SCUDDER
INVESTMENTS(SM)
[LOGO]
-------------------------
EQUITY/DOMESTIC
-------------------------
Scudder Growth and
Income Fund
Annual Report
September 30, 2000
The fund seeks long-term growth of capital, current income, and growth of income
while actively seeking to reduce downside risk as compared with other growth and
income funds.
<PAGE>
Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
15 Glossary of Investment Terms
16 Investment Portfolio
21 Financial Statements
24 Financial Highlights
27 Notes to Financial Statements
37 Report of Independent Accountants
38 Tax Information
39 Officers and Trustees
40 Investment Products and Services
42 Account Management Resources
2
<PAGE>
Scudder Growth and Income Fund
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Class AARP ticker symbol ACDGX fund number 164
Class S ticker symbol SCDGX fund number 064
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Date of o Although the fund underperformed the S&P 500 over the
Inception: twelve-month reporting period, the investment
5/31/29 approach that was implemented in October of 1999 helped
the fund to outperform its benchmark (with lower levels of
volatility) in the nine months ended September 30.
Total Net
Assets as o Management continues to employ a disciplined,
of 9/30/00-- three-step investment process that combines
quantitative factors, bottom-up fundamental analysis,
Class AARP: and risk control methods.
$5.4 billion
o The fund's full-year performance was helped by its
Class S: holdings in the technology, financial services, and
$5.8 billion consumer staples sectors, while its weighting in basic
materials stocks detracted.
3
<PAGE>
Letter from the Fund's President
--------------------------------------------------------------------------------
Dear Shareholders,
In October of 1999, Kathleen Millard assumed the duties of lead portfolio
manager for Scudder Growth and Income Fund. Over the remainder of 1999, Ms.
Millard and portfolio manager Greg Adams implemented a new investment approach
and repositioned the fund's portfolio. The goal: to broaden the fund's
investment universe beyond that of stocks with high relative yields, a criterion
that had become increasingly limiting in the "new economy." They also sought to
move the fund back toward its historical positioning as an investment that
blended growth along with value traits.
Through the first three quarters of 2000, the result of this repositioning has
been a marked improvement in relative performance, as well as reduced downside
volatility. After underperforming the broad stock market -- as well as much of
its peer group -- in 1998 and 1999, Scudder Growth and Income Fund outperformed
the S&P 500 Index by almost four percentage points in the first nine months of
2000. In keeping with its goal of managing risk in down markets, the fund has
also weathered this year's volatile market environment, outperforming the S&P
500 in four of the six months in which the index had a negative return so far
this year.
4
<PAGE>
While the fund's total return for the twelve months ended September 30, 2000,
lagged that of the S&P 500 Index, it should be noted that this performance
includes the transitional fourth quarter of 1999. In the Portfolio Management
Discussion that begins on page 10, Ms. Millard and Mr. Adams talk about the
investment process she and Mr. Adams used to manage the fund.
Thank you for your continued investment in Scudder Growth and Income Fund. For
current information on the fund or your account, visit our Web site at
www.scudder.com. There you will find a wealth of information, including fund
performance, the most recent 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).
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
President
Scudder Growth and Income Fund
5
<PAGE>
Performance Update
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September 30, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Growth
and Income Fund
-- Class S S&P 500 Index*
'90 10000 10000
'91 12821 13115
'92 14433 14567
'93 17191 16461
'94 18576 17068
'95 22213 22144
'96 26684 26645
'97 37485 37426
'98 35913 40811
'99 39927 52165
'00 43455 59101
Yearly periods ended September 30
--------------------------------------------------------------------------------
Fund Index Comparison
--------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 9/30/2000 $10,000 Cumulative Annual
-------------------------------------------------------------------------------
Scudder Growth and Income Fund -- Class S
-------------------------------------------------------------------------------
1 year $ 10,884 8.84% 8.84%
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5 year $ 19,563 95.63% 14.36%
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10 year $ 43,455 334.55% 15.83%
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S&P 500 Index*
-------------------------------------------------------------------------------
1 year $ 11,330 13.30% 13.30%
-------------------------------------------------------------------------------
5 year $ 26,689 166.89% 21.67%
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10 year $ 59,101 491.01% 19.43%
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6
<PAGE>
--------------------------------------------------------------------------------
Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE SCUDDER GROWTH AND INCOME FUND -- CLASS S TOTAL RETURN (%) AND
S&P 500 INDEX* TOTAL RETURN (%)
Yearly periods ended September 30
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) 28.21 12.57 19.11 8.06 19.58 20.13 40.48 -4.19 11.18 8.84
------------------------------------------------------------------------------------
Index Total
Return (%) 31.15 11.07 13.00 3.69 29.74 20.33 40.46 9.04 27.65 13.30
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Net Asset
Value ($) 14.66 15.87 18.01 17.87 19.61 22.45 29.31 25.40 25.78 27.02
------------------------------------------------------------------------------------
Income
Dividends
($) .74 .40 .48 .47 .53 .56 .59 .74 .56 .21
------------------------------------------------------------------------------------
Capital
Gains
Distributions
($) -- .22 .32 1.04 .94 .42 1.18 2.09 1.92 .82
------------------------------------------------------------------------------------
</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 14, 2000, the Fund offers three share classes: Class
S, Class AARP and Class R Shares. On August 11, 2000, the Scudder
Shares of the Fund were redesignated as Class S. The total return
information provided is for the Fund's Class S shares class.
7
<PAGE>
Portfolio Summary
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September 30, 2000
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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.
Management seeks
Common Stocks 97% to remain as close to
Short-Term Investments 2% fully invested in
Cash Equivalents 1% equities as possible.
------------------------------------
100%
------------------------------------
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Sector Diversification
--------------------------------------------------------------------------------
(excludes 1% Cash Equivalents)
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Relative to the
S&P 500 Index, the
Financial 20% fund is overweighted
Technology 17% in financials
Health 12% and underweighted
Manufacturing 10% in technology.
Energy 9%
Consumer Staples 7%
Communications 6%
Media 4%
Durables 3%
Other 12%
------------------------------------
100%
------------------------------------
8
<PAGE>
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Ten Largest Equity Holdings
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(32% of Portfolio) Management selects
fund holdings
1. Corning, Inc. using a disciplined,
Producer of fiber optics three-step process.
2. Exxon Mobil Corp.
Provider of oil internationally
3. Citigroup, Inc.
Provider of diversified financial services
4. Oracle Corp.
Provider of database management software
5. General Electric Co.
Producer of electrical equipment
6. American International Group, Inc.
Provider of international insurance services
7. Marsh & McLennan Companies, Inc.
Provider of insurance, brokerage and investment
management services
8. PepsiCo, Inc.
Provider of soft drinks, snack foods and food services
9. Intel Corp.
Producer of semiconductor memory circuits
10. American Home Products Corp.
Producer of diversified pharmaceuticals
For more complete details about the Fund's investment portfolio, see page 16. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
<PAGE>
Portfolio Management Discussion
--------------------------------------------------------------------------------
September 30, 2000
In the following interview, lead portfolio manager Kathleen Millard and
portfolio manager Greg Adams discuss the market environment and the fund's
investment strategy during the twelve-month period ended September 30, 2000.
Q: The fund trailed its benchmark over the full year, but it has demonstrated
improved performance year-to-date. Why?
A: The fund's Class S shares' 12-month total return was 8.84%, below the 13.30%
return of its unmanaged benchmark, the S&P 500 Index. Year-to-date, however, the
Class S shares of the fund have produced a return of 2.32%, versus a loss of
1.39% for the index. We believe that the fund's recent strength demonstrates the
value of the repositioning that we undertook in October of last year. (Please
see the President's Letter on page 4 for more details.)
The bulk of the fund's underperformance was recorded in the first half of the
period, during which investors eschewed quality companies in favor of "momentum"
stocks in the technology, media, and telecommunications (TMT) areas. As stocks
in these sectors grabbed headlines with outrageous gains, the majority of stocks
outside of these areas lost ground or produced more muted returns. Since we
pursue a value-oriented strategy, the fund was not invested in the types of
high-flying technology stocks that led the market in the first half of the
reporting period. As a result, its six-month return as of March 31, 2000, stood
at 7.78%, below the 17.52% return of the S&P 500 Index.
In the last six months, however, the market environment has changed
dramatically. Higher-valuation technology stocks have declined sharply,
momentum-based strategies have fallen out of favor, and investors have turned
their attention to stocks with more reasonable valuations. The onset of a more
challenging environment allowed the value of the fund's repositioning to become
evident: over the final six months of the fiscal year, it posted a return of
0.98%, beating the -3.60% return of the S&P 500 Index. In outperforming the S&P
during this volatile period, we
10
<PAGE>
achieved one of the fund's key missions: providing a margin of safety to
investors at the times when the market is falling. In fact, the fund
outperformed the benchmark in four of the six months that the S&P has fallen so
far in 2000. We feel that the fund's recent performance illustrates the
potential effectiveness of a strategy that seeks to reduce downside risk.
Q: How do you pick stocks for the fund?
A: Our investment process breaks down into three basic steps. First, on a
monthly basis, we use a quantitative screen to sort a universe of 1,000 stocks
based on traditional valuation methods, including low price-to-earnings (p/e)
ratio, low price-to-cash flow, high relative dividend yield, and other measures
such as the direction of earnings revisions.
Next, our team of in-house equity analysts looks at each of the stocks that
passed the quantitative screen to determine their fundamental strength. They
look for companies with stable or improving fundamentals, such as positive
trends in earnings and sales growth. If our analysts' findings warrant further
investigation, we will often make on-site visits to gain a better understanding
of the business objectives and strategies of our potential buy candidates.
Finally, we employ a variety of risk management techniques in an effort to limit
downside volatility and ensure that the portfolio's performance does not vary
widely from that of the fund's peer group and the S&P 500 Index.
Q: Could you describe a fund holding that helps to illustrate the way this
investment process is put into practice?
A: An excellent example is Marsh & McLennan Companies, a diversified financial
services firm that includes the world's largest insurance brokerage business. We
felt that the company was extremely attractive both in terms of its valuation --
as determined by our quantitative analysis -- and its fundamental strengths. In
addition, our
11
<PAGE>
insurance analyst predicted a positive turn in pricing trends in the insurance
industry, and identified Marsh & McLennan as being one of the companies that
would be the first to benefit. We increased our holdings in the stocks on that
basis, making it one of the portfolio's top ten positions. The stock has
performed well for the fund, having returned approximately 65% since our initial
purchase.
Q: What sectors helped and hurt the fund's performance during the fiscal year?
A: In terms of sector allocation, the fund is most heavily weighted in financial
and technology stocks, respectively. However, we are underweight in technology
relative to the S&P 500, reflecting a more negative view on the sector's
valuations and fundamentals. We acquired the bulk of our technology positions
during corrections in the fourth quarter of 1999 and the second quarter of 2000.
These downturns presented some extraordinary opportunities to purchase what we
believed to be fundamentally sound growth companies at reasonable valuations.
The fund's underweight position in tech stocks (relative to the S&P 500), as
well as our strong stockpicking within the group, helped boost its relative
performance over the full year.
The fund is overweight in financials, reflecting our positive view on the
sector. But as a value-oriented blend fund, the portfolio is underweighted in
financials compared to pure value funds. Specifically, the fund is overweight in
insurance, a position that helped performance significantly early in the year,
and underweight in banks. The portfolio's heavier weighting in financials proved
beneficial to performance during the second half of the period.
Strong stock selection in the consumer staples area, particularly food and
consumer products names such as Pepsi and Anheuser-Busch, was an additional
positive, as was our decision to add to the health care sector during the course
of the year. Energy stocks helped on an absolute basis, but our decision to
overweight the major integrated oils -- at the expense of oil services firms --
proved to be a
12
<PAGE>
negative. A key detractor was the fund's weighting in basic materials stocks.
Individual stocks that hurt performance included the advertising agency
Interpublic Group, Wal-Mart, and phone stocks such as SBC and BellSouth.
Although these names have declined since the fund's initial purchases, we remain
positive on their outlook going forward.
Q: What is your outlook for value stocks from here?
A: Given the volatile nature of the recent market environment, it is difficult
to predict the outlook for any single group. However, we believe that given the
increasingly rational nature of the investment backdrop -- as well as growing
risk aversion among investors -- value stocks will be better positioned to
outperform than they have been during the past three years. Opportunities appear
to be broadening, and we are optimistic about the prospects for Scudder Growth
and Income Fund's systematic approach to building a value-oriented portfolio.
13
<PAGE>
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 joined the Adviser in 1991. Ms.
Millard joined the fund team in 1991 and is responsible for setting the fund's
investment strategy and overseeing the fund's day-to-day operations. Ms. Millard
has 17 years of investment industry experience.
Portfolio manager Gregory S. Adams joined the Adviser and the fund team in 1999
and focuses on stock selection and investment strategy. Mr. Adams has 13 years
of investment industry experience.
14
<PAGE>
Glossary of Investment Terms
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Consumer Staples Products purchased by consumers on a regular basis, such as
food, beverages, alcohol, and tobacco. In the aggregate,
sales of consumer staples tend to be steady and less
sensitive to economic fluctuations.
Fundamental Research Analysis of companies based on the projected impact of
management, products, sales, and earnings on their balance
sheets and income statements. Distinct from technical
analysis, which evaluates the attractiveness of a stock
based on historical price and trading volume movements,
rather than the financial results of the underlying company.
Momentum Investing The practice of investing in the market's top performing
stocks in order to capture additional upward movements in
their prices.
Price To Earnings Price of a stock divided by its earnings per share. A widely
(P/E) Ratio (also used gauge of a stock's valuation that indicates what
earnings multiple) investors are paying for a company's earnings on a per share
basis. A higher earnings multiple indicates higher investor
expectations or a higher growth rate, as well as the
potential for greater price fluctuations.
Value A company whose stock price does not fully reflect its
Stock intrinsic value, as indicated 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 less price volatility
and may carry higher dividend yields. Distinct from growth
stock.
Weighting Refers to the allocation of assets -- usually in terms of
(over/under) sectors, industries, or countries -- within a portfolio
relative to the portfolio's benchmark index or investment
universe.
</TABLE>
(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.
15
<PAGE>
Investment Portfolio as of September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Repurchase Agreements 1.6%
---------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette, 6.5%, to be repurchased at
$80,427,541 on 10/2/2000** ........................... 80,384,000 80,384,000
State Street Bank and Trust Co., 6.48%, to be repurchased
at $99,053,460 on 10/2/2000** ........................ 99,000,000 99,000,000
---------------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $179,384,000) 179,384,000
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Short-Term Investments 1.7%
---------------------------------------------------------------------------------------
American Honda Finance Corp., 6.5%, 10/26/2000*** ....... 27,400,000 27,277,081
Deutsche Bank Financial Corp., 6.46%, 10/6/2000*** ...... 35,000,000 34,968,743
MCI Worldcom Inc., 6.64%, 10/16/2000*** ................. 9,800,000 9,773,009
Sigma Finance, 6.65%, 10/24/2000*** ..................... 65,000,000 64,728,408
Verizon Network Funding, 6.54%, 11/3/2000*** ............ 31,380,000 31,193,315
Verizon Network Funding, 6.55%, 11/9/2000*** ............ 15,000,000 14,894,538
Wal-Mart Stores, 6.51%, 10/31/2000*** ................... 5,000,000 4,973,083
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Total Short-Term Investments (Cost $187,808,177) 187,808,177
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Shares
--------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Common Stocks 96.7%
---------------------------------------------------------------------------------------
Consumer Discretionary 1.8%
Department & Chain Stores
Wal-Mart Stores, Inc. ................................... 4,230,400 203,588,000
-------------
Consumer Staples 7.4%
Alcohol 2.2%
Anheuser-Busch Companies, Inc. .......................... 5,830,400 246,698,800
-------------
Food & Beverage 2.7%
PepsiCo, Inc. ........................................... 6,560,200 301,769,200
-------------
Package Goods/Cosmetics 2.5%
Avon Products, Inc. ..................................... 5,493,400 224,542,725
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Shares Value ($)
------------------------------------------------------------------
Procter & Gamble Co. ................. 840,800 56,333,600
-------------
280,876,325
-------------
Health 11.7%
Biotechnology 0.5%
Amgen Inc.* .......................... 377,900 26,388,048
Genzyme Corporation (General Division) 415,200 28,311,450
-------------
54,699,498
-------------
Medical Supply & Specialty 2.1%
Baxter International, Inc. ........... 1,446,600 115,456,763
Medtronic, Inc. ...................... 2,318,900 120,148,006
-------------
235,604,769
-------------
Pharmaceuticals 9.1%
American Home Products Corp. ......... 5,163,600 292,066,124
Bristol-Myers Squibb Co. ............. 2,201,500 125,760,688
Eli Lilly & Co. ...................... 2,202,900 178,710,263
Johnson & Johnson, Inc. .............. 1,496,800 140,605,650
Merck & Co., Inc. .................... 2,371,700 176,543,419
Pfizer, Inc. ......................... 2,587,300 116,266,794
-------------
1,029,952,938
-------------
Communications 6.4%
Telephone/Communications
BellSouth Corp. ...................... 4,171,100 167,886,775
SBC Communications, Inc. ............. 5,037,729 251,886,450
Sprint Corp. ......................... 2,229,700 65,358,081
Verizon Communications ............... 4,978,304 241,136,600
-------------
726,267,906
-------------
Financial 20.3%
Banks 8.9%
Bank One Corp. ....................... 3,361,200 129,826,350
Chase Manhattan Corp. ................ 3,739,350 172,711,228
Citigroup, Inc. ...................... 7,401,333 400,134,565
FleetBoston Financial Corp. .......... 3,622,300 141,269,700
Washington Mutual, Inc. .............. 3,981,100 158,497,544
-------------
1,002,439,387
-------------
Insurance 3.1%
American International Group, Inc. ... 3,677,100 351,852,506
-------------
Consumer Finance 2.2%
American Express Co. ................. 1,562,100 94,897,575
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Shares Value ($)
------------------------------------------------------------------
Mellon Financial Corp. ................. 3,269,000 151,599,875
-------------
246,497,450
-------------
Other Financial Companies 6.1%
Federal National Mortgage Association .. 2,201,200 157,385,800
Marsh & McLennan Companies, Inc. ....... 2,545,800 337,954,950
Morgan Stanley Dean Witter & Co. ....... 2,163,900 197,861,606
-------------
693,202,356
-------------
Media 4.2%
Advertising 0.8%
Interpublic Group of Companies, Inc. ... 2,759,600 93,998,875
-------------
Broadcasting & Entertainment 2.0%
Walt Disney Co. ........................ 5,891,200 225,338,400
-------------
Cable Television 1.4%
Comcast Corp. "A"* ..................... 3,825,400 156,602,313
-------------
Service Industries 2.0%
Printing/Publishing
McGraw-Hill, Inc. ...................... 3,504,900 222,780,206
-------------
Durables 3.4%
Aerospace 1.8%
Boeing Co. ............................. 3,243,100 204,315,300
-------------
Automobiles 0.8%
Ford Motor Co. ......................... 3,365,585 85,191,370
-------------
Construction/Agricultural Equipment 0.8%
Deere & Co. ............................ 2,726,800 90,666,100
-------------
Manufacturing 9.5%
Chemicals 0.9%
Dow Chemical Co. ....................... 3,880,900 96,779,944
-------------
Containers & Paper 0.8%
International Paper Co. ................ 2,946,000 84,513,375
-------------
Diversified Manufacturing 3.1%
General Electric Co. ................... 6,197,100 357,495,206
-------------
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Shares Value ($)
---------------------------------------------------------------------
Industrial Specialty 4.5%
Corning, Inc. ............................. 1,711,650 508,360,050
-------------
Machinery/Components/Controls 0.2%
Parker-Hannifin Corp. ..................... 793,800 26,790,799
-------------
Technology 16.6%
Computer Software 5.9%
America Online, Inc.* ..................... 2,231,900 119,964,625
Intuit, Inc. .............................. 1,448,700 82,575,900
Microsoft Corp. ........................... 1,595,800 96,146,950
Oracle Corp.* ............................. 4,690,800 369,400,500
-------------
668,087,975
-------------
EDP Peripherals 1.7%
EMC Corp. ................................. 1,935,700 191,876,263
-------------
Electronic Components/Distributors 2.1%
Cisco Systems, Inc. ....................... 4,247,700 234,685,425
-------------
Electronic Data Processing 3.6%
Compaq Computer Corp. ..................... 6,085,400 167,835,332
Hewlett-Packard Co. ....................... 1,129,100 109,522,700
International Business Machines Corp. ..... 1,125,700 126,641,250
-------------
403,999,282
-------------
Semiconductors 3.3%
Analog Devices, Inc.* ..................... 649,600 53,632,600
Intel Corp. ............................... 7,144,150 296,928,759
Linear Technology Corp. ................... 413,200 26,754,700
-------------
377,316,059
-------------
Energy 9.1%
Oil & Gas Production 0.5%
Burlington Resources, Inc. ................ 1,685,000 62,029,063
-------------
Oil Companies 7.5%
Chevron Corp. ............................. 912,200 77,765,050
Exxon Mobil Corp. ......................... 4,523,120 403,123,070
Royal Dutch Petroleum Co. (New York shares) 3,470,200 207,995,113
Total Fina ELF SA "B" ..................... 1,048,011 153,247,846
-------------
842,131,079
-------------
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
---------------------------------------------------------------------------------------------
<S> <C> <C>
Oilfield Services/Equipment 1.1%
Schlumberger Ltd. ........................................... 1,498,900 123,378,206
-------------
Metals & Minerals 0.7%
Steel & Metals
Alcoa, Inc. ................................................. 3,026,200 76,600,688
-------------
Transportation 0.4%
Airlines
AMR Corp.* .................................................. 1,239,400 40,512,888
-------------
Utilities 3.2%
Electric Utilities
FPL Group, Inc. ............................................. 2,011,000 132,223,250
Unicom Corp. ................................................ 4,138,100 232,509,494
-------------
364,732,744
-------------
---------------------------------------------------------------------------------------------
Total Common Stocks (Cost $8,208,083,041) 10,911,630,745
---------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $8,575,275,218) (a) 11,278,822,922
---------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** 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 $8,586,018,865. At
September 30, 2000, net unrealized appreciation for all securities
based on tax cost was $2,692,804,057. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an excess
of value over tax cost of $3,018,429,485 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value of $325,625,428.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
-------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $8,575,275,218) .................... $ 11,278,822,922
Cash ......................................................................... 59,629
Receivable for investments sold .............................................. 105,531,423
Dividends receivable ......................................................... 6,171,573
Interest receivable .......................................................... 64,668
Receivable for Fund shares sold .............................................. 11,741,223
Foreign taxes recoverable .................................................... 1,539,351
Due from Adviser ............................................................. 42,887
---------------
Total assets ................................................................. 11,403,973,676
Liabilities
-------------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 176,896,430
Payable for Fund shares redeemed ............................................. 21,891,742
Accrued management fee ....................................................... 4,366,983
Accrued reorganization costs ................................................. 120,096
Accrued Trustees' fees and expenses .......................................... 85,773
Other accrued expenses and payables .......................................... 6,463,336
---------------
Total liabilities ............................................................ 209,824,360
-------------------------------------------------------------------------------------------------
Net assets, at value $ 11,194,149,316
-------------------------------------------------------------------------------------------------
Net Assets
-------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income 2,019,912 Net unrealized appreciation
(depreciation) on:
Investments ................................................................ 2,703,547,704
Foreign currency related transactions ...................................... (133,723)
Accumulated net realized gain (loss) ......................................... 521,495,407
Paid-in capital .............................................................. 7,967,220,016
-------------------------------------------------------------------------------------------------
Net assets, at value $ 11,194,149,316
-------------------------------------------------------------------------------------------------
Net Asset Value
-------------------------------------------------------------------------------------------------
Class AARP
Net Asset Value, offering and redemption price per share ($5,353,057,869 /
198,191,892 outstanding shares of beneficial interest, $.01 par value, ----------------
unlimited number of shares authorized) .................................... $ 27.01
----------------
Class S
Net Asset Value, offering and redemption price per share ($5,833,572,945 /
215,936,204 outstanding shares of beneficial interest, $.01 par value, ----------------
unlimited number of shares authorized) .................................... $ 27.02
----------------
Class R Shares
NetAsset Value, offering and redemption price per share ($7,518,502 / 279,889
outstanding shares of beneficial interest, $.01 par value, unlimited number ----------------
of shares authorized) ..................................................... $ 26.86
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
--------------------------------------------------------------------------------
Statements of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended September Year Ended
30, 2000 December 31,
Investment Income (Note A) 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Dividends -- Unaffiliated issuers (net of foreign
taxes withheld of $1,465,977 and $2,414,410,
respectively) ............................................... $ 69,985,879 $ 172,458,868
Dividends -- Affiliated issuers ................................ -- 3,763,212
Interest ....................................................... 5,980,432 9,640,197
---------------- ----------------
Total Income ................................................... 75,966,311 185,862,277
---------------- ----------------
Expenses:
Management fee ................................................. 24,109,868 32,454,854
Services to shareholders ....................................... 13,425,104 23,330,347
Custodian and accounting fees .................................. 256,802 751,099
Administrative services fees ................................... 12,055 3,482
Auditing ....................................................... 87,361 56,641
Legal .......................................................... 59,952 105,182
Trustees' fees and expenses .................................... 123,874 54,728
Reports to shareholders ........................................ 913,545 1,041,282
Registration fees .............................................. -- 264,166
Administrative fee ............................................. 4,500,933 --
Reorganization fees ............................................ 1,350,257 --
Other .......................................................... 178,272 182,902
---------------- ----------------
Total expenses, before expense reductions ...................... 45,018,023 58,244,683
Expense reductions ............................................. (181,153) (217,916)
---------------- ----------------
Total expenses, after expense reductions ....................... 44,836,870 58,026,767
-------------------------------------------------------------------------------------------------
Net investment income (loss) 31,129,441 127,835,510
-------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
-------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 527,869,267 205,189,250
Foreign currency related transactions .......................... (1,016,976) (621,239)
---------------- ----------------
526,852,291 204,568,011
---------------- ----------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (444,387,683) 81,823,561
Foreign currency related transactions .......................... 953,255 (1,116,439)
---------------- ----------------
(443,434,428) 80,707,122
-------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 83,417,863 285,275,133
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 114,547,304 $ 413,110,643
-------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
2000 Years Ended December 31,
Increase (Decrease) in Net Assets (Note A) 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) .... $ 31,129,441 $ 127,835,510 $ 168,785,409
Net realized gain (loss) on
investment transactions ...... 526,852,291 204,568,011 517,286,022
Net unrealized appreciation
(depreciation) on investment
transactions during the period (443,434,428) 80,707,122 (286,105,331)
--------------- --------------- ---------------
Net increase (decrease) in net
assets resulting from
operations ................... 114,547,304 413,110,643 399,966,100
--------------- --------------- ---------------
Distributions to shareholders
from:
Net investment income:
Class AARP .................... (6,540,406) -- --
--------------- --------------- ---------------
Class S ....................... (24,110,895) (134,071,528) (166,588,779)
--------------- --------------- ---------------
Class R Shares ................ (5,565) (131,770) --
--------------- --------------- ---------------
Net realized gains:
Class S ....................... (46,198,585) (177,492,521) (564,589,614)
--------------- --------------- ---------------
Class R Shares ................ (52,957) (31,861) --
--------------- --------------- ---------------
Fund share transactions:
Proceeds from shares sold ....... 625,361,381 1,519,001,419 2,391,306,573
Net assets acquired in tax-free
reorganization ............... 5,468,339,280 -- --
Reinvestment of distributions .. 71,677,113 294,028,961 685,005,575
Cost of shares redeemed ......... (1,779,851,996) (2,725,680,063) (1,996,432,615)
--------------- --------------- ---------------
Net increase (decrease) in net
assets from Fund share
transactions ................. 4,385,525,778 (912,649,683) 1,079,879,533
--------------- --------------- ---------------
Increase (decrease) in net assets 4,423,164,674 (811,266,720) 748,667,240
Net assets at beginning of period 6,770,984,642 7,582,251,362 6,833,584,122
Net assets at end of period
(including undistributed net
investment income of
$2,019,912 and $7,600,144 at
December 31, 2000 and December --------------- --------------- ---------------
31, 1998, respectively) ...... $ 11,194,149,316 $ 6,770,984,642 $ 7,582,251,362
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<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>
Class AARP
------------------------------------------------------------------------------------
2000(a)
------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $27.09
----------
------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------
Net investment income (loss) (b) .01
------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.06)
----------
------------------------------------------------------------------------------------
Total from investment operations (.05)
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net investment income (.03)
------------------------------------------------------------------------------------
Net asset value, end of period $27.01
----------
------------------------------------------------------------------------------------
Total Return (%) (.18)**
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 5,353
------------------------------------------------------------------------------------
Ratio of expenses (%) .75*
------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .04**
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 55*
------------------------------------------------------------------------------------
</TABLE>
(a) From August 14, 2000 (commencement of sale of Class AARP) to September
30, 2000.
(b) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
24
<PAGE>
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class S (a)
------------------------------------------------------------------------------------
2000(b) 1999(c) 1998(c) 1997(c) 1996(c) 1995(c)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $26.69 $26.31 $27.33 $23.23 $20.23 $16.26
-----------------------------------------------------
------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------
Net investment income (loss) .13(d) .48(d) .62(d) .62(d) .60(d) .55
------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions .51 1.11 1.06 6.26 3.84 4.46
-----------------------------------------------------
------------------------------------------------------------------------------------
Total from investment
operations .64 1.59 1.68 6.88 4.44 5.01
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net investment income (.11) (.51) (.61) (.58) (.57) (.56)
------------------------------------------------------------------------------------
Net realized gains on
investment transactions (.20) (.70) (2.09) (2.20) (.87) (.48)
-----------------------------------------------------
------------------------------------------------------------------------------------
Total distributions (.31) (1.21) (2.70) (2.78) (1.44) (1.04)
------------------------------------------------------------------------------------
Net asset value, end of period $27.02 $26.69 $26.31 $27.33 $23.23 $20.23
-----------------------------------------------------
------------------------------------------------------------------------------------
Total Return (%) 2.32** 6.15 6.07 30.31 22.18 31.18
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 5,834 6,765 7,582 6,834 4,186 3,061
------------------------------------------------------------------------------------
Ratio of expenses (%) .86(e)* .80 .74 .76 .78 .80
------------------------------------------------------------------------------------
Ratio of net investment income
(loss) (%) .64* 1.76 2.20 2.31 2.77 3.10
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 55* 70 41 22 27 27
------------------------------------------------------------------------------------
</TABLE>
(a) On August 11, 2000, the Scudder Shares of the Fund were redesignated as
Class S.
(b) For the nine months ended September 30, 2000. On February 7, 2000, the
Fund changed the fiscal year end from December 31 to September 30.
(c) For the year ended December 31.
(d) Based on monthly average shares outstanding during the period.
(e) The ratio of operating expenses excluding costs incurred in connection
with the reorganization was .84%.
* Annualized
** Not annualized
25
<PAGE>
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class R Shares
------------------------------------------------------------------------------------
2000(a) 1999(b)
------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $26.65 $28.16
--------------------
------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------
Net investment income (loss) (c) (.03) .09
------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .46 (.76)
--------------------
------------------------------------------------------------------------------------
Total from investment operations .43 (.67)
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net investment income (.02) (.22)
------------------------------------------------------------------------------------
Net realized gains on investment transactions (.20) (.62)
--------------------
------------------------------------------------------------------------------------
Total distributions (.22) (.84)
------------------------------------------------------------------------------------
Net asset value, end of period $26.86 $26.65
--------------------
------------------------------------------------------------------------------------
Total Return (%) 1.62** (2.31)**
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 8 6
------------------------------------------------------------------------------------
Ratio of expenses (%) 1.62(d)* 1.34*
------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.12)* .98*
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 55* 70
------------------------------------------------------------------------------------
</TABLE>
(a) For the nine months ended September 30, 2000. On February 7, 2000, the
Fund changed the fiscal year end from December 31 to September 30.
(b) For the period August 2, 1999 (commencement of Class R Shares) to
December 31, 1999.
(c) Based on monthly average shares outstanding during the period.
(d) The ratio of operating expenses excluding costs incurred in connection
with the reorganization was 1.60%.
* Annualized
** Not annualized
26
<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.
On February 7, 2000, the Trustees of the Fund changed the fiscal year end for
financial reporting and federal income tax purposes from December 31 to
September 30.
The Fund offers three classes of shares: Class S, Class AARP and Class R Shares.
On August 11, 2000, the Scudder Shares of the Fund were redesignated as Class S.
In addition, all of the net assets acquired from the merger with AARP Growth and
Income Fund (see Note I) were designated as Class AARP. Shares of Class AARP are
especially designed for members of AARP. Class R Shares are only available for
purchase by Participants of certain employer-sponsored retirement plans.
Prior to August 14, 2000, investment income, realized and unrealized gains and
losses, and certain Fund-level expenses and expense reductions, if any, were
borne pro rata on the basis of relative net assets by the holders of both
classes of shares except that each class had certain expenses unique to that
class such as shareholder services, administrative services and reorganization
expenses (see Note H). Effective August 14, 2000 investment income, realized and
unrealized gains and losses and all Fund-level expenses are borne pro rata on
the basis of relative net assets by the holders of all classes of shares except
that Class R Shares bear an administrative services fee (see Note C).
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 accounting
principles generally accepted in the United States of America which require the
use of management estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated
27
<PAGE>
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.
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
subcustodian 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
28
<PAGE>
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
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 accounting principles generally accepted in the United
States of America. 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 nine months ended September 30, 2000, purchases and sales of
investment securities (excluding short-term investments) aggregated
$2,895,599,362 and $3,640,543,571, respectively.
C. Related Parties
As described in Note H, Scudder Kemper Investments, Inc. has initiated a
restructuring program for most of its Scudder no-load, open-end funds. As part
of this reorganization, the Fund adopted a new Investment Management Agreement
and entered into an Administrative Agreement. Both of these agreements were
effective August 14, 2000. The terms of the newly adopted and the pre-existing
agreements are set out below.
Management Agreement. Under the Investment Management Agreement (the
"Agreement") with Scudder Kemper Investments Inc. ("Scudder Kemper" or the
"Adviser"), the Adviser directs the investments of the Fund in accordance
29
<PAGE>
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 0.60% on the first $500,000,000 of the
Fund's average daily net assets, 0.55% on the next $500,000,000 of such net
assets, 0.50% on the next $500,000,000 of such net assets, 0.475% on the next
$500,000,000 of such net assets, 0.45% on the next $1,000,000,000 of such net
assets, 0.425% on the next $1,500,000,000 of such net assets, 0.405% on the next
$1,500,000,000 of such net assets, 0.3875% on the next $4,000,000,000 of such
net assets and 0.37% of such net assets in excess of $10,000,000,000, computed
and accrued daily and payable monthly.
Effective August 14, 2000, the Fund, as approved by the Fund's Board of
Trustees, adopted a new Investment Management Agreement (the "Management
Agreement") with Scudder Kemper. The Management Agreement is identical to the
pre-existing Agreement, except for the dates of execution and termination and
fee rate. The management fee payable under the Management Agreement is equal to
an annual rate of 0.45% of the first $14,000,000,000 of the Fund's average daily
net assets, 0.425% of the next $2,000,000,000 of such net assets, 0.400% of the
next $2,000,000,000 of such net assets and 0.385% of such net assets in excess
of $18,000,000,000, computed and accrued daily and payable monthly.
Accordingly, for the nine months ended September 30, 2000, the fees pursuant to
the Agreement and the Management Agreement amounted to $24,109,868 which was
equivalent to an annualized effective rate of 0.46% of the Fund's average daily
net assets.
Administrative Fee. Effective August 14, 2000, the Fund, as approved by the
Fund's Board of Trustees, adopted an Administrative Agreement (the
"Administrative Agreement") with Scudder Kemper. Under the Administrative
Agreement the Adviser provides or pays others to provide substantially all of
the administrative services required by the Fund (other than those provided by
Scudder Kemper under its Management Agreement with the Fund, as described above)
in exchange for the payment by the Fund of an administrative services fee (the
"Administrative Fee") of 0.30% of average daily net assets. As of the effective
date of the Administrative Agreement, each service provider will continue to
provide the services that it currently provides
30
<PAGE>
to the Fund (i.e., fund accounting, shareholder services, custody, audit and
legal), under the current arrangements, except that Scudder Kemper will pay
these entities for the provision of their services to the Fund and will pay most
other Fund expenses, including insurance, registration, printing and postage
fees. Certain expenses of the Fund would not be borne by Scudder Kemper under
the Administrative Agreement, such as taxes, brokerage, interest and
extraordinary expenses, and the fees and expenses of the Independent Trustees
(including the fees and expenses of their independent counsel). For the period
August 14, 2000 through September 30, 2000, the Administrative Agreement expense
charged to the Fund amounted to $4,500,933, of which $2,898,304 was unpaid at
September 30, 2000.
Service Fees. Scudder Service Corporation ("SSC"), a subsidiary of the Adviser,
is the transfer, dividend-paying and shareholder service agent for the other
classes of the Fund. Prior to August 14, 2000, the amount charged to the Fund by
SSC aggregated $3,615,396, of which $666,049 is unpaid at September 30, 2000.
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.
Prior to August 14, 2000, the amount charged to Class R Shares aggregated
$21,318, of which $21,318 is unpaid at September 30, 2000.
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 Class S shares of the Fund. Prior to August
14, 2000, the amount charged to Class S shares of the Fund by STC aggregated
$5,811,841.
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. Prior to August 14,
2000, the amount charged to the Fund by SFAC aggregated $230,833, of which
$50,013 is unpaid at September 30, 2000.
The Class S 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 Fund will be charged expenses that
exceed the estimated savings to such
31
<PAGE>
Underlying Fund. These estimated savings result from the elimination of separate
shareholder accounts which either currently are or have potential to be invested
in the Underlying Funds. Prior to August 14, 2000 the Special Servicing
Agreement expense charged to the Class S shares of the Fund amounted to
$603,561.
Effective August 14, 2000, the above fees will be paid by the Adviser in
accordance with the Administrative Agreement.
Other Fees. Kemper Distributors, Inc. ("KDI"), as affiliate of the Adviser,
provides information and administrative services to Class R Shares' shareholders
at an annual rate of up to 0.25% of average daily net assets for the class. KDI
in turn has various agreements with financial services firms that provided these
services and pays these firms based on assets of shareholder accounts the firms
service. For the nine months ended September 30, 2000, the Administrative
Services Fee was as follows:
<TABLE>
<CAPTION>
Unpaid at
Total Fees Waived by September 30,
Administrative Services Fee Aggregated KDI 2000
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class R Shares ............................... $ 12,055 $ -- $ 15,537
</TABLE>
Trustee Fees and Expenses. The Fund pays each Trustee not affiliated with the
Adviser an annual retainer plus specified amounts for attended board and
committee meetings. For the nine months ended September 30, 2000, Trustees' fees
and expenses aggregated $38,101. In addition, a one-time fee of $85,773 was
accrued, by Class S and Class R Shares prior to August 14, 2000, for payment to
those Trustees not affiliated with the Adviser who did not stand for re-election
under the reorganization discussed in Note H. Inasmuch as the Adviser will also
benefit from administrative efficiencies of a consolidated Board, the Adviser
has agreed to bear $42,887 of such costs.
Other Related Parties. Effective August 14, 2000, Scudder Kemper has agreed to
pay a fee to AARP and/or its affiliates in return for advice and other services
relating to investments by AARP members in Class AARP shares of the Fund. This
fee is calculated on a daily basis as a percentage of the combined net assets of
the AARP classes of all funds managed by Scudder Kemper. The fee rates, which
decrease as the aggregate net assets of the AARP classes become larger, are as
follows: 0.07% for the first $6,000,000,000 of net assets, 0.06% for the next
$10,000,000,000 of such net assets and 0.05% of such net assets thereafter.
32
<PAGE>
D. Transactions in Securities of Affiliated Issuers
An affiliated issuer is a company in which the Fund has ownership of at least 5%
of the voting securities. A summary of the Fund's transactions with a company
which was an affiliate for the year ended December 31, 1999 is as follows:
Purchases Sales Dividend
Affiliate Cost ($) 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. During the nine months ended September
30, 2000, the Fund's custodian fees were reduced by $20,386. Prior to August 14,
2000, transfer agent fees were reduced by $117,880.
Effective August 14, 2000, transfer agent credits will no longer be used to
reduce Fund expenses.
F. Line of Credit
The Fund and several other Scudder Funds (the "Participants") share in a $1
billion revolving credit facility with Chase Manhattan Bank 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 based upon net
assets, 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.
33
<PAGE>
G. Share Transactions
The following table summarizes shares of beneficial interest and dollar activity
in the Fund:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 2000
---------------------------------
Shares sold Shares Dollars
------------------------------------------------------------------------------------------------
<S> <C> <C>
Class AARP* .................................................. 1,144,852 $ 31,161,017
Class R Shares ............................................... 189,097 4,996,879
Class S ...................................................... 22,174,110 589,203,485
---------------
$ 625,361,381
---------------
Shares issued in tax-free reorganization
------------------------------------------------------------------------------------------------
Class AARP ................................................... 201,860,288 $ 5,468,339,280
Shares issued to shareholders in reinvestment of distributions
------------------------------------------------------------------------------------------------
Class AARP* .................................................. 217,979 $ 5,841,818
Class R Shares ............................................... 2,184 58,522
Class S ...................................................... 2,441,256 65,776,773
---------------
$ 71,677,113
---------------
Shares redeemed
------------------------------------------------------------------------------------------------
Class AARP* .................................................. (5,031,227) $ (137,484,977)
Class R Shares ............................................... (137,038) (3,635,637)
Class S ...................................................... (62,123,404) (1,638,731,382)
---------------
$(1,779,851,996)
---------------
Net increase (decrease)
------------------------------------------------------------------------------------------------
Class AARP* .................................................. 198,191,892 $ 5,367,857,138
Class R Shares ............................................... 54,243 1,419,764
Class S ...................................................... (37,508,038) (983,751,124)
---------------
$ 4,385,525,778
---------------
</TABLE>
* For the period August 14, 2000 (commencement of sale of Class AARP) to
September 30, 2000.
34
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
--------------------------------------------------------------------
Shares sold Shares Dollars Shares Dollars
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class S........... 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
----------------------------------------------------------------------------------------
Class S........... 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
----------------------------------------------------------------------------------------
Class S........... (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)
----------------------------------------------------------------------------------------
Class S........... (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.
H. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds. These costs, including printing, shareholder meeting
expenses and professional fees, were charged to Class S and Class R Shares and
are presented as reorganization expenses in the Statement of Operations of the
Fund.
35
<PAGE>
I. Acquisition of Assets
On August 11, 2000, the Fund acquired all the net assets of AARP Growth and
Income Fund pursuant to a plan of reorganization approved by shareholders on
July 13, 2000. The acquisition was accomplished by a tax-free exchange of
201,860,288 Class AARP shares of the Fund for 113,796,879 shares of AARP Growth
and Income Fund outstanding on August 11, 2000. AARP Growth and Income Fund's
net assets at that date ($5,468,339,280), including $1,426,425,614 of net
unrealized appreciation, were combined with those of the Fund. The aggregate net
assets of the Fund immediately before the acquisition were $5,959,664,313. The
combined net assets of the Fund immediately following the acquisition were
$11,428,003,593.
36
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of Investment Trust and the Shareholders of Scudder Growth and
Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Growth and Income Fund (the
"Fund") at September 30, 2000, the results of its operations, the changes in its
net assets and the financial highlights for each of the periods indicated
therein, in conformity with accounting principles generally accepted in the
United States of America. 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 of America 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 September 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
Boston, Massachusetts PricewaterhouseCoopers LLP
November 21, 2000
37
<PAGE>
Tax Information (Unaudited)
--------------------------------------------------------------------------------
The Class S and Class R Shares of the Fund paid distributions of $0.20 per share
from net long-term capital gains during the nine months ended September 30,
2000, of which 100% represents 20% gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$558,850,000 as capital gain dividends for the nine months ended September 30,
2000, of which 100% represents 20% rate gains.
For corporate shareholders, 100% of the income dividends paid during the Fund's
nine months ended September 30, 2000 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
--------------------------------------------------------------------------------
Linda C. Coughlin* James M. Eysenbach*
o President and Trustee o Vice President
Henry P. Becton, Jr. William F. Gadsden*
o Trustee; President, WGBH o Vice President
Educational Foundation
William F. Glavin*
Dawn-Marie Driscoll o Vice President
o Trustee; President, Driscoll
Associates; Executive Fellow, Valerie F. Malter
Center for Business Ethics, o Vice President
Bentley College
Kathleen T. Millard*
Edgar R. Fiedler o Vice President
o Trustee; Senior Fellow and
Economic Counsellor, The James E. Masur*
Conference Board, Inc. o Vice President
Keith R. Fox Ann M. McCreary*
o Trustee; General Partner, o Vice President
The Exeter Group of Funds
Howard S. Schneider*
Joan E. Spero o Vice President
o Trustee; President, The Doris
Duke Charitable Foundation John Millette*
o Vice President and Secretary
Jean Gleason Stromberg
o Trustee; Consultant Kathryn L. Quirk*
o Vice President and
Jean C. Tempel Assistant Secretary
o Trustee; Managing Director,
First Light Capital, LLC John R. Hebble*
o Treasurer
Steven Zaleznick
o Trustee; President and Brenda Lyons*
Chief Executive Officer, o Assistant Treasurer
AARP Services, Inc.
Caroline Pearson*
Thomas V. Bruns* o Assistant Secretary
o Vice President
*Scudder Kemper Investments, Inc.
39
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Scudder Funds
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund
Prime Reserve Shares Scudder Small Company Value Fund
Premium Shares
Managed Shares Growth
Scudder Tax Free Money Fund Scudder Classic Growth Fund
Scudder Capital Growth Fund
Tax Free Scudder Large Company Growth Fund
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund Scudder Small Company Stock Fund
Scudder California Tax Free Fund Scudder 21st Century Growth Fund
Scudder Massachusetts Tax Free Fund
Scudder New York Tax Free Fund Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund
Scudder GNMA Fund Scudder Global Discovery Fund
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio Scudder Health Care Fund
Scudder Pathway Growth Portfolio Scudder Technology Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
40
<PAGE>
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
--------------------------------------------------------------------------------
Closed-End Funds
--------------------------------------------------------------------------------
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>
Scudder funds are offered by prospectus only. For more complete information on
any fund or variable annuity registered in your state, including information
about a fund's objectives, strategies, risks, advisory fees, distribution
charges, and other expenses, please order a free prospectus. Read the prospectus
before investing in any fund to ensure the fund is appropriate for your goals
and risk tolerance. There is no assurance that the objective of any fund will be
achieved, and fund returns and net asset values fluctuate. Shares are redeemable
at current net asset value, which may be more or less than their original cost.
A money market mutual fund investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although a
money market mutual fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in such a fund.
The services and products described should not be considered a solicitation to
buy or an offer to sell a security to any person in any jurisdiction where such
offer, solicitation, purchase, or sale would be unlawful under the securities
laws of such jurisdiction.
Scudder Investor Services, Inc.
41
<PAGE>
Account Management Resources
--------------------------------------------------------------------------------
For shareholders of Scudder funds including those in the AARP Investment Program
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- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to
exchange or redeem shares, and information on other
Scudder funds and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.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 you need
them. Scudder's site also provides news about Scudder
funds, retirement planning information, and more.
42
<PAGE>
--------------------------------------------------------------------------------
Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the
proceeds for schedule (as frequently as once a month) and amount
living expenses of the redemptions, and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into
automated the bank account you designate within three business
withdrawal days after 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 Scudder Class S Shareholders:
information
about these Call a Scudder representative at
services 1-800-SCUDDER
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 2291
Boston, Massachusetts
02107-2291
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 2540
Boston, Massachusetts
02208-2540
43
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<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)
[LOGO]
AARP Investment
Program from Scudder
PO Box 2540
Boston, MA 02208-2540
1-800-253-2277
aarp.scudder.com
Scudder Funds
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
