,105,331) 808,698,122
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ...................................... 399,966,100 1,430,605,119
---------------- ----------------
Distributions to shareholders from:
Net investment income .............................. (166,588,779) (126,973,242)
---------------- ----------------
Net realized gains on investment transactions ...... (564,589,614) (499,553,699)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .......................... 2,391,306,573 2,222,518,008
Net asset value of shares issued to shareholders in
reinvestment of distributions ................... 685,005,575 585,826,807
Cost of shares redeemed ............................ (1,996,432,615) (965,320,076)
---------------- ----------------
Net increase in net assets from Fund share
transactions .................................... 1,079,879,533 1,843,024,739
---------------- ----------------
Increase (decrease) in net assets .................. 748,667,240 2,647,102,917
Net assets at beginning of period .................. 6,833,584,122 4,186,481,205
Net assets at end of period (including undistributed
net investment income of $7,600,144 and ---------------- ----------------
$5,816,401, respectively) ....................... $7,582,251,362 $6,833,584,122
---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .......... 250,081,688 180,244,068
---------------- ----------------
Shares sold ........................................ 84,380,304 84,125,982
Shares issued to shareholders in reinvestment of
distributions ................................... 25,378,540 22,057,223
Shares redeemed .................................... (71,694,775) (36,345,585)
---------------- ----------------
Net increase (decrease) in Fund shares ............. 38,064,069 69,837,620
---------------- ----------------
Shares outstanding at end of period ................ 288,145,757 250,081,688
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22 - 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,
1998(a) 1997(a) 1996(a) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------
Net asset value, beginning of period ......................... $ 27.33 $ 23.23 $ 20.23 $ 16.26 $ 17.24
----------------------------------------------------------
Income from investment operations:
Net investment income ........................................ .62 .62 .60 .55 .49
Net realized and unrealized gain (loss) on investment
transactions ............................................... 1.06 6.26 3.84 4.46 (.05)
----------------------------------------------------------
Total from investment operations ............................. 1.68 6.88 4.44 5.01 .44
----------------------------------------------------------
Less distributions from:
Net investment income ........................................ (.61) (.58) (.57) (.56) (.51)
Net realized gains on investment transactions ................ (2.09) (2.20) (.87) (.48) (.91)
----------------------------------------------------------
Total distributions .......................................... (2.70) (2.78) (1.44) (1.04) (1.42)
----------------------------------------------------------
----------------------------------------------------------
Net asset value, end of period ............................... $ 26.31 $ 27.33 $ 23.23 $ 20.23 $ 16.26
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............................................. 6.07 30.31 22.18 31.18 2.60
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....................... 7,582 6,834 4,186 3,061 1,992
Ratio of operating expenses to average net assets (%) ........ .74 .76 .78 .80 .86
Ratio of net investment income to average net assets (%) ..... 2.20 2.31 2.77 3.10 2.98
Portfolio turnover rate (%) .................................. 40.8 22.2 26.6 26.9 42.3
</TABLE>
(a) Based on monthly average shares outstanding during the period.
23 - 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
Investment Trust (the "Trust") (formerly Scudder Investment Trust). The Trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an 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 Nasdaq Stock Market, Inc.
("Nasdaq"), 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 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 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 other than money market securities with an original
maturity over 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,
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 repurchase price.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund purchased securities index futures as a temporary substitute for purchasing
selected investments.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may
24 - Scudder Growth and Income Fund
<PAGE>
not correlate exactly with changes in the value of the securities or currencies
hedged. When utilizing futures contracts to hedge, the Fund gives up the
opportunity to profit from favorable price movements in the hedged positions
during the term of the contract.
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.
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 of 1986, as amended, which are applicable to regulated
investment companies, and to distribute all of its taxable income to its
shareholders. The Fund accordingly paid no federal income taxes and no provision
for federal income taxes was required.
Distribution of Income and Gains. Distributions of net investment income are
made quarterly. During any particular year, net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences relate primarily to non-taxable distributions and certain securities
sold at a loss. As a result, net investment income and net realized gain (loss)
on investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the specific identified cost method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
25 - Scudder Growth and Income Fund
<PAGE>
B. Purchases and Sales of Securities
For the year ended December 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $3,748,211,994 and
$3,033,703,695, respectively.
The aggregate face value of futures contracts opened and closed during the year
ended December 31, 1998 was $860,671,948.
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 year ended December 31, 1998, the fee pursuant to the Agreement
amounted to $34,062,247, which was equivalent to an annual effective rate of
0.44% of the Fund's average daily net assets.
Effective September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner
of the Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's Management Agreement with Scudder Kemper was deemed to
have been assigned and, therefore, terminated. In December 1998, the Board of
Trustees and the shareholders of the Fund approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the former
Management Agreement, except for the dates of execution and termination.
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, 1998, the amount charged to the Fund by SSC aggregated
$7,512,891, of which $574,455 is unpaid at December 31, 1998.
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 year ended December
31, 1998, the Special Servicing Agreement expense charged to the Fund amounted
to $335,008.
26 - Scudder Growth and Income Fund
<PAGE>
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,
1998, the amount charged to the Fund by STC aggregated $7,455,505, of which
$679,629 is unpaid at December 31, 1998.
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, 1998, the amount charged to the Fund by SFAC aggregated $424,247,
of which $35,517 is unpaid at December 31, 1998.
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 year ended December 31, 1998, Trustees' fees and expenses aggregated
$51,072.
D. Transactions in Securities of Affiliated Issuers
An affiliated issuer is a company in which the Fund has ownership of at least 5%
of the voting securities. A summary of the Fund's transactions with companies
which are or were affiliates for the year ended December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Purchases Sales Dividend Market
Affiliate Cost ($) Cost ($) Income ($) Value ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
General Growth Properties, Inc -- -- 2,735,118 73,469,925
========================================================================
</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 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.
27 - Scudder Growth and Income Fund
<PAGE>
Report of Independent Accountants
To the Trustees of Investment Trust and the Shareholders of Scudder Growth and
Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Growth and Income Fund (the
"Fund") at December 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 11, 1999
28 - 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 $2.085 per share from net long-term capital gains
during its year ended December 31, 1998, of which 100% represents 20% rate
gains. Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$540,000,000 as capital gain dividends for its year ended December 31, 1998, of
which 100% represents 20% rate gains.
For corporate shareholders, 100% of the income dividends paid during the Fund's
year ended December 31, 1998 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.
29 - Scudder Growth and Income Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Growth and Income
Fund (the "Fund") was held on December 15, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*,
--- ------- ------- ------------------
144,480,781 3,964,192 6,087,377 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
129,585,470 6,182,900 8,213,463 10,550,517
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
30 - Scudder Growth and Income Fund
<PAGE>
This Page
intentionally
left blank.
31 - 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; Managing Partner,
Technology Equity Partners
Bruce F. Beaty*
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
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
32 - 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 Zero Coupon 2000 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 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 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
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
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.
Scudder Spain and Portugal 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 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. #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.
33 - Scudder Growth and Income Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<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:
- ------------------------------------------------------------------------------------------------------------------------------
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:
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
34 - Scudder Growth and Income Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
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 Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. 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.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
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
</TABLE>
35 - 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 oganizations worldwide, managing more than $230 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 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich 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 Group. The Zurich 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
[LOGO]
<PAGE>
Scudder Large Company Growth Fund
Supplement to Prospectus
Dated March 1, 1999
Scudder Large Company Growth Fund (the "fund") currently offers two classes of
shares to provide investors with different purchase options. The two options
are: Scudder shares and Class R shares. Class R shares are described in this
supplement to the prospectus.
Class R shares are available for purchase by participants of certain
employer-sponsored retirement plans. Class R shares currently are available for
purchase through certain financial intermediaries as well as third-party
providers and other entities. Share certificates are not available for Class R
shares.
The following information supplements the following indicated sections of the
prospectus:
Past performance
As Class R shares do not have a full calendar year of performance, no past
performance data is provided. However, the chart and table on page 3 of the
prospectus show how the total returns for the fund's Scudder shares have varied
from year to year, which may give some idea of risk. Scudder shares are not
offered in this supplement to the prospectus but have substantially similar
returns because the shares are invested in the same portfolio of securities and
the annual returns would differ only to the extent that the classes have
different expenses.
August 1, 1999
<PAGE>
Fee and expense information
The following information is designed to help you understand the estimated fees
and expenses that you may pay if you buy and hold Class R shares of the fund.
-----------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
-----------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of NONE
offering price)
-----------------------------------------------------------------------------
Maximum deferred sales charge (load) NONE
-----------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested NONE
dividends/distributions
-----------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE*
-----------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------
Annual fund operating expenses (expenses that are deducted from fund assets):
-----------------------------------------------------------------------------
Management fee 0.70%
-----------------------------------------------------------------------------
Distribution (12b-1) fees and service fees 0.00%**
-----------------------------------------------------------------------------
Other expenses 0.76%***
-----------------------------------------------------------------------------
Total annual fund operating expenses 1.46%
-----------------------------------------------------------------------------
* If you wish to receive your redemption proceeds via wire, there is a $5
wire service fee. For additional information, please refer to "About Your
Investment -- Exchanges and redemptions."
** The Class R shares are subject to a Rule 12b-1 and Administrative Services
Plan (the "Plan"), which allows for payment of a fee of up to 0.25% for
distribution- related services. Currently, the fund's Board of Trustees
(the "Board") has not authorized payment under the Plan. The Board,
however, may authorize payment under the Plan at any time. If payment under
the Plan is authorized, the administrative services fee described below
would be reduced.
*** Includes an administrative services fee of 0.25% in addition to other class
specific expenses, such as transfer agent and certain registration fees,
which amounts may vary with class size and other factors. Because the
inception date of the Class R shares is August 1, 1999, "Other expenses"
are estimated based upon the amounts incurred by the Scudder shares of the
fund during the fiscal year ended October 31, 1998.
<PAGE>
Example
This example is intended to help you compare the cost of investing in Class R
shares of the fund with the cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The expenses
would be the same whether you sold your shares at the end of each period or
continued to hold them.
- ------------------------------------------------------------------------------
One Year $ 149
- ------------------------------------------------------------------------------
Three Years $ 462
- ------------------------------------------------------------------------------
Five Years $ 797
- ------------------------------------------------------------------------------
Ten Years $1,746
- ------------------------------------------------------------------------------
Distributions
Dividends and other distributions in the aggregate amount of $10 or less are
automatically reinvested in shares of the same fund unless you request that such
policy not be applied to your account.
Financial highlights
As Class R is a new class of the fund, no financial highlight data is available.
Transaction information
Share price
Net asset value per share is calculated separately for each class of the fund
and is calculated by dividing the value of the total fund assets attributable to
a class, less all liabilities attributable to that class, by the total number of
shares of that class outstanding. Market prices are used to determine the value
of the fund's assets. If market prices are not readily available for a security
or if a security's price is not considered to be market indicative, that
security may be valued by another method that the Board or its delegate believes
accurately reflects fair value. In those circumstances where a security's price
is not considered to be market indicative, the security's valuation may differ
from an available market quotation.
<PAGE>
Purchases
To open an account
Class R shares are available only through employer-sponsored retirement plans.
Please consult your plan administrator or plan representative for more
information on how to purchase shares.
To buy additional shares
Please consult your plan administrator or plan representative for more
information on how to purchase shares.
Exchanges and redemptions
To exchange shares
Shareholders of Class R shares may exchange their Class R shares only for shares
of funds authorized for exchange by the applicable plan. Please consult your
plan administrator or plan representative for more information concerning
exchanges of shares.
To sell shares
Please consult your plan administrator or plan representative for more
information on how to sell your shares.
<PAGE>
Part A (the Prospectus for Scudder Large Company Growth Fund)
Part A of this Post-Effective Amendment No. 106 to the Registration Statement is
incorporated by reference in its entirety to the Investment Trust's
Post-Effective Amendment No. 102 on Form N-1A filed on March 1, 1999 and to its
definitive Rule 497 (c) filing on March 5, 1999.
<PAGE>
SCUDDER LARGE COMPANY GROWTH FUND
A series of Investment Trust
CLASS R SHARES
A No-Load (No Sales Charges) Diversified Mutual Fund Seeking Long-Term
Growth of Capital through Investment Primarily in Equity Securities
of Seasoned, Financially Strong U.S. Growth Companies.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus for Scudder Large Company Growth Fund dated
March 1, 1999, as amended from time to time, a copy of which may be obtained
without charge by writing to Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103.
The Annual Report to Shareholders of Scudder Large Company Growth Fund dated
October 31, 1998 is incorporated by reference and is hereby deemed to be part of
this Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES........................................................................1
Investment Restrictions..................................................................................10
PURCHASES..........................................................................................................12
Additional Information About Purchasing Class R shares....................................................12
Share Price...............................................................................................12
Share Certificates........................................................................................12
Other Information.........................................................................................12
EXCHANGES AND REDEMPTIONS..........................................................................................12
Additional Information About Exchanging or Redeeming Class R shares.......................................12
Other Information.........................................................................................13
No-Load Concept...........................................................................................13
Diversification...........................................................................................13
Reports to Shareholders...................................................................................13
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS..........................................................................14
PERFORMANCE INFORMATION............................................................................................14
Average Annual Total Return...............................................................................14
Cumulative Total Return...................................................................................15
Total Return..............................................................................................15
Performance Indices.......................................................................................16
Comparison of Fund Performance............................................................................16
FUND ORGANIZATION..................................................................................................17
INVESTMENT ADVISER.................................................................................................18
Personal Investments by Employees of the Adviser..........................................................21
TRUSTEES AND OFFICERS..............................................................................................21
REMUNERATION.......................................................................................................23
Responsibilities of the Board -- Board and Committee Meetings.............................................23
Compensation of Officers and Trustees.....................................................................23
DISTRIBUTOR........................................................................................................24
PORTFOLIO TRANSACTIONS.............................................................................................28
Brokerage Commissions.....................................................................................28
Portfolio Turnover........................................................................................29
NET ASSET VALUE....................................................................................................30
ADDITIONAL INFORMATION.............................................................................................30
Experts...................................................................................................30
Shareholder Indemnification...............................................................................31
Other Information.........................................................................................31
APPENDIX
</TABLE>
i
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Scudder Large Company Growth Fund (the "Fund"), a diversified series of
Investment Trust (the "Trust"), a registered open-end management investment
company , seeks to provide long-term growth of capital through investment
primarily in the equity securities of seasoned, financially strong U.S. growth
companies. Although current income is an incidental consideration, many of the
Fund's securities should provide regular dividends which are expected to grow
over time.
Scudder Large Company Growth Fund offers two classes of shares: Scudder
Shares and Class R shares. Only the Class R shares are described herein.
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which the Fund may engage (such
as short selling, hedging, etc.) or a financial instrument which the Fund may
purchase (such as options, forward foreign currency contracts, etc.) are meant
to describe the spectrum of investments that Scudder Kemper Investments, Inc.
(the "Adviser"), in its discretion, might, but is not required to, use in
managing the Fund's portfolio assets. The Adviser may, in its discretion, at any
time employ such practice, technique or instrument for the Fund, but not for all
funds advised by it. Furthermore, it is possible that certain types of financial
instruments or investment techniques described herein may not be available,
permissible, economically feasible or effective for their intended purposes in
all markets. Certain practices, techniques, or instruments may not be principal
activities of the Fund, but, to the extent employed, could from time to time
have a material impact on the Fund's performance.
The Fund's equity investments consist of common stocks, preferred
stocks and securities convertible into common stocks of companies which offer,
the Fund's management believes, the prospect for above-average growth in
earnings, cash flow or assets relative to the overall market as defined by the
Standard & Poor's 500 Composite Price Index ("S&P 500"). The prospect for
above-average growth in assets is evaluated in terms of the potential future
earnings such growth in assets can produce.
The Fund allocates its investments among different industries and
companies, and adjusts its portfolio securities based on long-term investment
considerations as opposed to short-term trading. While the Fund emphasizes U.S.
investments, it can commit a portion of assets to the equity securities of
foreign growth companies which meet the criteria applicable to domestic
investments.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. The net asset value of the Fund's shares
will increase or decrease with changes in the market price of the Fund's
investments, and there can be no assurance that the Fund's objective will be
met.
Investments. The Fund invests primarily in equity securities issued by
large-sized domestic companies that offer, the Fund's management believes,
above-average appreciation potential. In seeking such investments, the Adviser
invests in companies with the following characteristics:
o companies that have exhibited above-average growth rates over
an extended period with prospects for maintaining greater than
average rates of growth in earnings, cash flow or assets in
the future;
o companies that are in a strong financial position with high
credit standings and profitability;
o companies with important business franchises, leading products
or dominant marketing and distribution systems;
o companies guided by experienced, motivated management;
o companies selling at attractive prices relative to potential
growth in earnings, cash flow or assets.
The Adviser utilizes a combination of qualitative and quantitative
research techniques to identify companies that have above-average quality and
growth characteristics and that are deemed to be selling at attractive market
valuations. In-depth fundamental research is used to evaluate various aspects of
corporate performance, with a particular focus on consistency of results,
long-term growth prospects and financial strength. Quantitative valuation models
are designed to help determine which growth companies offer the best values at a
given point in time. From time to time, for temporary defensive or emergency
purposes, the Fund may invest a portion of its assets in cash and cash
equivalents
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when the Adviser deems such a position advisable in light of economic or market
conditions. It is impossible to predict for how long such alternate strategies
may be utilized. The Fund also may invest in foreign securities, repurchase
agreements, and may engage in strategic transactions.
Master/feeder fund structure. The Board of Trustees has the discretion to retain
the current distribution arrangement for the Fund while investing in a master
fund in a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Quality. The Fund invests at least 65% of its total assets in the equity
securities of large U.S. growth companies (i.e., those with total market
capitalization of $1 billion or more). The Fund looks for companies with
above-average financial quality. When assessing financial quality, the Adviser
weighs four elements of business risk. These factors are the Adviser's
assessment of the strength of a company's balance sheet, the accounting
practices a company follows, the volatility of a company's earnings over time
and the vulnerability of earnings to changes in external factors, such as the
general economy, the competitive environment, governmental action and
technological change.
Convertible Securities. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stocks. Investments in convertible securities may
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest include
fixed-income or zero coupon debt securities which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
nonconvertible securities of similar quality because of their conversion or
exchange features.
Convertible securities are generally subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
nonconvertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes (LYONs). Zero coupon securities pay no cash income and are
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sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follows the
movements in the market value of the underlying common stock. Zero coupon
convertible securities are generally expected to be less volatile than the
underlying common stocks as they are usually issued with short to medium length
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Foreign Securities. Investors should recognize that investing in foreign
securities involves certain special considerations, including those set forth
below, which are not typically associated with investing in U.S. securities and
which may favorably or unfavorably affect the Fund's performance. As foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
stock markets, while growing in volume of trading activity, have substantially
less volume than the New York Stock Exchange, Inc. (the "Exchange"), and
securities of some foreign companies are less liquid and more volatile than
securities of domestic companies. Similarly, volume and liquidity in most
foreign bond markets is less than in the U.S. and at times, volatility of price
can be greater than in the U.S. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in a possible
liability to the purchaser. Payment for securities without delivery may be
required in certain foreign markets. Fixed commissions on some foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgments in foreign courts. There is
generally less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the U.S. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters which may affect the
prices of portfolio securities. Communications between the U.S. and foreign
countries may be less reliable than within the U.S., thus increasing the risk of
delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. In addition, with respect to certain foreign countries,
there is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect U.S.
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The management of the Fund
seeks to mitigate the risks associated with the foregoing considerations through
diversification and continuous professional management.
Because investments in foreign securities will usually involve
currencies of foreign countries, and because the Fund may hold foreign
currencies and forward foreign currency exchange contracts ("forward
contracts"), futures contracts and options on futures contracts on foreign
currencies, the value of the assets of the Fund as measured in U.S. dollars may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. Although the Fund values
its assets daily in terms of U.S. dollars, it does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. It will do so
from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward contracts
(or options thereon) to purchase or sell foreign currencies. (See "Strategic
Transactions and Derivatives" below.)
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer recognized as a
reporting government securities dealer if the creditworthiness of the bank or
broker/dealer has been determined by the Adviser to be at least as high as that
of other obligations the Fund may purchase or to be at least equal to that of
issuers of commercial paper rated within the two highest grades assigned by
Standard and Poor's Corporation or Moody's Investor Services, Inc. ("Moody's").
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A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
Fund acquires a security ("Obligation") and the seller agrees, at the time of
sale, to repurchase the Obligation at a specified time and price. Obligations
subject to a repurchase agreement are held in a segregated account and the value
of such obligations kept at least equal to the repurchase price on a daily
basis. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
date of repurchase. In either case, the income to the Fund is unrelated to the
interest rate on the Obligation itself. Obligations will be held by the Fund's
custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), a repurchase agreement is deemed to be a loan from the Fund to the
seller of the Obligation subject to the repurchase agreement and is therefore
subject to the Fund's investment restriction applicable to loans. It is not
clear whether a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may cause loss of interest or decline in price of the
Obligation. If the court characterizes the transaction as a loan and the Fund
has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss from repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case the Fund may incur a loss if the proceeds to the Fund of the sale to a
third party are less than the repurchase price. To protect against such
potential loss, if the market value (including interest) of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including interest), the Fund will direct the seller of the Obligation to
deliver additional securities so that the market value (including interest) of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to impose on the seller a contractual obligation to deliver additional
securities.
Reverse Repurchase Agreements. In a reverse repurchase agreement, a Fund sells a
portfolio instrument to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, a Fund will
maintain liquid assets in a segregated custodial account to cover its obligation
under the agreement. A Fund will enter into reverse repurchase agreements only
with parties whose creditworthiness has been found satisfactory by the Adviser.
Such transactions may increase fluctuations in the market value of a Fund's
assets and may be viewed as a form of leverage.
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable" (i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933 (the "1933 Act") or the availability of an exemption from
registration, such as Rules 144 or 144A, or because they are subject to other
legal or contractual delays in or restrictions on resale).
Generally speaking, illiquid or restricted investments may be sold only
to qualified institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have been held
for a specified period of time and other conditions are met pursuant to an
exemption from registration, or in a public offering for which a registration
statement is in effect under the 1933 Act. A Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event a Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
The Adviser will monitor the liquidity of such restricted securities
subject to the supervision of the Board of Trustees. In reaching liquidity
decisions, the Adviser will consider the following factors: (1) the frequency of
trades and quotes for the security, (2) the number of dealers wishing to
purchase or sell the security and the number of their potential purchasers, (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (i.e. the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
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Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks managing the effective maturity
or duration of the Fund's portfolio, or enhancing potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, currency futures and various
other currency transactions (collectively, all the above are called "Strategic
Transactions"). In addition, strategic transactions may also include new
techniques, instruments or strategies that are permitted as regulatory changes
occur. Strategic Transactions may be used without limit to attempt to protect
against possible changes in the market value of securities held in or to be
purchased for the Fund's portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect the Fund's unrealized gains in the value
of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio, or to establish a position in
the derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter the fundamental investment purposes and characteristics of the fund,
and the fund will segregate assets (or as provided by applicable regulations,
enter into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of the fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund
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the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect the Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.
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If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio), and
on securities, indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management, and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed,
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging, risk management (including duration management) or
other portfolio management and return enhancement purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Fund. If the Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which
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the option is based exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option (except if, in the case of an OTC
option, physical delivery is specified). This amount of cash is equal to the
excess of the closing price of the index over the exercise price of the option,
which also may be multiplied by a formula value. The seller of the option is
obligated, in return for the premium received, to make delivery of this amount.
The gain or loss on an option on an index depends on price movements in the
instruments making up the market, market segment, industry or other composite on
which the underlying index is based, rather than price movements in individual
securities, as is the case with respect to options on securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties, primarily in order to hedge, or manage the risk of, the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or are
determined to be of equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally.
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Further, settlement of a currency futures contract for the purchase of most
currencies must occur at a bank based in the issuing nation. Trading options on
currency futures is relatively new, and the ability to establish and close out
positions on such options is subject to the maintenance of a liquid market which
may not always be available. Currency exchange rates may fluctuate based on
factors extrinsic to that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency, index, and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the fund will segregate
assets (or enter into offsetting positions) to cover its obligations under
swaps, the Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the
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imposition of different exercise and settlement terms and procedures and margin
requirements than in the U.S., and (v) lower trading volume and liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid assets
with its custodian to the extent Fund obligations are not otherwise "covered"
through ownership of the underlying security, financial instrument or currency.
In general, either the full amount of any obligation by the Fund to pay or
deliver securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid securities at least equal to the
current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call or to segregate liquid, securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid assets equal to the excess of
the index value over the exercise price on a current basis. A put option written
by the Fund requires the Fund to segregate liquid assets equal to the exercise
price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Investment Restrictions
Unless specified to the contrary, the following restrictions are
fundamental policies and may not be changed without the approval of "a majority
of the outstanding voting securities" of the Fund which, under the 1940 Act and
the rules thereunder and as used in this Statement of Additional Information,
means the lesser of (1) 67% or more of the
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shares of the Fund present at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present in person or represented by proxy; or
(2) more than 50% of the outstanding shares of the Fund. Nonfundamental policies
of the Fund may be modified by the Fund's Trustees without a vote of
shareholders.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Fund. The Fund
is under no restriction as to the amount of portfolio securities which may be
bought or sold.
As a matter of fundamental policy, the Fund may not:
1. borrow money, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
2. issue senior securities, except as permitted under the 1940
Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
3. concentrate its investments in a particular industry, as that
term is used in the 1940 Act, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
4. engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
5. purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
6. purchase physical commodities or contracts relating to
physical commodities; or
7. make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
Other Investment Policies. The Trustees of the Fund voluntarily adopted policies
and restrictions which are observed in the conduct of the Fund's affairs. These
represent intentions of the Trustees based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Trustees without prior notice to or approval of
shareholders.
As a matter of nonfundamental policy, the Fund may not:
1. borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
2. enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
3. purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
4. purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
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<PAGE>
5. enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
6. purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
7. lend portfolio securities in an amount greater than 5% of its
total assets.
PURCHASES
Additional Information About Purchasing Class R shares
For more information on how to purchase Class R shares of the Fund,
contact your plan administrator/plan representative.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on the Exchange on
each day during which the Exchange is open for trading. Orders received after
the close of regular trading on the Exchange will receive the next day's net
asset value. If the order has been placed by a member of the NASD, other than
the Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to the Fund's transfer agent in Kansas City
(for Class R shares) by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of Trust management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund.
Other Information
If purchases or redemptions of Fund shares are arranged and settlement
is made at an investor's election through a member of the NASD other than the
Distributor, that member may, at its discretion, charge a fee for that service.
The Board of Trustees and the Distributor, the Trust's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor each may suspend or terminate
the offering of shares of the Fund at any time for any reason.
The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times during which (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted for any reason, (c)
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) the SEC has
by order permitted such a suspension for the protection of the Trust's
shareholders; provided that applicable rules and regulations of the SEC (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b) or (c) exist.
The Trust may issue shares of the Fund at net asset value in connection
with any merger or consolidation with, or acquisition of the assets of, any
investment company (or series thereof) or personal holding company, subject to
the requirements of the 1940 Act.
EXCHANGES AND REDEMPTIONS
Additional Information About Exchanging or Redeeming Class R shares
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For more information on how to exchange or redeem Class R shares of the
Fund, contact your plan administrator/plan representative.
Other Information
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. The
Fund does not impose a redemption or repurchase charge although a wire charge
may be applicable for redemption proceeds wired to an investor's bank account.
Redemption of shares, including an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (See "Taxes".)
FEATURES AND SERVICES OFFERED BY THE FUND
No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can charge a
small 12b-1 fee and/or service fee against fund assets. Under the National
Association of Securities Dealers Conduct Rules, a mutual fund can call itself a
"no-load" fund only if the 12b-1 fee and/or service fee does not exceed 0.25% of
a fund's average annual net assets. Scudder pioneered the no-load concept when
it created the nation's first no-load fund in 1928, and later developed the
nation's first family of no-load mutual funds.
Investors are encouraged to review the fee tables in the Fund's
prospectus for more specific information about the rates at which management
fees and other expenses are assessed.
Diversification
An investment in the Class R shares of the Fund represents an interest
in a large, diversified portfolio of carefully selected securities.
Diversification may protect the shareholder against the possible risks
associated with concentrating in fewer securities or in a specific market
sector.
Reports to Shareholders
The Fund issues shareholders financial statements examined by
independent accountants on a semiannual basis and audited annually. These
include a list of investments held and statements of assets and liabilities,
operations, changes in net assets and supplementary information for Class R
shares of the Fund.
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DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Any dividends from net investment income or distributions from realized
capital gains are automatically reinvested in additional Class R shares of the
Fund. Reinvestment is usually made at the closing net asset value determined on
the business day following the record date.
The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, if it appears to be in the best interest of the Fund and its
shareholders, the Fund may retain all or part of such gain for reinvestment,
after paying the related federal taxes for which shareholders may then be able
to claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Internal Revenue Code, the Fund
may be subject to that excise tax. In certain circumstances, the Fund may
determine that it is in the interest of shareholders to distribute less than the
required amount. (See "Taxes".)
The Fund intends to distribute investment company taxable income in
December each year. The Fund intends to declare in December any net realized
capital gains resulting from its investment activity. The Fund intends to
distribute the December dividends and capital gains either in December or in the
following January. Any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. Additional
distributions may be made if necessary. Both types of distributions will be made
in shares of the Fund and confirmations will be mailed to each shareholder .
PERFORMANCE INFORMATION
From time to time, quotations of the performance of Class R shares of
the Fund may be included in advertisements, sales literature or reports to
shareholders or prospective investors. These performance figures are calculated
in the following manners:
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for periods of one year, five years, and ten years (or such shorter
periods as may be applicable dating from the commencement of the Fund's
operations), all ended on the last day of a recent calendar quarter. Average
annual total return quotations reflect changes in the price of Class R shares of
the Fund and assume that all dividends and capital gains distributions during
the respective periods were reinvested in Class R shares. Average annual total
return is calculated by computing the average annual compound rates of return of
a hypothetical investment over such periods according to the following formula
(average annual total return is then expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
As Class R shares are a new class of shares of the fund, no past
performance data is available. However, the table below shows how the total
returns for the fund's Scudder Shares have varied from year to year, which may
give some idea of risk. Scudder Shares are not offered in this supplement to the
prospectus but have substantially similar returns because the shares are
invested in the same portfolio of securities and the annual returns would differ
only to the extent that the classes have different expenses.
Average Annual Total Return of Scudder Shares of the Fund for the periods
ended October 31, 1998
One Year Five Years Life of the Fund^(1)
-------- ---------- -----------------
18.86 17.85 16.50
14
<PAGE>
(1) For the period from May 15, 1991, commencement of operations to October 31,
1998.
As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for the Fund will vary based on changes in market conditions and
the level of Class R shares of the Fund's expenses.
In connection with communicating its average annual total return to
current or prospective shareholders, the Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of Class R shares of the
Fund and assume that all dividends and capital gains distributions during the
period were reinvested in Class R shares. Cumulative total return is calculated
by computing the cumulative rates of return of a hypothetical investment over
such periods, according to the following formula (cumulative total return is
then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
As Class R shares are a new class of shares of the fund, no past
performance data is available. However, the table below shows how the cumulative
total returns for the fund's Scudder Shares have varied from year to year, which
may give some idea of risk. Scudder Shares are not offered in this supplement to
the prospectus but have substantially similar returns because the shares are
invested in the same portfolio of securities and the annual returns would differ
only to the extent that the classes have different expenses.
Cumulative Total Return of Scudder Shares of the Fund for the periods
ended October 31, 1998
One Year Five Years Life of the Fund^(1)
-------- ---------- --------------------
18.86 127.37 212.65
(1) For the period from May 15, 1991, commencement of operations to October 31,
1998.
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.
Quotations of the Class R shares of the Fund's performance are based on
historical earnings and show the performance of a hypothetical investment and
are not intended to indicate future performance of the Fund. An investor's
shares when redeemed may be worth more or less than their original cost.
Performance of Class R shares of the Fund will vary based on changes in market
conditions and the level of expenses of Class R shares of the Fund.
Because some of the Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar against these currencies
may account for part of the Class R shares investment performance. Information
on the value of the dollar versus foreign currencies may be used from time to
time in advertisements concerning the Fund. Such historical information is not
indicative of future performance.
15
<PAGE>
Performance Indices
The performance of the Class R shares of the Fund will, from time to
time, be compared to the percentage changes of unmanaged performance indices.
Such indices will include the Dow Jones Industrial Average ("DJIA"), S&P 500 and
the Consumer Price Index ("CPI"). The DJIA and S&P 500 are unmanaged indices
widely regarded as representative of the equity market in general. The CPI is a
commonly used measure of inflation.
Comparison of Fund Performance
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
Government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
16
<PAGE>
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund.
FUND ORGANIZATION
The Fund is a series of Investment Trust, a Massachusetts business
trust established under a Declaration of Trust dated September 20, 1984, as
amended. The name of the Trust was changed, effective May 15, 1991, from Scudder
Growth and Income Fund, and effective June 10, 1998 from Scudder Investment
Trust. The Fund changed its name from Scudder Quality Growth Fund effective
March 1, 1997. The Trust's authorized capital consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share. The Trust's shares are
currently divided into eight series, Scudder Large Company Growth Fund, Scudder
Growth and Income Fund, Scudder S&P 500 Index Fund, Classic Growth Fund, Scudder
Real Estate Investment Fund, Scudder Dividend & Growth Fund, Scudder Tax Managed
Growth Fund and Scudder Tax Managed Small Company Fund. The Fund's shares are
currently divided into two classes: the Scudder Shares and the R shares.
The Trustees of the Trust have the authority to issue additional series
of shares and to designate the relative rights and preferences as between the
different series. Each share of each Fund has equal rights with each other share
of that Fund as to voting, dividends and liquidation. All shares issued and
outstanding will be fully paid and nonassessable by the Trust, and redeemable as
described in this Statement of Additional Information and in each Fund's
prospectus.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting that
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series.
The Fund's activities are supervised by the Trust's Board of Trustees.
The Trust has adopted a plan on May 3, 1999 pursuant to Rule 18f-3 (the "Plan")
under the 1940 Act to permit the Trust to establish a multiple class
distribution system.
Under the Plan, shares of each class represent an equal pro rata
interest in the Fund and, generally, shall have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions, limitations,
qualifications and terms and conditions, except that: (1) each class shall have
a different designation; (2) each class of shares shall bear its own "class
expenses;" (3) each class shall have exclusive voting rights on any matter
submitted to shareholders that relates to its administrative services,
shareholder services or distribution arrangements; (4) each class shall have
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class; (5) each
class may have separate and distinct exchange privileges; (6) each class may
have different conversion features; and (7) each class may have separate account
size requirements. Expenses currently designated as "Class Expenses" by the
Trust's Board of Trustees under the Plan include, for example, transfer agency
fees attributable to a specific class, and certain securities registration fees.
Each share of each class of the Fund shall be entitled to one vote (or
fraction thereof in respect of a fractional share) on matters that such shares
(or class of shares) shall be entitled to vote. Shareholders of the Fund shall
vote together on any matter, except to the extent otherwise required by the 1940
Act, or when the Board of Trustees has determined that the matter affects only
the interest of shareholders of one or more classes of the Fund, in which case
only the shareholders of such class or classes of the Fund shall be entitled to
vote thereon. Any matter shall be deemed to
17
<PAGE>
have been effectively acted upon with respect to the Fund if acted upon as
provided in Rule 18f-2 under the 1940 Act, or any successor rule, and in the
Fund's Declaration of Trust. As used in the Prospectus and in this Statement of
Additional Information, the term "majority", when referring to the approvals to
be obtained from shareholders in connection with general matters affecting the
Trust and all additional portfolios (e.g., election of directors), means the
vote of the lesser of (i) 67% of the Trust's shares represented at a meeting if
the holders of more than 50% of the outstanding shares are present in person or
by proxy, or (ii) more than 50% of the Fund's outstanding shares. The term
"majority", when referring to the approvals to be obtained from shareholders in
connection with matters affecting a single Fund or any other single portfolio
(e.g., annual approval of investment management contracts), means the vote of
the lesser of (i) 67% of the shares of the portfolio represented at a meeting if
the holders of more than 50% of the outstanding shares of the portfolio are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the portfolio. Shareholders are entitled to one vote for each full share held
and fractional votes for fractional shares held.
The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. Nothing in the Declaration of Trust, however,
protects or indemnifies a Trustee or officer against any liability to which that
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
that person's office.
INVESTMENT ADVISER
The Adviser, an investment counsel firm incorporated under Delaware
law, acts as investment adviser to the Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc. is one of the most experienced
investment management firms in the United States. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953, the Adviser introduced the Scudder
International Fund, the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The
predecessor firm reorganized from a partnership to a corporation on June 28,
1985. On June 26, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") entered into
an agreement with Zurich Insurance Company ("Zurich") pursuant to which Scudder
and Zurich agreed to form an alliance. On December 31, 1997, Zurich acquired a
majority interest in Scudder, and Zurich Kemper Investments, Inc., a Zurich
subsidiary, became part of Scudder. Scudder's name has been changed to Scudder
Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Value
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Global/International
Fund, Inc., Scudder Global High Income Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder Institutional Fund, Inc., Scudder International Fund,
Inc., Investment Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc.,
Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder Pathway
Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free
Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder
Variable Life Investment Fund, Scudder Global High Income Fund, Inc., The
Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., The Japan
Fund, Inc. and Scudder Spain and Portugal Fund, Inc. Some of the foregoing
companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
18
<PAGE>
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
The Adviser maintains a large research department, which conducts
ongoing studies of the factors that affect the position of various industries,
companies and individual securities. In this work, the Adviser utilizes certain
reports and statistics from a wide variety of sources, including brokers and
dealers who may execute portfolio transactions for the Fund and other clients of
the Adviser, but conclusions are based primarily on investigations and critical
analyses by its own research specialists.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
date. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.
The transaction between Scudder and Zurich resulted in the assignment
of the Fund's investment management agreement with Scudder, that agreement
automatically terminated at the consummation of the transaction. In anticipation
of the transaction, however, a new investment management agreement (the
"Agreement") between the Fund and the Advisor was approved by the Trust's
Trustees on August 12, 1997. At the special meeting of the Fund's shareholders
held on October 24, 1997, the shareholders also approved the Agreement. The
Agreement became effective as of December 31, 1997.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in Scudder Kemper) and the financial services businesses of B.A.T
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement (the "Agreement") with Scudder Kemper, which is substantially
identical to the current investment management agreement, except for the dates
of execution and termination. The agreement became effective on September 7,
1998, upon the termination of the then current investment management agreement
and was approved at a shareholder meeting held in December 1998.
The Agreement dated September 7, 1998, was approved by the Trustees of
the Trust on August 11, 1998. The Agreement will continue in effect until
September 30, 1999 and from year to year thereafter only if its continuance is
approved annually by the vote of a majority of those Trustees who are not
parties to such Agreement or interested persons of the Adviser or the Fund, cast
in person at a meeting called for the purpose of voting on such approval, and
either by a vote of the Trust's Trustees or of a majority of the outstanding
voting securities of the Fund. The Agreement may be terminated at any time
without payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.
Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objectives, policies and restrictions and determines which securities
shall be purchased for the portfolio of the Fund, which portfolio securities
shall be held or sold by the Fund, and what portion
19
<PAGE>
of the Fund's assets will be held uninvested, subject always to the provisions
of the Trust's Declaration of Trust and By-Laws, the 1940 Act and the Internal
Revenue Code of 1986 and to the Fund's investment objectives, policies and
restrictions, and subject, further, to such policies and instructions as the
Trustees may from time to time establish. The Adviser also advises and assists
the officers of the Fund in taking such steps as are necessary or appropriate to
carry out the decisions of its Trustees and the appropriate committees of the
Trustees regarding the conduct of the business of the Fund.
The Adviser also renders significant administrative services (not
otherwise provided by third parties) necessary for the Fund's operations as an
open-end investment company including, but not limited to, preparing reports and
notices to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns; preparing and filing the Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value; monitoring the
registration of shares of the Fund under applicable federal and state securities
laws; maintaining the Fund's books and records to the extent not otherwise
maintained by a third party; assisting in establishing accounting policies of
the Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring the Fund's operating budget; processing the payment
of the Fund's bills; assisting the Fund in, and otherwise arranging for, the
payment of distributions and dividends and otherwise assisting the Fund in the
conduct of its business, subject to the direction and control of the Trustees.
The Adviser pays the compensation and expenses (except those for
attending Board and Committee meetings outside New York, New York and Boston,
Massachusetts) of all Trustees, officers and executive employees of the Trust
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such Trustees, officers and employees of the Adviser as may duly
be elected officers or Trustees of the Trust, subject to their individual
consent to serve and to any limitations imposed by law, and provides the Fund's
office space and facilities. For these services, the Fund is charged by the
Adviser a fee equal to approximately 0.70 of 1% of the Fund's average daily net
assets. The fee is payable monthly, provided the Fund will make such interim
payments as may be requested by Scudder not to exceed 75% of the amount of the
fee then accrued on the books of the Fund and unpaid. The Agreement provides
that if the Fund's expenses, exclusive of taxes, interest, and extraordinary
expenses, exceed specified limits, such excess, up to the amount of the
management fee, will be paid by the Adviser. The Adviser retains the ability to
be repaid by the Fund if expenses fall below the specified limit prior to the
end of the fiscal year. These expense limitation arrangements can decrease the
Fund's expenses and improve its performance. During the fiscal years ended
October 31, 1996, 1997, and 1998, the Adviser imposed a portion of its
management fee amounting to $1,447,537, $1,790,420, and $2,478,112 respectively.
Under the Agreement, the Fund is responsible for all of its other
expenses including organizational costs; fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; payment for portfolio pricing services to a pricing agent, if any;
legal, auditing and accounting expenses; the calculation of Net Asset Value,
taxes and governmental fees; the fees and expenses of the transfer agent; the
cost of preparing stock certificates and any other expenses including clerical
expenses of issuance, redemption or repurchase of shares; the expenses of and
the fees for registering or qualifying securities for sale; the fees and
expenses of Trustees, officers and employees of the Trust who are not affiliated
with the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. The Trust may
arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of the Fund. The Fund is also
responsible for its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Trustees with respect thereto.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, Trustees who are not "interested persons" of
the Trust have been represented by independent counsel Ropes & Gray at the
Fund's expense.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from
20
<PAGE>
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
Officers and employees of the Adviser from time to time may engage in
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Trustees of the Trust may have dealings with
the Fund as principals in the purchase or sale of securities, except as
individual subscribers or holders of shares of the Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- -------------------- -----------------------
<S> <C> <C> <C>
Lynn S. Birdsong (52)++*= President and Trustee Managing Director of Scudder Director, Vice President
Kemper Investments, Inc. and Assistant Treasurer
Henry P. Becton, Jr. (55) Trustee President and General Manager, --
WGBH WGBH Educational Foundation
125 Western Avenue
Allston, MA 02134
Dawn-Marie Driscoll (52) Trustee Executive Fellow, Center for --
4909 SW 9th Place Business Ethics, Bentley
Cape Coral, FL 33914 College; President, Driscoll
Associates
Peter B. Freeman (66) Trustee Director, The A.H. Belo --
100 Alumni Avenue Company; Trustee, Eastern
Providence, RI 02906 Utilities Associates (public
utility holding company);
Director, AMICA Life Insurance
Co.; Director, AMICA Insurance
Co.
George M. Lovejoy, Jr. (69)= 50 Trustee President and Director, Fifty --
Congress Street Associates (real estate
Suite 543 investment trust)
Boston, MA 02109
21
<PAGE>
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- -------------------- -----------------------
Wesley W. Marple, Jr. (67)= 413 Trustee Professor of Business --
Hayden Hall Administration, Northeastern
360 Huntington Ave. University, College of Business
Boston, MA 02115 Administration
Kathryn L. Quirk (46)++*= Trustee, Vice President Managing Director of Scudder Director, Assistant
and Assistant Secretary Kemper Investments, Inc. Treasurer and Senior Vice
President
Jean C. Tempel (56) Trustee Managing Partner, Internet --
Ten Post Office Square Suite Capital Group
1325Boston, MA 02109
Bruce F. Beaty (40)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Philip S. Fortuna (41)++ Vice President Managing Director of Scudder Vice President
Kemper Investments, Inc.
William F. Gadsden (44)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
John R. Hebble (41)+ Treasurer Senior Vice President of --
Scudder Kemper Investments, Inc.
Robert T. Hoffman (40)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Thomas W. Joseph (60)+ Vice President Senior Vice President of Director, Vice President,
Scudder Kemper Investments, Inc. Treasurer and Assistant
Clerk
Ann M. McCreary (42) Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Valerie F. Malter (40)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
John Millette (36)+ Vice President and Assistant Vice President , --
Secretary Scudder Kemper Investments, Inc.
Caroline Pearson (37)+ Assistant Secretary Vice President, Scudder Kemper --
Investments, Inc.; Associate,
Dechert Price & Rhoads (law
firm) 1989 to 1997
</TABLE>
* Mr. Birdsong and Ms. Quirk are considered by the Fund and counsel to be
persons who are "interested persons" of the Adviser or of the Trust,
within the meaning of the Investment Company Act of 1940, as amended.
** Unless otherwise stated, all of the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
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<PAGE>
= Messrs. Lovejoy, Pierce, Marple and Ms. Quirk are members of the
Executive Committee for the Trust, which has the power to declare
dividends from ordinary income and distributions of realized capital
gains to the same extent as the Board is so empowered.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
As of June 30 , 1999, all Trustees and officers as a group owned
beneficially (as that term is defined in Section 13(d) of the Securities
Exchange Act of 1934)less than 1% of the shares of the Trust.
To the best of the Trust's knowledge, as of June 30, 1999, no person
owned beneficially more than 5% of the Fund's Class R shares.
The Trustees and officers of the Trust also serve in similar capacities
for other Scudder funds.
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of the
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Trustees" have primary
responsibility for assuring that the Fund is managed in the best interests of
its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of the Fund and other operational matters, including policies and
procedures designed to ensure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, the
Fund's investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by the Fund's independent public accountants and by
independent legal counsel selected by the Independent Trustees.
All the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation from the
Funds of Investment Trust: an annual trustee's fee of $2,400 for a Fund in which
total net assets do not exceed $100 million, $4,800 for a Fund in which total
net assets exceed $100 million but do not exceed $1 billion and $7,200 for a
Fund in which total net assets exceed $1 billion; a fee of $150 for attendance
at each board meeting, audit committee meeting or other meeting held for the
purposes of considering arrangements between the Trust on behalf of the Fund and
the Adviser or any affiliate of the Adviser; $75 for attendance at any other
committee meeting; and reimbursement of expenses incurred for travel to and from
Board Meetings. The Independent Trustee who serves as lead or liaison trustee
receives an additional annual retainer fee of $500 from each Fund. No additional
compensation is paid to any Independent Trustee for travel time to meetings,
attendance at directors' educational seminars or conferences, service on
industry or association committees, participation as speakers at directors'
conferences or service on special trustee task forces or subcommittees.
Independent Trustees do not receive any employee benefits such as pension,
retirement benefit or health insurance. The Independent Trustees have in the
past, and may in the future, waive a portion of their compensation.
The Independent Trustees of the Fund also serve as Independent Trustees
of certain other Scudder Funds, which enables them to address investment and
operational issues that are common to many of the Funds in a cost-efficient and
effective manner. During 1998, the Independent Trustees participated in 26
meetings of the Fund's board or board committees, which were held on 21
different days during the year.
The Independent Trustees also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1998 from the Trust and from all of the Scudder funds as a group.
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<PAGE>
<TABLE>
<CAPTION>
Name Investment Trust* All Scudder Funds
---- ----------------- -----------------
<S> <C> <C>
Henry P. Becton, Jr. $28,070 $135,000 (28 funds)
Dawn-Marie Driscoll $28,977 $145,000 (28 funds)
Peter B. Freeman $29,736 (46 funds)
$172,425
George M. Lovejoy $28,069 (29 funds)
$148,600
Wesley W. Marple $28,069 (28 funds)
$135,000
Jean C. Tempel $27,309 (29 funds)
$135,000
</TABLE>
* Investment Trust consists of eight funds: Scudder Growth and Income
Fund, Scudder Large Company Growth Fund, Classic Growth Fund, Scudder
S&P 500 Index, Scudder Real Estate Investment Fund, Scudder Dividend &
Growth Fund, Scudder Tax Managed Growth Fund and Scudder Tax Managed
Small Company Fund. Scudder Real Estate Investment Fund commenced
operations on March 2, 1998. Scudder Dividend & Growth Fund commenced
operations on June 1, 1998. Scudder Tax Managed Growth Fund and Scudder
Tax Managed Small Company Growth Fund each commenced operations on July
31, 1998.
No fees were incurred by the Fund in respect to the alliance with
B.A.T.
Members of the Board of Trustees who are employees of the Adviser or
its affiliates receive no direct compensation from the Trust, although they are
compensated as employees of the Adviser, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.
DISTRIBUTOR
The Trust, on behalf of the Fund, has an underwriting agreement with
Scudder Investor Services, Inc., Two International Place, Boston, MA 02110 (the
"Distributor"), a Massachusetts corporation, which is a subsidiary of the
Adviser, a Delaware corporation. The Trust's underwriting agreement dated
September 7, 1998 will remain in effect until September 30, 1999 and from year
to year thereafter only if its continuance is approved annually by a majority of
the members of the Board of Trustees who are not parties to such agreement or
interested persons of any such party and either by vote of a majority of the
Board of Trustees or a majority of the outstanding voting securities of the
Fund. The underwriting agreement was last approved by the Trustees on September
7, 1998.
Under the principal underwriting agreement, the Trust is responsible
for: the payment of all fees and expenses in connection with the preparation and
filing with the SEC of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Trust or the Fund as a
broker/dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor), notices, proxy
statements, reports or other communications to shareholders of the Fund; the
cost of printing and mailing confirmations of purchases of shares and the
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.
To provide compensation to financial services firms for performing
administrative support services to its customers who are shareholders of Class R
shares of the Fund, the Trust, on behalf of Class R shares of the Fund, has
approved an Administrative Services Agreement. These services include, but are
not limited to: providing information on
24
<PAGE>
shareholder accounts and transactions, answering inquiries regarding the Fund,
resolving account problems, and explaining mutual fund performance and rankings.
For services provided under the Administrative Services Agreement, the Fund, on
behalf of Class R shares, would pay the Distributor an administrative service
fee of up to 0.25% of the average daily net assets of that class of the Fund.
The Distributor would then distribute this fee to financial representatives that
provide services for their clients who are investors through applicable group
retirement plans. The administrative service fee is calculated monthly.
With respect to the Class R shares, the Fund has adopted a distribution
plan in accordance with Rule 12b-1 under the 1940 Act (the "Plan"), which allows
for the payment of distribution fees by the Fund to the Distributor. Currently,
the Plan is inactive and no payments will be made under the Plan by the Fund.
However, the Plan will be activated and payments made under the Plan in the
event that payments made under the Administrative Services Agreement to the
Distributor are deemed to be the indirect financing of the distribution of Fund
shares. If the Plan were made operative, the Distributor would compensate
various financial services firms for sales of Fund shares and may pay
commissions, fees and concessions to such firms. Moreover, the distribution fee
paid under the operative Plan would be used to compensate the Distributor for
expenses incurred in connection with activities primarily intended to result in
the sale of Class R shares, including the printing of prospectuses and reports
for persons other than existing shareholders and the preparation, printing and
distribution of sales literature and advertising materials. Under the Plan, the
Distributor may appoint Kemper Distributors, Inc., an affiliate of the Adviser,
as its agent to carry out its duties involving the Plan.
As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
Underwriting Agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute, and has qualified as
such since its inception. Such qualification does not involve governmental
supervision or management of investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently, the Fund has
no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between such reported gains and the individual tax
credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise a
substantial part of the Fund's gross income. To the extent that such dividends
constitute a portion of the Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the deduction for dividends
received by corporations. Shareholders will be informed of the
25
<PAGE>
portion of dividends which so qualify. The dividends-received deduction is
reduced to the extent the shares of the Fund with respect to which the dividends
are received are treated as debt-financed under federal income tax law, and is
eliminated if either those shares or the shares of the Fund are deemed to have
been held by the Fund or the shareholder, as the case may be, for less than 46
days during the 90-day period beginning 45 days before the shares become
ex-dividend.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
A qualifying individual may make a deductible IRA contribution for any
taxable year only if (i) neither the individual nor his or her spouse (unless
filing separate returns) is an active participant in an employer's retirement
plan, or (ii) the individual (and his or her spouse, if applicable) has an
adjusted gross income below a certain level ($40,050 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $40,050 and $50,000; $25,050 for a single individual, with a
phase-out for adjusted gross income between $25,050 and $35,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (up to $2,000 per individual for married couples if only one spouse
has earned income) for that year. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, a proportionate amount of each withdrawal will be deemed to
be made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable. Also, annual contributions may
be made to a spousal IRA even if the spouse has earnings in a given year if the
spouse elects to be treated as having no earnings (for IRA contribution
purposes) for the year.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
The Fund may invest in shares of certain foreign corporations which may
be classified under the Code as passive foreign investment companies ("PFICs").
If the Fund receives a so-called "excess distribution" with respect to PFIC
stock, the Fund itself may be subject to a tax on a portion of the excess
distribution. Certain distributions from a PFIC as well as gains from the sale
of the PFIC shares are treated as "excess distributions." In general, under the
PFIC rules, an excess distribution is treated as having been realized ratably
over the period during which the Fund held the PFIC shares. The Fund will be
subject to tax on the portion, if any, of an excess distribution that is
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Excess
distributions allocated to the current taxable year are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds
26
<PAGE>
the Fund's adjusted basis in these shares; any mark to market losses and any
loss from an actual disposition of shares would be deductible as ordinary loss
to the extent of any net mark to market gains included in income in prior years.
The effect of the election would be to treat excess distributions and gain on
dispositions as ordinary income which is not subject to a fund level tax when
distributed to shareholders as a dividend. Alternatively, the Fund may elect to
include as income and gain its share of the ordinary earnings and net capital
gain of certain foreign investment companies in lieu of being taxed in the
manner described above.
Equity options (including covered call options on portfolio stock) and
over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss is
recognized by a Fund upon payment of a premium in connection with the purchase
of a put or call option. The character of any gain or loss recognized (i.e.,
long-term or short-term) will generally depend, in the case of a lapse or sale
of the option, on the Fund's holding period for the option, and in the case of
an exercise of a put option, on the Fund's holding period for the underlying
stock. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying stock or substantially identical stock in the Fund's portfolio. If
the Fund writes a put or call option, no gain is recognized upon its receipt of
a premium. If the option lapses or is closed out, any gain or loss is treated as
a short-term capital gain or loss. If a call option is exercised, any resulting
gain or loss is a short-term or long-term capital gain or loss depending on the
holding period of the underlying stock. The exercise of a put option written by
the Fund is not a taxable transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts
entered into by the Fund and all listed non-equity options written or purchased
by the Fund (including options on futures contracts and options on broad-based
stock indices) will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position generally will be treated as 60% long-term and
40% short-term capital gain or loss, and on the last trading day of the Fund's
fiscal year, all outstanding Section 1256 positions will be marked to market
(i.e. treated as if such positions were closed out at their closing price on
such day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term. Under Section 988 of the Code, discussed below, foreign currency
gain or loss from foreign currency-related forward contracts and similar
financial instruments entered into or acquired by the Fund will be treated as
ordinary income. Under certain circumstances, entry into a futures contract to
sell a security may constitute a short sale for federal income tax purposes,
causing an adjustment in the holding period of the underlying security or a
substantially identical security in the Fund's portfolio.
Positions of the Fund which consist of at least one stock and at least
one other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by the Fund.
Positions of the Fund which consist of at least one position not
governed by Section 1256 and at least one futures or forward contract or
non-equity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce or
eliminate the operation of these rules. The Fund intends to monitor its
transactions in options and futures and may make certain tax elections in
connection with these investments.
Notwithstanding any of the foregoing, recent tax law changes may
require the Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables, or pays such
27
<PAGE>
liabilities, generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency,
and on disposition of certain options, futures contracts and forward contracts,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition are also treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the level of the Fund. Shareholders will be subject to income tax
on such original issue discount, whether or not they elect to receive their
distributions in cash.
The Fund will be required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a series of a Massachusetts business trust and
is not liable for any income or franchise tax in the Commonwealth of
Massachusetts, provided that it qualifies as a regulated investment company for
federal income tax purposes.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Dividend and interest income received by the Fund from sources outside
the U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
28
<PAGE>
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction on account of execution services and the
receipt of research, market or statistical information. The Adviser will not
place orders with broker/dealers on the basis that the broker/dealer has or has
not sold shares of the Fund. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless, after exercising care, it appears that more favorable
results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund, and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Trustees review from time to time whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
For the fiscal years ended October 31, 1998 and 1997, the Fund paid
brokerage commissions of $828,829 and $317,984, respectively. For the fiscal
year ended October 31, 1998, the Fund paid brokerage commissions of $793,177
(95.7% of the total brokerage commissions), resulting from orders placed,
consistent with the policy of seeking to obtain the most favorable net results,
for transactions placed with brokers and dealers who provided supplementary
research, market and statistical information to the Trust or Adviser. The total
amount of brokerage transactions aggregated, for the fiscal year ended October
31, 1998, $504,513,801, of which 79.86% of all brokerage transactions were
transactions which included research commissions.
Portfolio Turnover
The Fund's average annual portfolio turnover rate, i.e. the ratio of
the lesser of sales or purchases to the monthly average value of the portfolio
(excluding from both the numerator and the denominator all securities with
maturities at the time of acquisition of one year or less), for the fiscal years
ended October 31, 1998, 1997, and 1996 was 54.1%, 67.9% and 68.8% ,
respectively. A higher rate involves greater brokerage and transaction expenses
to the Fund and may result in the realization of net capital gains, which would
be taxable to shareholders when distributed. Purchases and sales are made for
the Fund's portfolio whenever necessary, in management's opinion, to meet the
Fund's objective.
29
<PAGE>
NET ASSET VALUE
The net asset value of Class R shares of the Fund is computed as of the
close of regular trading on the Exchange on each day the Exchange is open for
trading. The Exchange is scheduled to be closed on the following holidays: New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas and on the
preceding Friday or subsequent Monday when one of these holidays falls on
Saturday or Sunday, respectively. Net asset value per share is determined by
dividing the value of the total assets of the Fund, less all liabilities, by the
total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid quotation on such exchange as of the Value Time. An equity
security which is traded on the Nasdaq Stock Market, Inc. ("Nasdaq") system will
be valued at its most recent sale price on such system as of the Value Time.
Lacking any sales, the security will be valued at the most recent bid quotation
as of the Value Time. The value of an equity security not quoted on the Nasdaq
system, but traded in another over-the-counter market, is its most recent sale
price if there are any sales of such security on such market as of the Value
Time. Lacking any sales, the security is valued at the Calculated Mean quotation
for such security as of the Value Time. Lacking a Calculated Mean quotation the
security is valued at the most recent bid quotation as of the Value Time.
Debt securities, other than money-market instruments, are valued at
prices supplied by the Fund's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money-market
instruments with an original maturity of sixty days or less maturing at par
shall be valued at amortized cost, which the Board believes approximates market
value. If it is not possible to value a particular debt security pursuant to
these valuation methods, the value of such security is the most recent bid
quotation supplied by a bona fide marketmaker. If it is not possible to value a
particular debt security pursuant to the above methods, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Trust's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee, most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Fund included in the Fund's prospectus
and the Financial Statements incorporated by reference in this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, 160 Federal Street,
Boston, MA 02110, independent accountants, and given on the authority of that
firm as experts in accounting and auditing. PricewaterhouseCoopers, LLP is
responsible for performing annual audits of the financial
30
<PAGE>
statements and financial highlights of the Fund in accordance with generally
accepted auditing standards, and the preparation of federal tax returns.
Shareholder Indemnification
The Trust is an organization of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Trust property or the
acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Trust property of any shareholder held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
Other Information
The CUSIP number for the Scudder Shares of the Fund is 811167-20-4.
The CUSIP number for the Class R shares of the Fund is ___________.
The Fund has a fiscal year ending October 31.
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Fund's investment adviser in light of the objective and
policies of the Fund and other factors such as its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The name "Investment Trust" is the designation of the Trustees for the
time being under a Declaration of Trust dated September 20, 1984, as amended
from time to time, and all persons dealing with the Trust must look solely to
the property of the Trust for the enforcement of any claims against the Trust as
neither the Trustees, officers, agents nor shareholders assume any personal
liability for obligations entered into on behalf of the Trust. Upon the initial
purchase of shares, the shareholder agrees to the bound by the Trust's
Declaration of Trust, as amended from time to time. The Declaration of Trust is
on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts. All persons dealing with the Fund must look only to the assets of
the Fund for the enforcement of any claims against the Fund as no other series
of the Trust assumes any liabilities for obligations entered into on behalf of
the Fund.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Trust's custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
Scudder Fund Accounting Corporation (SFAC), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Fund. The Fund pays SFAC an annual fee equal to 0.025% of
the first $150 million of average daily net assets, 0.0075% of such assets in
excess of $150 million, 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the fiscal year ended
October 31, 1996, SFAC's fee amounted to $56,114, for the fiscal year ended
October 31, 1997, SFAC's fee amounted to $57,787, and for the fiscal year ended
October 31, 1998, SFAC's fee was $62,799, of which $11,007 was unpaid at October
31, 1998.
Kemper Service Corporation ("KSvC"), 811 Main Street, Kansas City,
Missouri, 64105-2005, a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for Class R shares of the Fund and
also provides subaccounting and recordkeeping services for shareholder accounts
in certain retirement and employee benefit plans. The Fund pays KSvC an annual
fee of $18.00 for each account maintained for a participant.
The Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
31
<PAGE>
Scudder Trust Company, Two International Place, Boston, MA 02110-4103,
an affiliate of the Adviser provides services for certain retirement plan
accounts. The Fund pays Scudder Trust Company an annual fee of $29.00 for each
account maintained for a participant. For the fiscal year ended October 31,
1996, Scudder Trust Company's fee amounted to $128,483. For the fiscal year
ended October 31, 1997, Scudder Trust Company's fee amounted to $320,268, and
for the fiscal year ended October 31, 1998, Scudder Trust Company's fee amounted
to $411,592, of which $32,000 was unpaid at October 30, 1998 .
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the Commission under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Fund and the
securities offered hereby. This Registration Statement is available for
inspection by the public at the SEC in Washington, D.C.
32
<PAGE>
APPENDIX
Standard & Poor's Earnings and Dividend Rankings for Common Stocks
The investment process involves assessment of various factors -- such
as product and industry position, corporate resources and financial policy --
with results that make some common stocks more highly esteemed than others. In
this assessment, Standard & Poor believes that earnings and dividend performance
is the end result of the interplay of these factors and that, over the long run,
the record of this performance has a considerable bearing on relative quality.
The rankings, however, do not pretend to reflect all of the factors, tangible or
intangible, that bear on stock quality.
Relative quality of bonds or other debt, that is, degrees of protection
for principal and interest, called creditworthiness, cannot be applied to common
stocks, and therefore rankings are not to be confused with bond quality ratings
which are arrived at by a necessarily different approach.
Growth and stability of earnings and dividends are deemed key elements
in establishing Standard & Poor's earnings and dividend rankings for common
stocks, which are designed to capsulize the nature of this record in a single
symbol. It should be noted, however, that the process also takes into
consideration certain adjustments and modifications deemed desirable in
establishing such rankings.
The point of departure in arriving at these rankings is a computerized
scoring system based on per-share earnings and dividend records of the most
recent ten years -- a period deemed long enough to measure significant time
segments of secular growth, to capture indications of basic change in trend as
they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within
long-term trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.
Further, the ranking system makes allowance for the fact that, in
general, corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample of
stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
NR signifies no ranking because of insufficient data or because the
stock is not amenable to the ranking process.
The positions as determined above may be modified in some instances by
special considerations, such as natural disasters, massive strikes, and
non-recurring accounting adjustments.
A ranking is not a forecast of future market price performance, but is
basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may be attractively priced for purchase.
Rankings based upon earnings and dividend records are no substitute for complete
analysis. They cannot take into account potential effects of management changes,
internal company policies not yet fully reflected in the earnings and dividend
record, public relations standing, recent competitive shifts, and a host of
other factors that may be relevant to investment status and decision.
<PAGE>
Part B (the Statement of Additional Information for Scudder Large
Company Growth Fund)
Part B of this Post-Effective Amendment No. 106 to the Registration Statement is
incorporated by reference in its entirety to the Investment Trust's
Post-Effective Amendment No. 102 on Form N-1A filed on March 1, 1999 and to its
definitive Rule 497 (c) filing on March 5, 1999.
<PAGE>
Scudder
Large Company Growth Fund
Annual Report
October 31, 1998
Pure No-Load(TM) Funds
A fund seeking long-term growth of capital through investment primarily in the
equity securities of large U.S. growth companies.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Large Company Growth Fund
- --------------------------------------------------------------------------------
Date of Inception: 5/15/91 Total Net Assets as of Ticker Symbol: SCQGX
10/31/98: $502.16 million
- --------------------------------------------------------------------------------
o Scudder Large Company Growth Fund's (the "Fund") 18.86% total return for the
12 months ended October 31, 1998 placed it in the top 22% of the 945 growth
funds ranked by Lipper Analytical Services.
o Large-cap growth stocks were the best performing sector of the U.S. stock
market in this period, creating a favorable investment environment for the Fund.
o Fund management continues to select individual companies whose consistent
earnings growth, recognizable brand franchises, and strong management will allow
them to prosper in any economic environment.
Table of Contents
3 Letter from the Fund's President 17 Financial Highlights
4 Performance Update 18 Notes to Financial Statements
5 Portfolio Summary 21 Report of Independent Accountants
6 Portfolio Management Discussion 22 Tax Information
9 Glossary of Investment Terms 24 Officers and Trustees
10 Investment Portfolio 25 Investment Products and Services
14 Financial Statements 26 Scudder Solutions
2 - Scudder Large Company Growth Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
The past twelve months have been a time of extraordinary volatility in the
global financial markets. As the Pacific Basin, Russia, and, to a lesser extent,
Latin America were gradually engulfed by the economic crisis in the developing
countries, the durability of growth in the United States was also called into
question. Although worried investors liquidated stocks of all sizes in response
to the uncertainty, many large, liquid growth stocks were able to hold on to a
significant portion of their gains from the first half of the year. In difficult
market conditions, firms that have demonstrated consistent growth and solid
business plans are often favored over investments with less predictable
prospects. By investing in such companies, Scudder Large Company Growth Fund was
well positioned for the market correction, posting a strong performance for the
twelve-month period ended October 31, 1998.
For those of you who are interested in new Scudder products, we recently
introduced the Scudder Tax Managed Growth Fund, investing in medium- to large-
sized U.S. companies, and Scudder Tax Managed Small Company Fund, which invests
in stocks of small U.S. companies. Using a combination of quantitative and
fundamental research, the funds focus on companies with strong earnings growth,
reasonable valuations, and favorable risk profiles. Both funds strive to
maximize after tax returns by systematically taking into account the tax
implications of portfolio transactions and seeking to offset capital gains by
realizing losses when appropriate.
Thank you for your continued investment in Scudder Large Company Growth
Fund. If you have any questions about your investment, please call Scudder
Investor Information at 1-800-225-2470, or visit our Web site at
www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Large Company Growth Fund
3 - Scudder Large Company Growth Fund
<PAGE>
Performance Update as of October 31, 1998
- ----------------------
Fund Index Comparisons
- ----------------------
Total Return
---------------------------------------------------
Period Ended Growth of Average
10/31/98 $10,000 Cumulative Annual
---------------------------------------------------
Scudder Large Company Growth Fund
---------------------------------------------------
1 Year $ 11,886 18.86% 18.86%
5 Year $ 22,737 127.37% 17.85%
Life of Fund* $ 31,265 212.65% 16.50%
---------------------------------------------------
Russell 1000 Growth Index
---------------------------------------------------
1 Year $ 12,463 24.63% 24.63%
5 Year $ 27,033 170.33% 21.99%
Life of Fund* $ 33,273 232.73% 17.58%
---------------------------------------------------
* The Fund commenced operation on May 15, 1991.
Index comparisons begin May 31, 1991.
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Russell 1000 Scudder Large Company
Growth Index Growth Fund
5/91* 10000 10000
'91 10350 10894
'92 11469 12252
'93 12308 13169
'94 12974 13220
'95 16768 16364
'96 20463 19553
'97 26696 25192
'98 33273 29943
Yearly periods ended October 31
The Russell 1000 Growth Index is an unmanaged capitalization-weighted price
index of the 1000 largest U.S. growth companies traded on the NYSE, AMEX, and
Nasdaq. Index returns assume reinvestment of dividends and, unlike Fund
returns, do not reflect any fees or expenses.
- ---------------------------------
Returns and Per Share Information
- ---------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
Yearly periods ended October 31
<TABLE>
<CAPTION>
1991* 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 13.65 $ 15.30 $ 16.42 $ 16.17 $ 18.44 $ 21.19 $ 25.10 $ 28.17
- ------------------------------------------------------------------------------------------------------------------------------------
Income Dividends $ -- $ .03 $ .03 $ .08 $ .15 $ .14 $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ .02 $ -- $ .24 $ 1.09 $ .60 $ 1.77 $ 1.46
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) 13.75 12.47 7.49 .39 23.78 19.49 28.84 18.86
- ------------------------------------------------------------------------------------------------------------------------------------
Index Total Return (%) 8.66 10.82 7.31 5.40 29.23 22.05 30.46 24.63
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On March 1, 1997, the Fund adopted its current name. Prior to that date, the
Fund was known as the Scudder Quality Growth Fund. All performance is
historical, assumes reinvestment of all dividends and capital gains, and is not
indicative of future results. Investment return and principal value will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than when purchased. If the Adviser had not maintained the Fund's expenses, the
total returns for the life of Fund would have been lower.
4 - Scudder Large Company Growth Fund
<PAGE>
Portfolio Summary as of October 31, 1998
- ----------------
Asset Allocation
- ----------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Equity Holdings 97%
Cash Equivalents 3%
--------------------------------------
100%
--------------------------------------
The Fund remains fully invested in domestic, large-cap
growth stocks.
- ------------------------------
Sectors
(Excludes 3% Cash Equivalents)
- ------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Health 21%
Technology 19%
Consumer Staples 16%
Consumer Discretionary 13%
Media 8%
Financial 7%
Manufacturing 7%
Service Industries 4%
Durables 4%
Communications 1%
--------------------------------------
100%
--------------------------------------
An unstable economic environment made the strong earnings
growth in the technology and healthcare sectors particularly
attractive.
- ---------------------------
Ten Largest Equity Holdings
(32% of Portfolio)
- ---------------------------
1. Microsoft Corp.
Producer of computer operating
systems software
2. General Electric Corp.
Leading producer of electrical
equipment
3. Intel Corp.
Producer of semiconductor memory
circuits
4. Pfizer, Inc.
International healthcare company
5. Home Depot., Inc.
Building materials and home
improvement products
6. Philip Morris Companies Inc.
Tobacco, food products and
brewing company
7. Lucent Technologies, Inc.
Designer of public and private
computer networks
8. Cisco Systems, Inc.
Manufacturer of computer network
products
9. Merck & Co. Inc.
Leading drug manufacturer
10. Coca-Cola Co., Inc.
International soft drink company
The Fund's top holdings demonstrate a large focus on large,
well-managed U.S. companies.
For more complete details about the Fund's investment portfolio, see page 10.
A quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Large Company Growth Fund
<PAGE>
Portfolio Management Discussion
In the following interview, Valerie F. Malter and George P. Fraise, portfolio
managers of Scudder Large Company Growth Fund, discuss the market environment
and the Fund's current investment strategy.
Q: The year ended October 31, 1998 was characterized by unusually high
volatility. What happened?
A: Quite a lot. After roaring ahead in the first half of 1998, stocks tumbled in
the third quarter, posting their worst three-month return since Saddam Hussein
invaded Kuwait in the third quarter of 1990. Remarkably, the summer began with
investors still lauding the "Goldilocks Economy"; the ideal combination of
strong growth and low interest rates provided the basis for a 23.27%
year-to-date return in the unmanaged S&P 500 Index at its peak on July 17. The
rosy outlook soon began to darken, however, following a series of events that
cast doubt on the stability of the global financial system. First, the Russian
government announced a simultaneous debt moratorium and currency devaluation on
August 17, which sparked a chain reaction throughout the global financial
markets. Foremost among the areas affected was Latin America, where investors
liquidated financial assets on fears that Brazil would be forced to devalue its
currency. Next, and even closer to home, came the bailout of the hedge fund Long
Term Capital Management, igniting fears that U.S.-based lending institutions
would suffer from exposure to risky derivatives and margin-lending activities.
The combination of these events caused investors to reassess their views on the
U.S. economy, leading to a flight of capital from stocks into the relative
safety of U.S. Treasuries. Although the selloff reached a crescendo in
mid-September, the stock market rebounded following consecutive quarter point
rate cuts by the U.S. Federal Reserve. A broad-based rally followed the Fed's
decision, and the S&P 500 posted a stellar 8.13% return in October.
Q: How did the Fund perform in this market environment?
A: Until September, our portfolio of large, liquid growth stocks held up well,
despite relatively high valuations in this sector. Through August, large-cap
growth stocks continued to outperform large-cap value stocks as equity investors
sought heavily-traded, established companies with reliable earnings histories.
Against this backdrop, the Fund returned 18.86% for the twelve-month period,
trailing the 21.99% return of the unmanaged S&P 500 Index and the 24.63% return
of the unmanaged Russell 1000 Growth Index. In relation to its peers the Fund
performed very well, finishing in the top 22% of the 945 growth funds ranked by
Lipper Analytical Services.
In an environment where market leadership was extremely narrow, diversified
equity mutual funds such as Scudder Large Company Growth Fund were
disadvantaged. Whereas the unmanaged indices weight their holdings according to
market capitalization, we strive to control risk by investing in a well
diversified portfolio. While this approach can lead to short-term
underperformance, we believe that in the long run our strategy of active risk
management can add substantial value for shareholders of the Fund.
6 - Scudder Large Company Growth Fund
<PAGE>
Q: What was your approach to managing the portfolio over the twelve months?
A: Even when markets are as volatile as they have been this year, we adhere to
our strategy of using fundamental research to make portfolio decisions on a
stock-by-stock basis. Our objective is to generate long-term growth by selecting
well established companies with the strongest competitive positions from each
sector of our growth stock universe. When considering each individual stock, we
look for strength in such fundamental traits as the quality of management, the
presence of a recognizable brand franchise, and the ability to deliver
consistent earnings growth in any economic environment. Additionally, we strive
to find companies that have minimal debt and solid balance sheets,
characteristics that are gaining importance as deflationary forces become more
prevalent. In general, we believe that firms with such traits have the ability
to control their own destinies, unlike more cyclical or commodity-oriented
businesses that simply react to prices set in the world market. By constructing
the portfolio in this manner, we strive to limit the impact of short-term
fluctuations in the economy.
Q: In what sectors did you find such companies?
A: Technology and healthcare are examples of two industries where we hold stocks
that are well positioned to maintain high growth rates. Among technology
companies, our strategy of focusing on the premier franchises in software,
hardware, the internet, and networking and telecommunications equipment has paid
off. As the year progressed, less competitive firms began to report earnings
disappointments, while the leaders, such as Cisco Systems, did not. Cisco is a
prime example of a stock that was well positioned to benefit from the preference
for large growth companies that took place this summer. A company that has
demonstrated consistent earnings growth and domination within the market for
routing equipment, Cisco held up relatively well through the downturn, then
rebounded sharply when the market recovered in October. In the healthcare
sector, exposure to U.S. pharmaceutical companies with strong new product sales
also had a positive impact on Fund performance. Sales of prescription drugs, a
non-discretionary item, are not impacted by changes in economic conditions.
Q: What were some of the investments that detracted from Fund performance?
A: Some of our bellwether holdings, such as Coca-Cola, Gillette, and Procter &
Gamble, suffered declines following the preannouncement of earnings that fell
below expectations. These warnings led investors to sell not only these
companies, but also other multinational firms so much of which are held within
the Fund. While we eliminated our holding in Gillette because of its slowing
growth rate, we maintained our positions in Coke and P&G on the belief that
sales volume slowdowns at those companies are only a temporary phenomenon.
The negative announcements from multinationals generally led investors to draw
what we believe were mistaken conclusions about other sectors of the market.
Media stocks, such as Clear Channel Communications, Outdoor Systems, and Omnicom
were negatively impacted by fears of reduced spending by multinational firms,
although in reality their sales are strong and prices for billboard space and
7 - Scudder Large Company Growth Fund
<PAGE>
radio ad time have remained stable. In the retailing sector, stock prices
weakened on the fear that a recession would crimp the spending of U.S.
consumers. This concern has so far proven unfounded, as consumer confidence is
high and new auto sales, a key indicator of spending habits, are strong. We
remain confident that we hold the stocks of the best companies in the media,
retail, and consumer products sectors.
Q: What is your outlook for domestic growth stocks?
A: In the months ahead, it is reasonable to expect further volatility in the
stock market as investors adjust to slowing global growth. While the Federal
Reserve's proactive decision to cut interest rates should prove beneficial to
the domestic economy, it is also likely that the Asian financial crisis will
exert a further drag on multinational firms. In times such as these, when the
investment picture is murky and corporate earnings are under pressure, the
importance of maintaining the disciplined approach of investing in companies
that we believe can provide sustainable growth is paramount. Going forward, we
will continue to make long-term investments in companies that are the
best-equipped to cope with further surprises in the global economy.
Scudder Large Company
Growth Fund: A Team Approach to Investing
Scudder Large Company Growth Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays 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 the Adviser's large staff of economists, research
analysts, traders, and other investment specialists who work in our offices
across the United States and abroad. We believe our team approach benefits
Fund investors by bringing together many disciplines and leveraging our
extensive resources.
Lead Portfolio Manager Valerie F. Malter joined the Adviser in 1995 and is
responsible for the Fund's investment strategy and daily operation. Valerie
has 11 years of experience as an analyst covering a wide range of industries,
and four years of portfolio management experience focusing on the stocks of
companies with medium- to large-sized market capitalizations. George Fraise,
Portfolio Manager, joined the Fund and the Adviser in 1997 and has 10 years of
experience in the financial industry.
8 - Scudder Large Company Growth Fund
<PAGE>
Glossary of Investment Terms
CYCLICAL COMPANIES Companies whose earnings fluctuate with the
business cycle. Cyclical industries include steel,
cement, paper, machinery, and autos.
CURRENCY DEVALUATION A significant decline of a currency's value
relative to other currencies, such as the U.S.
dollar, typically resulting from the cessation of a
country's central bank intervention in the currency
markets. For U.S. investors who are investing
overseas, a devaluation of a foreign currency can
reduce the total return of their investment.
DERIVATIVE A contract whose value is based on the performance
of an underlying financial asset. Derivatives afford
leverage, and can be used in an effort to enhance
returns or protect a portfolio. Derivatives can also
experience significant losses if the underlying
security moves contrary to the investor's
expectations.
GROWTH STOCK Stock of a company that has displayed greater than
average earnings growth and is expected to increase
profits in the future. Stocks of such companies
usually trade at a higher price relative to earnings
(a higher p/e ratio) and exhibit greater price
volatility.
LIQUIDITY A characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.
MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, determined by multiplying the
number of shares outstanding by the market price. The
universe of publicly traded companies is frequently
divided into large-, medium-, and
small-capitalizations.
VALUE STOCK A company whose stock price does not fully reflect
its intrinsic value, as indicated by
price-to-earnings ratio, price-to-book ratio, or
some other valuation measure, relative to the
industry or the market overall. Value stocks tend to
display less price volatility and higher dividend
yields.
VOLATILITY The tendency of a security, commodity, or market to
rise and fall in price over time. Volatility is
inherent in almost all investments but differs in
degree from investment to investment and from market
to market. While offering higher returns, stock
funds are considered to be higher risk due to their
larger variations in price.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
9 - Scudder Large Company Growth Fund
<PAGE>
Investment Portfolio as of October 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 3.4%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 10/30/1998,
5.4%, to be repurchased at $17,208,740 on 11/2/1998, collateralized by a ------------
$15,445,000 U.S. Treasury Note, 7.5%, 5/15/2002 (Cost $17,201,000) .................... 17,201,000 17,201,000
------------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 96.6%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary 12.2%
Department & Chain Stores 11.2%
Consolidated Stores Corp.* .............................................................. 322,300 5,297,806
Costco Companies, Inc.* ................................................................. 111,100 6,304,925
Dayton Hudson Corp. ..................................................................... 212,200 8,991,975
Home Depot, Inc. ........................................................................ 356,400 15,503,400
Rite Aid Corp. .......................................................................... 203,300 8,068,469
Wal-Mart Stores, Inc. ................................................................... 169,100 11,667,900
------------
55,834,475
------------
Hotels & Casinos 1.0%
Royal Caribbean Cruises Ltd. ............................................................ 185,600 5,173,600
------------
Consumer Staples 15.4%
Alcohol & Tobacco 2.8%
Philip Morris Companies, Inc. ........................................................... 271,300 13,870,213
------------
Food & Beverage 6.6%
Coca-Cola Co., Inc. ..................................................................... 187,100 12,652,637
H.J. Heinz Co. .......................................................................... 172,700 10,038,187
Interstate Bakeries Corp. ............................................................... 120,200 3,012,512
Kroger Co. .............................................................................. 133,300 7,398,150
------------
33,101,486
------------
Package Goods/Cosmetics 6.0%
Colgate-Palmolive Co. ................................................................... 121,400 10,728,725
Estee Lauder Companies "A" .............................................................. 123,200 8,077,300
Procter & Gamble Co. .................................................................... 124,500 11,064,938
------------
29,870,963
------------
Health 20.7%
Health Industry Services 2.2%
McKesson Corp. .......................................................................... 81,900 6,306,300
Total Renal Care Holdings, Inc.* ........................................................ 200,400 4,909,800
------------
11,216,100
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Large Company Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Medical Supply & Specialty 3.3%
Arterial Vascular Engineering, Inc.* .................................................... 140,300 4,314,225
Medtronic Inc. .......................................................................... 189,600 12,324,000
------------
16,638,225
------------
Pharmaceuticals 15.2%
Bristol-Myers Squibb Co. ................................................................ 103,300 11,421,106
Eli Lilly & Co. ......................................................................... 118,198 9,566,650
Johnson & Johnson ....................................................................... 70,200 5,721,300
Merck & Co., Inc. ....................................................................... 98,000 13,254,500
Pfizer, Inc. ............................................................................ 166,200 17,835,338
Schering-Plough Corp. ................................................................... 77,200 7,941,950
Warner-Lambert Co. ...................................................................... 128,300 10,055,513
------------
75,796,357
------------
Communications 1.6%
Telephone/Communications
MCI WorldCom, Inc.* ..................................................................... 144,800 8,000,200
------------
Financial 6.8%
Banks 1.1%
First Union Corp. ....................................................................... 91,400 5,301,200
------------
Insurance 5.7%
Allstate Corp. .......................................................................... 162,400 6,993,350
American International Group, Inc. ...................................................... 117,488 10,015,809
MBIA, Inc. .............................................................................. 87,100 5,323,987
UNUM Corp. .............................................................................. 143,500 6,376,781
------------
28,709,927
------------
Media 7.6%
Advertising 3.4%
Omnicom Group, Inc. ..................................................................... 156,400 7,732,025
Outdoor Systems, Inc.* .................................................................. 414,987 9,155,651
------------
16,887,676
------------
Broadcasting & Entertainment 4.2%
Clear Channel Communications, Inc.* ..................................................... 274,900 12,525,131
Univision Communication, Inc.* .......................................................... 293,000 8,643,500
------------
21,168,631
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Large Company Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service Industries 3.7%
EDP Services 1.2%
America Online Inc. ..................................................................... 46,700 5,933,818
------------
Miscellaneous Commercial Services 1.5%
Modis Professional Services, Inc.* ...................................................... 432,100 7,615,763
------------
Miscellaneous Consumer Services 1.0%
Service Corp. International ............................................................. 142,500 5,076,563
------------
Durables 3.7%
Telecommunications Equipment
Ascend Communications, Inc.* ............................................................ 100,400 4,844,300
Lucent Technologies Inc. ................................................................ 169,700 13,607,818
------------
18,452,118
------------
Manufacturing 6.7%
Chemicals 1.2%
Monsanto Co. ............................................................................ 151,900 6,170,938
------------
Diversified Manufacturing 5.5%
General Electric Co. .................................................................... 222,700 19,486,250
Textron, Inc. ........................................................................... 108,100 8,039,938
------------
27,526,188
------------
Technology 18.2%
Computer Software 6.5%
Computer Associates International, Inc. ................................................. 127,300 5,012,437
Microsoft Corp.* ........................................................................ 209,500 22,180,813
PeopleSoft Inc.* ........................................................................ 236,500 5,010,844
------------
32,204,094
------------
EDP Peripherals 1.1%
EMC Corp.* .............................................................................. 88,200 5,677,875
------------
Electronic Data Processing 3.2%
Dell Computer Corp.* .................................................................... 155,400 10,198,125
Sun Microsystems, Inc.* ................................................................. 97,100 5,656,075
------------
15,854,200
------------
Office/Plant Automation 2.7%
Cisco Systems, Inc.* .................................................................... 215,925 13,603,275
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Large Company Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Semiconductors 4.7%
Intel Corp. ............................................................................. 204,000 18,194,250
Linear Technology Corp. ................................................................. 90,200 5,378,176
------------
23,572,426
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $360,394,660) 483,256,311
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $377,595,660) (a) 500,457,311
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $378,395,727. At October 31,
1998, net unrealized appreciation for all securities based on tax cost was
$122,061,584. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $130,690,977 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$8,629,393.
The accompanying notes are an integral part of the financial statements.
13 - Scudder Large Company Growth Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1998
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $377,595,660) ................ $ 500,457,311
Cash ................................................................. 317
Receivable for investments sold ...................................... 1,366,942
Receivable for Fund shares sold ...................................... 1,191,731
Dividends and interest receivable .................................... 144,645
----------------
Total assets ......................................................... 503,160,946
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed ..................................... 580,294
Accrued management fee ............................................... 248,116
Other payables and accrued expenses .................................. 176,730
----------------
Total liabilities .................................................... 1,005,140
-------------------------------------------------------------------------------------------
Net assets, at market value $ 502,155,806
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation (depreciation) on investments ................ 122,861,651
Accumulated net realized gain (loss) ................................. 30,997,412
Paid-in capital ...................................................... 348,296,743
-------------------------------------------------------------------------------------------
Net assets, at market value $ 502,155,806
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($502,155,806 / 17,828,773 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ........................................................ $28.17
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Large Company Growth Fund
<PAGE>
Statement of Operations
year ended October 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $10,896) ................. $ 3,138,823
Interest ............................................................. 847,982
----------------
3,986,805
Expenses:
Management fee ....................................................... 2,478,112
Services to shareholders ............................................. 1,378,899
Custodian and accounting fees ........................................ 92,194
Trustees' fees and expenses .......................................... 46,890
Reports to shareholders .............................................. 79,000
Auditing ............................................................. 35,733
Legal ................................................................ 13,284
Registration fees and other expenses ................................. 75,714
----------------
4,199,826
-------------------------------------------------------------------------------------------
Net investment income (loss) (213,021)
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments ............................ 31,321,568
Net unrealized appreciation (depreciation) on investments
during the period .................................................. 35,342,915
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 66,664,483
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 66,451,462
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Large Company Growth Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) ............................... $ (213,021) $ (125,567)
Net realized gain (loss) on investments .................... 31,321,568 19,434,917
Net unrealized appreciation (depreciation) on
investments during the period ............................ 35,342,915 42,639,713
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ............................................... 66,451,462 61,949,063
---------------- ----------------
Distributions to shareholders from:
Net realized gains from investment transactions ............ (16,858,738) (17,790,946)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .................................. 297,954,229 131,500,078
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................ 16,409,785 17,272,174
Cost of shares redeemed .................................... (149,865,907) (126,119,027)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ............................................. 164,498,107 22,653,225
---------------- ----------------
Increase (decrease) in net assets .......................... 214,090,831 66,811,342
Net assets at beginning of period .......................... 288,064,975 221,253,633
---------------- ----------------
Net assets at end of period ................................ $ 502,155,806 $ 288,064,975
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................. 11,477,024 10,441,357
---------------- ----------------
Shares sold ................................................ 11,101,198 5,688,934
Shares issued to shareholders in reinvestment of
distributions ............................................ 667,879 850,846
Shares redeemed ............................................ (5,417,328) (5,504,113)
---------------- ----------------
Net increase (decrease) in Fund shares ..................... 6,351,749 1,035,667
---------------- ----------------
Shares outstanding at end of period ........................ 17,828,773 11,477,024
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Large Company Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Years Ended October 31,
1998(a) 1997(a) 1996(a) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------
Net asset value, beginning of period ........................ $ 25.10 $ 21.19 $ 18.44 $ 16.17 $ 16.42
------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ................................ (.02) (.01) .08 .11 .16
Net realized and unrealized gain (loss) on investments ...... 4.55 5.69 3.41 3.40 (.09)
------------------------------------------------------------
Total from investment operations ............................ 4.53 5.68 3.49 3.51 .07
------------------------------------------------------------
Less distributions from:
Net investment income ....................................... -- -- (.14) (.15) (.08)
Net realized gains on investment transactions ............... (1.46) (1.77) (.60) (1.09) (.24)
------------------------------------------------------------
Total distributions ......................................... (1.46) (1.77) (.74) (1.24) (.32)
------------------------------------------------------------
------------------------------------------------------------
Net asset value, end of period .............................. $ 28.17 $ 25.10 $ 21.19 $ 18.44 $ 16.17
------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............................................ 18.86 28.84 19.49 23.78 .39
Ratios and Supplemental Data
Net assets, end of period ($ millions) ...................... 502 288 221 173 113
Ratio of operating expenses net, to average
daily net assets (%) ...................................... 1.19 1.21 1.07 1.17 1.25
Ratio of net investment income (loss) to average
daily net assets (%) ...................................... (.06) (.05) .41 .71 .96
Portfolio turnover rate (%) ................................. 54.1 67.9 68.8 91.6 119.7
</TABLE>
(a) Based on monthly average shares outstanding during the period.
17 - Scudder Large Company Growth Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Large Company Growth Fund (formerly Quality Growth Fund) (the "Fund") is
a diversified series of the Investment Trust (the "Trust") (formerly Scudder
Investment 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 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 most recent 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. 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,
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 the repurchase price.
Federal Income 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.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax. Earnings
and profits distributed to shareholders on redemption of Fund shares ("tax
equalization") may be utilized by the Fund, to the extent permissible, as part
of the Fund's dividends paid deduction on its federal income tax return.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. The differences
primarily relate to investments in certain securities sold at a loss. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the
18 - Scudder Large Company Growth Fund
<PAGE>
Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Other. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
For the year ended October 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $322,531,099 and
$183,782,084, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Trust's Board of Trustees and by the Fund's Shareholders. The
Management Agreement, which was effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
Under the Management Agreement with Scudder Kemper, the Fund pays the Adviser a
fee equal to an annual rate of 0.70% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of the
Fund, the Adviser directs the investments of the Fund in accordance with its
investment objectives, policies, and restrictions. The Adviser determines the
securities, instruments, and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Management Agreement. For the year ended October 31, 1998, the fee
pursuant to these agreements amounted to $2,478,112, of which $248,116 was
unpaid at October 31, 1998.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of Trustees
of the Fund has approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former investment management
agreement, except for the dates of execution and termination. The Board of
Trustees of the Fund will seek shareholder approval of the new investment
management agreement through a proxy solicitation that is currently scheduled to
conclude in mid-December.
19 - Scudder Large Company Growth 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
year ended October 31, 1998, the amount charged to the Fund by SSC aggregated
$626,382, of which $58,000 was unpaid at October 31, 1998.
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. At October 31, 1998, the
Special Servicing Agreement expense charged to the Fund amounted to $253,762.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended October 31,
1998, the amount charged to the Fund by STC aggregated $411,592, of which
$32,000 was unpaid at October 31, 1998.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1998, the amount charged to the Fund by SFAC aggregated $62,799, of
which $11,007 was unpaid at October 31, 1998.
The Fund pays each of its Trustees not affiliated with the Adviser $4,800
annually plus specified amounts for attended board and committee meetings. For
the year ended October 31, 1998, Trustees fees and expenses aggregated $46,890.
20 - Scudder Large Company Growth Fund
<PAGE>
Report of Independent Accountants
To the Trustees of the Investment Trust and the Shareholders of Scudder Large
Company Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Large Company Growth Fund
(the "Fund") at October 31, 1998, the results of its operations for the year
then ended and the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1998
21 - Scudder Large Company Growth Fund
<PAGE>
Tax Information
The Fund will mail shareholders IRS Form 1099-Div in late January, summarizing
all taxable distributions paid for 1998.
The Fund paid distributions of $1.24 per share from net long-term capital gains
during its fiscal year ended October 31, 1998, of which 24.2% represented 20%
rate gains. Pursuant to section 852 of the Internal Revenue Code, the Fund
designates $33,000,000 as capital gain dividends for the year ended October 31,
1998.
22 - Scudder Large Company Growth Fund
<PAGE>
This Page
intentionally
left blank.
23 - Scudder Large Company Growth 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; Executive Fellow, Center
for Business Ethics, Bentley
College; President, Driscoll
Associates
Peter B. Freeman
Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Kathryn L. Quirk*
Trustee; Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
Bruce F. Beaty*
Vice President
Philip S. Fortuna*
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 and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
24 - Scudder Large Company Growth 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 Zero Coupon 2000 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 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 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
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
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.
Scudder Spain and Portugal 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 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. #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 Large Company Growth Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<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:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Scudder Electronic Account Services: 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:
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
26 - Scudder Large Company Growth Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
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 Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. 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.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
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
</TABLE>
27 - Scudder Large Company Growth Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich 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 Group. The Zurich 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
[LOGO]
<PAGE>
INVESTMENT TRUST
PART C.
-------
OTHER INFORMATION
-----------------
<TABLE>
<CAPTION>
Item 23. Exhibits:
- -------- ---------
<S> <C> <C>
(a) (a)(1) Amended and Restated Declaration of Trust dated November 3, 1987,
is incorporated by reference to Post-Effective Amendment No. 78 to
the Registration Statement.
(a)(2) Certificate of Amendment of Declaration of Trust dated November 13,
1990, is incorporated by reference to Post-Effective Amendment No.
78 to the Registration Statement.
(a)(3) Certificate of Amendment of Declaration of Trust dated February 12,
1991, is incorporated by reference to Post-Effective Amendment No.
78 to the Registration Statement.
(a)(4) Certificate of Amendment of Declaration of Trust dated May 28,
1998, is incorporated by reference to Post-Effective Amendment No.
105 to the Registration Statement.
(a)(5) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Growth and
Income Fund and Scudder Quality Growth Fund, is incorporated by
reference to Post-Effective Amendment No. 78 to the Registration
Statement.
(a)(6) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Classic Growth
Fund, is incorporated by reference to Post-Effective Amendment No.
76 to the Registration Statement.
(a)(7) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Growth and
Income Fund, Scudder Large Company Growth Fund, Scudder Classic
Growth Fund, and Scudder S&P 500 Index Fund, is incorporated by
reference to Post-Effective Amendment No. 105 to the Registration
Statement.
(a)(8) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Real Estate
Investment Fund, is incorporated by reference to Post-Effective
Amendment No. 105 to the Registration Statement.
(a)(9) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Dividend + Growth Fund,
is incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement.
Part C - Page 1
<PAGE>
(a)(10) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Tax Managed
Growth Fund and Scudder Tax Managed Small Company Fund, is
incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement.
(a)(11) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, - Kemper A, B & C Shares, and Scudder S
Shares, with respect to Classic Growth Fund, is incorporated by
reference to Post-Effective Amendment No. 94 to the Registration
Statement.
(a)(12) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, - Class R Shares, with respect to
Scudder Growth and Income Fund, is incorporated by reference to
Post-Effective Amendment No. 105 to the Registration Statement.
(a)(13) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, - Class R Shares, with respect to
Scudder Large Company Growth Fund, is incorporated by reference to
Post-Effective Amendment No. 105 to the Registration Statement.
(a)(14) Redesignation of Series, Scudder Classic Growth Fund to Classic
Growth Fund, is incorporated by reference to Post-Effective
Amendment No. 94 to the Registration Statement.
(a)(15) Redesignation of Series, Scudder Quality Growth Fund to Scudder
Large Company Growth Fund, is incorporated by reference to
Post-Effective Amendment No. 105 to the Registration Statement.
(a)(16) Redesignation of Series, Scudder Dividend + Growth Fund to Scudder
Dividend & Growth Fund, is incorporated by reference to
Post-Effective Amendment No. 105 to the Registration Statement.
(b) (b)(1) Amendment to By-Laws of the Registrant dated November 12, 1991, is
incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.
(c) Inapplicable
(d) (d)(1) Investment Management Agreement between the Registrant (on behalf
of Scudder Growth and Income Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 100 to the Registration Statement.
(d)(2) Investment Management Agreement between the Registrant (on behalf
of Scudder Large Company Growth Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
Part C - Page 2
<PAGE>
(d)(3) Investment Management Agreement between the Registrant (on behalf
of Classic Growth Fund) and Scudder Kemper Investments, Inc. dated
September 7, 1998, is incorporated by reference to Post-Effective
Amendment No. 100 to the Registration Statement.
(d)(4) Investment Management Agreement between the Registrant (on behalf
of Scudder Real Estate Investment Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
(d)(5) Investment Management Agreement between the Registrant (on behalf
of Scudder S&P 500 Index Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 100 to the Registration Statement.
(d)(6) Investment Management Agreement between the Registrant (on behalf
of Scudder Dividend & Growth Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 100 to the Registration Statement.
(d)(7) Investment Management Agreement between the Registrant (on behalf
of Scudder Tax Managed Growth Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 100 to the Registration Statement.
(d)(8) Investment Management Agreement between the Registrant (on behalf
of Scudder Tax Managed Small Company Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
(e) (e)(1) Underwriting Agreement and Distribution Services Agreement between
the Registrant on behalf of Classic Growth Fund and Kemper
Distributors, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
(e)(2) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
(f) Inapplicable.
(g) (g)(1) Custodian Agreement between the Registrant (on behalf of Scudder
Growth and Income Fund) and State Street Bank and Trust Company
("State Street Bank") dated December 31, 1984, is incorporated by
reference to Post-Effective Amendment No. 78 to the Registration
Statement.
Part C - Page 3
<PAGE>
(g)(2) Amendment dated April 1, 1985 to the Custodian Agreement between
the Registrant and State Street Bank, is incorporated by reference
to Post-Effective Amendment No. 78 to the Registration Statement.
(g)(3) Amendment dated August 8, 1987 to the Custodian Agreement between
the Registrant and State Street Bank, is incorporated by reference
to Post-Effective Amendment No. 78 to the Registration Statement.
(g)(4) Amendment dated August 9, 1988 to the Custodian Agreement between
the Registrant and State Street Bank is Incorporated by reference
to Post-Effective Amendment No. 78 to the Registration Statement.
(g)(5) Amendment dated July 29, 1991 to the Custodian Agreement between
the Registrant and State Street Bank, is incorporated by reference
to Post-Effective Amendment No. 78 to the Registration Statement.
(g)(6) Custodian fee schedule for Scudder S&P 500 Index Fund, is
incorporated by reference to Post-Effective Amendment No. 84 to the
Registration Statement.
(g)(7) Subcustodian Agreement with fee schedule between State Street Bank
and The Bank of New York, London office, dated December 31, 1978,
is incorporated by reference to Post-Effective Amendment No. 78 to
the Registration Statement.
.
(g)(8) Subcustodian Agreement between State Street Bank and The Chase
Manhattan Bank, N.A. dated September 1, 1986, is incorporated by
reference to Post-Effective Amendment No. 78 to the Registration
Statement.
(g)(9) Custodian fee schedule for Scudder Quality Growth Fund and Scudder
Growth and Income Fund, is incorporated by reference to
Post-Effective Amendment No. 72 to the Registration Statement
(g)(10) Form of Custodian fee schedule for Scudder Classic Growth Fund, is
incorporated by reference to Post-Effective Amendment No. 77 to the
Registration Statement
(h) (h)(1) Transfer Agency and Service Agreement with fee schedule between the
Registrant and Scudder Service Corporation dated October 2, 1989,
is incorporated by reference to Post-Effective Amendment No. 78 to
the Registration Statement.
(h)(1)(a) Revised fee schedule dated October 6, 1995 for Exhibit (h)(1) is
incorporated by reference to Post-Effective Amendment No. 76 to the
Registration Statement.
(h)(1)(b) Form of revised fee schedule for Exhibit (h)(1) dated October 1,
1996, is incorporated by reference to Post-Effective Amendment No.
78 to the Registration Statement.
Part C - Page 4
<PAGE>
(h)(2) Agency Agreement between the Registrant on behalf of Classic Growth
Fund and Kemper Service Company dated April 1998, is incorporated
by reference to Post-Effective Amendment No. 100 to the
Registration Statement.
(h)(3) Agency Agreement between the Registrant on behalf of Scudder Growth
and Income Fund Class R shares and Scudder Large Company Growth
Fund Class R shares, and Kemper Service Company dated May 3 1999,
is filed herein.
(h)(4) COMPASS Service Agreement and fee schedule with Scudder Trust
Company dated January 1, 1990, is incorporated by reference to
Post-Effective Amendment No. 78 to the Registration Statement.
(h)(4)(a) Form of revised fee schedule for Exhibit h(2)(a) dated October 1,
1996, is incorporated by reference to Post-Effective Amendment No.
78 to the Registration Statement.
(h)(5) COMPASS and TRAK 2000 Service Agreement between Scudder Trust
Company and the Registrant dated October 1, 1995, is incorporated
by reference to Post-Effective Amendment No. 74 to the Registration
Statement.
(h)(6) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Quality Growth Fund and Scudder Fund Accounting
Corporation dated November 1, 1994 is incorporated by reference to
Post-Effective Amendment No. 72 to the Registration Statement.
(h)(7) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Growth and Income Fund and Scudder Fund
Accounting Corporation dated October 17, 1994, is incorporated by
reference to Post-Effective Amendment No. 73 to the Registration
Statement.
(h)(8) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Classic Growth Fund, and Scudder Fund Accounting
Corporation dated September 9, 1996, is incorporated by reference
to Post-Effective Amendment No. 99 to the Registration Statement.
(h)(9) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Tax Managed Small Company and Scudder Fund
Accounting Corporation dated July 30, 1998, is incorporated by
reference to Post-Effective Amendment No. 99 to the Registration
Statement.
(h)(10) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Tax Managed Growth Fund and Scudder Fund
Accounting Corporation dated July 30, 1998, is incorporated by
reference to Post-Effective Amendment No. 99 to the Registration
Statement.
Part C - Page 5
<PAGE>
(h)(11) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Dividend & Growth Fund and Scudder Fund
Accounting Corporation dated June 1, 1998, is incorporated by
reference to Post-Effective Amendment No. 99 to the Registration
Statement.
(h)(12) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Real Estate Investment Fund and Scudder Fund
Accounting Corporation dated March 2, 1998, is incorporated by
reference to Post-Effective Amendment No. 99 to the Registration
Statement.
(h)(13) Investment Accounting Agreement between the Registrant, on behalf
of Scudder S&P 500 Index Fund and Scudder Fund Accounting
Corporation dated August 28, 1997, is incorporated by reference to
Post-Effective Amendment No. 99 to the Registration Statement.
(h)(14) Shareholder Services Agreement between the Registrant and Charles
Schwab & Co., Inc. dated June 1, 1990, is incorporated by reference
to Post-Effective Amendment No. 78 to the Registration Statement.
(h)(15) Service Agreement between Copeland Associates, Inc. and Scudder
Service Corporation (on behalf of Scudder Quality Growth Fund and
Scudder Growth and Income Fund) dated June 8, 1995, is incorporated
by reference to Post-Effective Amendment No. 74 to the Registration
Statement.
(h)(16) Administrative Services Agreement between the Registrant on behalf
of Classic Growth Fund, and Kemper Distributors, Inc., dated April
1998, is incorporated by reference to Post-Effective Amendment No.
100 to the Registration Statement.
(h)(17) Administrative Services Agreement between the Registrant on behalf
of Scudder Growth and Income Fund, and Scudder Investor Services,
Inc., dated May 3, 1999, is incorporated by reference to
Post-Effective Amendment No. 105 to the Registration Statement.
(h)(18) Administrative Services Agreement between the Registrant on behalf
of Scudder Large Company Growth Fund, and Scudder Investor
Services, Inc., dated May 3, 1999, is incorporated by reference to
Post-Effective Amendment No. 105 to the Registration Statement.
(i) Legal Opinion of Counsel is filed herein.
(j) Consent of Independent Accountants is filed herein.
(k) Inapplicable.
(l) Inapplicable.
Part C - Page 6
<PAGE>
(m) 12b-1 Plan between the Registrant, on behalf of Scudder Growth and
Income Fund (Class R shares) and Scudder Large Company Growth Fund
(Class R shares), and Scudder Investor Services, Inc., is
incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement.
(n) Financial Data Schedules is filed herein.
(o) (o)(1) Mutual Funds Multi-Distribution System Plan - Rule 18f-3 Plan, is
incorporated by reference to Post-Effective Amendment No. 94 to the
Registration Statement.
(o)(2) Plan with respect to Scudder Growth and Income Fund pursuant to
Rule 18f-3, is incorporated by reference to Post-Effective
Amendment No. 105 to the Registration Statement.
(o)(3) Plan with respect to Scudder Large Company Growth Fund pursuant to
Rule 18f-3, is incorporated by reference to Post-Effective
Amendment No. 105 to the Registration Statement.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
tem 25. Indemnification
- ------- ---------------
As permitted by Sections 17(h) and 17(i) of the Investment
Company Act of 1940, as amended (the "1940 Act"), pursuant to
Article IV of the Registrant's By-Laws (filed as Exhibit No. 2
to the Registration Statement), officers, directors, employees
and representatives of the Funds may be indemnified against
certain liabilities in connection with the Funds, and pursuant
to Section 12 of the Underwriting Agreement dated May 6, 1998
(filed as Exhibit No. 6(c) to the Registration Statement),
Scudder Investor Services, Inc. (formerly "Scudder Fund
Distributors, Inc."), as principal underwriter of the
Registrant, may be indemnified against certain liabilities
that it may incur. Said Article IV of the By-Laws and Section
12 of the Underwriting Agreement are hereby incorporated by
reference in their entirety.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be
permitted to directors, officers and controlling persons of
the Registrant and the principal underwriter pursuant to the
foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer, or
controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant
by such director, officer or controlling person or the
principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and employees who are
denominated officers but do not as such have corporation-wide responsibilities.
Such persons are not considered officers for the purpose of this Item 26.
Part C - Page 7
<PAGE>
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Part C - Page 8
<PAGE>
Director, Vice President and Secretary, Scudder Financial Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
</TABLE>
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other funds
managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide responsibilities and
are not considered officers for the purpose of this Item 27.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C> <C>
Lynn S. Birdsong Senior Vice President President & Trustee
345 Park Avenue
New York, NY 10154
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
Mark S. Casady Director, President and Assistant None
Two International Place Treasurer
Boston, MA 02110
Part C - Page 9
<PAGE>
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President Vice President
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Treasurer Vice President
Two International Place and Assistant Clerk
Boston, MA 02110
James J. McGovern Chief Financial Officer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Caroline Pearson Clerk Assistant Secretary
Two International Place
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief Trustee, Vice President &
345 Park Avenue Legal Officer and Assistant Clerk Assistant Secretary
New York, NY 10154
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Part C - Page 10
<PAGE>
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110
</TABLE>
(c)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions And Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
Scudder Investor None None None None
Services, Inc.
</TABLE>
II.
(a) Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper Funds.
(b) Information on the officers and directors of Kemper Distributors,
Inc., principal underwriter for the Registrant is set forth below. The principal
business address is 222 South Riverside Plaza, Chicago, Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Position and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C> <C>
James L. Greenawalt President None
Thomas W. Littauer Director, Chief Executive Officer None
Kathryn L. Quirk Director, Secretary, Chief Legal Trustee, Vice President
Officer & Vice President and Assistant Secretary
James J. McGovern Chief Financial Officer & Vice None
President
Linda J. Wondrack Vice President & Chief Compliance None
Officer
Paula Gaccione Vice President None
Michael E. Harrington Vice President None
Part C - Page 11
<PAGE>
Position and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
Robert A. Rudell Vice President None
William M. Thomas Vice President None
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary None
Paul J. Elmlinger Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
Mark S. Casady Director, Vice Chairman None
Stephen R. Beckwith Director None
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments Inc., Two International Place, Boston, MA
02110-4103. Records relating to the duties of the Registrant's
custodian are maintained by State Street Bank and Trust
Company, Heritage Drive, North Quincy, Massachusetts. Records
relating to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 26th day of July, 1999.
INVESTMENT TRUST
By /s/Lynn S. Birdsong
---------------------------------
Lynn S. Birdsong
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Lynn S. Birdsong
- --------------------------------------
Lynn S. Birdsong President and Trustee July 26, 1999
/s/Henry P. Becton, Jr.
- --------------------------------------
Henry P. Becton, Jr.* Trustee July 26, 1999
/s/Dawn-Marie Driscoll
- --------------------------------------
Dawn-Marie Driscoll* Trustee July 26, 1999
/s/Peter B. Freeman
- --------------------------------------
Peter B. Freeman* Trustee July 26, 1999
/s/George M. Lovejoy, Jr.
- --------------------------------------
George M. Lovejoy, Jr.* Trustee July 26, 1999
/s/Wesley W. Marple, Jr.
- --------------------------------------
Wesley W. Marple, Jr.* Trustee July 26, 1999
/s/Kathryn L. Quirk
- --------------------------------------
Kathryn L. Quirk* Trustee, Vice President July 26, 1999
and Assistant Secretary
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Jean C. Tempel
- --------------------------------------
Jean C. Tempel* Trustee July 26, 1999
/s/John R. Hebble
- --------------------------------------
John R. Hebble Treasurer July 26, 1999
</TABLE>
*By: /s/Sheldon A. Jones
-----------------------------------
Sheldon A. Jones
Dechert Price & Rhoads**
** Attorney-in-fact pursuant to a power
of attorney contained in the
signature page of Post-Effective
Amendment No. 61 to the Registration
Statement filed April 22, 1991 and
pursuant to a power of attorney
contained in the signature page of
Post-Effective Amendment No. 72 to
the Registration Statement filed
April 28, 1995 and pursuant to a
power of attorney contained in the
signature page of Post-Effective
Amendment No. 79 filed February 26,
1997 and pursuant to a power of
attorney contained in the signature
page of Post-Effective Amendment No.
85 filed October 31, 1997.
2
<PAGE>
File No. 2-13628
File No. 811-43
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 106
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 58
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Investment Trust
<PAGE>
Investment Trust
EXHIBIT INDEX
(h)(3)
2
Exhibit (h)(3)
AGENCY AGREEMENT
AGREEMENT dated the 3rd day of May, 1999, by and between INVESTMENT TRUST a
Massachusetts business trust ("Fund"), and KEMPER SERVICE COMPANY, a Delaware
corporation ("Service Company").
WHEREAS, Fund wants to appoint Service Company as Transfer Agent and
Dividend Disbursing Agent, and Service Company wants to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Documents to be Filed with Appointment.
---------------------------------------
In connection with the appointment of Service Company as
Transfer Agent and Dividend Disbursing Agent for Fund, there
will be filed with Service Company the following documents:
A. A certified copy of the resolutions of the Board of
Trustees of Fund appointing Service Company as
Transfer Agent and Dividend Disbursing Agent,
approving the form of this Agreement, and designating
certain persons to give written instructions and
requests on behalf of Fund.
B. A certified copy of the Agreement and Declaration of
Trust of Fund and any amendments thereto.
C. A certified copy of the Bylaws of Fund.
D. Copies of Registration Statements filed with the
Securities and Exchange Commission.
E. Specimens of all forms of outstanding share
certificates as approved by the Board of Trustees of
Fund, with a certificate of the Secretary of Fund as
to such approval.
F. Specimens of the signatures of the officers of the
Fund authorized to sign share certificates and
individuals authorized to sign written instructions
and requests on behalf of the Fund.
G. An opinion of counsel for Fund:
(1) With respect to Fund's organization and
existence under the laws of The Commonwealth
of Massachusetts.
(2) With respect to the status of all shares of
Fund covered by this appointment under the
Securities Act of 1933, and any other
applicable federal or state statute.
<PAGE>
(3) To the effect that all issued shares are,
and all unissued shares will be when issued,
validly issued, fully paid and
non-assessable.
2. Certain Representations and Warranties of Service Company.
--------------------------------------------------------------
Service Company represents and warrants to Fund that:
A. It is a corporation duly organized and existing and
in good standing under the laws of the State of
Delaware.
B. It is duly qualified to carry on its business in the
State of Missouri.
C. It is empowered under applicable laws and by its
Certificate of Incorporation and Bylaws to enter into
and perform the services contemplated in this
Agreement.
D. All requisite corporate action has been taken to
authorize it to enter into and perform this
Agreement.
E. It has and will continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement.
F. It is, and will continue to be, registered as a
transfer agent under the Securities Exchange Act of
1934.
3. Certain Representations and Warranties of Fund. Fund
-------------------------------------------------------
represents and warrants to Service Company that:
A. It is a business trust duly organized and existing
and in good standing under the laws of The
Commonwealth of Massachusetts.
B. It is an investment company registered under the
Investment Company Act of 1940.
C. A registration statement under the Securities Act of
1933 has been filed and will be effective with
respect to all shares of Fund being offered for sale
at any time and from time to time.
D. All requisite steps have been or will be taken to
register Fund's shares for sale in all applicable
states, including the District of Columbia.
E. Fund and its Trustees are empowered under applicable
laws and by the Fund's Agreement and Declaration of
Trust and Bylaws to enter into and perform this
Agreement.
2
<PAGE>
4. Scope of Appointment.
---------------------
A. Subject to the conditions set forth in this
Agreement, Fund hereby employs and appoints Service
Company as Transfer Agent and Dividend Disbursing
Agent effective the date hereof.
B. Service Company hereby accepts such employment and
appointment and agrees that it will act as Fund's
Transfer Agent and Dividend Disbursing Agent. Service
Company agrees that it will also act as agent in
connection with Fund's periodic withdrawal payment
accounts and other open-account or similar plans for
shareholders, if any.
C. Service Company agrees to provide the necessary
facilities, equipment and personnel to perform its
duties and obligations hereunder in accordance with
industry practice.
D. Fund agrees to use all reasonable efforts to deliver
to Service Company in Kansas City, Missouri, as soon
as they are available, all its shareholder account
records.
E. Subject to the provisions of Sections 20 and 21
hereof, Service Company agrees that it will perform
all the usual and ordinary services of Transfer Agent
and Dividend Disbursing Agent and as agent for the
various shareholder accounts, including, without
limitation, the following: issuing, transferring and
cancelling share certificates, maintaining all
shareholder accounts, preparing shareholder meeting
lists, mailing proxies, receiving and tabulating
proxies, mailing shareholder reports and
prospectuses, withholding federal income taxes,
preparing and mailing checks for disbursement of
income and capital gains dividends, preparing and
filing all required U.S. Treasury Department
information returns for all shareholders, preparing
and mailing confirmation forms to shareholders and
dealers with respect to all purchases and
liquidations of Fund shares and other transactions in
shareholder accounts for which confirmations are
required, recording reinvestments of dividends and
distributions in Fund shares, recording redemptions
of Fund shares and preparing and mailing checks for
payments upon redemption and for disbursements to
systematic withdrawal plan shareholders.
5. Compensation and Expenses.
--------------------------
A. In consideration for the services provided hereunder
by Service Company as Transfer Agent and Dividend
Disbursing Agent, Fund will pay to Service Company
from time to time compensation as agreed upon for all
services rendered as Agent, and also, all its
reasonable out-of-pocket expenses and other
disbursements incurred in connection with the agency.
Such compensation will be set forth in a separate
schedule to be agreed to
3
<PAGE>
by Fund and Service Company. The initial agreement
regarding compensation is attached as Exhibit A.
B. Fund agrees to promptly reimburse Service Company for
all reasonable out-of-pocket expenses or advances
incurred by Service Company in connection with the
performance of services under this Agreement
including, but not limited to, postage (and first
class mail insurance in connection with mailing share
certificates), envelopes, check forms, continuous
forms, forms for reports and statements, stationery,
and other similar items, telephone and telegraph
charges incurred in answering inquiries from dealers
or shareholders, microfilm used each year to record
the previous year's transactions in shareholder
accounts and computer tapes used for permanent
storage of records and cost of insertion of materials
in mailing envelopes by outside firms. Service
Company may, at its option, arrange to have various
service providers submit invoices directly to the
Fund for payment of out-of-pocket expenses
reimbursable hereunder.
6. Efficient Operation of Service Company System.
----------------------------------------------
A. In connection with the performance of its services
under this Agreement, Service Company is responsible
for the accurate and efficient functioning of its
system at all times, including:
(1) The accuracy of the entries in Service
Company's records reflecting purchase and
redemption orders and other instructions
received by Service Company from dealers,
shareholders, Fund or its principal
underwriter.
(2) The timely availability and the accuracy of
shareholder lists, shareholder account
verifications, confirmations and other
shareholder account information to be
produced from Service Company's records or
data.
(3) The accurate and timely issuance of dividend
and distribution checks in accordance with
instructions received from Fund.
(4) The accuracy of redemption transactions and
payments in accordance with redemption
instructions received from dealers,
shareholders or Fund or other authorized
persons.
(5) The deposit daily in Fund's appropriate
special bank account of all checks and
payments received from dealers or
shareholders for investment in shares.
(6) The requiring of proper forms of
instructions, signatures and signature
guarantees and any necessary documents
supporting the
4
<PAGE>
rightfulness of transfers, redemptions and
other shareholder account transactions, all
in conformance with Service Company's
present procedures with such changes as may
be deemed reasonably appropriate by Service
Company or as may be reasonably approved by
or on behalf of Fund.
(7) The maintenance of a current duplicate set
of Fund's essential or required records, as
agreed upon from time to time by Fund and
Service Company, at a secure distant
location, in form available and usable
forthwith in the event of any breakdown or
disaster disrupting its main operation.
7. Indemnification.
----------------
A. Fund shall indemnify and hold Service Company
harmless from and against any and all claims,
actions, suits, losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities
arising out of or attributable to any action or
omission by Service Company pursuant to this
Agreement or in connection with the agency
relationship created by this Agreement, provided that
Service Company has acted in good faith, without
negligence and without willful misconduct.
B. Service Company shall indemnify and hold Fund
harmless from and against any and all claims,
actions, suits, losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities
arising out of or attributable to any action or
omission by Service Company pursuant to this
Agreement or in connection with the agency
relationship created by this Agreement, provided that
Service Company has not acted in good faith, without
negligence and without willful misconduct.
C. In order that the indemnification provisions
contained in this Section 7 shall apply, upon the
assertion of a claim for which either party (the
"Indemnifying Party") may be required to provide
indemnification hereunder, the party seeking
indemnification (the "Indemnitee") shall promptly
notify the Indemnifying Party of such assertion, and
shall keep such party advised with respect to all
developments concerning such claim. The Indemnifying
Party shall be entitled to assume control of the
defense and the negotiations, if any, regarding
settlement of the claim. If the Indemnifying Party
assumes control, the Indemnitee shall have the option
to participate in the defense and negotiations of
such claim at its own expense. The Indemnitee shall
in no event confess, admit to, compromise, or settle
any claim for which the Indemnifying Party may be
required to indemnify it except with the prior
written consent of the Indemnifying Party, which
shall not be unreasonably withheld.
5
<PAGE>
8. Certain Covenants of Service Company and Fund.
----------------------------------------------
A. All requisite steps will be taken by Fund from time
to time when and as necessary to register the Fund's
shares for sale in all states in which Fund's shares
shall at the time be offered for sale and require
registration. If at any time Fund receives notice of
any stop order or other proceeding in any such state
affecting such registration or the sale of Fund's
shares, or of any stop order or other proceeding
under the Federal securities laws affecting the sale
of Fund's shares, Fund will give prompt notice
thereof to Service Company.
B. Service Company hereby agrees to establish and
maintain facilities and procedures reasonably
acceptable to Fund for safekeeping of share
certificates, check forms, and facsimile signature
imprinting devices, if any; and for the preparation
or use, and for keeping account of, such
certificates, forms and devices. Further, Service
Company agrees to carry insurance, as specified in
Exhibit B hereto, with insurers reasonably acceptable
to Fund and in minimum amounts that are reasonably
acceptable to Fund, which will not be changed without
the consent of Fund, which consent shall not be
unreasonably withheld, and which will be expanded in
coverage or increased in amounts from time to time if
and when reasonably requested by Fund. If Service
Company determines that it is unable to obtain any
such insurance upon commercially reasonable terms, it
shall promptly so advise Fund in writing. In such
event, Fund shall have the right to terminate this
Agreement upon 30 days notice.
C. To the extent required by Section 31 of the
Investment Company Act of 1940 and Rules thereunder,
Service Company agrees that all records maintained by
Service Company relating to the services to be
performed by Service Company under this Agreement are
the property of Fund and will be preserved and will
be surrendered promptly to Fund on request.
D. Service Company agrees to furnish Fund semi-annual
reports of its financial condition, consisting of a
balance sheet, earnings statement and any other
reasonably available financial information reasonably
requested by Fund. The annual financial statements
will be certified by Service Company's certified
public accountants.
E. Service Company represents and agrees that it will
use all reasonable efforts to keep current on the
trends of the investment company industry relating to
shareholder services and will use all reasonable
efforts to continue to modernize and improve its
system without additional cost to Fund.
F. Service Company will permit Fund and its authorized
representatives to make periodic inspections of its
operations at reasonable times during business hours.
6
<PAGE>
G. If Service Company is prevented from complying,
either totally or in part, with any of the terms or
provisions of this Agreement, by reason of fire,
flood, storm, strike, lockout or other labor trouble,
riot, war, rebellion, accidents, acts of God,
equipment, utility or transmission failure or damage,
and/or any other cause or casualty beyond the
reasonable control of Service Company, whether
similar to the foregoing matters or not, then upon
written notice to Fund, the requirements of this
Agreement that are affected by such disability, to
the extent so affected, shall be suspended during the
period of such disability; provided, however, that
Service Company shall make reasonable effort to
remove such disability as soon as possible. During
such period, Fund may seek alternate sources of
service without liability hereunder; and Service
Company will use all reasonable efforts to assist
Fund to obtain alternate sources of service. Service
Company shall have no liability to Fund for
nonperformance because of the reasons set forth in
this Section 8.G; but if a disability that, in Fund's
reasonable belief, materially affects Service
Company's ability to perform its obligations under
this Agreement continues for a period of 30 days,
then Fund shall have the right to terminate this
Agreement upon 10 days written notice to Service
Company.
9. Adjustment.
-----------
In case of any recapitalization, readjustment or other change
in the structure of Fund requiring a change in the form of
share certificates, Service Company will issue or register
certificates in the new form in exchange for, or in transfer
of, the outstanding certificates in the old form, upon
receiving the following:
A. Written instructions from an officer of Fund.
B. Certified copy of any amendment to the Agreement and
Declaration of Trust or other document effecting the
change.
C. Certified copy of any order or consent of each
governmental or regulatory authority required by law
for the issuance of the shares in the new form, and
an opinion of counsel that no order or consent of any
other government or regulatory authority is required.
D. Specimens of the new certificates in the form
approved by the Board of Trustees of Fund, with a
certificate of the Secretary of Fund as to such
approval.
E. Opinion of counsel for Fund:
(1) With respect to the status of the shares of
Fund in the new form under the Securities
Act of 1933, and any other applicable
federal or state laws.
7
<PAGE>
(2) To the effect that the issued shares in the
new form are, and all unissued shares will
be when issued, validly issued, fully paid
and non-assessable.
10. Share Certificates.
-------------------
Fund will furnish Service Company with a sufficient supply of
blank share certificates and from time to time will renew such
supply upon the request of Service Company. Such certificates
will be signed manually or by facsimile signatures of the
officers of Fund authorized by law and Fund's Bylaws to sign
share certificates and, if required, will bear the trust seal
or facsimile thereof.
11. Death, Resignation or Removal of Signing Officer.
-------------------------------------------------
Fund will file promptly with Service Company written notice of
any change in the officers authorized to sign share
certificates, written instructions or requests, together with
two signature cards bearing the specimen signature of each
newly authorized officer, all as certified by an appropriate
officer of the Fund. In case any officer of Fund who will have
signed manually or whose facsimile signature will have been
affixed to blank share certificates will die, resign, or be
removed prior to the issuance of such certificates, Service
Company may issue or register such share certificates as the
share certificates of Fund notwithstanding such death,
resignation, or removal, until specifically directed to the
contrary by Fund in writing. In the absence of such direction,
Fund will file promptly with Service Company such approval,
adoption, or ratification as may be required by law.
12. Future Amendments of Agreement and Declaration of Trust and
Bylaws.
--------------------------------------------------------------
Fund will promptly file with Service Company copies of all
material amendments to its Agreement and Declaration of Trust
and Bylaws and Registration Statement made after the date of
this Agreement.
13. Instructions, Opinion of Counsel and Signatures.
------------------------------------------------
At any time Service Company may apply to any officer of Fund
for instructions, and may consult with legal counsel for Fund
at the expense of Fund, or with its own legal counsel at its
own expense, with respect to any matter arising in connection
with the agency; and it will not be liable for any action
taken or omitted by it in good faith in reliance upon such
instructions or upon the opinion of such counsel. Service
Company is authorized to act on the orders, directions or
instructions of such persons as the Board of Trustees of Fund
shall from time to time designate by resolution. Service
Company will be protected in acting upon any paper or
document, including any orders, directions or instructions,
reasonably believed by it to be genuine and to have been
signed by the proper person or persons; and Service Company
will not be held to have notice of any change of authority of
any person so authorized by Fund until receipt of written
notice thereof from Fund. Service Company will also be
protected in recognizing
8
<PAGE>
share certificates that it reasonably believes to bear the
proper manual or facsimile signatures of the officers of Fund,
and the proper countersignature of any former Transfer Agent
or Registrar, or of a Co-Transfer Agent or Co-Registrar.
14. Papers Subject to Approval of Counsel.
--------------------------------------
The acceptance by Service Company of its appointment as
Transfer Agent and Dividend Disbursing Agent, and all
documents filed in connection with such appointment and
thereafter in connection with the agencies, will be subject to
the approval of legal counsel for Service Company, which
approval will not be unreasonably withheld.
15. Certification of Documents.
---------------------------
The required copy of the Agreement and Declaration of Trust of
Fund and copies of all amendments thereto will be certified by
the appropriate official of The Commonwealth of Massachusetts;
and if such Agreement and Declaration of Trust and amendments
are required by law to be also filed with a county, city or
other officer or official body, a certificate of such filing
will appear on the certified copy submitted to Service
Company. A copy of the order or consent of each governmental
or regulatory authority required by law for the issuance of
Fund shares will be certified by the Secretary or Clerk of
such governmental or regulatory authority, under proper seal
of such authority. The copy of the Bylaws and copies of all
amendments thereto and copies of resolutions of the Board of
Trustees of Fund will be certified by the Secretary or an
Assistant Secretary of Fund.
16. Records.
--------
Service Company will maintain customary records in connection
with its agency, and particularly will maintain those records
required to be maintained pursuant to sub-paragraph (2)(iv) of
paragraph (b) of Rule 31a-1 under the Investment Company Act
of 1940, if any.
17. Disposition of Books, Records and Cancelled Certificates.
---------------------------------------------------------
Service Company will send periodically to Fund, or to where
designated by the Secretary or an Assistant Secretary of Fund,
all books, documents, and all records no longer deemed needed
for current purposes and share certificates which have been
cancelled in transfer or in exchange, upon the understanding
that such books, documents, records, and share certificates
will not be destroyed by Fund without the consent of Service
Company (which consent will not be unreasonably withheld), but
will be safely stored for possible future reference.
18. Provisions Relating to Service Company as Transfer Agent.
---------------------------------------------------------
A. Service Company will make original issues of share
certificates upon
9
<PAGE>
written request of an officer of Fund and upon being
furnished with a certified copy of a resolution of
the Board of Trustees authorizing such original
issue, an opinion of counsel as outlined in Section
1.G or 9.E of this Agreement, the certificates
required by Section 10 of this Agreement and any
other documents required by Section 1 or 9 of this
Agreement.
B. Before making any original issue of certificates,
Fund will furnish Service Company with sufficient
funds to pay any taxes required on the original issue
of the shares. Fund will furnish Service Company such
evidence as may be required by Service Company to
show the actual value of the shares. If no taxes are
payable, Service Company will upon request be
furnished with an opinion of outside counsel to that
effect.
C. Shares will be transferred and new certificates
issued in transfer, or shares accepted for redemption
and funds remitted therefor, upon surrender of the
old certificates in form deemed by Service Company
properly endorsed for transfer or redemption
accompanied by such documents as Service Company may
deem necessary to evidence the authority of the
person making the transfer or redemption, and bearing
satisfactory evidence of the payment of any
applicable share transfer taxes. Service Company
reserves the right to refuse to transfer or redeem
shares until it is satisfied that the endorsement or
signature on the certificate or any other document is
valid and genuine, and for that purpose it may
require a guarantee of signature by such persons as
may from time to time be specified in the prospectus
related to such shares or otherwise authorized by
Fund. Service Company also reserves the right to
refuse to transfer or redeem shares until it is
satisfied that the requested transfer or redemption
is legally authorized, and it will incur no liability
for the refusal in good faith to make transfers or
redemptions which, in its judgment, are improper,
unauthorized, or otherwise not rightful. Service
Company may, in effecting transfers or redemptions,
rely upon Simplification Acts or other statutes which
protect it and Fund in not requiring complete
fiduciary documentation.
D. When mail is used for delivery of share certificates,
Service Company will forward share certificates in
"nonnegotiable" form as provided by Fund by first
class mail, all such mail deliveries to be covered
while in transit to the addressee by insurance
arranged for by Service Company.
E. Service Company will issue and mail subscription
warrants and certificates provided by Fund and
representing share dividends, exchanges or split-ups,
or act as Conversion Agent upon receiving written
instructions from any officer of Fund and such other
documents as Service Company deems necessary.
F. Service Company will issue, transfer, and split-up
certificates upon receiving written instructions from
an officer of Fund and such other
10
<PAGE>
documents as Service Company may deem necessary.
G. Service Company may issue new certificates in place
of certificates represented to have been lost,
destroyed, stolen or otherwise wrongfully taken, upon
receiving indemnity satisfactory to Service Company,
and may issue new certificates in exchange for, and
upon surrender of, mutilated certificates. Any such
issuance shall be in accordance with the provisions
of law governing such matter and any procedures
adopted by the Board of Trustees of the Fund of which
Service Company has notice.
H. Service Company will supply a shareholder's list to
Fund properly certified by an officer of Service
Company for any shareholder meeting upon receiving a
request from an officer of Fund. It will also supply
lists at such other times as may be reasonably
requested by an officer of Fund.
I. Upon receipt of written instructions of an officer of
Fund, Service Company will address and mail notices
to shareholders.
J. In case of any request or demand for the inspection
of the share books of Fund or any other books of Fund
in the possession of Service Company, Service Company
will endeavor to notify Fund and to secure
instructions as to permitting or refusing such
inspection. Service Company reserves the right,
however, to exhibit the share books or other books to
any person in case it is advised by its counsel that
it may be held responsible for the failure to exhibit
the share books or other books to such person.
19. Provisions Relating to Dividend Disbursing Agency.
--------------------------------------------------
A. Service Company will, at the expense of Fund, provide
a special form of check containing the imprint of any
device or other matter desired by Fund. Said checks
must, however, be of a form and size convenient for
use by Service Company.
B. If Fund wants to include additional printed matter,
financial statements, etc., with the dividend checks,
the same will be furnished to Service Company within
a reasonable time prior to the date of mailing of the
dividend checks, at the expense of Fund.
C. If Fund wants its distributions mailed in any special
form of envelopes, sufficient supply of the same will
be furnished to Service Company but the size and form
of said envelopes will be subject to the approval of
Service Company. If stamped envelopes are used, they
must be furnished by Fund; or, if postage stamps are
to be affixed to the envelopes, the stamps or the
cash necessary for such stamps must be furnished by
Fund.
D. Service Company will maintain one or more deposit
accounts as Agent for Fund, into which the funds for
payment of dividends, distributions,
11
<PAGE>
redemptions or other disbursements provided for
hereunder will be deposited, and against which checks
will be drawn.
20. Termination of Agreement.
-------------------------
A. This Agreement may be terminated by either party upon
sixty (60) days prior written notice to the other
party.
B. Fund, in addition to any other rights and remedies,
shall have the right to terminate this Agreement
forthwith upon the occurrence at any time of any of
the following events:
(1) Any interruption or cessation of operations
by Service Company or its assigns which
materially interferes with the business
operation of Fund.
(2) The bankruptcy of Service Company or its
assigns or the appointment of a receiver for
Service Company or its assigns.
(3) Any merger, consolidation or sale of
substantially all the assets of Service
Company or its assigns.
(4) The acquisition of a controlling interest in
Service Company or its assigns, by any
broker, dealer, investment adviser or
investment company except as may presently
exist.
(5) Failure by Service Company or its assigns to
perform its duties in accordance with this
Agreement, which failure materially
adversely affects the business operations of
Fund and which failure continues for thirty
(30) days after written notice from Fund.
(6) The registration of Service Company or its
assigns as a transfer agent under the
Securities Exchange Act of 1934 is revoked,
terminated or suspended for any reason.
C. In the event of termination, Fund will promptly pay
Service Company all amounts due to Service Company
hereunder. Upon termination of this Agreement,
Service Company shall deliver all shareholder and
account records pertaining to Fund either to Fund or
as directed in writing by Fund.
21. Assignment.
-----------
A. Neither this Agreement nor any rights or obligations
hereunder may be assigned by Service Company without
the written consent of Fund; provided, however, no
assignment will relieve Service Company of any of its
obligations hereunder.
12
<PAGE>
B. This Agreement including, without limitation, the
provisions of Section 7 will inure to the benefit of
and be binding upon the parties and their respective
successors and assigns.
C. Service Company is authorized by Fund to use the
system services of DST Systems, Inc. and the system
and other services, including data entry, of
Administrative Management Group, Inc.
22. Confidentiality.
----------------
A. Except as provided in the last sentence of Section
18.J hereof, or as otherwise required by law, Service
Company will keep confidential all records of and
information in its possession relating to Fund or its
shareholders or shareholder accounts and will not
disclose the same to any person except at the request
or with the consent of Fund.
B. Except as otherwise required by law, Fund will keep
confidential all financial statements and other
financial records (other than statements and records
relating solely to Fund's business dealings with
Service Company) and all manuals, systems and other
technical information and data, not publicly
disclosed, relating to Service Company's operations
and programs furnished to it by Service Company
pursuant to this Agreement and will not disclose the
same to any person except at the request or with the
consent of Service Company. Notwithstanding anything
to the contrary in this Section 22.B, if an attempt
is made pursuant to subpoena or other legal process
to require Fund to disclose or produce any of the
aforementioned manuals, systems or other technical
information and data, Fund shall give Service Company
prompt notice thereof prior to disclosure or
production so that Service Company may, at its
expense, resist such attempt.
23. Survival of Representations and Warranties.
-------------------------------------------
All representations and warranties by either party herein
contained will survive the execution and delivery of this
Agreement.
24. Miscellaneous.
--------------
A. This Agreement is executed and delivered in the State
of Illinois and shall be governed by the laws of said
state (except as to Section 24.G hereof which shall
be governed by the laws of The Commonwealth of
Massachusetts).
B. No provisions of this Agreement may be amended or
modified in any manner except by a written agreement
properly authorized and executed by both parties
hereto.
13
<PAGE>
C. The captions in this Agreement are included for
convenience of reference only, and in no way define
or limit any of the provisions hereof or otherwise
affect their construction or effect.
D. This Agreement shall become effective as of the date
hereof.
E. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed
an original but all of which together shall
constitute one and the same instrument.
F. If any part, term or provision of this Agreement is
held by the courts to be illegal, in conflict with
any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be
affected, and the rights and obligations of the
parties shall be construed and enforced as if the
Agreement did not contain the particular part, term
or provision held to be illegal or invalid.
G. All parties hereto are expressly put on notice of
Fund's Agreement and Declaration of Trust which is on
file with the Secretary of The Commonwealth of
Massachusetts, and the limitation of shareholder and
trustee liability contained therein. This Agreement
has been executed by and on behalf of Fund by its
representatives as such representatives and not
individually, and the obligations of Fund hereunder
are not binding upon any of the Trustees, officers or
shareholders of the Fund individually but are binding
upon only the assets and property of Fund. With
respect to any claim by Service Company for recovery
of that portion of the compensation and expenses (or
any other liability of Fund arising hereunder)
allocated to a particular Portfolio, whether in
accordance with the express terms hereof or
otherwise, Service Company shall have recourse solely
against the assets of that Portfolio to satisfy such
claim and shall have no recourse against the assets
of any other Portfolio for such purpose.
H. This Agreement, together with the Fee Schedule, is
the entire contract between the parties relating to
the subject matter hereof and supersedes all prior
agreements between the parties.
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officer as of the day and year
first set forth above.
INVESTMENT TRUST on behalf of
Scudder Growth and Income Fund, Class R
shares, and Scudder Large Company Growth
Fund, Class R shares
By: /s/Daniel Pierce
-----------------
Daniel Pierce
President
ATTEST:
/s/John Millette
- -----------------------------
Title: Vice President
KEMPER SERVICE COMPANY
By: /s/Michael J. Curran
------------------------
Michael J. Curran
President
ATTEST:
/s/Kathryn L. Quirk
- -----------------------------
Title:
15
<PAGE>
EXHIBIT A
---------
INVESTMENT TRUST
Scudder Growth and Income Fund (Class R Shares)
Scudder Large Company Growth Fund (Class R Shares)
FEE SCHEDULE
------------
RETIREMENT NON-RETIREMENT
ACCOUNTS ACCOUNTS
Per Account Fee (in $)
Annual Open Account Fee 18.00
New Accounts Fee 5.00
Asset Based Fee (in bps) 8 bp
The out-of-pocket expenses of Agent will be reimbursed by Fund in accordance
with the provisions of Section 5 of the Transfer Agency and Service Agreement.
Fees and out-of-pocket expenses shall be paid or reimbursed on a monthly basis
upon receipt of an invoice therefor.
The asset based fee for each month shall be equal to 1/12 of the applicable
annual fee rate, as set forth in this schedule, of the average daily net assets
of the Fund for each month. The asset based fee in the schedule is expressed in
basis points ("bps") as an annual rate. 100 basis points is equivalent to one
percentage point (1.00%). Total transfer agency fees and related out-of-pocket
expenses payable by the Funds for the Class R Shares shall be limited for the
initial 12 month period from the Class's inception to the levels set forth in
Exhibit 1, which levels are expressed as a percentage of average daily net
assets for the applicable period.
16
<PAGE>
EXHIBIT 1
---------
TRANSFER AGENT EXPENSE CAPS
R Shares
--------
Scudder Growth and Income Fund 0.35%
Scudder Large Company Growth Fund 0.35%
17
<PAGE>
EXHIBIT B
---------
INSURANCE COVERAGE
------------------
DESCRIPTION OF POLICY:
Brokers Blanket Bond, Standard Form 14
Covering losses caused by dishonesty of employees, physical loss of securities
on or outside of premises while in possession of authorized person, loss caused
by forgery or alteration of checks or similar instruments.
Errors and Omissions Insurance
Covering replacement of destroyed records and computer errors and omissions.
Special Forgery Bond
Covering losses through forgery or alteration of checks or drafts of customers
processed by insured but drawn on or against them.
Mail Insurance (applies to all full service operations)
Provides indemnity for the following types of securities lost in the mails:
o Non-negotiable securities mailed to domestic locations via registered
mail.
o Non-negotiable securities mailed to domestic locations via first-class
or certified mail.
o Non-negotiable securities mailed to foreign locations via registered
mail.
o Negotiable securities mailed to all locations via registered mail.
18
[DECHERT PRICE & RHOADS LETTERHEAD OMITTED]
July 23, 1999
Investment Trust
Two International Place
Boston, Massachusetts 02110
Re: Post-Effective Amendment No. 106 to the Registration
Statement on Form N-1A (SEC File No. 2-13628)
Ladies and Gentlemen:
Investment Trust, formerly Scudder Growth and Income Fund and
then Scudder Investment Trust, (the "Trust") is a trust created under a written
Declaration of Trust dated September 20, 1984. The Declaration of Trust, as
amended from time to time, is referred to as the "Declaration of Trust." The
beneficial interest under the Declaration of Trust is represented by
transferable shares, $.01 par value per share ("Shares"). The Trustees have the
powers set forth in the Declaration of Trust, subject to the terms, provisions
and conditions therein provided.
We are of the opinion that all legal requirements have been
complied with in the creation of the Trust and that said Declaration of Trust is
legal and valid.
Under Article V, Section 5.4 of the Declaration of Trust, the
Trustees are empowered, in their discretion, from time to time, to issue Shares
for such amount and type of consideration, at such time or times and on such
terms as the Trustees may deem best. Under Article V, Section 5.1, it is
provided that the number of Shares authorized to be issued under the Declaration
of Trust is unlimited. Under Article V, Section 5.11, the Trustees may authorize
the division of Shares into two or more series and may also authorize the
division of Shares of series of the Trust into two or more classes. By written
instruments, the Trustees have from time to time established various series of
the Trust and various classes of the series. The Shares are currently divided
into eight series (the "Funds"). Currently, the Shares of three Funds are
divided into two or more classes.
<PAGE>
Investment Trust
July 23, 1999
Page 2
By votes adopted on November 11, 1997 and November 9, 1998,
the Trustees of the Trust authorized the President, any Vice President, the
Secretary and the Treasurer, from time to time, to determine the appropriate
number of Shares to be registered, to register with the Securities and Exchange
Commission, and to issue and sell to the public, such Shares.
We understand that you are about to file with the Securities
and Exchange Commission, on Form N-1A, Post Effective Amendment No. 106 to the
Trust's Registration Statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
the continuous offering of the Class R Shares of two Funds: Scudder Growth and
Income Fund and Scudder Large Company Growth Fund. We understand that our
opinion is required to be filed as an exhibit to the Registration Statement.
We are of the opinion that all necessary Trust action
precedent to the issue of the Class R Shares of the two Funds named above has
been duly taken, and that all such Shares may be legally and validly issued for
cash, and when sold will be fully paid and non-assessable by the Trust upon
receipt by the Trust or its agent of consideration for such Shares in accordance
with the terms in the Registration Statement, subject to compliance with the
Securities Act, the Investment Company Act of 1940, as amended, and applicable
state laws regulating the sale of securities.
We consent to your filing this opinion with the Securities and
Exchange Commission as an Exhibit to Post-Effective Amendment No. 106 to the
Registration Statement.
Very truly yours,
DECHERT PRICE & RHOADS
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus and
Statement of Additional Information constituting the Post-Effective Amendment
No. 106 to the Registration Statement on Form N-1A (the "Registration
Statement") of Investment Trust, comprised of Scudder Large Company Growth Fund
and Scudder Growth and Income Fund, of our reports dated December 10, 1998 and
February 11, 1999 on the financial statements and financial highlights appearing
in the October 31, 1998 and December 31, 1998 Annual Reports to the Shareholders
of Scudder Large Company Growth Fund and Scudder Growth and Income Fund, which
are also incorporated by reference into the Registration Statement. We further
consent to the references to our Firm under the headings "Financial Highlights,"
in the Prospectus and "Experts" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 28, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Scudder
Growth And Income Fund Annual Report for the fiscal year ended 12/31/98 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Scudder Growth and Income Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,965,418,706
<INVESTMENTS-AT-VALUE> 7,605,032,557
<RECEIVABLES> 47,379,628
<ASSETS-OTHER> 36,883
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,652,449,068
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 70,197,706
<TOTAL-LIABILITIES> 70,197,706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,915,449,061
<SHARES-COMMON-STOCK> 288,145,757
<SHARES-COMMON-PRIOR> 250,081,688
<ACCUMULATED-NII-CURRENT> 7,600,144
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,486,484
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,639,715,673
<NET-ASSETS> 7,582,251,362
<DIVIDEND-INCOME> 209,419,173
<INTEREST-INCOME> 16,432,153
<OTHER-INCOME> 0
<EXPENSES-NET> 57,065,917
<NET-INVESTMENT-INCOME> 168,785,409
<REALIZED-GAINS-CURRENT> 517,286,022
<APPREC-INCREASE-CURRENT> (286,105,331)
<NET-CHANGE-FROM-OPS> 399,966,100
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (166,588,779)
<DISTRIBUTIONS-OF-GAINS> (564,589,614)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,391,306,573
<NUMBER-OF-SHARES-REDEEMED> (1,996,432,615)
<SHARES-REINVESTED> 685,005,575
<NET-CHANGE-IN-ASSETS> 748,667,240
<ACCUMULATED-NII-PRIOR> 5,816,401
<ACCUMULATED-GAINS-PRIOR> 66,347,065
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,062,247
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 57,065,917
<AVERAGE-NET-ASSETS> 7,674,082,121
<PER-SHARE-NAV-BEGIN> 27.33
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> 1.06
<PER-SHARE-DIVIDEND> (0.61)
<PER-SHARE-DISTRIBUTIONS> (2.09)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 26.31
<EXPENSE-RATIO> 0.74
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Scudder
Large Company Growth Fund Semiannual Report for the period ended 4/30/99 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Scudder Large Company Growth Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<INVESTMENTS-AT-COST> 567,599,965
<INVESTMENTS-AT-VALUE> 829,196,590
<RECEIVABLES> 5,892,360
<ASSETS-OTHER> 1,073
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 835,090,023
<PAYABLE-FOR-SECURITIES> 3,390,118
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,261,044
<TOTAL-LIABILITIES> 4,651,162
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 573,935,390
<SHARES-COMMON-STOCK> 24,774,581
<SHARES-COMMON-PRIOR> 17,828,773
<ACCUMULATED-NII-CURRENT> (888,304)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,204,850)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 261,596,625
<NET-ASSETS> 830,438,861
<DIVIDEND-INCOME> 2,072,904
<INTEREST-INCOME> 769,745
<OTHER-INCOME> 0
<EXPENSES-NET> 3,730,953
<NET-INVESTMENT-INCOME> (888,304)
<REALIZED-GAINS-CURRENT> (2,965,479)
<APPREC-INCREASE-CURRENT> 138,734,974
<NET-CHANGE-FROM-OPS> 134,881,191
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 32,236,783
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 359,612,213
<NUMBER-OF-SHARES-REDEEMED> (165,468,193)
<SHARES-REINVESTED> 31,494,627
<NET-CHANGE-IN-ASSETS> 328,283,055
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 30,997,412
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,389,015
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,730,953
<AVERAGE-NET-ASSETS> 688,228,498
<PER-SHARE-NAV-BEGIN> 28.17
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 7.10
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.71)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 33.52
<EXPENSE-RATIO> 1.09
</TABLE>
