Scudder
Classic Growth Fund
Annual Report
August 31, 1998
For investors seeking long-term growth of capital with reduced share price
volatility compared to other growth mutual funds.
Scudder Classic Growth Fund is properly known as Classic Growth Fund.
This Fund is a diversified series of Investment Trust.
SCUDDER (logo)
<PAGE>
Scudder Classic Growth Fund
- --------------------------------------------------------------------------------
Date of Inception: 9/9/96 Total Net Assets of Scudder Ticker Symbol: SCCGX
Shares as of 8/31/98:
$103.5 million
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o The Scudder Shares of Classic Growth Fund declined 2.72% for the 12-month
period ended August 31, 1998, compared to the 8.13% return for the unmanaged S&P
500 Index for the same period.
o The Fund's focus on established mid- and large-capitalization companies with
reasonable valuations was a disadvantage in an investment environment where the
most substantial gains were provided by a select few highly priced growth
stocks.
o The Fund continues to emphasize high-quality leading companies whose stocks
are attractively valued.
Table of Contents
3 Letter from the Fund's President 17 Financial Highlights
4 Performance Update 21 Notes to Financial Statements
5 Portfolio Summary 26 Report of Independent Accountants
6 Portfolio Management Discussion 27 Tax Information
9 Glossary of Investment Terms 28 Officers and Trustees
10 Investment Portfolio 29 Investment Products and Services
14 Financial Statements 30 Scudder Solutions
2 - Scudder Classic Growth Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
After several years of record strong performance for the U.S. stock market,
global events -- led by the currency crises in Southeast Asia, Japan's
recession, and the recent crisis in Russia -- have begun to impact the domestic
market. Market declines can be undiscriminating, and shares of fundamentally
sound companies may get hit as hard as those with higher market valuations.
However, this kind of environment can also provide extraordinary buying
opportunities, because as markets recover, fundamentals can carry the day, and
investing in the best companies should again provide attractive returns. For
more detail on the events of the past 12 months and the managers' outlook,
please turn to the discussion beginning on page 6.
For those of you who are interested in new Scudder funds, we recently
introduced two international funds: Scudder International Growth Fund -- which
seeks to invest in high growth opportunities in both developed and developing
markets, and Scudder International Value Fund -- which seeks to invest in
undervalued foreign securities. For further information on these new funds,
please call Scudder Investor Information at 1-800-225-2470.
Thank you for your continued investment in Scudder Classic Growth Fund. If
you have any questions about your account, please call Scudder Investor
Relations at the toll-free number above, or visit our Web site at
http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Classic Growth Fund
3 - Scudder Classic Growth Fund
<PAGE>
Performance Update as of August 31, 1998
- -------------------------------------------
Fund Index Comparisons
- -------------------------------------------
Total Return
- -------------------------------------------
Period Ended Growth of Average
8/31/98 $10,000 Cumulative Annual
- -------------------------------------------
Classic Growth Fund - Scudder Shares
- -------------------------------------------
1 Year $ 9,728 -2.72% -2.72%
Life of Class* $ 14,125 41.25% 19.11%
- -------------------------------------------
S&P 500 Index
- -------------------------------------------
1 Year $ 10,813 8.13% 8.13%
Life of Class* $ 14,399 43.99% 20.94%
- -------------------------------------------
*The Fund commenced operations on September 9, 1996.
Index comparisons begin September 30, 1996.
- -------------------------------------------
Growth of a $10,000 Investment
- -------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Classic Growth Fund --
Scudder Shares
Year Amount
- ----------------------
9/96* $10,000
11/96 $10,928
2/97 $11,361
5/97 $12,419
8/97 $13,818
11/97 $14,160
2/98 $15,660
5/98 $16,154
8/98 $13,442
S&P 500 Index
Year Amount
- ----------------------
9/96* $10,000
11/96 $11,053
2/97 $11,601
5/97 $12,506
8/97 $13,317
11/97 $14,206
2/98 $15,664
5/98 $16,346
8/98 $14,399
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted
measure of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange, and Nasdaq Stock Market. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not reflect any fees or
expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended August 31
1997* 1998
- --------------------------------------------------------------------------------
Net Asset Value $17.38 $16.61
- --------------------------------------------------------------------------------
Income Dividends $ .04 $ .04
- --------------------------------------------------------------------------------
Capital Gains Dividend $ -- $ .29
- --------------------------------------------------------------------------------
Fund Total Return (%) 45.20 -2.72
- --------------------------------------------------------------------------------
Index Total Return (%) 38.08 8.13
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Effective April 16, 1998, the Fund changed its name from Scudder Classic Growth
Fund to Classic Growth Fund and an additional three classes of shares were
offered. Existing shares of Classic Growth Fund outstanding on that date were
redesignated Scudder Shares of the Fund. The total return information provided
is for the Fund's Scudder Share class. The total return for Classes A, B, and C
would have been lower due to sales loads and certain class specific expenses.
Performance is historical, assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than when purchased. If the Adviser had not maintained expenses, the total
return for the one year and life of Class periods would have been lower.
4 - Scudder Classic Growth Fund
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Portfolio Summary as of August 31, 1998
- -------------------------------
Asset Allocation
- -------------------------------
Equity Holdings 94%
Cash Equivalents 6%
- -------------------------------
100%
- -------------------------------
The Fund maintains a fully invested
approach in quality growth stocks.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- ------------------------------
Sector Diversification
(Excludes 6% Cash Equivalents)
- ------------------------------
Financial 18%
Technology 16%
Consumer Discretionary 15%
Health 12%
Energy 9%
Manufacturing 8%
Consumer Staples 6%
Media 6%
Durables 5%
Other 5%
- ------------------------------
100%
- ------------------------------
The Fund was slightly overweighted
in the financial industry compared to
the market, and favored the
technology and healthcare sectors for
their performance potential.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -------------------------------
Ten Largest Equity Holdings
(26% of Portfolio)
- -------------------------------
1. EXEL, Ltd.
Provider of liability insurance
2. Home Depot, Inc.
Building supply/home improvement stores
3. Procter & Gamble Co.
Diversified manufacturer of consumer products
4. Schering-Plough Corp.
Pharmaceutical and consumer products
5. Intel Corp.
Semiconductor memory circuits
6. WorldCom, Inc.
Long distance telecommunication services
7. Compaq Computer Corp.
Leading manufacturer of personal computers
8. American International Group, Inc.
Major international insurance holding company
9. Omnicom Group, Inc.
Leading advertising company
10. Federal National Mortgage Association
Insurer and holder of mortgage loans
The Fund's top holdings are
established, familiar companies that
are leaders in their sectors.
For more complete details about the Fund's investment portfolio, see page 10.
A quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Classic Growth Fund
<PAGE>
Portfolio Management Discussion
In the following interview, William F. Gadsden and Bruce F. Beaty, portfolio
managers of Scudder Classic Growth Fund, discuss the Fund's strategy and the
market environment during the annual period ended August 31, 1998.
Q: How did the Scudder Shares of Classic Growth Fund perform over the 12-month
period?
A: The Scudder Shares (the "Shares") returned -2.72%, compared to the 8.13%
return for the Shares' benchmark, the unmanaged S&P 500 Index, for the same
period. While this was a difficult period for many investors seeking to
outperform the S&P 500, it should be noted that since the Fund's inception in
September 1996, the Shares' returns have generally been more in line with the
performance of the broader market.
Q: Crises in the emerging markets -- especially Asia and Russia -- had a
significant effect on the U.S. stock market over the 12 months. How would you
characterize this period?
A: The period can essentially be broken down into three distinct periods. The
first might be referred to as the Asian Crisis Part I, which spanned the end of
summer 1997 into fall 1997, when the initial Southeast Asian currency crisis
erupted. The second distinguishable period was in early 1998, when worries about
Asia abated and the market was once again roaring ahead -- at the end of June,
the S&P 500 Index had a year-to-date return of 17.71%. The third stage, or the
Asian Crisis Part II, occurred in August of 1998. This was one of the worst
Augusts on record for the U.S. stock market, with the continuing effects of the
Asian crisis and the debt default and ruble devaluation in Russia as the primary
culprits. The S&P 500 was down 14.45% in the month of August alone, erasing all
of the year's previous gains and bringing its year-to-date total return down to
- -0.35%.
Q: How did this environment affect the Fund's performance?
A: The Fund's approach was out of favor during much of the period. Our strategy
for the Fund is very much a "growth at a reasonable price" (GARP) discipline.
Our quantitative ranking discipline divides stocks into quintiles, where stocks
in the first and second quintiles are the most attractive and should outperform
stocks in the fourth and fifth quintiles, which are sell candidates. Potential
purchase candidates must pass this initial screen before they even show up on
our radar for further consideration. Therefore, we did not own any of the
mega-cap names that were providing the most sizable returns toward the end of
the period, because in our opinion their valuations were extraordinarily high.
These huge, high-multiple growth stocks included Coca-Cola, Lucent Technologies,
Microsoft, and Warner Lambert.
This recent phenomenon of market performance led primarily by mega-cap growth
stocks, is reminiscent of the "nifty-fifty" stocks of the 1970s -- a small group
of blue chip stocks with relatively high valuations that significantly
outperformed the rest of the market. This "narrowing of the market" is not
necessarily a bad thing, as long as stock prices are supported by solid
fundamentals and reasonable valuations. Unfortunately, earnings growth rates
have been decelerating and valuations are relatively high for many of these
mega-cap stocks.
This condition represents what we call a GAAP -- or "growth at any price" --
situation, when companies such as Coca-Cola are selling for an astonishing 40-50
6 - Scudder Classic Growth Fund
<PAGE>
times earnings. We believe that this phenomenon is not yet over, but it does
seem to be abating. Investors are selling stock of companies that show the
slightest earnings uncertainties, and are instead putting the money back into
stocks offering good earnings prospects at more favorable prices. Pfizer is an
example of one of these companies that seems to have solid earnings visibility,
and was a Fund holding at period-end.
Q: Financial stocks remain the largest weighting in the portfolio. How did this
sector fare?
A: We were slightly overweighted in this sector at the end of the period
compared to the market, but we are analyzing whether the world might be entering
a credit crisis. Many established U.S. financial institutions have significant
exposure to the foreign and emerging markets through loans and other
arrangements. The first wave of the Asian crisis had a marked effect on the
portfolio's financial holdings, which had been some of the top performers in the
Fund up to that point. When Asian fears subsided in early 1998, many financial
companies reached record highs. As the crises worsened, especially toward the
end of the period, investors became increasingly concerned about the impact on
corporate earnings. Shortly after the end of the Fund's fiscal period, we began
to see some acknowledgment of the crises' effect on the earnings of a number of
banks and financial institutions with foreign exposure. This held back the
performance of financial stocks for the period, many of which had provided
strong performance earlier in the year.
Q: How did specific financial companies fare?
A: The merger of Travelers and Citicorp in July 1998, both of which were held in
the portfolio during the year, produced some euphoria for the whole financial
sector. However, in August of 1998, financial issues were again hit especially
hard -- evident in the stock price of Travelers, which traded for as high as $72
at the time of the merger with Citicorp, but had dropped to as low as $38 by the
end of August.
Insurance holding company American International Group (AIG) was a Fund holding
that suffered in the global environment during the period. There were worries
about the company's heavy global operations, especially in Asia, as well as
concerns regarding its merger with SunAmerica, which was announced in August
1998. While we thought that the merger was a good fit strategically --
SunAmerica offered exposure to the retirement planning and savings segment that
AIG did not have on its own -- AIG paid a high price for SunAmerica. This led to
concern that earnings might be diluted, and as a result, we pared back our
position. American Express, which was our largest holding at mid-year, was also
reduced.
Q: How did other sectors perform?
A: The major oil companies generally held up better than the market, with Exxon
and Mobil declining around 6% and 1%, respectively. Both companies have
defensive characteristics and good yields. In the technology field, Intel, which
holds about 85% of the microprocessor market, performed in line with the
market's performance and remains one of the portfolio's top holdings. We are
also still favoring the healthcare sector, represented in the portfolio by
companies such as Schering-Plough, HEALTHSOUTH, and Becton, Dickinson.
7 - Scudder Classic Growth Fund
<PAGE>
Q: Were there any bright spots in the portfolio?
A: Yes, including home improvement retailer Home Depot, which has been one of
the Fund's best performers, and was the largest holding at one point during the
year. Home Depot's performance was aided by the fact that it is a purely
domestic retailer (with an expanding presence in Canada).
Advertising corporation Omnicom was another winner that we owned for most of the
period. As the advertising business is becoming more and more concentrated,
companies worldwide are consolidating all of their business with one large
agency that is able to provide global solutions. Currently, about half of
Omnicom's billings are placed outside of the United States through its stable of
ad agencies.
Q: What is your outlook for the market and how will it affect your strategy
going forward?
A: Looking ahead, our outlook is extremely cautious and volatility in the market
would not be surprising. It is difficult to foresee much headway as long as the
expectations for earnings growth are restrained. Many stocks are down already,
and estimates for U.S. corporate profits keep getting lowered. Valuations are
declining, but stocks are still not cheap enough for a sustained rebound.
We plan to be even more discriminating in our choice of investments and place an
even greater premium on stocks with reasonable valuations. This valuation screen
has worked well historically. When there is stress on the global system, as
there is currently, we think sticking with companies that have clean balance
sheets and improving competitive positions should provide a solid foundation.
Scudder Classic Growth Fund:
A Team Approach to Investing
Scudder Classic Growth Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals who each play an important
role in the Fund's management process. Team members work together to develop
investment strategies and select securities for the Fund's portfolio. They are
supported by the Adviser's large staff of economists, research analysts,
traders, and other investment specialists who work in our offices across the
United States and abroad. We believe our team approach benefits Fund investors
by bringing together many disciplines and leveraging our extensive resources.
Lead Portfolio Manager William F. Gadsden, who joined the Adviser in 1983,
focuses on overall investment strategy and has 15 years of investment industry
experience.
Portfolio Manager Bruce F. Beaty focuses on securities selection and assists
with the creation and implementation of investment strategy for the Fund. He
joined the Adviser in 1991 and has 16 years of investment industry experience.
8 - Scudder Classic Growth Fund
<PAGE>
Glossary of Investment Terms
FUNDAMENTAL RESEARCH Analysis of companies based on the projected
impact of management, products, sales, and earnings
on 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.
GROWTH STOCK Stock of a company that has displayed above-average
earnings growth and is expected to continue to
increase profits rapidly going forward.
LIQUIDITY A characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.
MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, determined by multiplying the
number of shares outstanding by the share price
(Shares x Price = Market Capitalization). The
universe of publicly traded companies is frequently
divided into large-, mid-, and small-capitalizations.
OVER/UNDER WEIGHTING Refers to the allocation of assets -- usually by
sector, industry, or country -- within a
portfolio relative to a benchmark index, (i.e. the
S&P 500) or an investment universe.
PRICE/EARNINGS RATIO A widely used gauge of a stock's valuation that
(P/E) (also "earnings indicates what investors are paying for a company's
multiple") earnings on a per-share basis. Typically based on a
company's projected earnings for the next 12 months,
a higher "earnings multiple" indicates a higher
expected growth rate and the potential for greater
price fluctuations.
VALUE STOCK A company whose stock price does not fully reflect
its 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.
Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Investment
Terms
9 - Scudder Classic Growth Fund
<PAGE>
Investment Portfolio as of August 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 6.5%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 8/31/1998
at 5.75%, to be repurchased at $7,452,190 on 9/1/1998, collateralized by a -----------
$7,555,000 U.S. Treasury Bond, 5.875%, 1/31/1999 (Cost $7,451,000) .................... 7,451,000 7,451,000
-----------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 93.5%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 14.0%
Department & Chain Stores 8.0%
Costco Companies, Inc.* ................................................................. 37,300 1,755,431
Dayton Hudson Corp. ..................................................................... 63,300 2,278,800
Home Depot, Inc. ........................................................................ 86,800 3,341,800
Walgreen Co. ............................................................................ 47,500 1,828,750
-----------
9,204,781
-----------
Hotels & Casinos 2.1%
Carnival Corp. "A" ...................................................................... 54,000 1,559,250
Mirage Resorts, Inc.* ................................................................... 57,700 858,288
-----------
2,417,538
-----------
Specialty Retail 3.9%
AutoZone, Inc.* ......................................................................... 53,600 1,390,250
Office Depot Inc.* ...................................................................... 75,500 1,925,250
Tiffany & Co. ........................................................................... 32,900 1,223,469
-----------
4,538,969
-----------
Consumer Staples 5.5%
Alcohol & Tobacco 1.5%
Philip Morris Companies, Inc. ........................................................... 42,600 1,770,563
-----------
Food & Beverage 1.2%
Suiza Foods Corp.* ...................................................................... 27,700 1,339,988
-----------
Package Goods/Cosmetics 2.8%
Procter & Gamble Co. .................................................................... 41,700 3,190,050
-----------
Health 11.1%
Health Industry Services 1.8%
HEALTHSOUTH Corp.* ...................................................................... 108,100 2,047,144
-----------
Medical Supply & Specialty 1.9%
Becton, Dickinson & Co. ................................................................. 65,200 2,171,975
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Classic Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pharmaceuticals 7.4%
American Home Products Corp. ............................................................ 28,600 1,433,575
Bristol-Myers Squibb Co. ................................................................ 23,300 2,280,488
Pfizer, Inc. ............................................................................ 18,900 1,757,700
Schering-Plough Corp. ................................................................... 36,300 3,121,800
-----------
8,593,563
-----------
Communications 2.6%
Telephone/Communications
WorldCom, Inc.* ......................................................................... 72,500 2,967,969
-----------
Financial 17.0%
Banks 1.5%
BankAmerica Corp. ....................................................................... 27,700 1,774,531
-----------
Insurance 8.9%
Allstate Corp. .......................................................................... 34,000 1,275,000
American International Group, Inc. ...................................................... 35,500 2,744,594
Conseco, Inc. ........................................................................... 39,200 1,082,900
EXEL Ltd. (ADR)* ........................................................................ 54,800 3,661,318
MBIA, Inc. .............................................................................. 26,400 1,481,700
-----------
10,245,512
-----------
Consumer Finance 1.5%
Associates First Capital Corp. .......................................................... 30,000 1,773,750
-----------
Other Financial Companies 5.1%
American Express Company ................................................................ 20,700 1,614,600
Federal National Mortgage Association ................................................... 44,100 2,505,431
Travelers Group, Inc. ................................................................... 39,300 1,743,938
-----------
5,863,969
-----------
Media 5.4%
Advertising 2.4%
Omnicom Group, Inc. ..................................................................... 57,300 2,728,913
-----------
Cable Television 1.8%
Tele-Comm Liberty Media Group "A"* ...................................................... 64,550 2,109,978
-----------
Print Media 1.2%
Tribune Co. ............................................................................. 22,300 1,436,956
-----------
Service Industries 1.7%
Investment 0.8%
Franklin Resources, Inc. ................................................................ 28,500 919,125
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Classic Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous Commercial Services 0.7%
AccuStaff, Inc.* ........................................................................ 63,300 791,250
-----------
Miscellaneous Consumer Services 0.2%
Service Corp. International ............................................................. 9,300 315,038
-----------
Durables 4.9%
Aerospace 2.8%
Lockheed Martin Corp. ................................................................... 16,800 1,468,950
United Technologies Corp. ............................................................... 24,300 1,763,269
-----------
3,232,219
-----------
Automobiles 1.0%
Magna International, Inc. "A" ........................................................... 20,200 1,210,738
-----------
Telecommunications Equipment 1.1%
Nokia AB Oy "A" (ADR) ................................................................... 18,500 1,236,031
-----------
Manufacturing 7.1%
Chemicals 1.5%
Praxair, Inc. ........................................................................... 21,800 782,075
Sigma-Aldrich Corp. ..................................................................... 34,900 968,475
-----------
1,750,550
-----------
Diversified Manufacturing 3.0%
General Electric Co. .................................................................... 22,400 1,792,000
Textron, Inc. ........................................................................... 26,000 1,631,500
-----------
3,423,500
-----------
Electrical Products 0.7%
Emerson Electric Co. .................................................................... 14,700 837,900
-----------
Machinery/Components/Controls 1.9%
Parker-Hannifin Group ................................................................... 74,150 2,150,350
-----------
Technology 14.6%
Computer Software 2.1%
Computer Associates International, Inc. ................................................. 26,500 715,500
Parametric Technology Corp. ............................................................. 63,000 645,750
Sterling Commerce, Inc.* ................................................................ 34,100 1,125,300
-----------
2,486,550
-----------
Diverse Electronic Products 1.2%
Applied Materials, Inc.* ................................................................ 55,400 1,360,763
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Classic Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Data Processing 7.7%
Compaq Computer Corp. ................................................................... 103,400 2,888,738
Hewlett-Packard Co. ..................................................................... 47,100 2,287,294
International Business Machines Corp. ................................................... 11,800 1,328,975
Sun Microsystems, Inc.* ................................................................. 59,000 2,337,875
-----------
8,842,882
-----------
Semiconductors 3.6%
Intel Corp. ............................................................................. 43,270 3,080,283
Linear Technology Corp. ................................................................. 21,900 1,029,300
-----------
4,109,583
-----------
Energy 8.7%
Oil Companies 6.5%
Atlantic Richfield Co. .................................................................. 21,700 1,258,600
Exxon Corp. ............................................................................. 28,100 1,838,794
Mobil Corp. ............................................................................. 18,900 1,306,463
Repsol SA (ADR) ......................................................................... 24,100 1,058,894
Royal Dutch Petroleum Co. (New York shares) ............................................. 52,300 2,078,925
-----------
7,541,676
-----------
Oil/Gas Transmission 1.0%
Williams Cos., Inc. ..................................................................... 50,150 1,153,450
-----------
Oilfield Services/Equipment 1.2%
Schlumberger Ltd. ....................................................................... 31,400 1,375,713
-----------
Transportation 0.9%
Airlines 0.5%
AMR Corp.* .............................................................................. 9,800 534,100
-----------
Railroads 0.4%
Wisconsin Central Transportation Co.* ................................................... 41,800 525,113
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $119,709,349) 107,972,680
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $127,160,349) (a) 115,423,680
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $127,179,613. At August 31,
1998, net unrealized depreciation for all securities based on tax cost was
$11,755,933. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $4,600,518 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$16,356,451.
The accompanying notes are an integral part of the financial statements.
13 - Scudder Classic Growth Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of August 31, 1998
<TABLE>
<S> <C>
Assets
- --------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $127,160,349) ................. $115,423,680
Cash .................................................................. 44,482
Receivable for Fund shares sold ....................................... 3,090,491
Dividends and interest receivable ..................................... 127,051
Foreign taxes recoverable ............................................. 1,642
Deferred organization expenses ........................................ 17,854
Due from Adviser ...................................................... 28,442
Other assets .......................................................... 182,391
------------
Total assets .......................................................... 118,916,033
Liabilities
- --------------------------------------------------------------------------------------------------------
Payable for investments purchased ..................................... 326,542
Payable for Fund shares redeemed ...................................... 778,339
Other payables and accrued expenses ................................... 248,351
------------
Total liabilities ..................................................... 1,353,232
---------------------------------------------------------------------------------------
Net assets, at market value ........................................... $117,562,801
---------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation (depreciation) on investments ................. (11,736,669)
Accumulated net realized gain (loss) .................................. 6,361,715
Paid-in capital ....................................................... 122,937,755
---------------------------------------------------------------------------------------
Net assets, at market value ........................................... $117,562,801
---------------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------------------------------
Scudder Shares
Net asset value, offering and redemption price per share
($103,528,081 / 6,233,469 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ------------
authorized) ........................................................... $16.61
------------
Class A Shares
Net asset value and redemption price per share ($7,198,176 / 433,134
outstanding shares of beneficial interest, $.01 par value, unlimited ------------
number of shares authorized) .......................................... $16.62
------------
------------
Maximum offering price per share (100/94.25 of $16.62) ................ $17.63
------------
Class B Shares
Net asset value, offering and redemption price (subject to contingent
deferred sales charge) per share ($5,919,740 / 357,344 outstanding
shares of beneficial interest, $.01 par value, unlimited number of ------------
shares authorized)..................................................... $16.57
------------
Class C Shares
Net asset value, offering and redemption price (subject to contingent
deferred sales charge) per share ($916,804 / 55,334 outstanding shares
of beneficial interest, $.01 par value, unlimited number of shares ------------
authorized) ........................................................... $16.57
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Classic Growth Fund
<PAGE>
Statement of Operations
for the year ended August 31, 1998
<TABLE>
<S> <C>
Investment Income
- --------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $16,317) .................. $ 953,427
Interest .............................................................. 285,782
------------
1,239,209
------------
Expenses:
Management fee ........................................................ 652,143
Services to shareholders .............................................. 572,080
Custodian and accounting fees ......................................... 83,423
Distribution service fees ............................................. 7,007
Administrative service fees ........................................... 5,253
Trustees' fees and expenses ........................................... 34,411
Auditing .............................................................. 30,000
Registration fees ..................................................... 62,790
Reports to shareholders ............................................... 39,222
Legal ................................................................. 14,078
Amortization of organization expense .................................. 3,546
Other ................................................................. 4,328
------------
Total expenses before reductions ...................................... 1,508,281
Expense reductions .................................................... (285,939)
------------
Expenses, net ......................................................... 1,222,342
---------------------------------------------------------------------------------------
Net investment income (loss) 16,867
---------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments ............................. 6,411,034
Net unrealized appreciation (depreciation) during the period on
investments ........................................................... (18,592,485)
---------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (12,181,451)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(12,164,584)
---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Classic Growth Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the period
September 9, 1996
(commencement of
Year Ended operations) to
Increase (Decrease) in Net Assets August 31, 1998 August 31, 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................. $ 16,867 $ 101,107
Net realized gain (loss) on investment transactions ... 6,411,034 1,068,807
Net unrealized appreciation (depreciation) on
investment transactions during the period .......... (18,592,485) 6,855,816
------------ ------------
Net increase (decrease) in net assets resulting
from operations .................................... (12,164,584) 8,025,730
------------ ------------
Distributions to shareholders from:
Net investment income -- Scudder Shares ............... (134,261) (43,257)
------------ ------------
Net realized gains -- Scudder Shares .................. (1,093,271) --
------------ ------------
Fund share transactions:
Proceeds from shares sold ............................. 123,389,959 70,958,470
Net asset value of shares issued to shareholders
in reinvestment of distributions ................... 1,215,373 42,483
Cost of shares redeemed ............................... (46,876,198) (25,758,843)
------------ ------------
Net increase (decrease) in net assets from Fund
share transactions ................................. 77,729,134 45,242,110
------------ ------------
Increase (decrease) in net assets ..................... 64,337,018 53,224,583
Net assets at beginning of period ..................... 53,225,783 1,200
Net assets at end of period (including
undistributed net investment income of $90,326 ------------ ------------
at August 31, 1997) ................................ $117,562,801 $ 53,225,783
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Classic Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Scudder Shares (b)
<TABLE>
<CAPTION>
For the Period
September 9, 1996
(commencement of
Year Ended operations) to
August 31, 1998 August 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
----------------------------------
Net asset value, beginning of period ................................................. $17.38 $12.00
----------------------------------
Income from investment operations:
Net investment income (loss) ......................................................... .01 .06
Net realized and unrealized gain (loss) on investment transactions ................... (.45) 5.36
----------------------------------
Total from investment operations ..................................................... (.44) 5.42
----------------------------------
Less distributions from:
Net investment income ................................................................ (.04) (.04)
Net realized gains on investment transactions ........................................ (.29) --
----------------------------------
Total distributions .................................................................. (.33) (.04)
----------------------------------
----------------------------------
Net asset value, end of period ....................................................... $16.61 $17.38
----------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) ................................................................. (2.72) 45.20**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................... 103.5 53.2
Ratio of operating expenses, net, to average daily net assets (%) .................... 1.30 1.25*
Ratio of operating expenses before expense reductions, to average
daily net assets (%) ............................................................ 1.61 2.25*
Ratio of net investment income (loss) to average daily net assets (%) ................ .03 .43*
Portfolio turnover rate (%) .......................................................... 48.5 27.4*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On April 16, 1998, existing shares of the Fund were designated as Scudder
Shares and are generally not available to new investors.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
17 - Scudder Classic Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Class A
<TABLE>
<CAPTION>
For the Period
April 16, 1998
(commencement of
sale of
Class A shares)
to August 31,
1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
-----------------
Net asset value, beginning of period ................................................................. $20.30
-----------------
Income from investment operations:
Net investment income (loss) ......................................................................... .01
Net realized and unrealized gain (loss) on investment transactions ................................... (3.69)
-----------------
Total from investment operations ..................................................................... (3.68)
-----------------
-----------------
Net asset value, end of period ....................................................................... $16.62
-----------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................................................. (18.13)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................................... 7.2
Ratio of operating expenses, net, to average daily net assets (%) .................................... 1.24*
Ratio of operating expenses before expense reductions, to average daily net assets (%) ............... 1.74*
Ratio of net investment income (loss) to average daily net assets (%) ................................ .10*
Portfolio turnover rate (%) .......................................................................... 48.5
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
18 - Scudder Classic Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Class B
<TABLE>
<CAPTION>
For the Period
April 16, 1998
(commencement of
sale of
Class B shares)
to August 31,
1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
-------------------
Net asset value, beginning of period ................................................................. $20.30
-------------------
Income from investment operations:
Net investment income (loss) ......................................................................... (.05)
Net realized and unrealized gain (loss) on investment transactions ................................... (3.68)
-------------------
Total from investment operations ..................................................................... (3.73)
-------------------
-------------------
Net asset value, end of period ....................................................................... $16.57
-------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................................................. (18.37)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................................... 5.9
Ratio of operating expenses, net, to average daily net assets (%) .................................... 2.12*
Ratio of operating expenses before expense reductions, to average daily net assets (%) ............... 2.52*
Ratio of net investment income (loss) to average daily net assets (%) ................................ (.79)*
Portfolio turnover rate (%) .......................................................................... 48.5
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
19 - Scudder Classic Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Class C
<TABLE>
<CAPTION>
For the Period
April 16, 1998
(commencement of
sale of
Class C shares)
to August 31,
1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
----------------
Net asset value, beginning of period ................................................................. $20.30
----------------
Income from investment operations:
Net investment income (loss) ......................................................................... (.05)
Net realized and unrealized gain (loss) on investment transactions ................................... (3.68)
----------------
Total from investment operations ..................................................................... (3.73)
----------------
----------------
Net asset value, end of period ....................................................................... $16.57
----------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................................................. (18.37)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................................... .9
Ratio of operating expenses, net, to average daily net assets (%) .................................... 2.09*
Ratio of operating expenses before expense reductions, to average daily net assets (%) ............... 3.00*
Ratio of net investment income (loss) to average daily net assets (%) ................................ (.73)*
Portfolio turnover rate (%) .......................................................................... 48.5
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
20 - Scudder Classic Growth Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Classic Growth Fund (the "Fund") is a diversified series of Investment Trust
(the "Trust") (formerly Scudder Investment Trust), a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
Effective April 16, 1998, the Fund changed its name from Scudder Classic Growth
Fund to Classic Growth Fund and an additional three classes of shares were
offered, namely Classes A, B and C. Existing shares of Classic Growth Fund
outstanding on that date were redesignated Scudder Shares. Class A shares are
sold to investors subject to an initial sales charge. Class B shares are sold
without an initial sales charge but are subject to higher ongoing expenses than
Class A and Scudder Shares and a contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically convert to Class A shares six
years after issuance. Class C shares are sold without an initial sales charge
but are subject to higher ongoing expenses than Class A and Scudder Shares and a
contingent deferred sales charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert into another class. Scudder
Shares, generally not available to new investors, are not subject to initial or
contingent deferred sales charges.
Investment income, realized and unrealized capital 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 expenses unique to that class. Each class of shares differs in
its respective distribution, shareholder services, administrative services and
certain other class-specific expenses and expense reductions. All shares of the
Fund have equal rights with respect to voting.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq Stock Market, Inc.
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported on such system. If there are no such sales, the value is the most
recent bid quotation. Securities which are not quoted on Nasdaq but are traded
in another over-the-counter market are valued at the most recent sale price on
such market. If no sale occurred, the security is then valued at the calculated
mean between the most recent bid and asked quotations. If there are no such bid
and asked quotations the most recent bid quotation shall be used. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
21 - Scudder Classic Growth Fund
<PAGE>
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
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.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
During the year ended August 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $110,809,928 and
$42,148,996, respectively.
C. Related Parties
Management Agreement. Effective December 31, 1997, Scudder, Stevens & Clark,
Inc. ("Scudder") and The Zurich Insurance Company ("Zurich"), an international
insurance and financial services organization, formed a new global investment
organization by combining Scudder's business with that of Zurich's subsidiary,
Zurich Kemper Investments, Inc. As a result of the transaction, Scudder changed
its name to Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"). The transaction between Scudder and Zurich resulted in the
termination of the Fund's Investment Management Agreement with Scudder. However,
a new Investment Management Agreement (the "Management Agreement") between the
Fund and Scudder Kemper was approved by the Fund's Board of Trustees and by the
Fund's Shareholders. The Management Agreement, which was effective December 31,
1997, is the same in all material respects as the corresponding previous
Investment Management Agreement, except that Scudder Kemper is the new
investment adviser to the Fund.
Under the Fund's Management Agreement with Scudder Kemper, the Fund pays the
Adviser a fee equal to an annual rate of 0.70% of the Fund's average daily net
assets, computed and accrued daily and payable monthly. As manager of the assets
of the
22 - Scudder Classic Growth Fund
<PAGE>
Fund, the Adviser directs the investments of the Fund in accordance with its
investment objective, policies, and restrictions. The Adviser determines the
securities, instruments and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Management Agreement. Until April 15, 1998, the Adviser had agreed not
to impose all or a portion of its management fee in order to maintain the
annualized expenses of the Fund at not more than 1.25% of average daily net
assets. Effective April 16, 1998, the Adviser has agreed to waive .25% of its
management fee until December 31, 1998. For the year ended August 31, 1998, the
Adviser did not impose a portion of its management fee amounting to $281,142,
and the fee imposed amounted to $371,001, of which $54,498 is unpaid at August
31, 1998. In addition, during the year ended August 31, 1998, the Adviser paid
the Fund $82,940 to reimburse the Fund for losses incurred in connection with
equity securities trading.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of Trustees
for the Fund has approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former investment management
agreement, except for the dates of execution and termination. The Board of
Trustees for the Fund will seek shareholder approval of the new investment
management agreement through a proxy solicitation that is currently scheduled to
conclude in mid-December.
Distribution Service Agreement. In accordance with Rule 12b-1 under the
Investment Company Act of 1940, Kemper Distributors, Inc. ("KDI"), a subsidiary
of the Adviser, receives a fee of .75% of average daily net assets of Classes B
and C. Pursuant to the agreement, KDI enters into related selling group
agreements with various firms at various rates for sales of Class B and C
shares. For the period April 16, 1998 through August 31, 1998, each class
aggregated the following amounts for the distribution of each class' applicable
shares:
Total Fees Payable at
Distribution Fees Aggregated Waived by KDI August 31, 1998
------------------------ ------------ --------------- -----------------
Class B $ 6,154 $ -- $ 6,154
Class C 853 457 396
-------- -------- --------
$ 7,007 $ 457 $ 6,550
======== ======== ========
Underwriting Agreement and Contingent Deferred Sales Charge. KDI is the
principal underwriter for Classes A, B and C. Underwriting commissions paid in
connection with the distribution of Class A shares for the period beginning
April 16, 1998 through August 31, 1998 aggregated $61,551, all of which was paid
to other firms.
In addition, KDI receives any contingent deferred sales charge (CDSC) from Class
B share redemptions occurring within six years of purchase and Class C share
redemptions occurring within one year of purchase. There is no such charge upon
redemption of any share appreciation or reinvested dividends. Contingent
deferred sales charges are based on declining rates
23 - Scudder Classic Growth Fund
<PAGE>
ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares
redeemed. For the period April 16, 1998 through August 31, 1998, the CDSC for
Classes B and C aggregated $1,260 and $15, respectively.
Administrative Service Fees. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to .25% of
average daily net assets for each such 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
beginning April 16, 1998 through August 31, 1998, the Administrative Services
Fee was as follows:
<TABLE>
<CAPTION>
Administrative Service Fees Total Aggregated Fees Payable at
Waived by KDI August 31, 1998
------------------------------------ ------------------ ----------------- --------------------
<S> <C> <C> <C>
Class A $ 2,917 $ 2,917 $ --
Class B 2,051 1,138 913
Class C 285 285 --
--------- --------- ---------
$ 5,253 $ 4,340 $ 913
========= ========= =========
</TABLE>
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 Classes A, B and C Shares. For the period beginning April 16, 1998
through August 31, 1998, the amount charged to Classes A, B and C by KSC
aggregated $4,236, $3,169 and $828, respectively, of which $6,620 is unpaid at
August 31, 1998. Scudder Service Corporation ("SSC"), a subsidiary of the
Adviser, is the transfer, dividend-paying and shareholder service agent for the
Scudder Shares. Included in services to shareholders is $231,932 charged to the
Scudder Shares by SSC for the year ended August 31, 1998, of which $24,065 is
unpaid at August 31, 1998.
The Scudder Shares of the Fund are 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 such Underlying Fund. These estimated
savings result from the elimination of separate shareholder accounts which
either currently are or have potential to be invested in the Underlying Funds.
For the year ended August 31, 1998, the Special Servicing Agreement expense
charged to the Scudder Shares amounted to $292,563.
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 Scudder Shares of the Fund. For the year
ended August 31, 1998, the amount charged to the Scudder Shares by STC
aggregated $18,276, of which $6,468 is unpaid at August 31, 1998.
Fund Accounting Fees. Scudder Fund Accounting Corporation ("SFAC"), a subsidiary
of the Adviser, is responsible for determining the daily net asset value per
share and maintaining the portfolio and general accounting records of the Fund.
For the year ended August 31, 1998, the amount charged to the Fund by SFAC
aggregated $61,932, of which $6,848 is unpaid at August 31, 1998.
24 - Scudder Classic Growth Fund
<PAGE>
Trustees Fees. 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 August 31, 1998, the Trustees fees and
expenses aggregated $34,411.
D. Share Transactions
The following table summarizes shares of beneficial interest and dollar activity
in the Fund:
<TABLE>
<CAPTION>
Period ended For the period September 9, 1996
August 31, 1998 (commencement of operations)
to August 31, 1997
---------------------------------- ---------------------------------
---------------------------------- ---------------------------------
Shares Dollars Shares Dollars
Shares sold
<S> <C> <C> <C> <C>
Scudder Shares 5,261,810 $ 100,865,048 4,715,920 $ 70,958,470
Class A 686,665 13,861,440 -- --
Class B 388,134 7,520,415 -- --
Class C 59,192 1,143,056 -- --
--------- ----------- --------- ----------
6,395,801 123,389,959 4,715,920 70,958,470
========= =========== ========= ==========
Shares issued to shareholders in reinvestment of
distributions
Scudder Shares 70,172 $ 1,215,373 3,115 $ 42,483
Class A -- -- -- --
Class B -- -- -- --
Class C -- -- -- --
--------- ----------- --------- ----------
70,172 1,215,373 3,115 42,483
========= =========== ========= ==========
Shares redeemed
Scudder Shares (2,160,627) $ (40,949,391) (1,657,021) $ (25,758,843)
Class A (253,531) (5,236,843) -- --
Class B (30,790) (608,304) -- --
Class C (3,858) (81,660) -- --
--------- ----------- --------- ----------
(2,448,806) (46,876,198) (1,657,021) (25,758,843)
========= =========== ========= ==========
Net increase (decrease)
Scudder Shares 3,171,355 $ 61,131,030 3,062,014 $ 45,242,110
Class A 433,134 8,624,597 -- --
Class B 357,344 6,912,111 -- --
Class C 55,334 1,061,396 -- --
--------- ----------- --------- ----------
4,017,167 $ 77,729,134 3,062,014 $ 45,242,110
========= =========== ========= ==========
</TABLE>
25 - Scudder Classic Growth Fund
<PAGE>
Report of Independent Accountants
To the Trustees of Investment Trust and the Shareholders of Classic Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Classic Growth Fund (formerly
Scudder Classic Growth Fund) (the "Fund") at August 31, 1998, 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 generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts PricewaterhouseCoopers LLP
October 26, 1998
26 - Scudder Classic Growth Fund
<PAGE>
Tax Information
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$5,600,000 as capital gain dividends for its year ended August 31, 1998, of
which 94% represents 20% rate gains.
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.
27 - Scudder Classic Growth Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
Bruce F. Beaty*
Vice President
Philip S. Fortuna*
Vice President
William F. Gadsden*
Vice President
Jerard K. Hartman*
Vice President
Robert T. Hoffman*
Vice President
Thomas W. Joseph*
Vice President
Valerie F. Malter*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
28 - Scudder Classic Growth Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
29 - Scudder Classic Growth Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
30 - Scudder Classic Growth Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
32 - Scudder Classic Growth Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
[LOGO]
<PAGE>
CLASSIC GROWTH
"...In this turbulent environment, we do invest with extra
care, placing an extremely high premium on valuations
and on seeking quality companies with strong
competitive positions. ..."
[KEMPER FUNDS LOGO]
<PAGE>
CONTENTS
3
Economic Overview
5
Performance Update
9
Industry Sectors
10
Largest Holdings
11
Report of
Independent Accounts
12
Investment
Portfolio
15
Financial Statements
18
Financial Highlights
20
Notes to
Financial Statements
24
Tax Information
AT A GLANCE
- --------------------------------------------------------------------------------
ABOUT YOUR REPORT
KEMPER CLASSIC GROWTH FUND COMMENCED OFFERING CLASS A, B AND C SHARES (THE
KEMPER CLASSES) AS OF APRIL 16, 1998. SHARES OF THE CLASSIC GROWTH FUND (THE
"FUND") OUTSTANDING AS OF APRIL 16, 1998 WERE REDESIGNATED SCUDDER SHARES (CLASS
S SHARES). THE INCEPTION DATE OF CLASS S SHARES WAS SEPTEMBER 9, 1996. SHARE
CLASSES INVEST IN THE SAME UNDERLYING PORTFOLIO OF SECURITIES AND HAVE THE SAME
MANAGEMENT TEAM. BECAUSE OF DIFFERENT FEES AND EXPENSES, PERFORMANCE OF SHARE
CLASSES WILL DIFFER. CLASS S SHARES ARE GENERALLY NOT AVAILABLE TO NEW
INVESTORS.
- --------------------------------------------------------------------------------
CLASSIC GROWTH FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED AUGUST 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC LIPPER
GROWTH GROWTH FUNDS
FUND CATEGORY
AVERAGE*
<S> <C>
-2.72% -1.95%
- --------------------------------------------------------------------------------
</TABLE>
Returns are historical for Classic Growth Fund Class S shares (unlike Class A, B
and C shares) which do not have any sales charges, 12b-1 fees, or other class
specific expenses like Administrative service fees. Investment returns and
principal value fluctuate. Class S shares are redeemable at current net asset
value, which may be more or less than original cost. Kemper Classic Growth Fund
Class A, B and C shares were initially offered April 16, 1998. From inception to
August 31, 1998 the total return (unadjusted for sales charge) for Class A
shares was -18.13%, for Class B shares was -18.37% and for Class C shares was
- -18.37%. The Lipper Growth Category Average for Class A, B and C shares from
April 16, 1998 through August 31, 1998 was -17.26%.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
8/31/98 4/16/98
- --------------------------------------------------------------------------------
<S> <C> <C>
CLASSIC GROWTH
FUND CLASS A $16.62 $20.30
- --------------------------------------------------------------------------------
CLASSIC GROWTH
FUND CLASS B $16.57 $20.30
- --------------------------------------------------------------------------------
CLASSIC GROWTH
FUND CLASS C $16.57 $20.30
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
CLASSIC GROWTH FUND RANKINGS
AS OF AUGUST 31, 1998
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH FUNDS CATEGORY*
<TABLE>
<S> <C>
1-YEAR #547 of
930 funds
- --------------------------------------------------------------------------------
</TABLE>
*Lipper Analytical Services, Inc. returns and rankings are based upon changes in
net asset value with all dividends reinvested and do not include the effect of
sales charges. If they had, results may have been less favorable.
Ranking information is for Class S shares.
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED AUGUST 31, 1998, CLASSIC GROWTH FUND PAID THE FOLLOWING
DIVIDENDS:
<TABLE>
<CAPTION>
INCOME CAPITAL GAIN
DIVIDEND DISTRIBUTION
- --------------------------------------------------------------------------------
<S> <C> <C>
CLASSIC GROWTH FUND $.04 $.29
- --------------------------------------------------------------------------------
</TABLE>
Dividend information is for Class S shares.
TERMS TO KNOW
NIFTY FIFTY EFFECT Market scenario in which the stock prices of the largest
companies of the S&P 500 rise at a greater rate than the overall market. In the
1960s and 1970s, the "Nifty Fifty" comprised a select group of 50 large,
dominant companies. Recently, the Nifty Fifty effect has been driven by
investors seeking the greater perceived security of stocks of the largest
companies.
PRICE-TO-EARNING RATIO A company's stock price, divided by its earnings for the
past four quarters, also referred to as its P/E.
VOLATILITY Characteristic of a security, commodity, or market to rise or fall
sharply in price within a short period of time. A stock may be volatile because
the outlook for the company is particularly uncertain or because of a variety of
other reasons.
GRAY MONDAY On Monday, October 27, 1997, turmoil in Southeast Asian markets
triggered a one-day drop of 7 percent in the U.S. equity market.
<PAGE>
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR OF ARTS DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $239 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
The third quarter of 1998 ended on a mildly positive note with the Federal
Reserve Board (the Fed) reducing interest rates by 1/4 of a point to 5.25
percent. While some investors were disappointed by the small size of the
adjustment, it nevertheless provided a moment of relief after several stormy
months. Economic and political instability in Russia, terrorist bombings and
U.S. retaliation overseas, lingering effects of the "contagion" in Asia, not to
mention weak corporate profits and political scandal in the United States were
responsible for considerable uncertainty and market volatility. A series of
market dips and drops continued to fuel the debate about whether we would
finally see the end of our long-running bull market -- or even plummet into a
recession.
The Fed's mid-September bank credit survey indicated that domestic banks are
tightening credit standards for both large and small borrowers. This suggests a
reduction in the supply of credit going forward with subsequent negative impacts
on employment growth and capital spending. In this sense, there is the beginning
of a credit crunch starting in U.S. bank credit markets.
But investors should find comfort in the fact that economic fundamentals
continue to favor financial assets in the U.S. -- particularly Treasury bonds.
In a nutshell, the nation's economy remains strong despite its slowdown in the
second half of the year. Short-term interest rates are expected to remain low
for the remainder of the year. There are no major tax or regulatory threats
waiting in the wings. And our economy continues to draw investors from around
the world, although perhaps not as fervently as last year.
The nation's gross domestic product (GDP), which represents the total value of
all goods and services produced within the U.S. economy, is expected to have
grown at an annualized rate of 2 percent in the third quarter of 1998. Faster
growth can be attributed to several one-time factors, including a domestic
correction in inventory levels and the end of the General Motors strike.
Real capital spending and employment growth have remained solid. Consumer
confidence remains fairly high. Home sales remain robust. Economic policy
continues to support the nation's fiscal budget surplus projection of $65
billion.
As far as inflation goes, there are two tales to be told. Prices for consumer
goods, as measured by the consumer price index (CPI), are steady. Compare this
to prices for services, which have risen between 2.5 and 3.5 percent. For
investors, this difference in pricing flexibility translates into a difference
in profit expectations. Profits of domestic service firms should be much
stronger than commodity producers dependent on export markets.
Across the Atlantic, Europe's economy appears to be growing at an even pace as
the region progresses toward the Economic and Monetary Union (EMU) slated for
January 1, 1999. One effect of the union may be a slight rise in short-term
interest rates in Europe -- not because there will be an overt change in policy,
but simply because of the convergence of some very disparate interest rates. The
average rate will likely be higher than the relatively attractive rate the
German Central Bank currently offers, for example.
In Asia, which has been making headlines around the world for more than a year
now, the latest news is from Japan, which recently installed a new prime
minister as well as a new finance minister. Much discussion will be focused on
changes in Japan's economic policy, particularly in terms of taxation and
banking reform -- and patience is in order. Most of the changes in taxation will
impact Japan in the first half of 1999. But as far as banking reform goes, those
of us familiar with bank reform in the U.S. know that this will be a two- to
five-year process. Certainly, investors are looking to Japan to spark recovery
for Asia as a whole, which continues to suffer from the "contagion" of low
currency values, seriously reduced consumer spending and general economic
malaise.
Indeed, while its full effects remain to be seen -- and felt -- by the
majority of American businesses and individuals, the Asian economic crisis has
contributed to the general uncertainty of the emotion-driven U.S. markets.
Whether it's an economic crisis abroad or political scandal at home, current
events move the investors who move the markets.
3
<PAGE>
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR INVESTMENT
RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR TREASURY
RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA REPORT
YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) NOW (9/30/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 4.81 5.64 6.03 6.53
PRIME RATE(2) 8.49 8.5 8.5 8.25
INFLATION RATE(3) 1.68 2.3 2.22 3
THE U.S. DOLLAR(4) 4.31 3.92 7.62 4.74
CAPITAL GOODS ORDERS(5)* 11.33 10.47 15.67 4.79
INDUSTRIAL PRODUCTION(5)* 3.07 4.49 4.99 3.18
EMPLOYMENT GROWTH(6) 2.41 2.57 2.65 2.22
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
* DATA AS OF AUGUST 31, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
One might conclude that, as a result of 1998's slow corporate profit growth
and turmoil in Russia and Asia, the psychology of the markets is
shifting -- even some of Wall Street's most resolute bulls appear to be
reconsidering their long-held convictions. But with the economy's strong
fundamentals in place, the outlook for a bear market is premature. In any case,
prudent investors are wise to watch for the following economic warning signs:
inflation in the form of rising wages and/or prices; residual fallout from Asia,
which could appear in the form of reduced sales and earnings for American
businesses; and a continued widening of our trade deficit, an imbalance caused
by heightened American demand for foreign goods and services. In the months to
come, investors are likely to maintain their bias in favor of investments that
have historically been considered more conservative: larger capitalization
stocks, U.S. Treasuries and only the highest-grade corporate bonds.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
JOHN E. SILVIA
October 9, 1998
4
<PAGE>
PERFORMANCE UPDATE
[GADSDEN PHOTO]
Lead Portfolio Manager William F. Gadsden joined Scudder Kemper Investments,
Inc. in 1983 and has more than 15 years of investment industry experience.
Bruce F. Beaty, portfolio manager, joined the organization in 1991 and has more
than 16 years of investment industry experience. As a team, they have managed
Kemper Classic Growth Fund since its inception.
The views expressed in this report reflect those of the portfolio managers only
through the end of the reporting period indicated on the cover. The managers'
views are subject to change at any time, based on market and other conditions.
THE FUND FIRST OFFERED KEMPER CLASSES ON APRIL 16, 1998. (PRIOR TO APRIL 16,
1998 THE FUND OPERATED AS SCUDDER CLASSIC GROWTH FUND (CLASS S SHARES)). LEAD
PORTFOLIO MANAGER WILLIAM GADSDEN AND PORTFOLIO MANAGER BRUCE BEATY HAVE BEEN
MANAGERS OF THE FUND SINCE ITS DATE OF INCEPTION IN SEPTEMBER 1996. IN THIS
REPORT, GADSDEN AND BEATY DISCUSS HOW THEY USED A QUANTITATIVE
"GROWTH-AT-A-REASONABLE-PRICE" DISCIPLINE TO POSITION THE FUND IN A CHALLENGING
AND VOLATILE MARKET ENVIRONMENT.
Q HOW DID THE CLASS S SHARES ("THE SHARES") PERFORM FOR THE 12-MONTH PERIOD
ENDED AUGUST 31, 1998?
A The shares lost 2.72 percent of their value (unadjusted for any sales
charge) for the one-year period ended August 31, 1998. During this time, the S&P
500 returned 8.13 percent. The shares' returns are more closely in line with
their peer group's average. For the one-year period, the Lipper growth fund
category posted an average loss of 1.95 percent. As we'll discuss, we found that
the markets were often inhospitable to our growth-at-a-reasonable price
discipline (GARP). Global economic and market turmoil also impacted performance
negatively. And while we are never happy when shareholders lose money, we remain
confident in the longer-term merits of our investment strategy. Since their
inception in September 1996, the shares have posted an average annualized return
of 19.11 percent.
Q FROM THE OCTOBER 27, 1997 "GRAY MONDAY" MELTDOWN TO THE MORE RECENT
RUSSIAN DEBT CRISIS, THE YEAR ENDED AUGUST 31, 1998 HAS BEEN EXTREMELY
CHALLENGING FOR INVESTORS. COULD YOU PROVIDE US WITH AN OVERVIEW OF THE KEY
FACTORS INFLUENCING THE EQUITY MARKETS DURING THE PAST TWELVE MONTHS?
A Certainly. The past year has been characterized by extremes in both upward
and downward volatility. Essentially, we saw three distinct markets over the
past year.
- -PHASE ONE -- ASIAN CONTAGION: During the end of the summer and fall of 1997,
the markets grappled with the consequences of Asia's economic meltdown. When
Asia faltered, domestic markets were also pitched into uncertainty as investors
began to wonder if the strong period of domestic economic growth was also
winding down. On October 27, 1997, now remembered as "Gray Monday," the
uncertainty reached a fevered pitch, and the U.S. equity markets plummeted 7
percent. Financial services and technology stocks were battered most, giving up
a sizable portion of the gains earned in previous months. Investors were
worried that financial services firms that had extended credit to Asia would
suffer the consequences of the Asian economic woes. Technology stocks were hurt
by concerns about surpluses and limited demand from Asian countries.
- -PHASE TWO -- EUPHORIC REBOUND: Worries over the Asian crisis abated very
quickly. Investors' anxieties were soothed by strong earnings announcements
from U.S. companies and by bailout plans developed by the International
Monetary Fund. The markets responded with a rip-roaring rally. This euphoric
upswing
5
<PAGE>
PERFORMANCE UPDATE
began towards the end of 1997 and ran through the first quarter of 1998.
Nonetheless, volatility and uncertainty lurked in the foreground. Stocks that
fell short of earnings expectations received little mercy. Nervous investors
bestowed much greater favor on the stocks of large, blue-chip companies, causing
the prices of this narrow band of stocks to rise disproportionately higher than
the overall market. Even within the rally, not all types of stocks participated
equally. Financial stocks fared particularly well, as consolidations within the
industry were received favorably by investors. Because of their perceived
safe-haven status, large consumer nondurable stocks also thrived.
- - PHASE THREE -- ASIA RELAPSES; RUSSIA AND LATIN AMERICA STUMBLE: In the third
market phase, downside volatility reemerged as the dominant theme. As the
fiscal year wound down in mid-summer, it became clear that the Asian situation
had not resolved itself fully. Earnings disappointments threw the prices of
many stocks into a rapid downward spiral. Then, towards the end of August, the
Russian debt crisis triggered a second, full-blown market meltdown. Global
markets responded emotionally and emphatically to the Russian default. The
Latin American markets also became a source of great concern. No sector was
left unscathed in this broad-based correction, and even the mega-cap names
suffered. Because of both perceived and potential exposure to Russian debt,
financial stocks bore the brunt of the turmoil.
Q YOU'VE NOTED THAT TECHNOLOGY AND FINANCIAL SERVICES STOCKS EXPERIENCED UPS
AND DOWNS. THE FUND INCLUDES LARGE STAKES IN BOTH SECTORS. HOW DID THIS IMPACT
PERFORMANCE DURING THE THREE MARKET PHASES THAT YOU'VE DESCRIBED?
A In the first phase, our financial and technology stocks suffered as the
Asian situation unfolded. Several names that had turned in very strong gains
gave up ground. Within the fund's technology stake, Intel and Compaq Computer
Corp. felt the sting of the Asian contagion. Financial services stocks such as
Citicorp also sustained some bruising.
During the market upswing of the first quarter, the fund's financial
stocks rebounded and contributed strong gains. For instance, the fund owned both
Citicorp and Travelers Group, which benefited from participation in
consolidations. The fund also held positions in other financial stocks that
reaped rewards in the generally positive market climate surrounding the sector.
During this period, we opted to trim our financial stock exposure and take
profits. We still remained overweighted relative to the index, because we
continued to find attractive valuations.
As the Russian debt default and concerns about Asia and Latin America
precipitated late summer's meltdown, the fund's technology and financial
services stocks struggled again. Stocks such as Travelers and BankAmerica gave
back their earlier gains, and then some. In the immediate aftermath, we remained
cautious and kept portfolio changes minimal. We were determined not to be to
whipsawed by the market.
Q HOW DO YOU SELECT STOCKS IN SUCH A TURBULENT ENVIRONMENT?
A No matter what the market climate, we use the same techniques, adhering
strictly to a "growth-at-a-reasonable-price" (GARP) strategy. We use a
disciplined stock-selection process to find stocks that have strong fundamentals
and sound valuations. The fund's model evaluates a variety of factors, including
earnings growth, price-to-earnings and price-to-book ratios, earnings growth and
debt.
That said, in this turbulent environment, we do invest with extra care,
placing an extremely high premium on valuations, and on seeking quality
companies with strong competitive positions. We look for good clean balance
sheets. We believe that over the long-term, these companies can better weather
economic and market stress.
Q YOU MENTIONED THAT THE MARKET HAS FAVORED VERY LARGE-CAP STOCKS. THE FUND
ALSO INVESTS IN LARGER COMPANIES. HOW DID THE MARKET'S LARGE-CAP BIAS IMPACT THE
FUND AND RELATIVE PERFORMANCE?
A This year, the lion's share of the S&P 500's gains have been driven by a
handful of the largest names, a market response often referred to as the Nifty
Fifty Effect (see Terms To Know). In the recent climate of spiking volatility,
investors fled to the perceived safety of the mega-cap stocks. Investor anxiety
drove the prices of these stocks upward to levels that we feel are unreasonable
and unsustainable. Big "glamour" names, such as Cisco Systems and Microsoft,
enjoyed the limelight, but their steep price tags placed them well beyond the
"reasonable" levels our discipline requires.
In short, while we follow a GARP discipline, the market has recently
favored an approach that's better described as "GAAP" -- growth at any price.
While our discipline may compel us to eschew some of the market's highfliers,
we're not going to abandon our
6
<PAGE>
PERFORMANCE UPDATE
course. As the market chases after stocks that it mistakenly believes are
"bullet-proof", we believe that it is trampling past some other good
opportunities. We believe that our GARP-driven models will help us to uncover
these opportunities.
Recent market activity illustrates that, over the long-term, investors
aren't well served by GAAP. For instance, we saw that the mega-caps were not
immune from the market melee triggered by the Russian debt crisis. The markets
of the last year have been a bit of an aberration, but years of investing
experience underlie our conviction that the merits of GARP will serve investors
in better stead for the long term.
Q COULD YOU GIVE US SOME EXAMPLES OF STOCKS THAT SATISFIED THE FUND'S GARP
CRITERIA AND CONTRIBUTED TO PERFORMANCE DURING THE ANNUAL PERIOD?
A Home Depot is one example of where our conviction has been rewarded. We'd
been watching this stock for several years. (Even though the fund is only two
years old, we've been employing very similar quantitative modeling techniques in
other mutual funds and private accounts. We leverage our historical research for
this fund.) Early in this decade, Home Depot was a cult growth stock of sorts; a
Microsoft of yesteryear. Its high price drove it to the bottom of our valuation
model. Then, the stock traded sideways for several years. As its valuations
improved over time, it met our quantitative screens and began to percolate
upwards. When it reached the higher ranks of our model, we bought the stock.
We've been quite pleased with its performance.
During the annual period, we established a stake in Dayton Hudson that has
served the fund in good stead. Dayton Hudson operates retail and department
store chains, including Target, Mervyn's, Dayton's and Marshall Fields. Our
model indicated that the stock was trading at an opportune price, given the
company's earnings growth potential, strong market position, and fundamentals.
Omnicom Group, Inc. also satisfied the rigorous criteria of our
quantitative model. Omnicom Group is a large, multinational advertising agency.
The firm has the resources to handle and coordinate an advertising campaign
across global markets. We feel that Omnicom Group offers clients an edge by
offering a more consolidated approach for other large global firms.
Q HAS YOUR OUTLOOK FOR ANY SECTORS CHANGED?
A First and foremost, we're bottom-up stock pickers, so we focus first and
foremost on trying to find strong stocks, rather than using a top-down approach
to make sector bets. Of course, stocks in a sector can react similarly to
economic and market trends. The fund currently holds sizable positions in health
care and technology stocks, and we feel that these sectors will continue to
offer reasonably valued choices. We have more concerns about many of the stocks
in the financial sector. We must try to evaluate if the world markets are at the
end of a global credit cycle. We would expect to shuffle our finance stocks a
bit, seeking those that are limited in their exposure to the worst pockets of
crisis. For many domestic financial firms, the implications of the global
currency woes are fundamentally smaller. For instance, American Express Co. has
less significant international exposure than do some of the other major
financial service firms, and it also offers diversification through its American
Express Financial Advisors operations.
Q DO YOU FEEL THAT THESE CHALLENGING TIMES WILL CONTINUE?
A Yes, we believe that investors should be prepared for volatility. We're
taking a cautious approach. In recent months, the price multiples of many stocks
have been coming down, but we can't make the case yet for a rebound. The
slowdown in U.S. earnings growth is one hurdle that the markets must address.
However, we do maintain a high degree of conviction in our disciplined
stock-selection model. We are confident that the model has the potential to
signal us to emerging opportunities among large-cap leadership names,
opportunities that the rest of the market may be racing past.
7
<PAGE>
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED AUGUST 31, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR LIFE OF FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER CLASSIC GROWTH FUND CLASS A -8.20% 15.62% (since 9/9/96)
- ----------------------------------------------------------------------------------------------------
KEMPER CLASSIC GROWTH FUND CLASS B -5.76 17.71 (since 9/9/96)
- ----------------------------------------------------------------------------------------------------
KEMPER CLASSIC GROWTH FUND CLASS C -2.90 19.00 (since 9/9/96)
- ----------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER CLASSIC GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper
Classic Consumer
Measurement Period Growth Fund S&P 500 Price
(Fiscal Year Covered) Class A1 Index' Index"
<S> <C> <C> <C>
9/9/96 10000 10000 10000
9906 10562 10032
12/31/96 10545 11441 10083
10790 11749 10172
13026 13799 10191
14467 14832 10248
12/31/97 14221 15258 10254
16042 17385 10312
16419 17959 10362
8/31/98 13323 15204 10388
</TABLE>
Past performance is not a guarantee of future results. Investment return and
principal value will fluctuate so that shares when redeemed may be worth more or
less than original costs.
* Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends.
On April 16, 1998, the fund offered an additional three classes of shares,
namely the Class A, B And C shares described herein. Prior to that date,
the fund consisted of one class of shares which, on that date, were
re-designated as Class S shares of the fund. Returns shown for Class A, B
And C shares for periods prior to their inception are derived from the
historical performance of Class S shares of Classic Growth Fund during such
periods and have been adjusted to reflect the current maximum 5.75% initial
sales charge for Class A shares or the maximum contingent deferred sales
charge (CDSC), if any, currently applicable to Class B AND C shares. Class
S shares have no sales charges, Rule 12B-1 fees, or Administrative Service
Fees (ASF). Class B share performance is adjusted for the applicable CDSC,
which is 4% within the first year after purchase, declining to 0% after six
years. Class C share performance is adjusted for a CDSC, which is 1% within
the first year after purchase. The performance figures have not been
adjusted to reflect Rule 12B-1 fees of .75%, which are applicable to each
of Class B and C shares, and ASF of up to .25%, which are applicable to
each of Class A, B and C shares from the date of each such class's
inception. The Rule 12b-1 fees and ASF applicable to the respective classes
of shares of the fund will affect performance. Class S shares are subject
to certain other, or different levels of, expenses than Classes A, B AND C.
The expenses applicable to Class S have been reflected in the performance
presented. The difference in expenses will affect performance. The
performance figures reflect an expense limitation of 1.25% of average daily
net assets in effect for the period September 9, 1996 to April 15, 1998. If
the Adviser had not maintained expenses, the total return for the one year
and life of fund periods would have been lower. During the periods noted,
securities prices fluctuated. For additional information, see the
Prospectus and Statement of Additional Information and the Financial
Highlights in this report.
(1) Performance is for Class S shares of Classic Growth Fund and has been
adjusted to reflect the current, maximum 5.75% initial sales charge
applicable to Class A shares of the fund. Class B and C shares of the fund,
the performance of each of which is not included in the graph, is each
subject to Rule 12b-1 fees and a CDSC of 4% within the first year after
purchase, declining to 0% after six years, for Class B shares and 1% within
the first year after purchase for Class C shares, which would affect
performance.
+ The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
++ The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. It is generally considered to be a measure of inflation. Source
is Towers Data Systems.
8
<PAGE>
INDUSTRY SECTORS
SECTOR COMPOSITION OF KEMPER CLASSIC GROWTH FUND*
Data show the percentage of common stocks in the portfolio that each sector of
Kemper Classic Growth Fund represented on August 31, 1998.
[BAR GRAPH]
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Kemper Classic Growth Fund on 8/31/98
<S> <C>
FINANCIAL 18
TECHNOLOGY 16
CONSUMER DISCRETIONARY 15
HEALTH 12
ENERGY 9
MANUFACTURING 8
CONSUMER STAPLES 6
MEDIA 6
DURABLES 5
OTHER 5
</TABLE>
*Portfolio composition is subject to change.
9
<PAGE>
LARGEST HOLDINGS
KEMPER CLASSIC GROWTH FUND'S 10 LARGEST HOLDINGS*
REPRESENTING 26.2 PERCENT OF THE FUND'S PORTFOLIO ON AUGUST 31, 1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Holdings Percent
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. EXEL, Ltd. Provider of liability insurance to industrial, 3.2%
commercial and other enterprises.
2. Home Depot, Inc. Operates retail stores carrying building supplies 2.9%
and home improvement products.
3. Procter & Gamble Co. Engaged in the manufacture and distribution of a 2.8%
wide variety of household products, consisting of
laundry and cleaning products, diapers, personal
care products and food products.
4. Schering-Plough Corp. Engaged in the discovery, development, 2.7%
manufacturing and marketing of healthcare and
pharmaceutical products.
5. Intel Corp. Engaged in the design, development, manufacture 2.6%
and sale of advanced microcomputer components,
such as integrated circuits and other related
products.
6. Worldcom, Inc. Provides intrastate, interstate and international 2.6%
long distance services, along with operator,
billing and collection services.
7. Compaq Computer Corp. Designs, develops, manufactures and markets 2.5%
personal computers for business and professional
users.
8. American International Group, The leading U.S.-based international insurance 2.4%
Inc. organization and among the largest underwriters of
commercial and industrial coverages in the U.S.
9. Omnicom Group, Inc. Operates advertising agencies which plan, create, 2.3%
produce and place advertising in a variety of
media channels, including radio, newspapers,
magazines and television.
10. Federal National Mortgage Often referred to as "Fannie Mae," this 2.2%
Association corporation provides for the transfer of capital
between mortgage lenders and mortgage security
investors, enabling mortgage lenders to provide a
continuous flow of funds to borrowers.
</TABLE>
*Portfolio composition and holdings are subject to change.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF INVESTMENT TRUST AND THE
SHAREHOLDERS OF CLASSIC GROWTH FUND:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Classic Growth Fund (formerly
Scudder Classic Growth Fund) (the "Fund") at August 31, 1998, 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 generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
October 26, 1998
11
<PAGE>
INVESTMENT PORTFOLIO
KEMPER CLASSIC GROWTH FUND
INVESTMENT PORTFOLIO AT AUGUST 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
REPURCHASE AGREEMENTS--6.5% AMOUNT ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreement with State Street Bank
and Trust Company dated 8/31/1998 at
5.75%, to be repurchased at $7,452,190 on
9/1/1998, collateralized by a $7,555,000
U.S. Treasury Bond, 5.875%, 1/31/1999
(Cost $7,451,000) 7,451,000 7,451,000
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--93.5% SHARES
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER Costco Companies, Inc.* 37,300 1,755,431
DISCRETIONARY--14.0%
DEPARTMENT & CHAIN
STORES--8.0%
Dayton Hudson Corp. 63,300 2,278,800
Home Depot, Inc. 86,800 3,341,800
Walgreen Co. 47,500 1,828,750
---------------------------------------------------------------------------
9,204,781
HOTELS & CASINOS--2.1% Carnival Corp. "A" 54,000 1,559,250
Mirage Resorts, Inc.* 57,700 858,288
---------------------------------------------------------------------------
2,417,538
SPECIALTY RETAIL--3.9% AutoZone, Inc.* 53,600 1,390,250
Office Depot Inc.* 75,500 1,925,250
Tiffany & Co. 32,900 1,223,469
---------------------------------------------------------------------------
4,538,969
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--5.5% Philip Morris Companies, Inc. 42,600 1,770,563
ALCOHOL & TOBACCO--1.5%
---------------------------------------------------------------------------
FOOD & BEVERAGE--1.2% Suiza Foods Corp.* 27,700 1,339,988
---------------------------------------------------------------------------
PACKAGE GOODS/ Procter & Gamble Co. 41,700 3,190,050
COSMETICS--2.8%
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
HEALTH--11.1% HEALTHSOUTH Corp.* 108,100 2,047,144
HEALTH INDUSTRY SERVICES--1.8%
---------------------------------------------------------------------------
MEDICAL SUPPLY & Becton, Dickinson & Co. 65,200 2,171,975
SPECIALTY--1.9%
---------------------------------------------------------------------------
PHARMACEUTICALS--7.4% American Home Products Corp. 28,600 1,433,575
Bristol-Myers Squibb Co. 23,300 2,280,488
Pfizer, Inc. 18,900 1,757,700
Schering-Plough Corp. 36,300 3,121,800
---------------------------------------------------------------------------
8,593,563
- ------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--2.6% WorldCom, Inc.* 72,500 2,967,969
TELEPHONE/COMMUNICATIONS
---------------------------------------------------------------------------
</TABLE>
12
<PAGE>
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL--17.0% BankAmerica Corp. 27,700 1,774,531
BANKS--1.5%
---------------------------------------------------------------------------
INSURANCE--8.9% Allstate Corp. 34,000 1,275,000
American International Group, Inc. 35,500 2,744,594
Conseco, Inc. 39,200 1,082,900
EXEL Ltd. (ADR)* 54,800 3,661,318
MBIA, Inc. 26,400 1,481,700
---------------------------------------------------------------------------
10,245,512
CONSUMER FINANCE--1.5% Associates First Capital Corp. 30,000 1,773,750
---------------------------------------------------------------------------
OTHER FINANCIAL American Express Company 20,700 1,614,600
COMPANIES--5.1%
Federal National Mortgage Association 44,100 2,505,431
Travelers Group, Inc. 39,300 1,743,938
---------------------------------------------------------------------------
5,863,969
- ------------------------------------------------------------------------------------------------------------------------
MEDIA--5.4% Omnicom Group, Inc. 57,300 2,728,913
ADVERTISING--2.4%
---------------------------------------------------------------------------
CABLE TELEVISION--1.8% Tele-Comm Liberty Media Group "A"* 64,550 2,109,978
---------------------------------------------------------------------------
PRINT MEDIA--1.2% Tribune Co. 22,300 1,436,956
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--1.7% Franklin Resources, Inc. 28,500 919,125
INVESTMENT--0.8%
---------------------------------------------------------------------------
MISCELLANEOUS COMMERCIAL AccuStaff, Inc.* 63,300 791,250
SERVICES--0.7%
---------------------------------------------------------------------------
MISCELLANEOUS CONSUMER Service Corp. International 9,300 315,038
SERVICES--0.2%
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
DURABLES--4.9% Lockheed Martin Corp. 16,800 1,468,950
AEROSPACE--2.8%
United Technologies Corp. 24,300 1,763,269
---------------------------------------------------------------------------
3,232,219
AUTOMOBILES--1.0% Magna International, Inc. "A" 20,200 1,210,738
---------------------------------------------------------------------------
TELECOMMUNICATIONS Nokia AB Oy "A" (ADR) 18,500 1,236,031
EQUIPMENT--1.1%
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--7.1% Praxair, Inc. 21,800 782,075
CHEMICALS--1.5%
Sigma-Aldrich Corp. 34,900 968,475
---------------------------------------------------------------------------
1,750,550
DIVERSIFIED General Electric Co. 22,400 1,792,000
MANUFACTURING--3.0%
Textron, Inc. 26,000 1,631,500
---------------------------------------------------------------------------
3,423,500
ELECTRICAL PRODUCTS--0.7% Emerson Electric Co. 14,700 837,900
---------------------------------------------------------------------------
MACHINERY/COMPONENTS/ Parker-Hannifin Group 74,150 2,150,350
CONTROLS--1.9%
---------------------------------------------------------------------------
</TABLE>
13
<PAGE>
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
<S> <C> <C> <C>
TECHNOLOGY--14.6% Computer Associates International, Inc. 26,500 715,500
COMPUTER SOFTWARE--2.1%
Parametric Technology Corp. 63,000 645,750
Sterling Commerce, Inc.* 34,100 1,125,300
---------------------------------------------------------------------------
2,486,550
DIVERSE ELECTRONIC Applied Materials, Inc.* 55,400 1,360,763
PRODUCTS--1.2%
---------------------------------------------------------------------------
ELECTRONIC DATA Compaq Computer Corp. 103,400 2,888,738
PROCESSING--7.7%
Hewlett-Packard Co. 47,100 2,287,294
International Business Machines Corp. 11,800 1,328,975
Sun Microsystems, Inc.* 59,000 2,337,875
---------------------------------------------------------------------------
8,842,882
SEMICONDUCTORS--3.6% Intel Corp. 43,270 3,080,283
Linear Technology Corp. 21,900 1,029,300
---------------------------------------------------------------------------
4,109,583
- ------------------------------------------------------------------------------------------------------------------------
ENERGY--8.7% Atlantic Richfield Co. 21,700 1,258,600
OIL COMPANIES--6.5%
Exxon Corp. 28,100 1,838,794
Mobil Corp. 18,900 1,306,463
Repsol SA (ADR) 24,100 1,058,894
Royal Dutch Petroleum Co. (New York shares) 52,300 2,078,925
---------------------------------------------------------------------------
7,541,676
OIL/GAS TRANSMISSION--1.0% Williams Cos., Inc. 50,150 1,153,450
---------------------------------------------------------------------------
OILFIELD SERVICES/ Schlumberger Ltd. 31,400 1,375,713
EQUIPMENT--1.2%
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.9% AMR Corp.* 9,800 534,100
AIRLINES--0.5%
---------------------------------------------------------------------------
RAILROADS--0.4% Wisconsin Central Transportation Co.* 41,800 525,113
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $119,709,349) 107,972,680
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $127,160,349)(a) 115,423,680
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $127,179,613. At August 31,
1998, net unrealized depreciation for all securities based on tax cost was
$11,755,933. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$4,600,518 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $16,356,451.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AS OF AUGUST 31, 1998
<TABLE>
<S> <C>
- -------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------
Investments, at market
(Identified cost $127,160,349) $115,423,680
- -------------------------------------------------------------------------
Cash 44,482
- -------------------------------------------------------------------------
Receivable for Fund shares sold 3,090,491
- -------------------------------------------------------------------------
Dividends and interest receivable 127,051
- -------------------------------------------------------------------------
Foreign taxes recoverable 1,642
- -------------------------------------------------------------------------
Deferred organization expenses 17,854
- -------------------------------------------------------------------------
Due from Adviser 28,442
- -------------------------------------------------------------------------
Other assets 182,391
- -------------------------------------------------------------------------
TOTAL ASSETS 118,916,033
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------
Payable for investments purchased 326,542
- -------------------------------------------------------------------------
Payable for Fund shares redeemed 778,339
- -------------------------------------------------------------------------
Other payables and accrued expenses 248,351
- -------------------------------------------------------------------------
Total liabilities 1,353,232
- -------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $117,562,801
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Unrealized appreciation (depreciation) on investments (11,736,669)
- -------------------------------------------------------------------------
Accumulated net realized gain (loss) 6,361,715
- -------------------------------------------------------------------------
Paid-in capital 122,937,755
- -------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $117,562,801
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($7,198,176 / 433,134 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $16.62
- -------------------------------------------------------------------------
Maximum offering price per share
(100 / 94.25 of $16.62) $17.63
- -------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($5,919,740 / 357,344 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $16.57
- -------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($916,804 / 55,334 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $16.57
- -------------------------------------------------------------------------
CLASS S SHARES
Net asset value, offering and redemption price per share
($103,528,081 / 6,233,469 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $16.61
- -------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $16,317) $ 953,427
- ----------------------------------------------------------------------------
Interest 285,782
- ----------------------------------------------------------------------------
1,239,209
- ----------------------------------------------------------------------------
Expenses: Management fee 652,143
- ----------------------------------------------------------------------------
Services to shareholders 572,080
- ----------------------------------------------------------------------------
Custodian and accounting fees 83,423
- ----------------------------------------------------------------------------
Distribution service fees 7,007
- ----------------------------------------------------------------------------
Administrative service fees 5,253
- ----------------------------------------------------------------------------
Trustees' fees and expenses 34,411
- ----------------------------------------------------------------------------
Auditing 30,000
- ----------------------------------------------------------------------------
Registration fees 62,790
- ----------------------------------------------------------------------------
Reports to shareholders 39,222
- ----------------------------------------------------------------------------
Legal 14,078
- ----------------------------------------------------------------------------
Amortization of organization expense 3,546
- ----------------------------------------------------------------------------
Other 4,328
- ----------------------------------------------------------------------------
Total expenses before reductions 1,508,281
- ----------------------------------------------------------------------------
Expense reductions (285,939)
- ----------------------------------------------------------------------------
Expenses, net 1,222,342
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 16,867
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ----------------------------------------------------------------------------
Net realized gain (loss) from investments 6,411,034
- ----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the
period on investments (18,592,485)
- ----------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENT TRANSACTIONS (12,181,451)
- ----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $(12,164,584)
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 9, 1996
YEAR ENDED (COMMENCEMENT OF
AUGUST 31, OPERATIONS) TO
1998 AUGUST 31, 1997
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- ----------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------
Net investment income $ 16,867 $ 101,107
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 6,411,034 1,068,807
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period (18,592,485) 6,855,816
- ----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS (12,164,584) 8,025,730
- ----------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income--Class S (134,261) (43,257)
- ----------------------------------------------------------------------------------------------------
Net realized gains--Class S (1,093,271) --
- ----------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 123,389,959 70,958,470
- ----------------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in
reinvestment of distributions 1,215,373 42,483
- ----------------------------------------------------------------------------------------------------
Cost of shares redeemed (46,876,198) (25,758,843)
- ----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS 77,729,134 45,242,110
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 64,337,018 53,224,583
- ----------------------------------------------------------------------------------------------------
Net assets at beginning of period 53,225,783 1,200
- ----------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $90,326 at August 31, 1997) $117,562,801 $ 53,225,783
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
-----------------------------------------
CLASS A CLASS B CLASS C
-----------------------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
APRIL 16, APRIL 16, APRIL 16,
1998 1998 1998
(COMMENCEMENT (COMMENCEMENT (COMMENCEMENT
OF SALE OF OF SALE OF OF SALE OF
CLASS A CLASS B CLASS C
SHARES) SHARES) SHARES)
TO AUGUST 31, TO AUGUST 31, TO AUGUST 31,
1998 1998 1998
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.30 $ 20.30 $ 20.30
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .01 (.05) (.05)
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions (3.69) (3.68) (3.68)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (3.68) (3.73) (3.73)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.62 $ 16.57 $ 16.57
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(B)(C) (18.13)** (18.37)** (18.37)**
- -----------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 7.2 5.9 .9
- -----------------------------------------------------------------------------------------------------------
Ratio of operating expenses, net, to average daily net
assets (%) 1.24* 2.12* 2.09*
- -----------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 1.74* 2.52* 3.00*
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets (%) .10* (.79)* (.73)*
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 48.5 48.5 48.5
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
18
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
----------------------------
CLASS S(b)
----------------------------
FOR THE
PERIOD
SEPTEMBER 9,
1996
(COMMENCEMENT
OF
YEAR ENDED OPERATIONS)
AUGUST 31, TO AUGUST 31,
1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $17.38 $12.00
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .01 .06
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions (.45) 5.36
- ----------------------------------------------------------------------------------------
Total from investment operations (.44) 5.42
- ----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.04) (.04)
- ----------------------------------------------------------------------------------------
Net realized gains on investment transactions (.29) --
- ----------------------------------------------------------------------------------------
Total distributions (.33) (.04)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $16.61 $17.38
- ----------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) (2.72) 45.20**
- ----------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 103.5 53.2
- ----------------------------------------------------------------------------------------
Ratio of operating expenses, net, to average daily net
assets (%) 1.30 1.25*
- ----------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 1.61 2.25*
- ----------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets (%) .03 .43*
- ----------------------------------------------------------------------------------------
Portfolio turnover rate (%) 48.5 27.4*
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On April 16, 1998, existing shares at the Fund were designated as Class S
and are generally not available to new investors.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Classic Growth Fund (the "Fund") is a diversified
series of Investment Trust (the "Trust") (formerly
Scudder Investment Trust), a Massachusetts business
trust registered under the Investment Company Act
of 1940, as amended, as an open-end management
investment company.
Effective April 16, 1998, the Fund changed its name
from Scudder Classic Growth Fund to Classic Growth
Fund and an additional three classes of shares were
offered, namely Classes A, B and C. Existing shares
of Classic Growth Fund outstanding on that date
were redesignated Scudder Shares ("Class S"). Class
A shares are sold to investors subject to an
initial sales charge. Class B shares are sold
without an initial sales charge but are subject to
higher ongoing expenses than Class A and Class S
and a contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A and Class S and a contingent deferred
sales charge payable upon certain redemptions
within one year of purchase. Class C shares do not
convert into another class. Class S, generally not
available to new investors, are not subject to
initial or contingent deferred sales charges.
Investment income, realized and unrealized capital
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 expenses unique to that class. Each class of
shares differs in its respective distribution,
shareholder services, administrative services and
certain other class-specific expenses and expense
reductions. All shares of the Fund have equal
rights with respect to voting.
The Fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market, Inc. ("Nasdaq"), for which there have
been sales, are valued at the most recent sale
price reported on such system. If there are no such
sales, the value is the most recent bid quotation.
Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are
valued at the most recent sale price on such
market. If no sale occurred, the security is then
valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations the most recent bid
quotation shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian, receives delivery of the underlying
securities, the amount of which at the time of
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
purchase and each subsequent business day is
required to be maintained at such a level that the
market value, depending on the maturity of the
repurchase agreement, is equal to at least 100.5%
of the repurchase price.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income are made annually. During any
particular year net realized gains from investment
transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not
distributed and, therefore, will be distributed to
shareholders annually. An additional distribution
may be made to the extent necessary to avoid the
payment of a four percent federal excise tax.
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.
The Fund uses the identified cost method for
determining realized gain or loss on investments
for both financial and federal income tax reporting
purposes.
ORGANIZATION COSTS. Costs incurred by the Fund in
connection with its organization have been deferred
and are being amortized on a straight-line basis
over a five-year period.
OTHER. Investment security transactions are
accounted for on a trade-date basis. Dividend
income and distributions to shareholders are
recorded on the ex-dividend date. Interest income
is recorded on the accrual basis.
- --------------------------------------------------------------------------------
2 PURCHASES AND SALES
OF SECURITIES During the year ended August 31, 1998, purchases
and sales of investment securities (excluding
short-term investments) aggregated $110,809,928 and
$42,148,996, respectively.
- --------------------------------------------------------------------------------
3 RELATED PARTIES MANAGEMENT AGREEMENT. Effective December 31, 1997,
Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an
international insurance and financial services
organization, formed a new global investment
organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper
Investments, Inc. As a result of the transaction,
Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the
"Adviser"). The transaction between Scudder and
Zurich resulted in the termination of the Fund's
Investment Management Agreement with Scudder.
However, a new Investment Management Agreement (the
"Management Agreement") between the Fund and
Scudder Kemper was approved by the Fund's Board of
Trustees and by the Fund's Shareholders. The
Management Agreement, which was effective December
31, 1997, is the same in all material respects as
the corresponding previous Investment Management
Agreement, except that Scudder Kemper is the new
investment adviser to the Fund.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Under the Fund's Management Agreement with Scudder
Kemper, the Fund pays the Adviser a fee equal to an
annual rate of 0.70% of the Fund's average daily
net assets, computed and accrued daily and payable
monthly. As manager of the assets of the Fund, the
Adviser directs the investments of the Fund in
accordance with its investment objective, policies,
and restrictions. The Adviser determines the
securities, instruments and other contracts
relating to investments to be purchased, sold or
entered into by the Fund. In addition to portfolio
management services, the Adviser provides certain
administrative services in accordance with the
Management Agreement. Until April 15, 1998, the
Adviser had agreed not to impose all or a portion
of its management fee in order to maintain the
annualized expenses of the Fund at not more than
1.25% of average daily net assets. Effective April
16, 1998, the Adviser has agreed to waive .25% of
its management fee until December 31, 1998. For the
year ended August 31, 1998, the Adviser did not
impose a portion of its management fee amounting to
$281,142, and the fee imposed amounted to $371,001,
of which $54,498 is unpaid at August 31, 1998. In
addition, during the year ended August 31, 1998,
the Adviser paid the Fund $82,940 to reimburse the
Fund for losses incurred in connection with equity
securities trading.
On September 7, 1998, Zurich Insurance Company
("Zurich"), majority owner of the adviser, entered
into an agreement with B.A.T Industries p.l.c.
("B.A.T") pursuant to which the financial services
businesses of B.A.T were combined with Zurich's
businesses to form a new global insurance and
financial services company known as Zurich
Financial Services. Upon consummation of the
transaction, the Fund's investment management
agreement with Scudder Kemper was deemed to have
been assigned and, therefore, terminated. The Board
of Trustees for the Fund has approved a new
investment management agreement with Scudder
Kemper, which is substantially identical to the
former investment management agreement, except for
the dates of execution and termination. The Board
of Trustees for the Fund will seek shareholder
approval of the new investment management agreement
through a proxy solicitation that is currently
scheduled to conclude in mid-December.
DISTRIBUTION SERVICE AGREEMENT. In accordance with
Rule 12b-1 under the Investment Company Act of
1940, Kemper Distributors, Inc. ("KDI"), a
subsidiary of the Adviser, receives a fee of .75%
of average daily net assets of Classes B and C.
Pursuant to the agreement, KDI enters into related
selling group agreements with various firms at
various rates for sales of Class B and C shares.
For the period April 16, 1998 through August 31,
1998, each class aggregated the following amounts
for the distribution of each class' applicable
shares:
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FEES PAYABLE AT
FEES AGGREGATED WAIVED BY KDI AUGUST 31, 1998
------------ ---------- ------------- ---------------
<S> <C> <C> <C>
Class B $6,154 $ -- $6,154
Class C 853 457 396
------ ---- ------
$7,007 $457 $6,550
====== ==== ======
</TABLE>
UNDERWRITING AGREEMENT AND CONTINGENT DEFERRED
SALES CHARGE. KDI is the principal underwriter for
Classes A, B and C. Underwriting commissions paid
in connection with the distribution of Class A
shares for the period beginning April 16, 1998
through August 31, 1998 aggregated $61,551, all of
which was paid to other firms.
In addition, KDI receives any contingent deferred
sales charge (CDSC) from Class B share redemptions
occurring within six years of purchase and Class C
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
share redemptions occurring within one year of
purchase. There is no such charge upon redemption
of any share appreciation or reinvested dividends.
Contingent deferred sales charges are based on
declining rates ranging from 4% to 1% for Class B
and 1% for Class C, of the value of the shares
redeemed. For the period April 16, 1998 through
August 31, 1998, the CDSC for Classes B and C
aggregated $1,260 and $15, respectively.
ADMINISTRATIVE SERVICE FEES. KDI provides
information and administrative services to Classes
A, B and C shareholders at an annual rate of up to
.25% of average daily net assets for each such
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 beginning April 16, 1998 through August 31,
1998, the Administrative Services Fee was as
follows:
<TABLE>
<CAPTION>
ADMINISTRATIVE TOTAL FEES PAYABLE AT
SERVICE FEES AGGREGATED WAIVED BY KDI AUGUST 31, 1998
-------------- ---------- ------------- ---------------
<S> <C> <C> <C>
Class A $2,917 $2,917 $ --
Class B 2,051 1,138 913
Class C 285 285 --
------ ------ ----
$5,253 $4,340 $913
====== ====== ====
</TABLE>
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 Classes A, B and C Shares. For
the period beginning April 16, 1998 through August
31, 1998, the amount charged to Classes A, B and C
by KSC aggregated $4,236, $3,169 and $828,
respectively, of which $6,620 is unpaid at August
31, 1998. Scudder Service Corporation ("SSC"), a
subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for
Class S. Included in services to shareholders is
$231,932 charged to Class S by SSC for the year
ended August 31, 1998, of which $24,065 is unpaid
at August 31, 1998.
Class S 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 such
Underlying Fund. These estimated savings result
from the elimination of separate shareholder
accounts which either currently are or have
potential to be invested in the Underlying Funds.
For the year ended August 31, 1998, the Special
Servicing Agreement expense charged to Class S
amounted to $292,563.
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 of the Fund. For
the year ended August 31, 1998, the amount charged
to Class S by STC aggregated $18,276, of which
$6,468 is unpaid at August 31, 1998.
FUND ACCOUNTING FEES. Scudder Fund Accounting
Corporation ("SFAC"), a subsidiary of the Adviser,
is responsible for determining the daily net asset
value
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
per share and maintaining the portfolio and general
accounting records of the Fund. For the year ended
August 31, 1998, the amount charged to the Fund by
SFAC aggregated $61,932, of which $6,848 is unpaid
at August 31, 1998.
TRUSTEES FEES. 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 August 31,
1998, the Trustees fees and expenses aggregated
$34,411.
- --------------------------------------------------------------------------------
4 SHARE TRANSACTIONS The following table summarizes shares of beneficial
interest and dollar activity in the Fund:
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 9, 1996
(COMMENCEMENT OF
PERIOD ENDED OPERATIONS) TO
AUGUST 31, 1998 AUGUST 31, 1997
-------------------------- --------------------------
SHARES DOLLARS SHARES DOLLARS
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 686,665 $ 13,861,440 -- $ --
----------------------------------------------------------------------------------
Class B 388,134 7,520,415 -- --
----------------------------------------------------------------------------------
Class C 59,192 1,143,056 -- --
----------------------------------------------------------------------------------
Class S 5,261,810 100,865,048 4,715,920 70,958,470
----------------------------------------------------------------------------------
6,395,801 123,389,959 4,715,920 70,958,470
----------------------------------------------------------------------------------
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
Class A -- $ -- -- $ --
----------------------------------------------------------------------------------
Class B -- -- -- --
----------------------------------------------------------------------------------
Class C -- -- -- --
----------------------------------------------------------------------------------
Class S 70,172 1,215,373 3,115 42,483
----------------------------------------------------------------------------------
70,172 1,215,373 3,115 42,483
----------------------------------------------------------------------------------
SHARES REDEEMED
Class A (253,531) $ (5,236,843) -- $ --
----------------------------------------------------------------------------------
Class B (30,790) (608,304) -- --
----------------------------------------------------------------------------------
Class C (3,858) (81,660) -- --
----------------------------------------------------------------------------------
Class S (2,160,627) (40,949,391) (1,657,021) (25,758,843)
----------------------------------------------------------------------------------
(2,448,806) (46,876,198) (1,657,021) (25,758,843
----------------------------------------------------------------------------------
NET INCREASE (DECREASE)
Class A 433,134 $ 8,624,597 -- $ --
----------------------------------------------------------------------------------
Class B 357,344 6,912,111 -- --
----------------------------------------------------------------------------------
Class C 55,334 1,061,396 -- --
----------------------------------------------------------------------------------
Class S 3,171,355 61,131,030 3,062,014 45,242,110
----------------------------------------------------------------------------------
4,017,167 77,729,134 3,062,014 45,242,110
----------------------------------------------------------------------------------
</TABLE>
TAX INFORMATION (UNAUDITED)
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$5,600,000 as capital gain dividends for its year ended August 31, 1998, of
which 94% represents 20% rate gains.
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 1-800-621-1048.
24
<PAGE>
NOTES
25
<PAGE>
NOTES
26
<PAGE>
NOTES
27
<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE BRUCE F. BEATY JOHN R. HEBBLE
President and Trustee Vice President Treasurer
HENRY P. BECTON, JR. PHILIP S. FORTUNA CAROLINE PEARSON
Trustee Vice President Assistant Secretary
DAWN-MARIE DRISCOLL WILLIAM F. GADSDEN
Trustee Vice President
PETER B. FREEMAN JERARD K. HARTMAN
Trustee Vice President
GEORGE M. LOVEJOY, JR. ROBERT T. HOFFMAN
Trustee Vice President
WESLEY W. MARPLE, JR. THOMAS W. JOSEPH
Trustee Vice President
JEAN C. TEMPEL VALERIE F. MALTER
Trustee Vice President
KATHRYN L. QUIRK THOMAS F. MCDONOUGH
Trustee, Vice President Vice President and Secretary
and Assistant Secretary
<TABLE>
<S> <C>
..........................................................................................................
LEGAL COUNSEL DECHERT PRICE & RHOADS
Ten Post Office Square South
Boston, MA 02109
..........................................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
..........................................................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
..........................................................................................................
INDEPENDENT PRICEWATERHOUSECOOPERS LLP
ACCOUNTANTS One Post Office Square
Boston, MA 02109
..........................................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
</TABLE>
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Classic Growth Fund prospectus.
KCGF - 2 (10/98) 1057620 [KEMPER FUNDS LOGO]
