Scudder
Dividend &
Growth Fund
Annual Report
December 31, 1998
Pure No-Load(TM) Funds
A pure no-load(TM) (no sales charges) mutual fund seeking high current income
and long-term growth of capital through investment in income-paying equity
securities.
SCUDDER (logo)
<PAGE>
Scudder Dividend & Growth Fund
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Date of Inception: 7/17/98 Total Net Assets as of Ticker Symbol: SDGFX
12/31/98: $24.64 million
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o Scudder Dividend & Growth Fund declined 4.00% for the period from the Fund's
inception on July 17, 1998 to December 31, 1998, reflecting the difficult market
environment for high dividend yielding stocks and real estate investment trusts.
o During this abbreviated fiscal period for the Fund, the market was dominated
by a handful of large-cap growth stocks, which drove returns of the
market-cap-weighted indices such as the unmanaged S&P 500 Index.
o The Fund's investment strategy was fully implemented during the period, with
investments in dividend-paying stocks, real estate investment trusts, and
convertible securities.
Table of Contents
3 Letter from the Fund's President 22 Notes to Financial Statements
4 Performance Update 25 Report of Independent Accountants
5 Portfolio Summary 26 Tax Information
6 Portfolio Management Discussion 27 Shareholder Meeting Results
10 Glossary of Investment Terms 28 Officers and Trustees
11 Investment Portfolio 29 Investment Products and Services
18 Financial Statements 30 Scudder Solutions
21 Financial Highlights
2 - Scudder Dividend & Growth Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to present you with the first annual report for Scudder
Dividend & Growth Fund for the abbreviated fiscal period ended December 31,
1998. While this initial period proved challenging for investors in
dividend-paying stocks, real estate investment trusts, and convertible
securities, we fully expect that it will prove a valuable component in your
investment portfolio over the long term. Your Fund's managers discuss the market
environment and their investment strategy in detail beginning on page 6.
As we consider another year of strong performance for the stock and bond
markets, and ponder what lies ahead, the importance of diversification cannot be
overstated. This straightforward principle is particularly important following
nearly eight consecutive years of strong domestic equity returns. In such an
environment, investors can easily be lulled into believing that annual gains of
20% or more are normal when long-run returns are about half that amount. While
the U.S. stock market may record another period of strong performance in 1999,
we believe that investors with adequate exposure to several asset classes,
including fixed income, small-cap, and international equities, will be the most
successful over the long term.
For those of you who are interested in new Scudder products, we recently
introduced two funds which employ portfolio strategies that are designed to
minimize tax consequences to investors: Scudder Tax Managed Growth Fund -- which
seeks long-term growth of capital through equity investments in medium- to
large-sized U.S. companies, and Scudder Tax Managed Small Company Fund -- which
focuses on small-cap stocks. For further information on these new funds, please
call Scudder Investor Relations at 1-800-225-2470.
Thank you for your continued investment in Scudder Dividend & Growth Fund. If
you have any questions about your account, please call us at the number above,
or visit our Web site at www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Dividend & Growth Fund
3 - Scudder Dividend & Growth Fund
<PAGE>
Performance Update as of December 31, 1998
Fund Index Comparisons
- -----------------------------------------
Total Return
----------------
Period Growth
Ended of
12/31/98 $10,000 Cumulative
--------------------------------------------
Scudder Dividend & Growth Fund
--------------------------------------------
Life of Fund* $ 9,600 -4.00%
--------------------------------------------
S&P 500 Index
--------------------------------------------
Life of Fund* $ 10,430 4.30%
--------------------------------------------
S&P 500 Index (60%), Bloomberg Real Estate
Investment Trust Index (20%), Merrill
Lynch All Convertible Index (20%)
--------------------------------------------
Life of Fund* $ 9,966 -0.34%
--------------------------------------------
* The Fund commenced operations on July 17, 1998.
Growth of a $10,000 Investment
- -----------------------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Scudder Dividend & Growth Fund
Year Amount
- -----------------------
7/17/98* $10,000
7/98 $ 9,408
8/98 $ 8,327
9/98 $ 8,853
10/98 $ 9,071
11/98 $ 9,461
12/98 $ 9,698
S&P 500 Index
Year Amount
- -----------------------
7/17/98* $10,000
7/98 $ 9,447
8/98 $ 8,080
9/98 $ 8,599
10/98 $ 9,298
11/98 $ 9,862
12/98 $10,430
S&P 500 Index (60%), Bloomberg Real Estate
Investment Trust Index (20%), Merrill
Lynch All Convertible Index (20%)
Year Amount
- -----------------------
7/17/98* $10,000
7/98 $ 9,442
8/98 $ 8,229
9/98 $ 8,682
10/98 $ 9,113
11/98 $ 9,560
12/98 $ 9,966
The Standard and 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 Nasdaq Stock Market. The Bloomberg Real Estate
Investment Trust (BBREIT) Index is a capitalization-weighted index of infinite
life Real Estate Investment Trusts having a market capitalization of $15 million
or greater. The Merrill Lynch All Convertible (MLAC) Index is composed of all
types of U.S. domestic convertible instruments (bonds, preferred, etc.). 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:
<TABLE>
<CAPTION>
1998
- ----------------------------------------------------------------------------
<S> <C>
Net Asset Value $ 11.35
- ----------------------------------------------------------------------------
Income Dividends $ .17
- ----------------------------------------------------------------------------
Capital Gains Distributions $ --
- ----------------------------------------------------------------------------
Fund Total Return (%) -4.00
- ----------------------------------------------------------------------------
Index Total Return (%) 4.30
- ----------------------------------------------------------------------------
</TABLE>
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total 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 return would have been lower.
4 - Scudder Dividend & Growth Fund
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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 50%
REITs 25%
Convertible Bonds 12%
Convertible Preferred 10%
Cash Equivalents 3%
--------------------------------------
100%
======================================
The Fund's strategy was fully implemented during the period, with investments
in dividend-paying stocks, real estate investment trusts, and convertible
securities.
Sector Diversification
(Excludes 3% Cash Equivalents)
- -----------------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
REITs 26%
Financial 12%
Manufacturing 10%
Health 10%
Communications 7%
Energy 6%
Durables 6%
Consumer Discretionary 5%
Media 4%
Utilities 4%
Other 10%
--------------------------------------
100%
======================================
The Fund's significant weighting in real estate investment trusts is included
in the financial category, the largest sector weighting at the end of the
period.
Ten Largest Equity Holdings
(26% of Portfolio)
- -----------------------------------------
1. CenterPoint Properties Corp.
Developer and manager of warehouse and
industrial real estate
2. Boston Properties, Inc.
Commercial and industrial real estate developer
3. Apartment Investment &
Management Co.
Owner of diversified portfolio for multifamily
apartment properties
4. Equity Office Properties Trust
Owner of office properties and parking facilities
5. Spieker Properties, Inc.
Independent equity investment trust which owns
and develops commercial real estate
6. Arden Realty Group, Inc.
Owner of office properties in southern California
7. AMB Property Corp.
Operator of industrial properties
and shopping centers
8. Equity Residential Properties Trust
Owner of apartment properties
9. Xerox Corp.
Leading manufacturer of copiers and duplicators
10. Williams Cos., Inc.
Gas pipeline operator and telecommunications provider
While eight of the top 10 holdings were real estate investment trusts, the
portfolio remained diversified with over 100 individual positions.
For more complete details about the Fund's investment portfolio, see page 11. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Dividend & Growth Fund
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Portfolio Management Discussion
We asked portfolio managers Rob Hoffman, Lori Ensinger, and Nicholas Anisimov to
review the market environment and Fund's performance for the period ended
December 31, 1998. Below are highlights of their discussion.
Q: How do you explain another year of strong performance for U.S. stocks?
When you consider that profit growth actually decelerated over most 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, has been
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
12-month return on an equal-weighted basis, we see that the average stock
returned about half of the index's market-cap-weighted return. (The 12-month
equal-weighted return was 13.8%, versus 28.6% for the market-cap-weighted
return.) In fact, 70% of the stocks in the S&P 500 underperformed the
market-cap-weighted return for the full year and 40% of the stocks actually had
negative returns in 1998.
Of course, the other factor at work here has been investors' very strong
preference for "growth" versus "value" stocks. 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, at
15.63% for the same period. Over the 15 years that we have been managing
portfolios, we have never seen such a wide disparity between growth and value
investing styles.
Q: With market leadership confined to a handful of large-cap growth stocks, how
did the Fund perform?
Investor preference for growth and the largest large-cap stocks provided a
substantial headwind for your Fund's value-orientation over the relatively short
period since inception on July 17. The Fund's investment universe of relatively
high dividend yielding stocks, real estate investment trusts, and convertible
securities is typically best suited to market environments that are not
dominated by a few stocks, especially growth stocks. In particular, real estate
investment trusts, which tend to perform well in declining interest rate
environments, reported negative returns for the period. These factors
contributed to the Fund's 4.00% decline for the period from July 17th to
December 31st. For the same period, the Fund's composite index (includes S&P 500
Index [60%], Bloomberg Real Estate Investment Trust Index [20%], and Merrill
Lynch All Convertible Index [20%]) returned -0.34%. The S&P 500 Index alone
returned 4.3%.
Q: How do you manage the Fund?
We allocate assets on a three-part approach with the majority in dividend-paying
stocks (50%), real estate investment trusts (25%), and convertible securities
(22%), with the balance in cash. Our approach to investing in dividend-paying
stocks is governed by our relative yield strategy, which emphasizes stocks with
yields greater than that of the S&P 500 yield. This strategy typically puts us
in "value stock" territory.
6 - Scudder Dividend & Growth Fund
<PAGE>
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
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 P/Es of the 20 largest stocks in the S&P 500,
which traded at 41x 1998 estimated earnings. In contrast, the bottom 480 stocks
in the index traded at a P/E of 27.3x. While this phenomenon continued during
most of 1998 (and may continue for the foreseeable future), we believe that
investors will eventually return to investing in companies with solid
fundamentals and attractive valuations, which should work to the Fund's
advantage.
Q: Dividend-paying stocks comprised about half of the portfolio. Were there some
notable performers you'd like to mention?
Overall, the Fund's larger holdings in the equity portion of the portfolio made
significant contributions to performance. In fact Ford, one of our largest
holdings in this part of the portfolio, was the best performing stock of those
with yields greater than 120% of the S&P. Other success stories included Xerox,
American Home Products, Unilever, and Chase Manhattan Corp.
Q: Technology was a top-performing sector in 1998, but your yield discipline
usually precludes you from 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 strongly. Standout performers were BellSouth,
Sprint, Alltel, and Frontier. A combination of low relative valuations at the
beginning of the year, and the increasing recognition that the local telephone
companies' revenue and earnings growth was 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
7 - Scudder Dividend & Growth Fund
<PAGE>
its year-end closing price. We believe Corning's 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 period?
The fourth quarter of 1997 saw the relative yields of electric utilities rise to
all time highs, even higher than during 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 contributors from
Unicom, Duke Energy, and Southern Company.
In addition, our underweight position in the consumer staple sector, as well as
specific stock selection, also added value as our yield discipline enabled us to
avoid weakness in Coke, Procter & Gamble, and Gillette. Instead, this area was
led by such Fund holdings as Avon and Unilever.
Q: Your holdings of real estate investment trusts (REITs) outperformed, but
overall this sector was in negative territory. Why?
Perhaps the most frustrating part of managing this portfolio was the
underperformance of the REIT sector. Historically, as interest rates decline,
REITs tend to benefit as their cost of borrowing is reduced. We also believed
that our REIT holdings would help control downside volatility at a time when the
valuation of the broad market had reached 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 full year, yet REITs declined about 13% on average over the period since
the Fund's inception.
We attribute this performance anomaly to the massive new supply of stock and
bonds in 1998 in relation to the REIT universe, which is still not that large.
In addition, after two to three years of incredible REIT performance leading up
to 1998, growth and momentum buyers had been attracted. When the market turned
to large-cap growth stocks, these investors left REITs behind. While there are
fewer bargains today, the fundamentals haven't changed, and we believe this
sector will make a meaningful contribution over the long term.
Q: Convertible securities are the third major emphasis in the portfolio. How did
they perform over the five-and-one-half months?
Our convertible securities holdings outperformed the convertible market overall,
but as an asset class, convertibles lagged the broader market. As smaller-cap
issues, convertibles did not fully participate in the large-cap growth stock
rally. However, in contrast to the situation in the dividend-paying stock
portion of the portfolio, which tends not to hold tech stocks, we can and did
own technology and biotech in the convertible portion. In particular, our
performance in December was strong, driven by our holdings in TCI, MedImmune,
and EMC Corp.
8 - Scudder Dividend & Growth Fund
<PAGE>
Q: Given the challenging year, why should investors invest in the Fund?
For 15 years we have been managing portfolios with the relative dividend yield
strategy that is premised on 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.
You may be wondering when the Fund's emphasis on dividend-paying stocks will
return to favor. The timing of this change is difficult to predict, but value
stocks have come back into favor after nearly every period of strong performance
by growth stocks. With the recent strong performance of growth stocks and the
very attractive valuations of stocks in the Fund's portfolio, we do not think it
is a good time to abandon the Fund's approach.
In addition, current market valuations are clearly stretched to the limit. Given
this environment, the market could correct. If that occurred, we believe the
Fund would provide a significant level of downside protection.
While we are not satisfied with the Fund's initial performance, investors need
to keep in mind the relatively short period that the Fund has been in existence,
as well as the Fund's long-term investment approach. Over time, we believe that
the Fund's investment discipline will prove rewarding. In the meantime, we will
continue to focus on those securities whose prices we believe already reflect a
difficult operating environment since they are less likely to disappoint
further.
Scudder Dividend &
Growth Fund:
A Team Approach to Investing
Scudder Dividend & 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.
Robert T. Hoffman, Lead Portfolio Manager, has had responsibility for setting
the Fund's stock investing strategy and overseeing the Fund's day-to-day
operations since 1998. Mr. Hoffman, who joined the Adviser in 1990 as a
portfolio manager, has 17 years of pension fund management experience. Nicholas
Anisimov, Portfolio Manager, focuses on the Fund's convertible securities
investments. Mr. Anisimov joined the Adviser in 1987. Mr. Anisimov is a
Chartered Financial Analyst with 13 years of industry experience. Lori J.
Ensinger, Portfolio Manager, focuses on stock selection and the Fund's
investment strategy. Prior to joining the Adviser as a portfolio manager in
1993, Ms. Ensinger was a senior portfolio manager at an investment firm where
she managed portfolios for institutions and individuals.
9 - Scudder Dividend & Growth 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 the 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
or 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)
10 - Scudder Dividend & Growth Fund
<PAGE>
Investment Portfolio as of December 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 2.5%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Co. dated 12/31/1998 at 4.85%, to be
repurchased at $615,331 on 1/4/1999, collateralized by a $600,000 U.S. Treasury Note, ----------
5.5%, 2/28/2003 (Cost $615,000) ........................................................ 615,000 615,000
----------
Convertible Bonds 12.1%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.6%
Department & Chain Stores
Home Depot Inc., 3.25%, 10/1/2001 ........................................................ 150,000 397,219
----------
Health 3.3%
Biotechnology
Alza Corp., Zero Coupon, 7/14/2014 ....................................................... 510,000 347,438
MedImmune Inc., 7%, 7/1/2003 ............................................................. 89,000 452,565
----------
800,003
----------
Financial 2.4%
Insurance 1.2%
American International Group, Inc., 2.25%, 7/30/2004 ..................................... 224,000 290,080
----------
Other Financial Companies 1.2%
American Express Corp, 1.125%, 2/19/2003 ................................................. 282,000 292,223
----------
Media 2.8%
Advertising
Interpublic Group of Companies, Inc., 1.8%, 9/16/2004 .................................... 325,000 363,188
Omnicom Group, Inc., 4.25%, 1/3/2007 ..................................................... 165,000 314,325
----------
677,513
----------
Durables 0.8%
Automobiles
Magna International Corp, 4.875%, 2/15/2005 .............................................. 90,000 92,025
Tower Auto Group, 5%, 8/1/2004 ........................................................... 95,000 106,994
----------
199,019
----------
Technology 1.2%
EDP Peripherals
EMC Corp., 3.25%, 3/15/2002 .............................................................. 81,000 303,750
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $2,582,999) 2,959,807
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Dividend & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Preferred Stocks 9.9%
- ------------------------------------------------------------------------------------------------------------------------------
Communications 0.6%
Telephone/Communications
Qwest Trends Trust, 5.75% ................................................................ 3,000 139,500
----------
Consumer Discretionary 1.9%
Home Furnishings
Newell Company, 5.25% .................................................................... 8,600 456,875
----------
Durables 0.8%
Leasing Companies
Budget Group, Inc., 6.25% ................................................................ 5,000 198,125
----------
Energy 1.1%
Oil & Gas Production
Williams Cos., Inc., com. $3.5 ........................................................... 1,820 265,493
----------
Financial 1.3%
Other Financial Companies
American General Delaware LLC., 6% ....................................................... 3,300 325,875
----------
Health 2.6%
Health Industry Services 1.1%
McKesson Financing Trust, 5% ............................................................. 2,600 278,200
----------
Biotechnology 1.5%
Monsanto Co., 6.5% ....................................................................... 7,700 377,300
----------
Media 1.6%
Cable Television
TCI Communications, Inc., com. $2.125 .................................................... 3,600 379,350
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $2,430,165) 2,420,718
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 75.5%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.2%
Department & Chain Stores
May Department Stores .................................................................... 3,100 187,163
Sears, Roebuck & Co. ..................................................................... 2,500 106,250
293,413
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Dividend & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Staples 2.5%
Food & Beverage 1.7%
H.J. Heinz Co. ........................................................................... 5,200 294,450
Unilever NV (New York shares) ............................................................ 1,400 116,113
----------
410,563
----------
Package Goods/Cosmetics 0.8%
Avon Products Inc. ....................................................................... 4,400 194,700
----------
Health 3.4%
Pharmaceuticals
American Home Products Corp. ............................................................. 5,900 332,244
Bristol-Myers Squibb Co. ................................................................. 2,300 307,769
SmithKline Beecham PLC (ADR) ............................................................. 1,800 125,100
Zeneca Group PLC (ADR) ................................................................... 1,400 62,825
----------
827,938
----------
Communications 6.5%
Telephone/Communications
Alltel Corp. ............................................................................. 2,600 155,513
Bell Atlantic Corp. ...................................................................... 5,900 335,194
BellSouth Corp. .......................................................................... 5,200 259,350
Frontier Corp. ........................................................................... 6,400 217,600
GTE Corp. ................................................................................ 5,000 337,188
Sprint Corp. ............................................................................. 2,300 193,488
Telesp Participacoes S.A. (ADR)* ......................................................... 4,200 92,925
----------
1,591,258
----------
Financial 33.0%
Banks 5.4%
BANC ONE CORP. ........................................................................... 2,400 122,550
BankAmerica Corp. ........................................................................ 3,700 222,463
Bankers Trust Corp. ...................................................................... 1,300 111,069
Chase Manhattan Corp. .................................................................... 2,400 163,350
First Union Corp. ........................................................................ 4,100 249,331
Fleet Financial Group Inc. ............................................................... 5,200 232,375
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Dividend & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
KeyCorp .................................................................................. 3,600 115,200
US Bancorp ............................................................................... 2,800 99,400
----------
1,315,738
----------
Insurance 1.5%
EXEL Ltd. ................................................................................ 2,800 210,000
Lincoln National Corp. ................................................................... 900 73,631
Safeco Corp. ............................................................................. 1,800 77,288
----------
360,919
----------
Other Financial Companies 1.0%
Federal National Mortgage Association .................................................... 3,400 251,600
----------
Real Estate 25.1%
AMB Property Corp. ....................................................................... 26,000 572,000
Apartment Investment & Management Co. .................................................... 15,700 583,844
Arden Realty Group, Inc. ................................................................. 24,700 572,731
Boston Properties, Inc. (REIT) ........................................................... 28,700 875,350
CenterPoint Properties Corp. (REIT) ...................................................... 28,600 967,038
Equity Office Properties Trust (REIT) .................................................... 24,300 583,200
Equity Residential Properties Trust (REIT) ............................................... 14,000 566,125
Meditrust Corp. (REIT) ................................................................... 16,400 248,050
Philips International Realty Corp. ....................................................... 19,200 295,200
ProLogis Trust (REIT) .................................................................... 14,100 292,575
Spieker Properties, Inc. ................................................................. 16,800 581,700
----------
6,137,813
----------
Service Industries 0.1%
Environmental Services
Browning Ferris Industries ............................................................... 1,000 28,438
----------
Durables 4.4%
Aerospace 1.9%
Lockheed Martin Corp. .................................................................... 2,100 177,975
Northrop Grumman Corp. ................................................................... 1,800 131,625
Rockwell International Corp. ............................................................. 3,100 150,543
----------
460,143
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Dividend & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automobiles 1.5%
Dana Corp. ............................................................................... 3,300 134,888
Ford Motor Co. ........................................................................... 3,800 223,013
----------
357,901
----------
Construction/Agricultural Equipment 0.7%
Caterpillar Inc. ......................................................................... 2,100 96,600
PACCAR, Inc. ............................................................................. 2,100 86,363
----------
182,963
----------
Tires 0.3%
Goodyear Tire & Rubber Co. ............................................................... 1,500 75,656
----------
Manufacturing 10.2%
Chemicals 3.2%
Akzo Nobel N.V. .......................................................................... 3,000 133,866
Dow Chemical Co. ......................................................................... 1,300 118,219
E.I. du Pont de Nemours & Co. ............................................................ 1,800 95,513
Eastman Chemical Co. ..................................................................... 2,400 107,400
Imperial Chemical Industries PLC ......................................................... 5,200 45,097
Imperial Chemical Industries PLC (ADR) ................................................... 4,300 150,231
Lyondell Chemical Co. .................................................................... 7,600 136,800
----------
787,126
----------
Containers & Paper 1.5%
Boise Cascade Corp. ...................................................................... 6,900 213,900
Temple-Inland Inc. ....................................................................... 2,400 142,350
----------
356,250
----------
Diversified Manufacturing 0.8%
Canadian Pacific Ltd. (Ord.) ............................................................. 6,100 114,290
Olin Corp. ............................................................................... 2,900 82,106
----------
196,396
----------
Electrical Products 0.8%
Emerson Electric Co. ..................................................................... 1,400 84,700
Thomas & Betts Corp. ..................................................................... 2,500 108,281
----------
192,981
----------
Industrial Specialty 1.4%
Corning Inc. ............................................................................. 7,800 351,000
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Dividend & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery/Components/Controls 0.4%
Parker-Hannifin Corp. .................................................................... 2,700 88,425
----------
Office Equipment/Supplies 2.1%
Xerox Corp. .............................................................................. 4,400 519,200
----------
Energy 5.0%
Oil & Gas Production 0.4%
Conoco Inc. "A"* ......................................................................... 4,600 96,025
----------
Oil Companies 3.8%
Mobil Corp. .............................................................................. 2,300 200,388
Royal Dutch Petroleum Co. (New York shares) .............................................. 2,100 100,538
Societe Nationale Elf Aquitaine (ADR) .................................................... 3,300 186,863
Texaco Inc. .............................................................................. 4,600 243,225
Total SA (ADR) ........................................................................... 1,800 89,550
YPF S.A. "D" (ADR) ....................................................................... 3,500 97,781
----------
918,345
----------
Oil/Gas Transmission 0.8%
Williams Cos., Inc. ...................................................................... 6,600 205,838
----------
Metals & Minerals 1.3%
Steel & Metals
Allegheny Teledyne Inc. .................................................................. 10,700 218,681
Oregon Steel Mills, Inc. ................................................................. 4,600 54,625
Phelps Dodge Corp. ....................................................................... 400 20,350
Reynolds Metals Co. ...................................................................... 500 26,344
----------
320,000
----------
Construction 2.7%
Building Products 1.2%
Georgia Pacific Group .................................................................... 4,900 286,956
----------
Forest Products 1.5%
Georgia Pacific Timber Group ............................................................. 5,500 130,969
Weyerhaeuser Co. ......................................................................... 4,900 248,981
----------
379,950
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Dividend & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation 1.4%
Railroads
CSX Corp. ................................................................................ 5,100 211,650
Norfolk Southern Corp. ................................................................... 3,800 120,413
----------
332,063
----------
Utilities 3.8%
Electric Utilities
CINergy Corp. ............................................................................ 7,100 244,063
Duke Energy Corp. ........................................................................ 2,800 179,375
PacifiCorp ............................................................................... 5,300 111,631
Southern Company ......................................................................... 4,100 119,156
Unicom Corp. ............................................................................. 4,100 158,106
Wisconsin Energy Corp. ................................................................... 3,900 122,606
----------
934,937
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $19,242,564) 18,454,535
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $24,870,728) (a) 24,450,060
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing
(a) The cost for federal income tax purposes was $24,886,885. At December 31,
1998, net unrealized depreciation for all securities based on tax cost was
$436,825. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $1,325,567 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,762,392.
The accompanying notes are an integral part of the financial statements.
17 - Scudder Dividend & Growth Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1998
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $24,870,728) ................ $ 24,450,060
Cash ................................................................ 396
Receivable for investments sold ..................................... 212,296
Dividends and interest receivable ................................... 96,546
Receivable for Fund shares sold ..................................... 146,360
Prepaid expenses .................................................... 939
Reimbursement from Adviser .......................................... 5,960
----------------
Total assets ........................................................ 24,912,557
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ................................... 10,332
Payable for Fund shares redeemed .................................... 263,914
Other payables ...................................................... 1,675
----------------
Total liabilities ................................................... 275,921
--------------------------------------------------------------------------------------------
Net assets, at value $ 24,636,636
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................. 6,261
Unrealized appreciation (depreciation) on investments ............... (420,668)
Accumulated net realized gain (loss) ................................ (865,321)
Paid-in capital ..................................................... 25,916,364
--------------------------------------------------------------------------------------------
Net assets, at value $ 24,636,636
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($24,636,636
/ 2,170,880 outstanding shares of beneficial interest, $.01 par ----------------
value, unlimited number of shares authorized) .................... $11.35
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder Dividend & Growth Fund
<PAGE>
Statement of Operations
for the period July 17, 1998 (commencement
of operations) to December 31, 1998
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $1,038) .................. $ 356,976
Interest ............................................................. 79,550
----------------
436,526
Expenses:
Management fee ....................................................... 79,570
Services to shareholders ............................................. 101,619
Custodian and accounting fees ........................................ 20,965
Trustees' fees and expenses .......................................... 5,028
Reports to shareholders .............................................. 7,385
Auditing ............................................................. 19,600
Legal ................................................................ 4,394
Registration fees .................................................... 29,138
Other ................................................................ 4,420
----------------
Total expenses before reductions ..................................... 272,119
Expense reductions ................................................... (192,549)
----------------
Expenses, net ........................................................ 79,570
--------------------------------------------------------------------------------------------
Net investment income (loss) 356,956
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .......................................................... (870,436)
Foreign currency related transactions ................................ (478)
----------------
(870,914)
----------------
Net unrealized appreciation (depreciation) during the period on
investments ....................................................... (420,668)
--------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (1,291,582)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (934,626)
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - Scudder Dividend & Growth Fund
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
July 17, 1998
(commencement of
operations) to
Increase (Decrease) in Net Assets December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Operations:
Net investment income (loss) .......................................... $ 356,956
Net realized gain (loss) from investment transactions ................. (870,914)
Net unrealized appreciation (depreciation) on investment transactions
during the period .................................................. (420,668)
----------------
Net increase (decrease) in net assets resulting from operations ....... (934,626)
----------------
Distributions to shareholders:
From net investment income ............................................ (360,021)
----------------
Fund share transactions:
Proceeds from shares sold ............................................. 30,200,611
Net asset value of shares issued to shareholders in reinvestment of
distributions ...................................................... 328,598
Cost of shares redeemed ............................................... (4,599,126)
----------------
Net increase (decrease) in net assets from Fund share transactions .... 25,930,083
----------------
Increase (decrease) in net assets ..................................... 24,635,436
Net assets at beginning of period ..................................... 1,200
Net assets at end of period (including undistributed net investment ----------------
income of $6,261) .................................................. $24,636,636
----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ............................. 100
----------------
Shares sold 2,567,341
Shares issued to shareholders in reinvestment of distributions ........ 29,706
Shares redeemed ....................................................... (426,267)
----------------
Net increase (decrease) in Fund shares ................................ 2,170,780
----------------
Shares outstanding at end of period ................................... 2,170,880
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - Scudder Dividend & Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
July 17, 1998
(commencementof
operations) to
December 31,
1998(a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
---------------
Net asset value, beginning of period .................................................................... $12.00
---------------
Income from investment operations:
Net investment income ................................................................................... .17
Net realized and unrealized gain (loss) on investment transactions ...................................... (.65)
---------------
Total from investment operations ........................................................................ (.48)
---------------
Less distributions from:
Net investment income ................................................................................... (.17)
---------------
Total distributions ..................................................................................... (.17)
---------------
---------------
Net asset value, end of period .......................................................................... $11.35
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) .................................................................................... (4.00)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................................................. 25
Ratio of operating expenses, net to average daily net assets (%) ........................................ .75*
Ratio of operating expenses before expense reduction, to average daily net assets (%) ................... 2.56*
Ratio of net investment income to average daily net assets (%) .......................................... 3.36*
Portfolio turnover rate (%) ............................................................................. 41.4*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
21
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Dividend & Growth 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 with remaining maturities greater than sixty days are
valued by pricing agents approved by the Officers of the Fund, whose quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
All other debt securities are valued at their fair value as determined in good
faith by the Valuation Committee of the Board of Trustees. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value is equal to at least the repurchase price.
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.
22 - Scudder Dividend & Growth Fund
<PAGE>
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.
At December 31, 1998, the Fund had a net tax basis capital loss carryforward of
approximately $790,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December 31,
2006, the expiration date.
In addition, from November 1, 1998 through December 31, 1998, the Fund incurred
approximately $65,000 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the fiscal year ended December 31, 1999.
Distribution of Income and Gains. Distributions of net investment income are
made quarterly. During any particular year, net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences relate primarily to non-taxable distributions and certain securities
sold at a loss. As a result, net investment income and net realized gain (loss)
on investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the specific identified cost method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
For the period ended December 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $29,437,590 and
$4,296,442, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of approximately 0.75% of
the Fund's average daily net assets computed and accrued daily and payable
monthly. In addition, the Adviser agreed not to impose all or a portion of its
management fee until April 30, 1999 and to maintain the annualized
23 - Scudder Dividend & Growth Fund
<PAGE>
expenses of the Fund at no more than 0.75% of the average
daily net assets. For the period ended December 31, 1998, the Adviser did not
impose any of its fee, which amounted to $79,570. Further, due to the
limitations of such Agreement, the Adviser's reimbursement payable to the Fund
at December 31, 1998 amounted to $5,960.
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
period ended December 31, 1998, SSC did not impose any of its fee, which
amounted to $89,138.
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 period ended December 31,
1998, STC did not incur any such fees.
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 period ended
December 31, 1998, SFAC did not impose any of its fee, which amounted to
$17,881.
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 period ended December 31, 1998, Trustees' fees and expenses aggregated
$5,028.
D. Line of Credit
The Fund and several 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.
24 - Scudder Dividend & Growth Fund
<PAGE>
Report of Independent Accountants
To the Board of Trustees of Scudder Investment Trust and the Shareholders of
Scudder Dividend & 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 Dividend & Growth Fund (the
"Fund") at December 31, 1998, the results of its operations, the changes in its
net assets and the financial highlights for the period July 17, 1998
(commencement of operations) to December 31, 1998, 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 audit. We conducted our audit
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
audit, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 12, 1999
25 - Scudder Dividend & Growth Fund
<PAGE>
Tax Information
For corporate shareholders, 25% of the income dividends paid during the Fund's
fiscal 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.
26 - Scudder Dividend & Growth Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Dividend & Growth
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*
--- ------- ------- -----------------
1,383,615 35,343 47,133 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,327,159 60,324 68,578 10,030
- --------------------------------------------------------------------------------
* 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.
27 - Scudder Dividend & 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; 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.
28 - Scudder Dividend & 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.
29 - Scudder Dividend & Growth Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
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<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
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Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
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Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
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30 - Scudder Dividend & Growth Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
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Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no 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
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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
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31 - Scudder Dividend & 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.
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
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