SCUDDER
INVESTMENTS(SM)
[LOGO]
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EQUITY/DOMESTIC
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Scudder Growth and Income Fund
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Fund #064
Annual Report
December 31, 1999
The fund seeks long-term growth of capital, current income, and growth of
income.
A no-load fund with no commissions to buy, sell, or exchange shares.
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
19 Glossary of Investment Terms
21 Investment Portfolio
26 Financial Statements
29 Financial Highlights
31 Notes to Financial Statements
37 Report of Independent Accountants
38 Tax Information
39 Officers and Trustees
40 Investment Products and Services
42 Scudder Solutions
2
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Scudder Growth and Income Fund
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ticker symbol SCDGX fund number 064
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Date of o Scudder Growth and Income Fund's discipline of investing in
Inception: undervalued stocks was not in favor in 1999, as a handful of
5/31/29 large-cap growth stocks dominated returns.
Total Net
Assets as o Management broadened the fund's selection criteria to
of 12/31/99: include additional valuation measures, which should provide
$7 billion it with the opportunity to gain exposure to sectors heavily
populated by low- or non-dividend-paying stocks (e.g.,
health care and technology).
o The fund's historically underweighted position in technology
was increased toward the end of the period, which helped
performance.
3
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Letter from the Fund's President
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Dear Shareholders,
In 1999 we witnessed another year of strong performance for the equity markets
as large-cap growth, especially technology stocks, recorded impressive returns.
Against the current backdrop of high consumer confidence, robust economic
growth, and relatively low inflation, these generous returns have had the
potential to make other asset classes seem less important to an investor's
overall portfolio. Strong gains in certain sectors can have the effect of
unintentionally increasing one's exposure to a particular asset class or
industry sector. Given this potential, we encourage shareholders to carefully
review their holdings to ensure that current allocations continue to match their
objectives and provide adequate exposure to several asset classes.
As a shareholder in Scudder Growth and Income Fund, you already hold a core
component of a well-diversified portfolio. The fund's disciplined approach to
selecting undervalued stocks has the potential to provide competitive returns
and a measure of protection in periods of market decline. With a few high growth
stocks leading market returns over the last few years, we believe this fund has
the potential to stand out, especially if the currently high valuations of some
growth stocks prove unsustainable. For a detailed discussion of management's
investment strategy and portfolio positioning, I encourage you to read the
Portfolio Management Discussion with Kathleen Millard and Gregory Adams
beginning on page 10.
4
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For current information on the fund and your account, visit our Internet Web
site at www.scudder.com. There you'll find a wealth of information, including
the most recent fund performance, the latest news on Scudder products and
services, and the opportunity to perform account transactions. You can also
speak with one of our representatives by calling 1-800-SCUDDER (1-800-728-3337).
In closing, I would like to inform you that Daniel Pierce, president of the
fund, retired in June 1999. At that time I assumed his role and
responsibilities. We are fortunate that Dan's long-standing affiliation with
Scudder is ongoing, and that we will continue to benefit from his counsel. I am
pleased to join the fund's team in this capacity, and look forward to serving
your interests.
Thank you for your continued investment in Scudder Growth and Income Fund.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Growth and Income Fund
5
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Performance Update
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December 31, 1999
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
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Growth of a $10,000 Investment
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Scudder Growth and
Income Fund -- Scudder Shares S&P 500 Index*
89 10000 10000
90 9762 9690
91 12517 12642
92 13715 13609
93 15853 14980
94 16265 15177
95 21336 20880
96 26068 25673
97 33969 34242
98 36033 44029
99 38249 53295
Yearly periods ended December 31
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 12/31/1999 $10,000 Cumulative Annual
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Scudder Growth and Income Fund -- Scudder Shares
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1 year $ 10,615 6.15% 6.15%
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5 year $ 23,516 135.16% 18.65%
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10 year $ 38,249 282.49% 14.36%
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S&P 500 Index*
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1 year $ 12,104 21.04% 21.04%
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5 year $ 35,116 251.16% 28.54%
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10 year $ 53,295 432.95% 18.20%
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* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
6
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Returns and Per Share Information
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
Yearly periods ended December 31
Scudder Growth and Income Fund
-- Scudder Shares S&P 500 Index*
1990 -2.33 -3.11
1992 28.16 30.40
1992 9.57 7.61
1993 15.59 10.06
1994 2.60 1.32
1995 31.18 37.58
1996 22.18 22.96
1997 30.31 33.38
1998 6.07 28.58
1999 6.15 21.04
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) -2.33 28.16 9.57 15.59 2.60 31.18 22.18 30.31 6.07 6.15
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Index Total
Return (%) -3.11 30.40 7.61 10.06 1.32 37.58 22.96 33.38 28.58 21.04
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Net Asset
Value ($) 12.77 15.76 16.20 17.24 16.26 20.23 23.23 27.33 26.31 26.69
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Income
Dividends ($) .67 .55 .53 .45 .51 .56 .57 .58 .61 .51
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Capital Gains
Distributions ($) .34 -- .50 1.01 .91 .48 .87 2.20 2.09 .70
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</TABLE>
* The Standard & Poor's 500 Index is a capitalization-weighted index of
500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500
stocks representing all major industries. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not reflect any
fees or expenses.
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.
Effective August 2, 1999, the Fund offers two share classes: Scudder
shares and Class R shares. The total return information provided is for
the Fund's Scudder Share class.
7
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Portfolio Summary
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December 31, 1999
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Asset Allocation
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Common Stocks 93%
Cash Equivalents 4%
Short Term Investments 3%
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100%
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The fund seeks to remain fully invested in attractively valued equity
securities.
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Sector Diversification
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(excludes 4% cash equivalents)
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Financial 17%
Manufacturing 15%
Technology 14%
Communications 13%
Energy 10%
Health 7%
Consumer Staples 5%
Durables 3%
Services Industries 4%
Utilities 3%
Other 9%
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100%
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A broadening of the fund's selection criteria resulted in an increase in
technology stocks while maintaining its value and blend fund investment style.
8
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Ten Largest Equity Holdings
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(27% of Portfolio)
1. Corning, Inc.
Specialty glass manufacturer
2. Total FINA S.A.
Explorer, developer and producer of oil and gas
3. Dow Chemical Co.
Chemical producer
4. Oracle Systems Corp.
Database management software
5. General Electric Co.
Producer of electrical equipment
6. Intel Corp.
Producer of semiconductor memory circuits
7. BellSouth Corp.
Telecommunications services
8. Microsoft Corp.
Developer of computer software
9. GTE Corp.
Telecommunication company
10. Citigroup, Inc.
Diversified financial services company
Management is emphasizing individual stock selection rather than making big
sector bets.
For more complete details about the Fund's investment portfolio, see page 21. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
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Portfolio Management Discussion
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December 31, 1999
In the following interview, portfolio managers Kathleen T. Millard and Gregory
S. Adams discuss the market environment and their approach to managing the fund.
Q: A select group of growth stocks dominated market returns over the year,
continuing the wide disparity between growth and value investing styles. How did
this affect the fund?
A: The investment environment did not favor funds pursuing a value-oriented
approach. The fund's discipline of investing in undervalued securities has
historically positioned it in stocks with value characteristics. As a handful of
growth stocks continued to provide very strong returns, other stocks provided
modest or negative returns. The phenomenon is similar to the environment in
1998, but the disparity was even more pronounced in 1999. The returns of the
Russell indices show that the performance spread between growth and value stocks
increased. (Please see table below.)
This environment affected many funds that invest in stocks with value
characteristics, including the fund and its peers. According to Lipper
Analytical Services, Inc., an independent analyst of investment performance,
multi-cap value funds reported a median return of 6.74% for the 12-month
period.^1 This compares to the fund's 6.15%
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Total returns
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Growth Value Difference
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1998 33.71% 15.63% 18.08%
1999 33.16% 7.35% 25.81%
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All indices are unmanaged and reflect performance for the 12-month periods ended
12/31. The Russell 1000 Growth Index represents large-cap growth stocks; the
Russell 1000 Value Index represents large-cap value stocks.
^1 Source: Lipper Analytical Services, Inc. For the one-, five-, and
ten-year periods, the median annualized returns were 6.74%, 18.48%, and
13.26% for 490, 204, and 89 multi-cap value funds, respectively.
10
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return for the same period. Relative to its benchmark, the fund trailed the
21.04% return of the unmanaged S&P 500 Index, reflecting, in part, the
significant component of technology in the index and its exceptional performance
over the year.
Q: In 1999 the fund broadened its investment universe by adding additional
variables to its selection criteria. What enhancements were made?
A: As you may know, we modified our criteria last summer so that we will not
have to rely solely on our relative dividend yield strategy to uncover
undervalued stocks. In short, we have added several criteria -- including
price/earnings and price/cash flow ratios -- to our selection process. We
believe this enhancement will enable us to increase the fund's exposure on an
opportunistic basis to sectors that are heavily populated by low- or
non-dividend-paying stocks, such as those in the health care and technology
sectors. By broadening the fund's investment universe and sector base, we expect
that the fund will perform more in line with its historical positioning as a
value-oriented blend fund.
Q: Why was the fund's investment criteria expanded?
A: In recent years, there has been a fundamental shift in U.S. corporate policy
in favor of share repurchases and the reinvestment of cash flows, rather than in
making regular dividend payments to stockholders. For instance, 36% of the
largest 1000 companies as measured by the Russell 1000 Index pay no dividends.
In addition, fully 25% of the companies that comprise the Russell 1000 Value
Index also make no dividend payments. Our relative dividend yield strategy
historically has excluded these stocks, even though many were attractive values
by other measures.
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GRAPH SHOWING SCUDDER GROWTH AND INCOME FUND MARKET CAPITALIZATION SHOWN HERE
Q: Has the investment objective or positioning of the fund changed?
A: The fund's investment objective has not changed. We still continue to seek
long-term growth of capital, current income, and growth of income. This
enhancement enables us to maintain the fund's historical style positioning
between the Morningstar large value and large blend categories.^1 As a result,
we believe the fund should perform well, especially when large value stocks are
in favor, but also when blend funds -- funds that have both growth and value
characteristics -- excel.
Q: Have you been able to take advantage of the fund's expanded investment
universe?
A: We significantly increased our holdings in the technology area in the fourth
quarter, an area the fund has historically underweighted, while still remaining
true to our discipline of investing in attractively valued stocks. Technology,
which comprised about 6-8% of the portfolio at the end of October, increased to
about 14% by the end of the year. We added Electronic Data Systems, Microsoft,
America Online, Compaq Computer, Intel, IBM, and Hewlett-Packard, and increased
our position in Oracle.
^1 Morningstar, Inc., is a leading provider of investment information,
research, and analysis of mutual funds, stocks, and variable annuities.
Morningstar proprietary analysis categorizes funds into a nine-box
style grid. Horizontal style categories (from left to right) are value,
blend, and growth; vertical style categories (from top to bottom) are
large-, medium-, and small-cap.
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While the increased weighting helped the fund tremendously, our benchmark -- the
S&P 500 -- still held a larger sector weighting (30% of the index). The
performance difference between the fund and the benchmark during the quarter is
attributed primarily to the fund's smaller weighting in technology stocks.
Q: Oracle and Intel represent the fund's two largest tech holdings. What is your
outlook for these two companies?
A: Within the tech sector, we are overweighted in software, semiconductors, and
telecommunications, while remaining underweighted in hardware companies. In the
case of Oracle, we are positive on the company. It has a unique position. Oracle
supplies software products that many corporations use to manage information,
including e-commerce and e-business applications. The company offers leading
products in many areas and our earnings outlook is currently favorable. Although
Intel lagged other semiconductor stocks in 1999, the stock is one of our
semiconductor analyst's top picks for 2000. Essentially, the company is a proxy
for microprocessors, which are used in an increasingly wide range of
applications. We think the stock is attractively valued and we are expecting
earnings to reaccelerate this year.
Q: What other factors impacted performance?
A: We had a number of sectors and positions that contributed to the fund's
performance for the year. The fund benefited from strong stock selection in
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Portfolio Characteristics
As of 12/31/99
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Fund S&P 500
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Dividend yield 1.7%* 1.2%
Forward price/earnings ratio 26.6x 26.2x
Market capitalization (billions) $100.5 $145.1
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*Before deducting fund expenses
13
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communications (Sprint, Global Crossing, Alltel, and BellAtlantic/GTE), energy
(Total FINA SA), and construction (Weyerhaeuser and Georgia-Pacific). However,
weak stock selection in finance (XL Capital, Allstate, Banc One, First Union,
and Fleet Boston) and manufacturing (Lyondell Petrochemical) were significant
detractors.
Q: Finance is the fund's largest industry sector exposure, reflecting, in part,
its value orientation. With interest rates rising how did you manage your
holdings in this sector?
A: Our strategy in financials has been to emphasize companies with scale and
global reach. We have overweighted the insurance segment for two reasons: We
expect a pricing recovery for property and casualty companies and these
companies are not exposed to the negative effects of rising interest rates as
are other financials. We are avoiding niche players on the theory that their
products are about to be "commoditized" by larger competitors seeking
incremental margin. Niche players are also more vulnerable to disintermediation
by Internet-based distribution. Scale and global reach should help offset local
interest rate and credit pressures.
We are equal-weighted in banks versus the S&P 500, but deeply underweighted (50%
of the benchmark weighting) versus value benchmarks, a performance risk if
financial stocks outperform. However, this scenario requires a positive interest
rate backdrop, which does not appear likely for at least six months given the
Federal Reserve's current bias to raise interest rates. Meanwhile, the near term
outlook for bank earnings is weakening and the appetite for bank-to-bank
consolidation is waning. The group has been underperforming since mid-1998, but
valuation has not historically been a good anchor for banks during periods of
credit deterioration.
Q: Did you make other changes to the portfolio?
A: We reduced some of the fund's industry sector bets in favor of making the
fund more sector-neutral. Our
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rationale for this market-weighting is driven by our individual stock selection
approach. Since we believe that one of our core competencies is fundamental
research and analysis of companies, we prefer that it drive our selection
process. Specifically, we moved out of some illiquid and smaller-cap holdings,
and reduced our exposure to communications stocks. The fund's holdings of
regional bell operating companies (RBOCs) and other communications companies had
comprised about 19% of assets; now it is down to 13%. This is still more than
the S&P 500 communications sector weighting of about 8%.
Q: Are these major changes to the portfolio?
A: No. Our adjustments to the fund's holdings in the fourth quarter represent
more of a fine-tuning to the fund's emphasis on undervalued stocks. We have been
focusing on maintaining the fund's historical style position in an unusual
environment where only a few stocks have been driving market performance. Toward
the end of the year, we were mindful of the potential capital gains that any
changes might generate, and therefore attempted to limit the fund's turnover to
about 35% in the fourth quarter. This helped keep capital gains distributions to
less than 10% of the fund's net asset value.
Q: Given the fund's overweighting in energy, are you expecting a market
correction?
A: While there is always a possibility of a market decline in the short run, we
do not make big sector bets based on where we think the overall economy or
markets might be going. The fund's sector weightings are determined largely by
our valuation screen, company fundamentals, and risk control measures we employ
in managing the fund. (See "Stock Selection Process" on page 16.) With regard to
the energy sector, we are overweighted in this area mainly because valuations
are attractive and our earnings forecast
15
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Stock Selection Process
The portfolio management team employs a three-step investment process in
selecting stocks for the fund that is based on: 1) attractive valuations, 2)
solid fundamentals, and 3) risk management. To uncover attractive valuations,
the 1000 largest companies in the fund's investment universe are screened using
measures such as relative dividend yield, price/cash flow,
price/forward-earnings, and other earnings measures. Stocks are then ranked into
quintiles according to these variables. Stocks falling into quintiles 1 and 2
are in the "buy" zone, 3 and 4 are in the "hold" zone, and 5 is in the "sell"
zone.
Analyst ratings are then used to identify companies with attractive
fundamentals. This helps to narrow the list of potential purchase candidates.
From this perspective, the portfolio managers focus on the management strategy
of the company and the dynamics of the company's financial statements.
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3-Step Investment Process
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Valuation Fundamental Research Risk Management
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Criteria Analyst ratings are Company Specific Risk
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Multi-factor model list. Focus is on the Valuation,
screens stocks for management strategy of fundamentals, and
attractive valuations. the company and the position sizes.
dynamics of the
Rank stocks by quintile company's financial Portfolio Risk
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o 1-2 Buy Diversification, value
tilt, and monitor
o 3-4 Hold performance deviation
from S&P 500.
o 5 Sell
With regard to risk, the portfolio management team looks at two kinds of risk:
company-specific risk and portfolio risk. Company-specific risk is managed
through valuation, fundamentals, and by limiting position sizes. On the
portfolio level, risk is managed three ways: by maintaining adequate
diversification across industry sectors (no major sector bets); by maintaining a
portfolio with greater value characteristics than the fund's benchmark (the
portfolio's value tilt provides a measure of protection if the overall market
declines); and by monitoring the source and amount of the portfolio's deviation
from its benchmark (individual holdings are monitored to determine what helped
and hurt the portfolio).
16
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for many companies in this sector is very strong. The higher price of oil should
help the earnings of a number of companies and we have attempted to invest in
the best names that meet our criteria in this area.
Q: Are there more portfolio changes planned?
A: From our perspective, the main structural changes to the portfolio are
complete. All that's left is just fine-tuning. For instance, we're looking at
individual positions and trying to determine if we need to increase or decrease
the portfolio's exposure. On an ongoing basis, the fund's sector holdings will
be driven primarily by our disciplined stock selection approach.
Q: What is your outlook for the fund?
A: Over the long term, we believe that the fund's broadened investment universe
will provide us with additional opportunities to outperform our benchmark. Over
the long term, we are seeking to achieve first quartile performance among our
peers, and while the enhancements have only recently been implemented and may
take time to show results, we are confident that we will be able to achieve both
of these goals over time.
17
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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 offices across the United
States and abroad. The Adviser believes that a team approach benefits fund
investors by bringing together many disciplines and leveraging the firm's
extensive resources.
Lead portfolio manager Kathleen T. Millard has had responsibility for setting
the fund's stock investing strategy and overseeing the fund's day-to-day
operations since 1999. Kathleen joined the Adviser in 1991 and has 17 years of
investment industry experience.
Portfolio manager Gregory S. Adams joined the fund in 1999 and focuses on stock
selection and investment strategy. Mr. Adams has worked in the investment
industry since 1987 and at the Adviser since 1999.
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Glossary of Investment Terms
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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 Analysis of a company's financial statements to project
Research 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 The value of a company's outstanding shares of common stock,
Capitalization 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 Refers to the allocation of assets -- usually by sector,
Weighting industry, or country -- within an investment portfolio
relative to a benchmark index or investment universe.
Price/Earnings A widely used gauge of a stock's valuation that indicates
Ratio (P/E) what investors are paying for a company's earning power at
(also "earnings the current stock price. Often based on a company's
multiple") 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.
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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 often carry higher dividend
yields.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
An expanded list of terms is located at our Web site, www.scudder.com.
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Investment Portfolio as of December 31, 1999
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<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
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Repurchase Agreements 3.9%
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<S> <C> <C>
Donaldson, Lufkin & Jenrette, 2.25%, to be repurchased
at $100,018,750 on 1/3/2000**
(Cost $100,000,000) ............................................ 100,000,000 100,000,000
State Street Bank and Trust Company, 2.8%, to be
repurchased at $164,029,265 on 1/3/2000**
(Cost $163,991,000) ............................................ 163,991,000 163,991,000
Total Repurchase Agreements (Cost $263,991,000) ................. 263,991,000
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Short Term Investments 3.2%
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Bell Atlantic Network Funding Corp., 6.3%***, 1/20/2000 ......... 47,000,000 46,843,725
Countrywide Home Loans, Inc., 6.5%***, 1/24/2000 ................ 50,000,000 49,792,361
Countrywide Home Loans, Inc., 5.43%***, 1/10/2000 ............... 20,000,000 19,966,500
Federal Home Loan Mortgage Corp., 1.5%***, 1/3/2000 ............. 50,000,000 49,995,833
J.P. Morgan, 6.3%***, 1/20/2000 ................................. 50,000,000 49,833,750
Total Short Term Investments (Cost $216,432,169) 216,432,169
Shares
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Common Stocks 92.9%
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Consumer Discretionary 1.8%
Department & Chain Stores 1.8%
Wal-Mart Stores, Inc. ........................................... 1,792,200 123,885,825
---------------
Consumer Staples 4.8%
Alcohol & Tobacco 1.2%
Anheuser-Busch Companies, Inc. .................................. 1,108,900 78,593,288
---------------
Food & Beverage 1.7%
H.J. Heinz Co. .................................................. 1,623,150 64,621,659
PepsiCo, Inc. ................................................... 1,447,200 51,013,800
---------------
115,635,459
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</TABLE>
The accompanying notes are an integral part of the financial statements.
21
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Shares Value ($)
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Package Goods/Cosmetics 1.9%
Avon Products, Inc. ...................... 3,950,900 130,379,700
---------------------
Health 6.6%
Hospital Management 0.4%
Columbia/HCA Healthcare Corp. ............ 848,800 24,880,450
---------------------
Pharmaceuticals 6.2%
American Home Products Corp. ............. 3,340,800 131,752,800
Bristol-Myers Squibb Co. ................. 1,357,400 87,128,113
Glaxo Wellcome PLC ....................... 1,000,000 28,321,842
Johnson & Johnson ........................ 1,251,300 116,527,313
SmithKline Beecham PLC (ADR) ............. 876,100 56,453,694
---------------------
420,183,762
---------------------
Communications 12.2%
Telephone/Communications 12.2%
AT&T Corp. ............................... 700,000 35,525,000
Alltel Corp. ............................. 860,200 71,127,788
Bell Atlantic Corp. ...................... 1,862,496 114,659,910
BellSouth Corp. .......................... 3,388,600 158,628,838
GTE Corp. ................................ 1,902,800 134,266,325
Global Crossing Ltd.* .................... 1,877,510 93,875,500
SBC Communications, Inc. ................. 2,563,562 124,973,648
Sprint Corp. ............................. 1,334,500 89,828,531
Telecommunicacoes de Sao Paulo S.A. (pfd.) 10,000 242
---------------------
822,885,782
---------------------
Financial 16.2%
Banks 4.7%
Chase Manhattan Corp. .................... 1,519,800 118,069,463
First Union Corp. ........................ 1,685,652 55,310,456
FleetBoston Financial Corp. .............. 1,906,000 66,352,625
J.P. Morgan & Co., Inc. .................. 238,700 30,225,388
US Bancorp ............................... 2,107,000 50,172,938
---------------------
320,130,870
---------------------
Insurance 4.3%
American International Group, Inc. ....... 1,005,200 108,687,250
Marsh & McLennan Companies, Inc. ......... 1,187,000 113,581,063
XL Capital Ltd. "A" ...................... 1,364,210 70,768,387
---------------------
293,036,700
---------------------
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Consumer Finance 3.3%
American Express Co. .................. 273,800 45,519,250
Citigroup, Inc. ....................... 2,411,600 133,994,525
SLM Holding Corp. ..................... 962,700 40,674,075
-------------------------
220,187,850
-------------------------
Other Financial Companies 3.1%
Federal National Mortgage Association.. 1,785,100 111,457,181
Morgan Stanley Dean Witter & Co. ...... 695,700 99,311,175
-------------------------
210,768,356
-------------------------
Real Estate 0.8%
General Growth Properties, Inc. (REIT). 898,200 25,149,600
Prentiss Properties Trust (REIT) ...... 1,259,100 26,441,100
Security Capital Group Inc.* .......... 2 1,110
-------------------------
51,591,810
-------------------------
Media 1.8%
Broadcasting & Entertainment 1.1%
Walt Disney Co. ....................... 2,631,700 76,977,225
-------------------------
Cable Television 0.7%
Comcast Corp. "A" ..................... 901,800 45,315,450
-------------------------
Service Industries 3.6%
EDP Services 1.6%
Electronic Data Systems Corp. ......... 1,576,200 105,506,888
-------------------------
Environmental Services 0.1%
Transocean Sedco Forex Inc. ........... 119,582 4,028,405
-------------------------
Printing/Publishing 1.9%
McGraw-Hill, Inc. ..................... 2,039,600 125,690,350
-------------------------
Durables 3.1%
Aerospace 1.4%
Rockwell International Corp. .......... 2,007,300 96,099,488
-------------------------
Automobiles 1.7%
Ford Motor Co. ........................ 2,201,700 117,653,344
Meritor Automotive, Inc. .............. 38,702 749,851
-------------------------
118,403,195
-------------------------
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Manufacturing 13.6%
Chemicals 3.5%
Dow Chemical Co. .......................... 1,478,600 197,577,925
E.I. du Pont de Nemours & Co. ............. 640,400 42,186,350
---------------------
239,764,275
---------------------
Electrical Products 3.4%
Emerson Electric Co. ...................... 1,090,400 62,561,700
General Electric Co. ...................... 1,086,100 168,073,975
---------------------
230,635,675
---------------------
Industrial Specialty 4.9%
Corning, Inc. ............................. 2,571,150 331,517,653
---------------------
Machinery/Components/Controls 1.8%
Parker-Hannifin Corp. ..................... 2,364,900 121,348,931
---------------------
Technology 13.3%
Computer Software 7.3%
America Online, Inc. ...................... 1,231,400 92,893,738
Computer Associates International, Inc. ... 1,178,200 82,400,363
Microsoft Corp.* .......................... 1,151,200 134,402,600
Oracle Corp.* ............................. 1,652,100 185,138,456
---------------------
494,835,157
---------------------
Electronic Data Processing 2.3%
Compaq Computer Corp. ..................... 1,200,500 32,488,531
Hewlett-Packard Co. ....................... 388,800 44,298,900
International Business Machines Corp. ..... 751,000 81,108,000
---------------------
157,895,431
---------------------
Semiconductors 3.7%
Conexant Systems, Inc.* ................... 1,295,500 85,988,813
Intel Corp. ............................... 1,973,400 162,435,488
---------------------
248,424,301
---------------------
Energy 9.6%
Oil & Gas Production 2.2%
Conoco, Inc. "A" .......................... 2,755,100 68,188,750
Royal Dutch Petroleum Co. (New York shares) 1,334,500 80,653,844
---------------------
148,842,594
---------------------
Oil Companies 6.9%
Chevron Corp. ............................. 471,800 40,869,675
Exxon Mobil Corp. ......................... 1,602,453 129,097,620
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Texaco, Inc. ................................ 1,704,900 92,597,381
Total FINA S.A. "B" ......................... 1,530,934 204,268,626
------------
466,833,302
------------
Oilfield Services/Equipment 0.5%
Schlumberger Ltd. ........................... 616,400 34,672,500
------------
Metals & Minerals 0.6%
Steel & Metals 0.6%
Alcoa, Inc. ................................. 490,200 40,686,600
------------
Construction 1.7%
Forest Products 1.7%
Weyerhaeuser Co. ............................ 1,645,800 118,189,013
------------
Transportation 1.6%
Airlines 0.6%
AMR Corp. ................................... 654,700 43,864,900
------------
Railroads 1.0%
CSX Corp. ................................... 2,093,900 65,696,113
------------
Utilities 2.4%
Electric Utilities 2.4%
ScottishPower PLC (ADR) ..................... 2,277,950 63,782,600
Unicom Corp. ................................ 2,845,600 95,327,600
------------
159,110,200
------------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $4,565,060,086) 6,286,497,498
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $5,045,483,255) (a) 6,766,920,667
- --------------------------------------------------------------------------------
* Non-income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
*** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $5,046,163,824. At December
31, 1999, net unrealized appreciation for all securities based on tax cost
was $1,720,756,843. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value over
tax cost of $1,831,052,459 and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over value of
$110,295,616.
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Investments in securities, at value (cost $5,045,483,255). $ 6,766,920,667
Foreign currency, at value (cost $58,994) ................ 59,333
Dividends receivable ..................................... 9,768,761
Interest receivable ...................................... 19,005
Receivable for Fund shares sold .......................... 19,059,905
Foreign taxes recoverable ................................ 941,246
Other assets ............................................. 47,542
-------------------
Total assets ............................................. 6,796,816,459
Liabilities
- --------------------------------------------------------------------------------
Due to custodian bank .................................... 1,105,330
Payable for Fund shares redeemed ......................... 16,455,944
Accrued management fee ................................... 2,523,104
Other accrued expenses and payables ...................... 5,747,439
-------------------
Total liabilities ........................................ 25,831,817
Net assets, at value $ 6,770,984,642
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investments ............................................. 1,721,437,412
Foreign currency related transactions ................... (1,014,617)
Accumulated net realized gain (loss) ..................... 47,732,076
Paid-in capital .......................................... 5,002,829,771
Net assets, at value $ 6,770,984,642
Net Asset Value
- --------------------------------------------------------------------------------
Scudder Shares
Net asset value, offering and redemption price per share
($6,764,971,164 / 253,444,242 outstanding shares of
beneficial interest, $.01 par value, unlimited number of
shares authorized) ...................................... $ 26.69
Class R Shares
Net asset value, offering and redemption price per share
($6,013,478 / 225,646 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) ............................................. $ 26.65
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- --------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------
Dividends-- Unaffiliated issuers (net of foreign taxes withheld $ 172,458,868
of $2,414,410)
Dividends -- Affiliated issuers ................................ 3,763,212
Interest ....................................................... 9,640,197
--------------
Total income ................................................... 185,862,277
--------------
Expenses:
Management fee ................................................. 32,454,854
Services to shareholders ....................................... 23,330,347
Custodian and accounting fees .................................. 751,099
Administrative services fees ................................... 3,482
Trustees' fees and expenses .................................... 54,728
Reports to shareholders ........................................ 1,041,282
Registration fees .............................................. 264,166
Auditing ....................................................... 56,641
Legal .......................................................... 105,182
Other .......................................................... 182,902
--------------
Total expenses, before expense reductions ...................... 58,244,683
Expense reductions ............................................. (217,916)
--------------
Total expenses, after expense reductions ....................... 58,026,767
Net investment income (loss) 127,835,510
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 205,189,250
Foreign currency related transactions .......................... (621,239)
--------------
204,568,011
--------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... 81,823,561
Foreign currency related transactions .......................... (1,116,439)
--------------
80,707,122
Net gain (loss) on investment transactions 285,275,133
Net increase (decrease) in net assets resulting from operations $ 413,110,643
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------
Years Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- ------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .................. $ 127,835,510 $ 168,785,409
Net realized gain (loss) on investment ........ 204,568,011 517,286,022
transactions
Net unrealized appreciation (depreciation) on
investment transactions during the period .... 80,707,122 (286,105,331)
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations .............................. 413,110,643 399,966,100
--------------- ---------------
Distributions to shareholders:
From net investment income:
Scudder Shares ................................ (134,071,528) (166,588,779)
--------------- ---------------
Class R Shares ................................ (131,770) --
--------------- ---------------
From net realized gains:
Scudder Shares ................................ (177,492,521) (564,589,614)
--------------- ---------------
Class R Shares ................................ (31,861) --
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ..................... 1,519,001,419 2,391,306,573
Reinvestment of distributions ................ 294,028,961 685,005,575
Cost of shares redeemed ....................... (2,725,680,063) (1,996,432,615)
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ........................... (912,649,683) 1,079,879,533
--------------- ---------------
Increase (decrease) in net assets ............. (811,266,720) 748,667,240
Net assets at beginning of period ............. 7,582,251,362 6,833,584,122
Net assets at end of period (including
undistributed net investment income of $7,600,144
at December 31, 1998) ........................ $6,770,984,642 $7,582,251,362
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<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.
Scudder Shares
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $26.31 $27.33 $23.23 $20.23 $16.26
--------------------------------------------
- ------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ------------------------------------------------------------------------------------
Net investment income (loss) .48(a) .62(a) .62(a) .60(a) .55
- ------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions 1.11 1.06 6.26 3.84 4.46
--------------------------------------------
- ------------------------------------------------------------------------------------
Total from investment operations 1.59 1.68 6.88 4.44 5.01
- ------------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------------
Net investment income (.51) (.61) (.58) (.57) (.56)
- ------------------------------------------------------------------------------------
Net realized gains on investment
transactions (.70) (2.09) (2.20) (.87) (.48)
--------------------------------------------
- ------------------------------------------------------------------------------------
Total distributions (1.21) (2.70) (2.78) (1.44) (1.04)
- ------------------------------------------------------------------------------------
Net asset value, end of period $26.69 $26.31 $27.33 $23.23 $20.23
--------------------------------------------
- ------------------------------------------------------------------------------------
Total Return (%) 6.15 6.07 30.31 22.18 31.18
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 6,765 7,582 6,834 4,186 3,061
- ------------------------------------------------------------------------------------
Ratio of expenses (%) .80 .74 .76 .78 .80
- ------------------------------------------------------------------------------------
Ratio of net investment income (loss)(%) 1.76 2.20 2.31 2.77 3.10
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 70 41 22 27 27
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
29
<PAGE>
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
Class R Shares
- --------------------------------------------------------------------------------
1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $28.16
----------
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) (a) .09
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions (.76)
----------
- --------------------------------------------------------------------------------
Total from investment operations (.67)
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income (.22)
- --------------------------------------------------------------------------------
Net realized gains on investment transactions (.62)
----------
- --------------------------------------------------------------------------------
Total distributions (.84)
- --------------------------------------------------------------------------------
Net asset value, end of period $26.65
----------
- --------------------------------------------------------------------------------
Total Return (%) (2.31)**
- --------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) 6
- --------------------------------------------------------------------------------
Ratio of expenses (%) 1.34*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .98*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 70
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period August 2, 1999 (commencement of Class R Shares) to December
31, 1999 (Note A).
* Annualized
** Not annualized
30
<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") which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears certain expenses unique to that class such as shareholder
services, administrative services, and certain other class specific expenses.
Differences in class expenses may result in payment of different per share
dividends by class. All shares of the Fund have equal rights with respect to
voting subject to class specific arrangements.
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.
Effective August 2, 1999, the Fund offers two classes of shares: Scudder Shares
and Class R Shares. Class R Shares are available for purchase by participants of
certain employer-sponsored retirement plans.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sale price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
31
<PAGE>
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Trust, 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.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions. Net
realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
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, if
any, are made quarterly. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
32
<PAGE>
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
B. Purchases and Sales of Securities
During the year ended December 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $3,734,048,789 and
$5,313,362,852, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Inc. (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, 1999, the fee pursuant to
33
<PAGE>
the Agreement amounted to $32,454,854, which was equivalent to an annual
effective rate of 0.45% of the Fund's average daily net assets.
Administrative Services Fees. Kemper Distributors, Inc. ("KDI"), an affiliate of
the Adviser, provides information and administrative services to Class R
Shareholders at an annual rate of up to .25% of average daily net assets for the
class. KDI in turn has various agreements with financial services firms that
provide these services and pays these firms based on assets of shareholder
accounts the firms service. For the period August 2, 1999 through December 31,
1999, the Administrative Services Fee was as follows:
Unpaid at
Total Fees Waived December 31,
Administrative Services Fee Aggregated by KDI 1999
- --------------------------------------------------------------------------------
Class R ..................... $ 3,482 $ -- $ 3,482
Shareholder Services Fees. Kemper Service Company ("KSC"), an affiliate of the
Adviser, is the transfer, dividend-paying and shareholder service agent for the
Fund's Class R Shares. During the first year of operations for Class R shares,
shareholder services fee will be accrued at 0.35%. For the period August 2, 1999
through December 31, 1999, the amount charged to Class R aggregated $4,873 of
which $3,922 is unpaid at December 31, 1999. Scudder Service Corporation
("SSC"), a subsidiary of the Adviser, is the transfer, dividend paying and
shareholder service agent for the Scudder Shares of the Fund. For the year ended
December 31, 1999, the amount charged to the Scudder Shares of the Fund by SSC
aggregated $6,867,891, of which $1,083,377 is unpaid at December 31, 1999.
The Scudder Shares of 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 the potential to be invested in the
Underlying Funds. For the year ended December 31, 1999, the Special Servicing
Agreement expense charged to the Scudder Shares of the Fund amounted to
$592,787.
34
<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 the Scudder Shares of the Fund. For the
year ended December 31, 1999, the amount charged to the Scudder Shares of the
Fund by STC aggregated $9,223,902, of which $2,434,246 is unpaid at December 31,
1999.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
December 31, 1999, the amount charged to the Fund by SFAC aggregated $418,401,
of which $33,686 is unpaid at December 31, 1999.
The Fund pays each of its Trustees not affiliated with the Adviser an annual
retainer, plus specified amounts for attended board and committee meetings. For
the year ended December 31, 1999, Trustees' fees and expenses aggregated
$54,728.
D. Transactions in Securities of Affiliated Issuers
An affiliated issuer is a company in which the Fund has ownership of at least 5%
of the voting securities. A summary of the Fund's transactions with a company
which was an affiliate during the year ended December 31, 1999 is as follows:
Purchases Sales Dividend
Affiliate Cost ($) Cost ($) Income ($) Value ($)
- --------------------------------------------------------------------------------
General Growth
Properties, Inc. -- 28,913,661 3,763,212 25,149,600
E. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. For the year ended December 31, 1999,
the Fund's custodian and transfer agent fees were reduced by $30,691 and
$187,225, respectively, under these arrangements.
35
<PAGE>
F. Share Transactions
The following table summarizes shares of beneficial interest and dollar activity
in the Fund:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------------------------- --------------------------------
Shares sold Shares Dollars Shares Dollars
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Shares 55,610,771 $1,512,658,263 84,380,304 $2,391,306,573
Class R Shares** 236,864 6,343,156 -- --
1,519,001,419 2,391,306,573
Shares issued to shareholders in reinvestment of distributions
- ---------------------------------------------------------------------------------------
Scudder Shares 11,116,741 $ 293,871,537 25,378,540 $ 685,005,575
Class R Shares** 6,011 157,424 -- --
294,028,961 685,005,575
Shares redeemed
- ---------------------------------------------------------------------------------------
Scudder Shares (101,429,027) $(2,725,221,775) (71,694,775) $(1,996,432,615)
Class R Shares** (17,229) (458,288) -- --
(2,725,680,063) (1,996,432,615)
Net increase (decrease)
- ---------------------------------------------------------------------------------------
Scudder Shares (34,701,515) $(918,691,975) 38,064,069 $1,079,879,533
Class R Shares** 225,646 6,042,292 -- --
(912,649,683) 1,079,879,533
</TABLE>
** For the period August 2, 1999 (commencement of sale of Class R Shares) to
December 31, 1999.
G. Line of Credit
The Fund and several other Scudder Funds (the "Participants") share in a $1
billion revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated pro rata among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The Fund may
borrow up to a maximum of 33 percent of its net assets under the agreement.
36
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of Scudder 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, 1999, the results of its operations, the changes in its
net assets, and the financial highlights for the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
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 auditing standards generally accepted in the United States 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, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 11, 2000
37
<PAGE>
Tax Information
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December 31, 1999
The Fund paid distributions of $0.665 per share from net long-term capital gains
during its year ended December 31, 1999, of which 100% represents 20% gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$222,119,000 as capital gain dividends for its year ended December 31, 1999, of
which 100% represents 20% rate gains.
For corporate shareholders, 100% of the income dividends paid during the Fund's
year ended December 31, 1999 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 account, please call 1-800-SCUDDER.
38
<PAGE>
Officers and Trustees
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Lynn S. Birdsong* Bruce F. Beaty*
o President and Trustee o Vice President
Henry P. Becton, Jr. Jennifer P. Carter*
o Trustee; President and General o Vice President
Manager, WGBH Educational
Foundation James M. Eysenbach*
o Vice President
Dawn-Marie Driscoll
o Trustee; President, Driscoll William F. Gadsden*
Associates; Executive Fellow, o Vice President
Center for Business Ethics,
Bentley College Valerie F. Malter*
o Vice President
Peter B. Freeman
o Trustee, Corporate Director Kathleen T. Millard*
o Vice President
George M. Lovejoy, Jr.
o Trustee; President and Director, Ann M. McCreary*
Fifty Associates o Vice President
Wesley W. Marple, Jr. Robert D. Tymoczko*
o Trustee; Professor of Business o Vice President
Administration, Northeastern
University John Millette*
o Vice President and Secretary
Kathryn L. Quirk*
o Trustee, Vice President and John R. Hebble*
Assistant Secretary o Treasurer
Jean C. Tempel Caroline Pearson*
o Trustee; Venture Partner, o Assistant Secretary
Internet Capital Group
*Scudder Kemper Investments, Inc.
39
<PAGE>
nvestment Products and Services
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1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
40
<PAGE>
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1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ Funds within categories are listed in order from expected least
risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family
of Funds.
++ Only the International Shares of the fund are part of the Scudder
Family of Funds.
+++ +++ A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold by Scudder's insurance agencies, 1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on
various other stock exchanges.
41
<PAGE>
Scudder Solutions
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1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* 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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
42
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
43
<PAGE>
Notes
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<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
Notes
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<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 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 over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER INVESTMENTS(SM)
[SCUDDER LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich financial
Services Group
