SCUDDER
INVESTMENTS(SM)
[LOGO]
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EQUITY/GROWTH
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Scudder Classic
Growth Fund
Fund #058
Annual Report
October 31, 1999
The fund seeks 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.
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Content
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
14 Glossary of Investment Terms
15 Investment Portfolio
20 Financial Statements
23 Financial Highlights
24 Notes to Financial Statements
33 Report of Independent Accountants
34 Tax Information
35 Officers and Trustees
36 Investment Products and Services
38 Scudder Solutions
2 SCUDDER CLASSIC GROWTH FUND
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Scudder Classic Growth Fund
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ticker symbol SCCGX fund number 058
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Date of o The fund benefited from strong performance by
Inception: large-cap growth stocks over the past 12 months, as
9/9/96 investors sought shelter from perceived market risks.
Total Net o We have uncovered a number of what we saw as quality
Assets of stocks at the forefront of the convergence of
Scudder communications and technology, which allowed the fund
Shares as of to participate in the explosive growth of the
10/31/99: Internet.
$143 million
o The Scudder shares of the fund returned 32.12% for
the 12 month period, which beat the 25.68% return of
the fund's unmanaged benchmark, the S&P 500, and the
26.11% return for the large-cap core fund category,
as calculated by Lipper Analytical Services.
SCUDDER CLASSIC GROWTH FUND 3
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Letter from the Fund's President
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[PHOTO]
Lynn S. Birdsong,
President,
Classic Growth
Fund
Dear Shareholders,
For much of the past year, the broad equity market has been led by a narrow
group of large-cap growth stocks. During this time, investors concerned that a
pickup in economic growth could lead to higher interest rates focused on
higher-quality, better-known companies that they believe will continue to
deliver consistent earnings growth. This pattern was briefly interrupted during
the spring, when value stocks rallied sharply but, in general, investors have
continued to avoid stocks with less-certain outlooks. Major beneficiaries of
this trend have been telecommunications and technology stocks, where a wide
range of companies have been helped by the explosive growth of the internet, as
well as Corporate America's continuing need for technology-driven productivity
improvements.
Classic Growth Fund, which seeks to invest in rapidly growing companies trading
at reasonable prices, was we believe, well-positioned to prosper in this
environment. While it is unlikely that growth stocks will continue to outperform
by such a wide margin in the coming years, we believe that management's
consistent approach is well-suited for attractive long-term performance across a
variety of investment conditions.
Over the 12 month period, Scudder shares of the fund outperformed both the
fund's benchmark, the S&P 500 Index, and the average for funds in the Lipper
large-cap core category. For more information on management's approach to
4 SCUDDER CLASSIC GROWTH FUND
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stockpicking, please turn to the Portfolio Management Discussion that begins on
page 10.
Finally, we have changed the fund's fiscal year-end from August 31 to October 31
as part of a larger effort to create efficiencies and reduce the costs of
producing Scudder fund regulatory materials such as fund reports and
prospectuses. Going forward, you will receive regular reports following the
fund's annual and semiannual periods ending in October and April.
Thank you for your continued investment in the Scudder shares of the Classic
Growth Fund. If you have any questions about your investment, please call
Scudder Investor Information at 1-800-SCUDDER (1-800-728-3337), or visit our Web
site at www.scudder.com.
Sincerely,
/s/ Lynn S. Birdsong
Lynn S. Birdsong
President,
Classic Growth Fund
SCUDDER CLASSIC GROWTH FUND 5
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Performance Update
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October 31, 1999
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Classic Growth Fund
- Scudder Shares S&P 500 Index*
9/96** 10000 10000
10/96 10276 10159
4/97 11788 11632
10/97 13577 13921
4/98 16632 16454
10/98 16563 15418
4/99 20260 18316
10/99 20817 20370
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 10/31/1999 $10,000 Cumulative Annual
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Classic Growth Fund -- Scudder Shares
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1 year $ 13,212 32.12% 32.12%
Life of Class** $ 21,406 114.06% 27.46%
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S&P 500 Index*
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1 year $ 12,568 25.68% 25.68%
Life of Class** $ 20,817 108.17% 26.83%
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* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industies. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on September 9, 1996. Index comparisons
begin September 30, 1996.
6 SCUDDER CLASSIC GROWTH FUND
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE CLASS TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)*
Yearly periods ended October 31
Classic Growth Fund
- Scudder Shares S&P 500 Index*
1996 6.75 2.76
1997 37.04 32.12
1998 10.75 21.99
1999 32.12 25.68
1996** 1997 1998 1999
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Class Total
Return (%) 6.75 37.04 10.75 32.12
Index Total
Return (%) 2.76 32.12 21.99 25.68
Net Asset
Value ($) 12.81 17.51 19.04 24.20
Income
Dividends ($) -- .04 .04 --
Capital Gains
Distributions ($) -- -- .29 .81
* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industies. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on September 9, 1996. Index comparisons
begin September 30, 1996.
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. 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.
SCUDDER CLASSIC GROWTH FUND 7
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Portfolio Summary
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October 31, 1999
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Asset Allocation
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The fund remains close to
fully invested in domestic
growth stocks.
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Equity Holdings 97%
Cash Equivalents 3%
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100%
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Sector Diversification
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(Excludes 3% Cash Equivalents)
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Our technology holdings
benefited from continued
Technology 23% strength in spending on
Health 16% semiconductors, semiconductor
Financial 10% equipment, and network
Consumer Discretionary 10% equipment.
Consumer Staples 8%
Media 8%
Manufacturing 8%
Durables 5%
Energy 5%
Other 7%
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100%
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8 SCUDDER CLASSIC GROWTH FUND
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Ten Largest Equity Holdings
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(26% of Portfolio) The fund's top holdings
reflect our desire to invest
1. Microsoft Corp. in companies that we
Developer of computer software believe can provide
growth at a reasonable
2. Intel Corp. price.
Producer of semiconductor memory circuits
3. General Electric Co.
Producer of electrical equipment
4. Home Depot, Inc.
Building materials and home improvement stores
5. MCI WorldCom, Inc.
Provider of local, long distance, international, and Internet services
6. Royal Dutch Petroleum Co.
International energy company
7. Proctor & Gamble Co.
Diversified manufacturer of consumer products
8. Federal National Mortgage Association
Insurer and holder of mortgage loans
9. American Express Credit Corp.
Travel and investment services, insurance, banking
10. Bristol-Myers Squibb Co.
Diversified pharmaceutical and consumer products company
For more complete details about the Fund's investment portfolio, see page 15. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
SCUDDER CLASSIC GROWTH FUND 9
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Portfolio Management Discussion
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October 31, 1999
Dear Shareholders,
For most of the past year, growth-company stocks have outperformed virtually all
other sectors of the equity market. This outperformance was due in part to an
unwinding of a worldwide financial crisis, which led to concerns of stronger
growth and higher interest rates. In this environment, investors looked for
higher-quality, well-known companies that they believed could weather periods of
uncertainty. Many of these companies were in telecommunications and technology.
The need for communications infrastructure is increasing exponentially as the
Internet grows, and the technology and telecommunications businesses are rapidly
blending together as a result. We believe the companies at the forefront of this
convergence will experience the fastest growth, which should in turn justify
their higher multiples. Also, as we approach the end of 1999, the expected
slowdown in computer-related spending has not developed, while the spending
cycle for semiconductors, semiconductor equipment, and network equipment looks
strong. For these reasons, we are maintaining the fund's overweight position in
technology. Examples of stocks in this category that have performed well for us
are Sun Microsystems (up 26% over the twelve months), EMC (127%), Cisco Systems
(135%), Lucent Technologies (60%), Corning (118%), and MCI Worldcom (55%).
The strength of these and other stocks in our portfolio has been reflected in
the performance of Scudder shares of the fund, which returned 32.12% for the 12
month period, beating the 25.68% return of the fund's unmanaged benchmark, the
S&P 500. In addition, the Scudder shares of the fund's return placed the Scudder
shares ahead of the 26.11% average of the Lipper large-cap core fund category.
While we believe that the fund has benefited from our disciplined stock
selection, as well as a market climate that was favorable to our investment
universe, we also feel that our approach of looking for growth at a reasonable
price should allow us to outperform in an environment that is less favorable for
growth stocks.
10 SCUDDER CLASSIC GROWTH FUND
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Outside of technology and telecommunications, we continue to favor the media and
health care sectors. While both have seen periods of volatility in recent
months, we feel that our holdings in these industries should show continued
strong earnings growth over time, and we are taking advantage of market dips to
add to our positions.
At the same time, we reduced our weighting in the retail and financial sectors
based on our concern that the economic backdrop for these sectors may be
challenging. In retailing, for example, the backdrop has been quite favorable in
recent years, with a strong economy, low interest rates (until recently), and
high levels of consumer spending all contributing to stronger earnings. The
stocks in this sector performed well as a result, and boosted returns for the
fund in the first half of the year. However, we became skeptical that there was
much more upside potential for these companies and we trimmed our weightings in
Home Depot and Dayton Hudson, among others, and put the cash to work elsewhere.
At the same time, we added to a handful of holdings that we feel will continue
to deliver superior earnings growth, including Wal-Mart and Circuit City, an
electronics retailer that is riding the strong spending wave of consumers moving
from analog to digital technology across a wide range of products, such as
phones, TVs, and radios.
Similarly, we trimmed our holdings in financial services companies, based on our
belief that their current growth rate will not be sustainable going forward.
Interest rates have risen, revenue growth appears to be slowing, and lending
spreads are widening. Consequently, we eliminated our positions in Allstate,
Conseco, MBIA, and BankAmerica, while holding on to stocks in which we have more
confidence, such as American Express, AIG, and Fannie Mae.
Two stocks that we think deserve particular mention are Pepsi and McDonald's.
Pepsi has been an underperformer for years, due in part to erratic earnings and
a complicated business mix, but we now believe it offers growth at an attractive
price. It recently divested its restaurant and
SCUDDER CLASSIC GROWTH FUND 11
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bottling businesses, creating a slimmer and more focused operation. Although in
our view Pepsi has emerged as a dependable earnings story, the market has not
yet recognized its turnaround potential. Expecting consistent growth of 12-15%
over the next several years, we have taken the opportunity to accumulate shares
at a below-market multiple.
McDonald's, in our view, is well-positioned as the world's dominant
quick-service restaurant brand, with a leading market share and store count. We
expect the company to continue to outperform within its sector due to favorable
same-store volume growth, an ongoing share repurchase program, and an improving
environment in emerging markets. Although the company's growth rate is above
that of the overall market, it is trading at a lower P/E ratio.
We have taken two important lessons from the market's performance over the past
few years. First, it has not paid to underestimate the resilience of the U.S.
economy or the ability of the central bankers to keep things on an even keel.
Second, it has once again proven worthwhile to keep a long-term view and to
avoid the temptation to sell when market conditions deteriorate. While we remain
cautious on the outlook for the months ahead, especially with the Federal
Reserve in a tightening mode, we believe the fund will continue to benefit from
our disciplined investment style.
Sincerely,
Your Portfolio Management Team
/s/ William F. Gadsden /s/ Bruce F. Beaty
William F. Gadsden Bruce F. Beaty
12 SCUDDER CLASSIC GROWTH FUND
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Classic Growth Fund:
A Team Approach to Investing
Classic Growth Fund is managed by a team of Scudder Kemper Investments, Inc.
(the "Adviser") professionals, each of whom plays an important role in the
fund's management process. Team members work together to develop investment
strategies and select securities for the fund's portfolio. They are supported by
the Adviser's large staff of economists, research analysts, traders, and other
investment specialists who work in our offices across the United States and
abroad. We believe our team approach benefits fund investors by bringing
together many disciplines and leveraging our extensive resources.
[PHOTO]
William F. Gadsden
Co-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.
[PHOTO]
Bruce F. Beaty
Co-lead portfolio manager Bruce F. Beaty focuses on securities selection and
assists with the creation and implementation of investment strategy for the
fund. Mr. Beaty joined the Adviser in 1991 and has 16 years of investment
industry experience.
SCUDDER CLASSIC GROWTH FUND 13
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Glossary of Investment Terms
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Bottom-Up An investment style that focuses on the use of
Investing Style research to assess the performance of individual
companies before considering the impact of economic
trends. This approach, which is the opposite of
"top-down" investing, assumes that the most
significant determinant of performance is
individual stock selection, rather than industry or
country allocation.
Cyclical Stocks Companies whose earnings are closely tied to
the business cycle. Cyclical industries include
steel, cement, paper, machinery, and autos.
Growth Stock Stock of a company that has displayed
above-average earnings growth and is expected to
continue to increase profits faster than the
overall market. Stocks of such companies usually
trade at higher valuations and experience more
price volatility than the market as a whole.
Distinct from value stock.
Price/Earnings A widely used gauge of a stock's valuation that
Ratio (P/E) indicates what investors are paying for a company's
(also "earnings earning power at the current stock price. A P/E
multiple") ratio may be based on a company's projected
earnings for the coming 12 months. A higher
"earnings multiple" indicates higher expected
earnings growth, along with greater risk of
earnings disappointment.
Weighting Refers to the allocation of assets -- usually in
(over/under) terms of sectors, industries, or countries -- within
a portfolio relative to the portfolio's benchmark
index or investment universe.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
14 SCUDDER CLASSIC GROWTH FUND
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Investment Portfolio as of October 31, 1999
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Principal Market
Amount Value ($)
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Repurchase Agreements 2.8%
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Repurchase Agreement with State Street Bank and Trust
Company dated 10/29/1999 at 5.2%, to be repurchased
at $6,920,998 on 11/1/1999, collateralized by a
$6,955,000 U.S. Treasury Note Inflationary Index, ----------
3.375%, 1/15/2007 (Cost $6,918,000) ............... 6,918,000 6,918,000
----------
Shares
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Common Stocks 97.2%
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Consumer Discretionary 9.3%
Department & Chain Stores 6.6%
Dayton Hudson Corp. .................................. 69,300 4,478,513
Home Depot, Inc. ..................................... 87,900 6,636,450
Wal-Mart Stores, Inc. ................................ 64,400 3,650,675
Walgreen Co. ......................................... 74,000 1,863,875
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16,629,513
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Recreational Products 0.6%
Premier Parks, Inc.* ................................. 54,600 1,579,988
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Restaurants 1.4%
McDonald's Corp. ..................................... 84,900 3,502,125
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Specialty Retail 0.7%
Circuit City Stores Inc. ............................. 42,200 1,801,413
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Consumer Staples 7.7%
Alcohol & Tobacco 1.0%
Anheuser-Busch Companies, Inc.* ...................... 35,500 2,549,344
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Food & Beverage 2.4%
Bestfoods ............................................ 47,800 2,808,250
PepsiCo, Inc. ........................................ 94,400 3,274,500
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6,082,750
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Package Goods/Cosmetics 4.3%
Colgate-Palmolive Co. ................................ 45,900 2,776,950
Gillette Co. ......................................... 52,300 1,892,606
The accompanying notes are an integral part of the financial statements.
SCUDDER CLASSIC GROWTH FUND 15
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Market
Shares Value ($)
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Procter & Gamble Co. ................................. 57,500 6,030,313
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10,699,869
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Health 15.4%
Biotechnology 2.7%
Amgen Inc.* .......................................... 16,800 1,339,800
Genentech, Inc.* ..................................... 15,200 2,215,400
Immunex Corp.* ....................................... 29,700 1,871,100
MedImmune, Inc.* ..................................... 13,000 1,456,000
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6,882,300
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Health Industry Services 0.9%
IMS Health Inc. ...................................... 81,000 2,349,000
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Medical Supply & Specialty 2.2%
Baxter International, Inc. ........................... 62,450 4,051,444
VISX Inc.* ........................................... 23,200 1,451,450
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5,502,894
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Pharmaceuticals 9.6%
Allergan, Inc. ....................................... 26,700 2,866,913
American Home Products Corp. ......................... 61,100 3,192,475
Bristol-Myers Squibb Co. ............................. 70,400 5,407,600
Johnson & Johnson .................................... 22,200 2,325,450
Pfizer, Inc. ......................................... 75,000 2,962,500
Schering-Plough Corp. ................................ 49,500 2,450,250
Warner-Lambert Co. ................................... 61,200 4,884,525
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24,089,713
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Communications 5.9%
Cellular Telephone 1.9%
Nokia Oy "A" (ADR) ................................... 41,600 4,807,400
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Telephone/Communications 4.0%
Bell Atlantic Corp. .................................. 53,450 3,470,907
MCI WorldCom, Inc.* .................................. 75,350 6,465,972
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9,936,879
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Financial 9.8%
Insurance 3.0%
AFLAC, Inc. .......................................... 50,000 2,556,250
American International Group, Inc. ................... 47,350 4,874,091
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7,430,341
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Consumer Finance 4.6%
American Express Credit Corp. ........................ 35,300 5,436,200
The accompanying notes are an integral part of the financial statements.
16 SCUDDER CLASSIC GROWTH FUND
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Market
Shares Value ($)
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Associates First Capital Corp. ....................... 59,300 2,164,450
Citigroup, Inc. ...................................... 70,650 3,823,931
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11,424,581
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Other Financial Companies 2.2%
Federal National Mortgage Association ................ 78,200 5,532,650
----------
Media 8.2%
Advertising 1.6%
Omnicom Group, Inc. .................................. 46,200 4,065,600
----------
Broadcasting & Entertainment 1.8%
Infinity Broadcasting Corp* ......................... 62,400 2,156,700
Viacom Inc. "B"* ..................................... 52,100 2,331,475
----------
4,488,175
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Cable Television 3.3%
AT&T Corp-- Liberty Media Group* ..................... 126,400 5,016,500
Comcast Corp. "A" .................................... 80,000 3,370,000
----------
8,386,500
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Print Media 1.4%
Tribune Co. .......................................... 58,900 3,534,000
----------
Service Industries 2.7%
EDP Services
Automatic Data Processing, Inc. ...................... 67,500 3,252,656
Electronic Data Systems Corp. ........................ 60,200 3,521,700
----------
6,774,356
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Durables 2.9%
Aerospace 0.9%
United Technologies Corp. ............................ 37,600 2,274,800
----------
Telecommunications Equipment 2.0%
Lucent Technologies, Inc. ............................ 81,100 5,210,675
----------
Manufacturing 7.9%
Diversified Manufacturing 4.9%
General Electric Co. ................................. 53,700 7,279,706
Textron, Inc. ........................................ 26,700 2,060,906
Tyco International Ltd. (New) ........................ 75,000 2,995,312
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12,335,924
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The accompanying notes are an integral part of the financial statements.
SCUDDER CLASSIC GROWTH FUND 17
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Market
Shares Value ($)
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Electrical Products 0.9%
Emerson Electric Co. ................................. 37,000 2,222,312
----------
Industrial Specialty 2.1%
Corning, Inc. ........................................ 66,400 5,220,700
----------
Technology 22.5%
Computer Software 7.5%
America Online Inc.* ................................. 40,500 5,252,344
Electronic Arts Inc.* ................................ 18,100 1,462,706
Microsoft Corp.* ..................................... 91,500 8,469,469
Oracle Systems Corp.* ................................ 76,100 3,619,506
----------
18,804,025
----------
Diverse Electronic Products 2.8%
Applied Materials, Inc.* ............................. 48,200 4,328,963
Motorola, Inc. ....................................... 27,700 2,699,019
----------
7,027,982
----------
EDP Peripherals 1.6%
EMC Corp.* ........................................... 55,100 4,022,300
----------
Electronic Components/Distributors 2.4%
Broadcom Corp.* ...................................... 15,200 1,942,750
Cisco Systems, Inc.* ................................. 54,900 4,062,600
----------
6,005,350
----------
Electronic Data Processing 4.1%
Hewlett-Packard Co. .................................. 22,300 1,651,594
International Business Machines Corp. ................ 40,400 3,974,350
Sun Microsystems, Inc.* .............................. 45,100 4,772,144
----------
10,398,088
----------
Semiconductors 4.0%
Intel Corp. .......................................... 105,140 8,141,778
Xilinx, Inc.* ........................................ 24,500 1,926,313
----------
10,068,091
----------
Energy 4.9%
Oil & Gas Production 2.4%
Royal Dutch Petroleum Co. (New York shares) .......... 101,300 6,071,669
----------
Oil Companies 1.1%
Mobil Corp. .......................................... 29,700 2,866,050
----------
The accompanying notes are an integral part of the financial statements.
18 SCUDDER CLASSIC GROWTH FUND
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Market
Shares Value ($)
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Oilfield Services/Equipment 1.3%
Schlumberger Ltd. .................................... 54,500 3,300,656
-----------
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Total Common Stocks (Cost $195,918,762) 243,878,013
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Total Investment Portfolio -- 100.0% (Cost $202,836,762) (a) 250,796,013
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* Non-income producing security.
(a) The cost for federal income tax purposes was $203,204,299. At October 31,
1999, net unrealized appreciation for all securities based on tax cost was
$47,591,714. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $50,447,640 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$2,855,926.
The accompanying notes are an integral part of the financial statements.
SCUDDER CLASSIC GROWTH FUND 19
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Financial Statements
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Statement of Assets and Liabilities as of October 31, 1999
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Assets
- --------------------------------------------------------------------------------
Investments, at market (identified cost $202,836,762) .......... $ 250,796,013
Receivable for Fund shares sold ................................ 422,614
Dividends and interest receivable .............................. 115,688
Deferred organization expenses ................................. 12,980
Other assets ................................................... 87
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Total assets ................................................... 251,347,382
Liabilities
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Due to custodian bank .......................................... 813
Payable for Fund shares redeemed ............................... 360,815
Accrued management fee ......................................... 86,750
Other payables and accrued expenses ............................ 525,386
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Total liabilities .............................................. 973,764
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Net assets, at market value $ 250,373,618
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Net Assets
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Net assets consist of:
Unrealized appreciation (depreciation) on investments .......... 47,959,251
Accumulated net realized gain (loss) ........................... 11,647,274
Paid-in capital ................................................ 190,767,093
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Net assets, at market value $ 250,373,618
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Net Asset Value
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Scudder Shares
Net asset value, offering and redemption price per share
($143,184,542 / 5,916,346 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares -------------
authorized) ................................................. $24.20
-------------
Class A Shares
Net asset value and redemption price per share ($62,624,202 /
2,577,236 outstanding shares of beneficial interest, -------------
$.01 par value, unlimited number of shares authorized) ...... $24.30
-------------
-------------
Maximum offering price per share (100 / 94.25 of $24.30) ....... $25.78
-------------
Class B Shares
Net asset value offering and redemption price (subject to
contingent deferred sales change) per share ($37,439,981 /
1,561,446 outstanding shares of beneficial interest, -------------
$.01 par value, unlimited number of shares authorized) ...... $23.98
-------------
Class C Shares
Net asset value offering and redemption price (subject to
contingent deferred sales change) per share ($7,124,893 /
297,185 outstanding shares of beneficial interest, -------------
$.01 par value, unlimited number of shares authorized) ...... $23.97
-------------
The accompanying notes are an integral part of the financial statements.
20 SCUDDER CLASSIC GROWTH FUND
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Statements of Operations
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<TABLE>
<CAPTION>
Two Months
Ended Year Ended
October 31, August 31,
Investment Income 1999 1999
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<S> <C> <C>
Income:
Dividends (net of foreign taxes withheld of $23 and
$26,929, respectively) .............................. $ 257,469 $ 1,623,231
Interest ............................................... 60,060 431,526
------------ ------------
317,529 2,054,757
Expenses:
Management fee ......................................... 268,928 1,307,022
Services to shareholders ............................... 240,776 1,454,320
Custodian and accounting fees .......................... 19,672 109,414
Distribution service fees .............................. 48,220 184,290
Administrative services fees ........................... 39,857 137,913
Trustees' fees and expenses ............................ 6,893 35,708
Auditing ............................................... 33,306 21,670
Registration fees ...................................... 20,374 128,855
Reports to shareholders ................................ 24,980 114,028
Legal .................................................. 2,013 13,482
Amortization of organization expense ................... 801 4,073
Other .................................................. 2,011 42,873
------------ ------------
Total expenses before reductions ....................... 707,831 3,553,648
Expense reductions ..................................... (96,752) (566,549)
------------ ------------
Expenses, net .......................................... 611,079 2,987,099
- ---------------------------------------------------------------------------------------
Net investment income (loss) (293,550) (932,342)
- ---------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investment transactions
- ---------------------------------------------------------------------------------------
Net realized gain (loss) from investments .............. 2,343,968 9,396,870
Net unrealized appreciation (depreciation) during the
period on investments ............................... 14,900,813 44,795,107
- ---------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 17,244,781 54,191,977
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ 16,951,231 $ 53,259,635
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
SCUDDER CLASSIC GROWTH FUND 21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Two Months
Ended
Increase (Decrease) in Net October 31, Years Ended August 31,
Assets 1999 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) ............ $ (293,550) $ (932,342) $ 16,867
Net realized gain (loss) on
investment transactions .............. 2,343,968 9,396,870 6,411,034
Net unrealized appreciation
(depreciation) on investment
transactions during the period ....... 14,900,813 44,795,107 (18,592,485)
------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ............ 16,951,231 53,259,635 (12,164,584)
------------- ------------- -------------
Distributions to shareholders from:
Net investment income -- Scudder Shares.. -- -- (134,261)
------------- ------------- -------------
Net realized gains -- Scudder Shares .... -- (4,994,696) (1,093,271)
Net realized gains -- Class A ........... -- (734,391) --
Net realized gains -- Class B ........... -- (597,986) --
Net realized gains -- Class C ........... -- (91,871) --
------------- ------------- -------------
Fund share transactions:
Proceeds from shares sold ............... 22,858,479 167,868,674 123,389,959
Net asset value of shares issued to
shareholders in reinvestment of
distributions ........................ -- 6,289,899 1,215,373
Cost of shares redeemed ................. (13,479,531) (114,518,626) (46,876,198)
------------- ------------- -------------
Net increase (decrease) in net assets
from Fund share transactions ......... 9,378,948 59,639,947 77,729,134
------------- ------------- -------------
Increase (decrease) in net assets ....... 26,330,179 106,480,638 64,337,018
Net assets at beginning of period ....... 224,043,439 117,562,801 53,225,783
------------- ------------- -------------
Net assets at end of period ............. $ 250,373,618 $ 224,043,439 $ 117,562,801
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22 SCUDDER CLASSIC GROWTH FUND
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Scudder Shares (b)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Periods ended October 31, 1999 1999(c) 1998(c) 1997(d)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $22.55 $16.61 $17.38 $12.00
----------------------------------------
Income from investment operations:
Net investment income (loss) (.03) (.10) .01 .06
Net realized and unrealized gain (loss) on investment
transactions 1.68 6.85 (.45) 5.36
----------------------------------------
Total from investment operations 1.65 6.75 (.44) 5.42
Less distributions from:
Net investment income -- -- (.04) (.04)
Net realized gains on investment transactions -- (.81) (.29) --
----------------------------------------
Total distributions -- (.81) (.33) (.04)
Net asset value, end of period $24.20 $22.55 $16.61 $17.38
========================================
Total Return (%) (e) 7.36** 41.06 (2.72) 45.20**
Ratios and Supplemental Data
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 143.2 133.3 103.5 53.2
Ratio of operating expenses, net, to average daily net
assets (%) 1.53* 1.59 1.30 1.25*
Ratio of operating expenses before expense reductions,
to average daily net assets (%) 1.78* 1.84 1.61 2.25*
Ratio of net investment income (loss) to average daily
net assets (%) (.71)* (.48) .03 .43*
Portfolio turnover rate (%) 58* 68 49 27*
</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) For the year ended August 31.
(d) For the period September 9, 1996 (commencement of operations) to August
31, 1997.
(e) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
SCUDDER CLASSIC GROWTH FUND 23
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
October 31, 1999
A. Significant Accounting Policies
Classic Growth Fund (the "Fund") is a diversified series of Investment Trust
(the "Trust") which is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company organized
as a Massachusetts business trust.
On August 10, 1999, the Fund changed its fiscal year end for financial reporting
and federal income tax purposes to October 31 from August 31.
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
offered to investors subject to an initial sales charge. Class B shares are
offered without an initial sales charge but are subject to higher ongoing
expenses than Class A 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 offered without an initial sales charge
but are subject to higher ongoing expenses than Class A 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. Certain detailed financial information for
the Class A, B, and C shares is provided separately and is available upon
request.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears certain expenses unique to that class such as distribution
services, shareholder services, administrative services and certain other class
specific expenses. Differences in class expenses may result in payment of
different per share dividends by class. All shares of the Fund have equal rights
with respect to voting subject to class specific arrangements.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
24 SCUDDER CLASSIC GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sale price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Trust, whose
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
SCUDDER CLASSIC GROWTH FUND 25
<PAGE>
- --------------------------------------------------------------------------------
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
All discounts are accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
For the two months ended October 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $28,998,266 and
$21,732,018, respectively. During the year ended August 31, 1999, purchases and
sales of investment securities (excluding short-term investments) aggregated
$178,602,008 and $121,482,661, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser") the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.70% of the Fund's
average daily net assets, computed and accrued daily and payable monthly.
Effective April 16, 1998, the Adviser has agreed to waive .25% of its management
fee until December 31, 1999. For the two months ended October 31, 1999, the
Adviser did not impose a portion of its
26 SCUDDER CLASSIC GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
management fee amounting to $96,046, and the fee imposed amounted to $172,882,
of which $86,750 is unpaid at October 31, 1999. For the year ended August 31,
1999, the Adviser did not impose a portion of its management fee amounting to
$466,794, and the fee imposed amounted to $840,228.
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 0.75% 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 two months ended October 31, 1999, the Distribution Fee was as
follows:
Unpaid at
Total October 31,
Distribution Fee Aggregated 1999
- --------------------------------------------------------------------------------
Class B .................................. $ 40,572 $ 28,916
Class C .................................. 7,648 10,513
-------------- --------------
$ 48,220 $ 39,429
-------------- --------------
For the year ended August 31, 1999, the Distribution Fee was as follows:
Total Fees Waived by
Distribution Fee Aggregated KDI
- --------------------------------------------------------------------------------
Class B .................................. $ 158,298 $ --
Class C .................................. 25,992 10,314
-------------- --------------
$ 184,290 $ 10,314
-------------- --------------
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 two months ended
October 31, 1999 aggregated $19,655, of which $9,466 was paid to other firms.
Underwriting commissions paid in connection with the distribution of Class A
shares for the year ended August 31, 1999 aggregated $514,882, of which $475,896
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.
SCUDDER CLASSIC GROWTH FUND 27
<PAGE>
- --------------------------------------------------------------------------------
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 two months ended October 31, 1999, the CDSC for Classes B and C aggregated
$10,506 and $49, respectively. For the year ended August 31, 1999, the CDSC for
Classes B and C aggregated $72,290 and $2,116, respectively.
Administrative Service Fees. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to 0.25% 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 two months
ended October 31, 1999, the Administrative Services Fee was as follows:
Unpaid at
Total October 31,
Administrative Service Fee Aggregated 1999
- --------------------------------------------------------------------------------
Class A .................................... $ 23,784 $ 18,107
Class B .................................... 13,524 2,117
Class C .................................... 2,549 1,060
-------------- --------------
$ 39,857 $ 21,284
-------------- --------------
For the year ended August 31, 1999, the Administrative Services Fee was as
follows:
Total Fees Waived by
Administrative Service Fee Aggregated KDI
- --------------------------------------------------------------------------------
Class A .................................... $ 76,483 $ 49,784
Class B .................................... 52,766 30,993
Class C .................................... 8,664 8,664
-------------- --------------
$ 137,913 $ 89,441
-------------- --------------
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 two months ended October 31, 1999, the
amount charged to Classes A, B and C by KSC aggregated $27,727, $25,982, and
$10,244, respectively, of which $55,125 is unpaid at October 31, 1999. Scudder
Service Corporation ("SSC"), a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Scudder Shares. For the
two months ended October 31, 1999 the amount charged to
28 SCUDDER CLASSIC GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
the Scudder Shares by SSC for shareholder services aggregated $40,842, all of
which is unpaid at October 31, 1999. For the year ended August 31, 1999, the
amount charged to Classes A, B and C by KSC aggregated $109,888, $84,916, and
$30,807, respectively. For the year ended August 31, 1999 the amount charged to
the Scudder Shares by SSC for shareholder services aggregated $285,028.
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 two months ended October 31, 1999, the Special Servicing Agreement
expense charged to the Scudder Shares amounted to $107,735, $147,907 of which is
unpaid at October 31, 1999. For the year ended August 31, 1999, the Special
Servicing Agreement expense charged to the Scudder Shares amounted to $742,760.
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 two
months ended October 31, 1999, the amount charged to the Scudder Shares by STC
aggregated $12,256, all of which is unpaid at October 31, 1999. For the year
ended August 31, 1999, the amount charged to the Scudder Shares by STC
aggregated $58,712.
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 two months ended Octobert 31, 1999, the amount charged to the Fund by
SFAC aggregated $17,040, all of which is unpaid at October 31, 1999. For the
year ended August 31, 1999, the amount charged to the Fund by SFAC aggregated
$99,733.
Trustees Fees. The Trust pays each of its Trustees not affiliated with the
Adviser an annual retainer plus specified amounts for attended board and
committee meetings. For the two months ended October 31, 1999, the
SCUDDER CLASSIC GROWTH FUND 29
<PAGE>
- --------------------------------------------------------------------------------
Trustees fees and expenses aggregated $6,893. For the year ended August 31,
1999, the Trustees fees and expenses aggregated $35,708.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the period, the Fund's custodian
and transfer agent fees were reduced by $3 and $703, respectively under these
arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $850 million
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement.
30 SCUDDER CLASSIC GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
F. Share Transactions
The following tables summarizes shares of beneficial interest and dollar
activity in the Fund:
<TABLE>
<CAPTION>
Two Months Ended Year Ended
October 31, 1999 August 31, 1999
----------------------------- -----------------------------
Shares Dollars Shares Dollars
Shares sold
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Shares ..... 191,253 $ 4,368,502 1,767,053 $ 36,814,454
Class A ............ 467,676 10,792,550 4,181,810 89,719,684
Class B ............ 282,287 6,387,191 1,703,242 35,213,582
Class C ............ 57,839 1,310,236 290,638 6,120,954
------------ ------------ ------------ ------------
999,055 $ 22,858,479 7,942,743 $167,868,674
------------ ------------ ------------ ------------
<CAPTION>
Shares issued to shareholders in reinvestment of distributions
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Shares ..... -- -- 241,446 $ 4,918,255
Class A ............ -- -- 34,363 700,664
Class B ............ -- -- 28,770 583,153
Class C ............ -- -- 4,331 87,827
------------ ------------ ------------ ------------
-- -- 308,910 $ 6,289,899
------------ ------------ ------------ ------------
<CAPTION>
Shares redeemed
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Shares ..... (186,095) $ (4,242,573) (2,330,780) $ (48,909,586)
Class A ............ (307,088) (7,090,317) (2,232,659) (48,175,880)
Class B ............ (83,158) (1,889,264) (727,039) (15,294,433)
Class C ............ (11,341) (257,377) (99,616) (2,138,727)
------------ ------------ ------------ -------------
(587,682) $(13,479,531) (5,390,094) $(114,518,626)
------------ ------------ ------------ -------------
<CAPTION>
Net increase (decrease)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Shares ..... 5,158 $ 125,929 (322,281) $ (7,176,877)
Class A ............ 160,588 3,702,233 1,983,514 42,244,468
Class B ............ 199,129 4,497,927 1,004,973 20,502,302
Class C ............ 46,498 1,052,859 195,353 4,070,054
------------ ------------ ------------ ------------
411,373 $ 9,378,948 2,861,559 $ 59,639,947
------------ ------------ ------------ ------------
</TABLE>
SCUDDER CLASSIC GROWTH FUND 31
<PAGE>
- --------------------------------------------------------------------------------
Period Ended
August 31, 1998
------------------------------------
Shares Dollars
Shares sold
- -------------------------------------------------------------------------------
Scudder Shares ................... 5,261,810 $ 100,865,048
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
-------------- --------------
Shares issued to shareholders in reinvestment of distributions
- -------------------------------------------------------------------------------
Scudder Shares ................... 70,172 $ 1,215,373
Class A .......................... -- --
Class B .......................... -- --
Class C .......................... -- --
-------------- --------------
70,172 $ 1,215,373
-------------- --------------
Shares redeemed
- -------------------------------------------------------------------------------
Scudder Shares ................... (2,160,627) $ (40,949,391)
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)
-------------- --------------
Net increase (decrease)
- -------------------------------------------------------------------------------
Scudder Shares ................... 3,171,355 $ 61,131,030
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
-------------- --------------
32 SCUDDER CLASSIC GROWTH FUND
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of Investment Trust and to the Scudder Shares 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 Scudder Shares financial highlights present
fairly, in all material respects, the financial position of Classic Growth Fund
(formerly Scudder Classic Growth Fund) (the "Fund") at October 31, 1999, the
results of its operations, the changes in its net assets, and the Scudder Shares
financial highlights for the periods indicated therein, in conformity with
generally accepted accounting principles. These financial statements and Scudder
Shares financial highlights (hereafter referred to as "financial statements")
are the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 10, 1999
SCUDDER CLASSIC GROWTH FUND 33
<PAGE>
Tax Information (Unaudited)
- --------------------------------------------------------------------------------
October 31, 1999
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$2,500,000 as capital gain dividends for its year ended October 31, 1999, of
which 100% 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.
34 SCUDDER CLASSIC GROWTH FUND
<PAGE>
Officers and Directors
- --------------------------------------------------------------------------------
Lynn S. Birdsong*
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President and General Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
o Trustee; President, Driscoll Associates; Executive Fellow, Center for
Business Ethics, Bentley College
Peter B. Freeman
o Trustee; Corporate Director and Trustee
George M. Lovejoy, Jr.
o Trustee; President and Director, Fifty Associates
Wesley W. Marple, Jr.
o Trustee; Professor of Business Administration, Northeastern University,
College of Business Administration
Kathryn L. Quirk*
o Trustee, Vice President and Assistant Secretary
Jean C. Tempel
o Trustee; Venture Partner,
Internet Capital Group
Bruce F. Beaty*
o Vice President
Jennifer P. Carter*
o Vice President
Philip S. Fortuna*
o Vice President
William F. Gadsden*
o Vice President
Valerie F. Malter*
o Vice President
Ann M. McCreary*
o Vice President
John Millette*
o Vice President and Secretary
John R. Hebble*
o Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
SCUDDER CLASSIC GROWTH FUND 35
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
The Scudder Family of Funds[
- --------------------------------------------------------------------------------
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market
Series -- Managed Shares*
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market
Series -- Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term
Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
U.S. Income
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
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 Select 1000 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 Heath Care Fund
Scudder Technology Fund
Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
36 SCUDDER CLASSIC GROWTH FUND
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**[[
Scudder Horizon Advantage**[[[
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.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
[ Funds within categories are listed in order from expected least risk to
most risk. Certain Scudder funds or classes thereof may not be available
for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to federal,
state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family of
Funds.
++ Only the International Shares of the fund are part of the Scudder Family
of Funds.
[[ A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance
agencies, 1-800-225-2470.
[[[ A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by
Scudder's insurance agencies, 1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are traded on
the New York Stock Exchange and, in some cases, on various other stock
exchanges.
SCUDDER CLASSIC GROWTH FUND 37
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and reliably A convenient investment program in which money is
electronically debited from your bank account
monthly to regularly purchase fund shares and
"dollar cost average" -- buy more shares when the
fund's price is lower and fewer when it's higher,
which can reduce your average purchase price over
time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to
purchase shares -- use distributions from one
Scudder fund to purchase shares in another,
automatically (accounts with identical
registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares
electronically, avoiding potential mailing delays;
money for each of your transactions is
electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even
government checks -- invested in up to four
Scudder funds at one time.
* Dollar cost averaging involves continuous
investment in securities regardless of price
fluctuations and does not assure a profit or
protect against loss in declining markets.
Investors should consider their ability to
continue such a plan through periods of low
price levels.
Around-the- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to
information, exchange or redeem shares, and information on
including some other Scudder funds and services via touchtone
transactions telephone.
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account
information and transactions, interactive
worksheets, prospectuses and applications for all
Scudder funds, plus your current asset allocation,
whenever your need them. Scudder's site also
provides news about Scudder funds, retirement
planning information, and more.
38 SCUDDER CLASSIC GROWTH FUND
<PAGE>
Retirees and Automatic Withdrawal Plan
those who
depend on You designate the bank account, determine
investment the schedule (as frequently as once a month)
proceeds for and amount of the redemptions, and Scudder
living expenses does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions
automated into the bank account you designate within three
withdrawal business days after each distribution is paid.
programs
QuickSell
Provides speedy access to your money by
electronically crediting your redemption proceeds
to the bank account you previously designated.
For more Call a Scudder representative at
information 1-800-SCUDDER
about these
services Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
SCUDDER CLASSIC GROWTH FUND 39
<PAGE>
SCUDDER
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most
experienced investment management organizations worldwide, managing more
than $290 billion in assets globally for mutual fund investors, retirement
and pension plans, institutional and corporate clients, insurance
companies, and private family and individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity,
and client-focused service. In 1997, Scudder, Stevens & Clark, Inc.,
founded over 80 years ago as one of the nation's first investment counsel
organizations, joined the Zurich Financial Services Group. As a result,
Zurich's subsidiary, Zurich Kemper Investments, Inc., with 50 years of
mutual fund and investment management experience, was combined with
Scudder. Headquartered in New York, Scudder Kemper Investments offers a
full range of investment counsel and asset management capabilities, based
on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world
to meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a
member of the Zurich Financial Services Group. The Zurich Financial
Services Group is an internationally recognized leader in financial
services, including property/casualty and life insurance, reinsurance, and
asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
<PAGE>
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
Seeks the long-term growth of capital with reduced share price volatility
compared to other growth mutual funds. Kemper Classic Growth Fund is properly
known as Classic Growth Fund.
KEMPER CLASSIC
GROWTH FUND
"...During the fiscal year, the stock market
delivered plenty of ups and downs.
Overall, however, it was a strong year for
high-quality, large-cap growth stocks. ..."
[KEMPER FUNDS LOGO]
<PAGE>
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
10
INDUSTRY SECTORS
11
LARGEST HOLDINGS
12
PORTFOLIO OF INVESTMENTS
15
FINANCIAL STATEMENTS
18
FINANCIAL HIGHLIGHTS
20
NOTES TO FINANCIAL STATEMENTS
27
REPORT OF INDEPENDENT AUDITORS
At A GLANCE
KEMPER CLASSIC GROWTH FUND TOTAL RETURNS
FOR THE YEAR ENDED OCTOBER 31, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH KEMPER CLASSIC GROWTH LIPPER GROWTH FUNDS
KEMPER CLASSIC GROWTH FUND CLASS A FUND CLASS B FUND CLASS C CATEGORY AVERAGE*
- ---------------------------------- --------------------- --------------------- -------------------
<S> <C> <C> <C>
32.53 31.36 31.30 26.11
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/99 10/31/98
.........................................................
<S> <C> <C>
KEMPER CLASSIC GROWTH FUND
CLASS A $24.30 $19.06
.........................................................
KEMPER CLASSIC GROWTH FUND
CLASS B $23.98 $18.98
.........................................................
KEMPER CLASSIC GROWTH FUND
CLASS C $23.97 $18.98
.........................................................
</TABLE>
KEMPER CLASSIC GROWTH FUND RANKINGS
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
.........................................................
<S> <C> <C> <C>
1-YEAR #43 of #54 of #56 of
364 funds 364 funds 364 funds
.........................................................
</TABLE>
*LIPPER ANALYTICAL SERVICES, INC. RANKINGS ARE BASED UPON CHANGES IN NET ASSET
VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES
CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
DIVIDEND REVIEW
DURING THE YEAR ENDED OCTOBER 31, 1999, KEMPER CLASSIC GROWTH FUND PAID THE
FOLLOWING DIVIDENDS:
<TABLE>
<CAPTION>
LONG-TERM SHORT-TERM
CAPITAL GAIN CAPITAL GAIN
...........................................................
<S> <C> <C>
KEMPER CLASSIC GROWTH
FUND CLASS A $0.68 $.125
...........................................................
KEMPER CLASSIC GROWTH
FUND CLASS B $0.68 $.125
...........................................................
KEMPER CLASSIC GROWTH
FUND CLASS C $0.68 $.125
...........................................................
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL. (312)
BOX] 696-6000. The Morningstar Style Box placement is
based on two variables: a fund's market
capitalization relative to the movements of the
market and a fund's valuation, which is
calculated by comparing the stocks in the fund's
portfolio with the most relevant of the three
market-cap groups.
THE STYLEBOX REPRESENTS A SNAPSHOT OF THE FUND'S
PORTFOLIO ON A SINGLE DAY. IT IS NOT AN EXACT
ASSESSMENT OF RISK AND DOES NOT REPRESENT FUTURE
PERFORMANCE. THE FUND'S PORTFOLIO CHANGES FROM
DAY TO DAY. A LONGER-TERM VIEW IS REPRESENTED BY
THE FUND'S MORNINGSTAR CATEGORY, WHICH IS BASED
ON ITS ACTUAL INVESTMENT STYLE AS MEASURED BY ITS
UNDERLYING PORTFOLIO HOLDINGS OVER THE PAST THREE
YEARS. CATEGORY PLACEMENTS OF NEW FUNDS ARE
ESTIMATED. MORNINGSTAR HAS PLACED KEMPER CLASSIC
GROWTH FUND IN THE LARGE BLEND CATEGORY. PLEASE
CONSULT THE PROSPECTUS FOR A DESCRIPTION OF
INVESTMENT POLICIES.
</TABLE>
BALANCE SHEET A condensed financial statement showing what a company owns, what
it owes and the ownership interest in the company of its stockholders, at a
certain time.
CYCLICAL STOCKS Cyclical stocks carry a higher degree of economic sensitivity.
In accelerating economies, cyclical stocks tend to rise quickly. In decelerating
economies, cyclicals tend to decline quickly. Cyclical stocks include industrial
machinery, paper and forestry, automobiles and construction.
GROWTH STOCK Growth stocks are shares in companies that are expected to
experience rapid growth resulting from strong sales, talented management and
dominant market position. Because these stocks are typically in demand, they
tend to carry relatively high price tags and can also be volatile, based on
changing perceptions of the companies' growth.
INITIAL PUBLIC OFFERING (IPO) The first launch of a company's publicly traded
stock. IPOs often involve a relatively small quantity of shares. When paired
with fluctuating demand, the small quantity of shares can contribute to
increased volatility.
<PAGE>
ECONOMIC OVERVIEW
Scudder Kemper Investments, the investment manager for Kemper Funds, is one of
the largest and most experienced investment management organizations in the
world, managing more than $290 billion in assets for institutional and corporate
clients, retirement and pension plans, insurance companies, mutual fund
investors and individuals. 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.
DEAR KEMPER FUNDS SHAREHOLDER:
Markets have been aquiver about inflation risks. Growth in the United States
continues to exceed most expectations. Labor markets are visibly tight. These
are the precursors to inflation -- everybody knows it.
Everybody except us, that is. We don't buy it in principle, and reality is
proving our theory correct.
First, let's look at growth. The traditional economic view is that growth
causes inflation. Today, we're seeing exactly the opposite: Low inflation is
causing growth. Low inflation keeps interest rates down, and low interest rates
spur investment by making borrowing money cheap. Investment allows companies to
add capacity, keeping competition fierce. As a result, companies aren't raising
prices; they're competing for business by keeping goods attractive and prices
low. That's true for the old economy, in which consumers were buying t-shirts,
and the new economy, in which consumers are buying Internet services. Everywhere
they look, consumers see bargains -- in the malls, in the auto showrooms, at the
mortgage companies.
As for tight labor markets, the traditional economic view is that tight
labor -- i.e., many "help-wanted" signs -- forces companies to pay a premium for
talent. That, in turn, forces companies to raise their prices in order to
protect their profits. And raising prices results in inflation. In contrast, we
believe that tight labor markets won't cause wages to surge. Why?
To start with, temporary agencies have proliferated, accounting for 2.2
percent of jobs, up from 0.5 percent in the early 1980s. They get just the right
amount and type of labor to the right spot at the right time to get the job
done.
Immigration also keeps a lid on wage rates, since it replenishes the work
force much faster than births. Immigration is at its highest level ever; an
amazing 10 percent of the population is foreign-born. Nearly 1 million people
enter the United States legally each year, and another 300,000 just show up.
When they get here, they look for jobs. And often, they're willing to accept
lower-paying jobs than the average citizen.
Finally, and perhaps most importantly, wage rates are kept in check by
executives' intense profit focus. Payroll is a company's biggest expense. When
payroll skyrockets, profits decline -- and that would be bad for a CEO who
promised Wall Street double-digit earnings growth from now to the end of time.
If investors are disappointed in earnings growth, they sell their stock. And
when they sell their stock, the stock options that are an essential part of many
executives' compensation are as valuable as scrap paper.
Supporting our theory are two distinct and important sets of data released
in late October: The Bureau of Economic Analysis released its third-quarter
estimate of gross domestic product (GDP), the value of all goods and services
produced in the United States, and the Bureau of Labor Statistics released its
employment cost index (ECI), which measures what employers pay for their
workers' wages, salaries and benefits.
GDP grew at a 4.8 percent rate in the third quarter, up sharply from the
revised 1.9 percent second-quarter pace and just slightly above the consensus
estimate of 4.7 percent.
At the same time, however, the ECI rose by 0.8 percent in the July-September
period, down from a 1.1 percent increase in the second quarter. The
third-quarter gain also was lower than the 0.9 percent increase forecast by
economists in a Reuters poll. (The report, by the way, is said to be one of the
favorites of Federal Reserve Chairman Alan Greenspan, who uses it as a key
indicator of inflation pressures in the world's largest economy.)
In essence, then, the U.S. economy posted its strongest growth so far this
year in the third quarter, while wage costs remained tame. The combination of
strong consumer demand and the lowest unemployment in a generation just isn't
igniting wage-driven inflation.
Nevertheless, the Federal Reserve Board raised the federal funds rate and
the discount rate by one quarter of a point (0.25%) each at its Nov. 16 meeting.
Do we think the Fed made a bad decision? Actually, no.
First, the Fed has to guard against the possibility that the old
relationship between growth and inflation will soon reassert itself. Even if the
Fed shared our belief that
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>
NOW (11/30/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 6.00 5.50 4.80 5.90
Prime rate(2) 8.50 7.75 8.00 8.50
Inflation rate(3)* 2.60 2.30 1.50 2.00
The U.S. dollar(4) -0.7 -0.9 1.20 9.40
Capital goods orders(5)* 12.60 2.50 -0.6 6.40
Industrial production(5)* 3.30 2.90 3.50 6.90
Employment growth(6)* 2.10 2.10 2.30 2.70
</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 10/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
strong consumer demand and low unemployment isn't igniting wage-driven
inflation, the organization wouldn't be doing its job if it didn't act in the
face of any possibility that inflation might reassert itself.
More important, the Fed has to be concerned about the explosion in credit
we've seen during the last year. Almost everyone but Uncle Sam has been loading
up on debt. Companies have borrowed heavily to fund mergers, share buybacks and
new investments. Homeowners have taken out bigger mortgages on their houses and
new home equity loans. Equity shareholders have ramped up their margin debt.
Financial institutions have issued record amounts of new paper to fund their
aggressive growth. The Fed's decision to raise interest rates, thereby making
borrowing costlier, should take the frenzy out of this borrowing binge. That is
a good thing for future financial stability.
Indeed, the early positive market reaction to the Fed's move suggests that
the markets share our views that the Fed made the right decision.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
The information contained in this piece has been taken from sources believed to
be reliable, but the accuracy of the information is not guaranteed. the opinions
and forecasts expressed are those of the economic advisors of Scudder Kemper
Investments, Inc. as of November 18, 1999, and may not actually come to pass.
this information is subject to change. no part of this material is intended as
an investment recommendation.
To obtain a Kemper Funds prospectus, download one from www.kemper.com, talk to
your financial representative or call Shareholder Services at (800) 621-1048.
The prospectus contains more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.
4
<PAGE>
PERFORMANCE UPDATE
KEMPER CLASSIC GROWTH FUND HAS CHANGED ITS FISCAL
YEAR END TO OCTOBER 31, FROM AUGUST 31. IN THIS
REPORT, CO-LEAD PORTFOLIO MANAGERS WILLIAM GADSDEN
AND BRUCE BEATY DISCUSS THE MARKET CLIMATE AND THE
FUND'S PERFORMANCE DURING THE ONE-YEAR PERIOD
ENDING OCTOBER 31, 1999. THEY ALSO EXPLAIN HOW THEY
SELECT STOCKS USING A "GROWTH-AT-A-REASONABLE-
PRICE" INVESTMENT STRATEGY.
[GADSDEN PHOTO]
CO-LEAD PORTFOLIO MANAGER WILLIAM F. GADSDEN JOINED SCUDDER KEMPER INVESTMENTS,
INC. IN 1983 AND HAS MORE THAN 15 YEARS OF INVESTMENT INDUSTRY EXPERIENCE.
[BEATY PHOTO]
CO-LEAD PORTFOLIO MANAGER BRUCE F. BEATY JOINED THE ORGANIZATION IN 1991 AND HAS
MORE THAN 16 YEARS OF INVESTMENT INDUSTRY EXPERIENCE. GADSDEN AND BEATY HAVE
MANAGED THE FUND SINCE ITS INCEPTION IN 1996.
THE TEAM IS SUPPORTED BY SCUDDER KEMPER INVESTMENT'S LARGE STAFF OF ANALYSTS,
RESEARCHERS, TRADERS, ECONOMISTS AND OTHER INVESTMENT PROFESSIONALS.
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.
Q FOR THE ONE-YEAR PERIOD ENDING OCTOBER 31, 1999, KEMPER CLASSIC GROWTH
FUND EARNED 32.53% (CLASS A SHARES, UNADJUSTED FOR ANY SALES CHARGES.) PLEASE
PUT THIS GAIN INTO PERSPECTIVE FOR US.
A We're very pleased with Kemper Classic Growth Fund's performance. The
fund outpaced the Standard & Poor's 500 Index's (S&P 500) gain of 25.66%.
This index comprises 500 large-cap growth and value stocks and is often cited as
a gauge of the overall market.) For the one-year period, the fund
(Class A shares) also topped the Lipper Large-Cap Core Funds Category average of
26.11%.
Keep in mind that over the long term, equities have historically earned less
impressive gains than those earned by the fund and its benchmarks during this
past fiscal year. For instance, for the past 30 calendar years, the S&P 500
earned an average of 12.65%.
Even in good times like these, we encourage investors to maintain a long-term
perspective and to remember that a single year's performance figure doesn't tell
the whole story.
Q BILL AND BRUCE, BEFORE YOU DISCUSS THE FUND'S PERFORMANCE IN GREATER
DETAIL, COULD YOU WALK US THROUGH THE KEY EVENTS AND THEMES THAT SHAPED THE
MARKETS DURING THE ANNUAL PERIOD?
A During the fiscal year, the stock market delivered plenty of ups and
downs. Overall, however, it was a strong year for high-quality, large-cap growth
stocks.
A GLOBAL FINANCIAL CRISIS UNWINDS When the fiscal year began on October 1,
1998, the market was coming back from one of the worst months in its history. As
you may recall, in August 1998, Russia defaulted on its debt. This default sent
the global stock and bond markets tumbling. The crisis climate was further
exacerbated by concerns about weakness in other emerging markets as well as by
the misadventures of a large hedge fund. Against this backdrop, a liquidity and
monetary crisis unfolded.
However, the Federal Reserve responded aggressively, and promptly reduced
interest rates. Many other countries followed the Federal Reserve's lead and cut
rates as well. These speedy and unified actions restored investor confidence and
improved the liquidity of the market. Stocks roared back, and the economy
percolated on a stronger-than-expected track. Consumer confidence was high,
unemployment was low, and corporate profits remained sound.
TECHNOLOGY STOCKS DRIVE A STILL-NARROW MARKET However, even after the autumn
rebound, the domestic market remained narrow. By narrow, we mean that only a few
stocks contributed most of the positive returns. Generally, the successful
stocks fell into two groups: mega-cap domestic-growth stocks and technology
stocks.
5
<PAGE>
PERFORMANCE UPDATE
While a climate of high consumer confidence benefited media and retail stocks,
excitement about the Internet played the most significant role in shaping the
market in the fourth quarter. Along with more established, large-cap, quality
technology stocks, investors welcomed Internet IPOs (See Terms To Know), with
heady enthusiasm. Fuelled by market emotion, many untested ".com" stocks traded
at seemingly high valuations.
EMOTION GIVES WAY TO A MORE RATIONAL CLIMATE The market began to broaden out
in early- and mid-1999. Investors began paying more attention to fundamentals
and became more discriminating. There was less willingness to pay ANY price for
growth. The market began to react to the possibility of an overheating economy.
In April and May, cyclically-oriented (See Terms To Know) and smaller-cap stocks
began to return to favor. Less glamorous -- but fundamentally strong
manufacturing and capital-goods stocks -- began to steal some of the limelight
away from untested Internet stocks. However, many quality technology stocks
continued to perform robustly, although they too gave up some ground.
THE FED MOVES AGAIN During the second half of the fiscal year, the Federal
Reserve stepped in again, raising interest rates in June and August. These
increases served as a preemptive move to prevent the economy from accelerating
too quickly into an inflationary climate. Growth stocks, notably technology,
soared ahead during the final weeks of the fiscal year, as many cyclical stocks
gave up steam.
Q HOW DO YOU SELECT STOCKS?
A Kemper Classic Growth Fund pursues long-term growth of capital, with
reduced share-price volatility compared to other growth-stock funds. To do this,
we follow a growth-at-a-reasonable-price (GARP) investment strategy. Our
investment process targets high-quality, large-cap growth stocks. We seek
established companies with strong competitive positions, stable and consistent
earnings-growth prospects, excellent balance sheets (See Terms To Know) and
strong management.
Outstanding fundamentals and growth potential are only a part of what we need,
however. Our analysis must indicate that the stock is "reasonably valued," or in
other words, trading at an attractive price.
We sell stocks when we see indications of deteriorating fundamentals or
slowing earnings growth. Also, in keeping with our price-conscious philosophy,
we reduce positions when valuations become stretched.
Q PLEASE PROVIDE US WITH SOME EXAMPLES OF YOUR STOCK-SELECTION PROCESS IN
ACTION.
A Our independent research led us to Corning, traditionally thought of as a
manufacturing company. But, there's more to Corning than meets the eye. Corning
has carved out an exciting -- and profitable -- niche for itself as a premier
provider of high-capacity optic fiber. Due to the increase in high-density data
traffic, there's a significant demand for Corning's product. So, this
"manufacturing" company is actually providing a high-tech solution for Internet
and network expansion. It's a clear leader in its market segment and well
positioned in terms of patent protection. Far from a pricey, trendy tech stock,
Corning is very cheap given its growth rate.
Pepsi also typifies our GARP discipline in action. Historically, Pepsi was
punished for its overly complex business model, which included operations in
restaurants, beverages, snacks and bottling. The fundamental picture has begun
to improve. Pepsi's management recently spun off its restaurant and bottling
divisions. Pepsi has emerged as a slimmed-down, focused company with a
more-dependable earnings outlook. And, the price was right: We purchased the
stock at a below-market multiple.
McDonald's Corp., a relatively recent addition to the portfolio, is another
example of a stock that satisfies our GARP criteria. As emerging markets in
Latin America and Asia stabilize, McDonald's has an edge over the majority of
its potential rivals. Indeed, the McDonald's name is one of the most recognized
across the globe. Relative to the growth rate of the overall market, the stock
offers higher forecasted growth. Our analysis also indicates a favorable
probability of upward earnings revisions. Given the fundamentals and earnings-
growth potential, we believe that we've captured an excellent, reasonably priced
opportunity.
Q WHAT WORKED OUT PARTICULARLY WELL FOR THE FUND?
A Several of our largest technology stocks generated outstanding returns.
While we're steering clear of many of the untested and highly combustible ".com"
stocks, we're still participating in the growth of the Internet and electronic
commerce. For instance, the fund benefited from exposure to established, quality
companies that are creating the Internet's infrastructure. Top-performing
holdings included Sun Microsystems, a
6
<PAGE>
PERFORMANCE UPDATE
dominant provider of network servers, semiconductor and
semiconductor-capital-equipment leaders Intel and Applied Materials, and network
superstar Cisco Systems.
We also reaped very good returns from companies involved in
communications-oriented technology, such as MCI WorldCom and Nokia. MCI WorldCom
continues to execute a well-thought-out global business plan, thanks to logical
acquisitions and innovative management. MCI WorldCom is also an Internet
beneficiary: By building out global long-distance and data services, MCI
WorldCom contributes to the Internet's required infrastructure.
While most of our holdings are based in the U.S., we've found some compelling
opportunities in foreign-based companies, such as Finnish telecommunications
giant Nokia. (Keep in mind, though, that many of our U.S. companies are key
players in the global marketplace, a trend that blurs the line between
traditional definitions of domestic and international exposure.) Nokia has
established itself as a leading, growing presence in digital cellular networks
and telecommunications systems. The applications for their products are
extensive, and the stock has delivered nice earnings for a reasonable price.
Our conviction in media stocks also contributed positively to performance. For
example, AT&T - Liberty Media, a well-diversified media company, posted
top-notch returns during the annual period. Similar to MCI WorldCom, this
company has participated in prudent consolidation trends. By agreeing to merge
into AT&T as a wholly owned subsidiary, the company has enhanced its strategic
positioning and cash flow. AT&T - Liberty Media again demonstrates that exposure
to the Internet's growth can come in a variety of ways: In addition to offering
media, cable and television programming, the company also offers attractive
bandwidth.
Relative to our benchmarks, an underweighting in consumer staples helped
performance. Many global consumer-staples stocks carry considerable exposure to
emerging markets. As emerging economies faltered, these stocks faced a less
hospitable climate. And, although there are signs that demand from emerging
markets is picking up, many of these companies haven't yet turned the corner.
In more general terms, our rededication to our growth discipline benefited
performance. We recognize that our shareholders select Kemper Classic Growth
Fund to pursue long-term capital growth. As portfolio managers, we evaluate the
portfolio on an ongoing basis to make sure that we're on track, and look for
ways to improve the execution of our strategy. During the fiscal year, we sought
ways to enhance the portfolios' growth orientation, consistent with its charter.
This fine-tuning served the fund well, and returns firmed up nicely.
Q WHAT HELD THE FUND BACK DURING THE ANNUAL PERIOD?
A Exposure to companies with poorly executed acquisition strategies clipped
the fund's returns. Growth through acquisition has been a difficult business,
and the market has little tolerance for companies that misstep. Funeral-services
operator Service Corp. International proved particularly disappointing. A leader
in its market segment with a long-running history of earnings growth, Service
International suffered as a result of overly costly acquisition plans.
HEALTHSOUTH and Waste Management also eroded their earnings-growth potential by
failing to appropriately manage expensive acquisitions. Similarly, an imprudent
acquisition strategy was a key factor in Rite-Aid's downward slide. These
mishaps signaled a lack of management control, as well as a decline in company
fundamentals and earnings-growth potential. Consequently, we have eliminated all
of these stocks from the portfolio.
Financial-services stocks also hindered performance. Stocks in this sector had
a difficult time during the annual period. First, many languished in the
aftermath of the Russian debt default. Then, in 1999's rising-rate environment,
financial-service stocks once again found themselves behind the barrel.
In relative terms, our active omission of some of the market's leaders slowed
the fund's pace. For instance, at the start of the fiscal year, the fund did not
own Microsoft or Lucent Technologies. Initially, our analytical process didn't
correctly recognize and reward these companies' potential for upward earnings
surprises. We've rectified that, and now own both stocks. In each case, however,
we did not stray from our GARP discipline. We instead reexamined the stocks and
determined that given their high growth prospects, each was, in fact,
attractively priced.
Q TELL US HOW YOU'VE POSITIONED THE PORTFOLIO. WHAT TYPES OF STOCKS ARE YOU
FAVORING?
A To preface, keep in mind that we're bottom-up stock pickers. That means
we don't decide to invest a certain amount in a
7
<PAGE>
PERFORMANCE UPDATE
particular sector and then select the stocks. Instead, the fund's overall sector
weightings are the outcome of many individual decisions. That said, we'd be glad
to highlight some general themes.
Technology stocks make up the largest single weighting within the portfolio.
Here, we place an especially high premium on "winner-takes-all" companies. We
remain particularly interested in stocks that are participating in Internet
infrastructure and the convergence of technology and telecommunications. Stocks
that satisfy our exacting criteria include Oracle, EMC, Lucent Technologies and
America Online. Meanwhile, we've eliminated Parametric Technologies, Compaq
Computers and Sterling Commerce. They don't offer the exemplary characteristics
we seek.
We're optimistic about the long-term return prospects offered by selected
media and health-care stocks. In addition to AT&T-Liberty Media, our media
holdings include Viacom and Comcast. On the health-care side, the fund holds
positions in pharmaceutical companies like Bristol-Myers Squibb. More recently,
we've initiated stakes in biotech companies MedImmune and Immunex.
Q ARE THERE AREAS WHERE YOU'RE FINDING FEWER OPPORTUNITIES?
A Consistent with our goal of pursuing superior, sustainable, long-term
growth, we've significantly reduced our exposure to financial-services stocks.
Particularly in rising-rate climates, financials -- especially banks -- have a
more difficult time keeping up. The portfolio does include a contingent of
financial-service stocks with strong growth prospects, however. Despite the
challenges of a rising-rate environment, we believe that American Express
(diversified financial and travel services), American International Group
(insurance) and Fannie Mae (mortgage lender) offer attractively valued growth
prospects.
We feel that the consumer discretionary area -- which includes retail and
leisure stocks -- warrants additional scrutiny. Even in a climate of high
consumer confidence, retail stocks are susceptible to rising rates. What's more,
retailers face stiff competition and the possibility that Internet distribution
channels could disrupt future growth. Based on these types of concerns, we
eliminated Office Depot and Costco. In the leisure area, we've also sold the
fund's positions in Carnival Corp. and Mirage.
As oil prices rebounded, we gradually pared back our exposure to energy
stocks. The rebound in oil prices served as a good opportunity for us to sell
into strength and capture profits. We continue to hold Royal Dutch Petroleum,
Schlumberger and Mobil.
Q AS 1999 APPROACHES ITS CLOSE, DO YOU HAVE ANY THOUGHTS FOR THE
SHAREHOLDERS?
A We encourage shareholders not to underestimate the remarkable resiliency
and depth of the U.S. economy. In the 1980s and early 1990s, the domestic
economy faced difficult times. Corporate America struggled to put its house in
order. There were painful corporate restructurings, layoffs and consolidations.
Now, rebuilt on a stronger foundation, the domestic economy holds bright
prospects. The events of the past year testify to the Federal Reserve's ability
to keep the markets on an even keel. Domestic corporations continue to generate
steady profits, unemployment is low and consumer confidence is high.
We recognize that investors are concerned about the potential impacts of Year
2000. Here, too, we recommend a long-term focus. We believe that Y2K issues may
cause some temporary distortions in the market and the economy. These
distortions could relate to inventory building, capital-spending deferrals and
reduced market liquidity. We can't know for sure. Yet in the face of short-term
distortions, we remain steadfast in a long-term perspective. As long-term,
quality-focused investors, we seek companies that can navigate unfamiliar
terrain, address challenges and emerge stronger.
Q WHAT LESSONS CAN SHAREHOLDERS TAKE FROM THE PAST FISCAL YEAR?
A The past year serves as an excellent reminder that stock investing is a
long-term proposition. When the markets corrected in August 1998, we understand
that some investors would have been tempted to get out of stocks. But the
markets did come back, and the investment climate is much improved.
But accepting the inherent volatility of the market doesn't mean courting
risk. We remain committed to a risk-conscious approach to long-term growth. Rain
or shine, we look forward to the next year and to putting our investment
discipline to work on behalf of the fund's shareholders.
8
<PAGE>
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 1999 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR CLASS(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER CLASSIC GROWTH FUND CLASS A 24.92% 25.19% (since 9/9/96)
.....................................................................................................
KEMPER CLASSIC GROWTH FUND CLASS B 28.36 12.42 (since 4/16/98)
.....................................................................................................
KEMPER CLASSIC GROWTH FUND CLASS C 31.30 14.21 (since 4/16/98)
.....................................................................................................
</TABLE>
[LINE GRAPH] KEMPER CLASSIC GROWTH FUND CLASS A
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH STANDARD & POOR'S 500
FUND CLASS A(1) STOCK INDEX+ CONSUMER PRICE INDEX++
--------------------- --------------------- ----------------------
<S> <C> <C> <C>
9/30/96 9425.00 10000.00 10000.00
9574.00 10261.00 10032.00
10299.00 11014.00 10051.00
10033.00 10777.00 10051.00
10775.00 11438.00 10082.00
10708.00 11506.00 10114.00
10265.00 11015.00 10139.00
10962.00 11659.00 10152.00
11704.00 12342.00 10146.00
12393.00 12878.00 10158.00
13592.00 13884.00 10171.00
13023.00 13086.00 10190.00
13765.00 13782.00 10215.00
13120.00 13307.00 10241.00
11/30/97 13345.00 13900.00 10234.00
13531.00 14119.00 10222.00
13637.00 14262.00 10241.00
14759.00 15267.00 10260.00
15263.00 16029.00 10279.00
15507.00 16175.00 10298.00
15225.00 15870.00 10317.00
15622.00 16496.00 10330.00
15240.00 16305.00 10342.00
12683.00 13928.00 10355.00
13248.00 14797.00 10368.00
10/31/98 14546.00 15985.00 10393.00
15499.00 16930.00 10393.00
16579.00 17884.00 10387.00
17246.00 18618.00 10412.00
16651.00 18017.00 10425.00
17174.00 18715.00 10456.00
17301.00 19426.00 10532.00
16881.00 18941.00 10532.00
18301.00 19972.00 10532.00
17920.00 19332.00 10564.00
17952.00 19211.00 10589.00
17833.00 18662.00 10640.00
10/31/99 19277.00 19829.00 10691.00
</TABLE>
[LINE GRAPH] KEMPER CLASSIC GROWTH FUND CLASS B
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH STANDARD & POOR'S 500
FUND CLASS B(1) STOCK INDEX+ CONSUMER PRICE INDEX++
--------------------- --------------------- ----------------------
<S> <C> <C> <C>
4/30/98 10000.00 10000.00 10000.00
9808.00 9812.00 10018.00
10054.00 10199.00 10031.00
9803.00 10080.00 10043.00
8155.00 8611.00 10055.00
8514.00 9148.00 10068.00
10/31/98 9341.00 9882.00 10092.00
9941.00 10467.00 10092.00
10627.00 11057.00 10086.00
11052.00 11510.00 10111.00
10658.00 11139.00 10123.00
10986.00 11571.00 10154.00
4/30/99 11057.00 12010.00 10228.00
10786.00 11710.00 10228.00
11681.00 12347.00 10228.00
11426.00 11952.00 10258.00
11441.00 11877.00 10283.00
11359.00 11538.00 10332.00
10/31/99 11979.00 12259.00 10382.00
</TABLE>
[LINE GRAPH] KEMPER CLASSIC GROWTH FUND CLASS C
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH STANDARD & POOR'S 500
FUND CLASS C(1) STOCK INDEX+ CONSUMER PRICE INDEX++
--------------------- --------------------- ----------------------
<S> <C> <C> <C>
4/30/98 10000.00 10000.00 10000.00
9813.00 9812.00 10018.00
10059.00 10199.00 10031.00
9808.00 10080.00 10043.00
8155.00 8611.00 10055.00
8514.00 9148.00 10068.00
10/31/98 9341.00 9882.00 10092.00
9946.00 10467.00 10092.00
10632.00 11057.00 10086.00
11057.00 11510.00 10111.00
10663.00 11139.00 10123.00
10996.00 11571.00 10154.00
4/30/99 11062.00 12010.00 10228.00
10791.00 11710.00 10228.00
11691.00 12347.00 10228.00
11436.00 11952.00 10258.00
11451.00 11877.00 10283.00
11359.00 11538.00 10332.00
10/31/99 12265.00 12259.00 10382.00
</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 AND TOTAL
RETURN MEASURE NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS, ASSUMING
REINVESTMENT OF ALL DIVIDENDS AND FOR
CLASS A SHARES ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5.75 PERCENT,
FOR CLASS B SHARES ADJUSTMENT FOR THE
APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) OF 3 PERCENT AND FOR
CLASS C SHARES NO ADJUSTMENT FOR SALES
CHARGE. THE MAXIMUM CDSC FOR CLASS B
SHARES IS 4 PERCENT. FOR CLASS C
SHARES, THERE IS A 1 PERCENT CDSC ON
CERTAIN REDEMPTIONS WITHIN THE FIRST
YEAR OF PURCHASE.
(1)CLASS A SHARES PERFORMANCE PRIOR TO
APRIL 16, 1998 IS DERIVED FROM THE
SCUDDER "S" SHARE INCEPTION DATE AND
HAS BEEN ADJUSTED TO REFLECT THE
CURRENT MAXIMUM INITIAL SALES CHARGE
OF 5.75%. CLASS S SHARES ARE SUBJECT
TO CERTAIN OTHER, OR DIFFERENT
LEVELS OF, EXPENSES THAN CLASS A.
THE EXPENSES APPLICABLE TO CLASS S
SHARES HAVE BEEN REFLECTED IN THE
PERFORMANCE PRESENTED FOR CLASS A.
THE DIFFERENCE IN EXPENSES WILL
AFFECT PERFORMANCE. THE FUND'S
SHARES WERE OFFERED WITHOUT A SALES
CHARGE UNTIL APRIL 15, 1998. KEMPER
CLASS A, B AND C SHARES WERE
INITIALLY OFFERED ON APRIL 16, 1998.
CLASS B SHARES IS ADJUSTED FOR THE
CDSC IN EFFECT AT THE END OF THE
PERIOD. WHEN COMPARING KEMPER
CLASSIC GROWTH FUND TO THE S&P 500
STOCK INDEX, YOU SHOULD NOTE THAT
THE FUND'S PERFORMANCE REFLECTS THE
MAXIMUM SALES CHARGE, WHILE NO SUCH
CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDEX. DURING THE
PERIODS NOTED, SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
AND THE FINANCIAL HIGHLIGHTS AT THE
END OF THIS REPORT.
+THE STANDARD & POOR'S 500 STOCK INDEX
IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK
MARKET. SOURCE IS WIESENBERGER.
++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 WIESENBERGER.
9
<PAGE>
INDUSTRY SECTORS
SECTOR COMPOSITION OF CLASSIC GROWTH FUND*
Data shows the percentage of the common stocks in the portfolio that each sector
of Classic Growth Fund represented on October 31, 1999.
[SECTOR COMPOSITION OF CLASSIC GROWTH FUND BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH FUND ON KEMPER CLASSIC GROWTH FUND ON
10/31/99 10/31/98
----------------------------- -----------------------------
<S> <C> <C>
Technology 23.20 17.70
Consumer non-durables 20.30 24.20
Health care 15.90 12.50
Communication services 14.40 10.10
Capital goods 11.20 11.60
Financial 10.00 15.50
Energy 5.00 7.80
Transportation 0.00 0.60
</TABLE>
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE
A COMPARISON WITH THE STANDARD AND POOR'S 500 STOCK INDEX*
Data shows the percentage of the common stocks in the portfolio that each sector
of Kemper Classic Growth Fund represented on October 31, 1999, compared to the
industry sectors that make up the fund's benchmark, the Standard & Poor's 500
Stock Index.
[STANDARD AND POOR'S COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH FUND ON
10/31/99 S&P 500 INDEX ON 10/31/99
----------------------------- -------------------------
<S> <C> <C>
Technology 23.20 24.50
Consumer non-durables 20.30 20.90
Health care 15.90 10.20
Communication services 14.40 8.40
Capital goods 11.20 8.80
Financial 10.00 14.10
Energy 5.00 6.30
Basic industries 0.00 3.20
Utilities 0.00 2.80
Transportation 0.00 0.80
</TABLE>
* Standard & Poor's 500 is an unmanaged capitalization-weighted price-only index
comprised of the largest capitalized U.S. companies whose common stocks are
traded in the United States. This large capitalization market oriented index
is highly correlated with the S&P 500 Stock Index.
10
<PAGE>
LARGEST HOLDINGS
KEMPER CLASSIC GROWTH FUND'S 10 LARGEST HOLDINGS*
Representing 26.1 percent of the fund's total portfolio on October 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
HOLDINGS PERCENT
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. MICROSOFT Develops, markets and supports a 3.4%
variety of software, operating
systems, language and application
programs.
- ---------------------------------------------------------------------------------------
2. INTEL Engaged in the design, 3.2%
development, manufacture and sale
of advanced semiconductor
components.
- ---------------------------------------------------------------------------------------
3. GENERAL ELECTRIC A broadly diversified company 2.9%
with major businesses in power
generators, appliances, lighting,
plastics, medical systems,
aircraft engines, financial
services and broadcasting.
- ---------------------------------------------------------------------------------------
4. HOME DEPOT Operates retail stores carrying 2.6%
building supplies and
home-improvement products.
- ---------------------------------------------------------------------------------------
5. MCI WORLDCOM Provides intrastate, interstate 2.6%
and international long-distance
voice and data services.
- ---------------------------------------------------------------------------------------
6. ROYAL DUTCH PETROLEUM Operations include the 2.4%
exploration and processing of oil
and natural gas. Other divisions
are involved in the production of
base and industrial chemicals.
- ---------------------------------------------------------------------------------------
7. PROCTER & GAMBLE Manufactures and distributes 2.4%
household products, including
food, diapers, and personal-care,
laundry and cleaning products.
- ---------------------------------------------------------------------------------------
8. FANNIE MAE A private corporation federally 2.2%
chartered to provide financial
products and services that
increase the availability and
affordability of housing to low,
moderate and middle-income
Americans.
- ---------------------------------------------------------------------------------------
9. AMERICAN EXPRESS Provider of financial services, 2.2%
including financial planning,
insurance, investment products
and international banking.
American Express also provides
travel products and services.
- ---------------------------------------------------------------------------------------
10. BRISTOL-MYERS SQUIBB Produces and distributes 2.2%
pharmaceutical products, medical
devices, and health, beauty and
household products.
- ---------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
11
<PAGE>
PORTFOLIO OF INVESTMENTS
KEMPER CLASSIC GROWTH FUND
Portfolio of Investments as of October 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
REPURCHASE AGREEMENTS--2.8% AMOUNT ($) VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreement with State Street Bank
and Trust Company dated 10/29/1999 at
5.2%, to be repurchased at $6,920,998 on
11/1/1999, collateralized by a $6,955,000
U.S. Treasury Note Inflationary Index,
3.375%, 1/15/2007 (Cost $6,918,000) 6,918,000 6,918,000
--------------------------------------------------------------------------
COMMON STOCKS--97.2% SHARES
CONSUMER DISCRETIONARY--9.3%
DEPARTMENT & CHAIN STORES--6.6%
Dayton Hudson Corp. 69,300 4,478,513
Home Depot, Inc. 87,900 6,636,450
Wal-Mart Stores, Inc. 64,400 3,650,675
Walgreen Co. 74,000 1,863,875
--------------------------------------------------------------------------
16,629,513
RECREATIONAL PRODUCTS--0.6%
Premier Parks, Inc.* 54,600 1,579,988
--------------------------------------------------------------------------
RESTAURANTS--1.4%
McDonald's Corp. 84,900 3,502,125
--------------------------------------------------------------------------
SPECIALTY RETAIL--0.7%
Circuit City Stores Inc. 42,200 1,801,413
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.7%
ALCOHOL & TOBACCO--1.0%
Anheuser-Busch Companies, Inc.* 35,500 2,549,344
--------------------------------------------------------------------------
FOOD & BEVERAGE--2.4%
Bestfoods 47,800 2,808,250
PepsiCo, Inc. 94,400 3,274,500
--------------------------------------------------------------------------
6,082,750
PACKAGE GOODS/ COSMETICS--4.3%
Colgate-Palmolive Co. 45,900 2,776,950
Gillette Co. 52,300 1,892,606
Procter & Gamble Co. 57,500 6,030,313
--------------------------------------------------------------------------
10,699,869
- -----------------------------------------------------------------------------------------------------------------------
HEALTH--15.4%
BIOTECHNOLOGY--2.7%
Amgen Inc.* 16,800 1,339,800
Genentech, Inc.* 15,200 2,215,400
Immunex Corp.* 29,700 1,871,100
MedImmune, Inc.* 13,000 1,456,000
--------------------------------------------------------------------------
6,882,300
HEALTH INDUSTRY SERVICES--0.9%
IMS Health Inc. 81,000 2,349,000
--------------------------------------------------------------------------
MEDICAL SUPPLY & SPECIALTY--2.2%
Baxter International, Inc. 62,450 4,051,444
VISX Inc.* 23,200 1,451,450
--------------------------------------------------------------------------
5,502,894
</TABLE>
12
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PHARMACEUTICALS--9.6%
Allergan, Inc. 26,700 2,866,913
American Home Products Corp. 61,100 3,192,475
Bristol-Myers Squibb Co. 70,400 5,407,600
Johnson & Johnson 22,200 2,325,450
Pfizer, Inc. 75,000 2,962,500
Schering-Plough Corp. 49,500 2,450,250
Warner-Lambert Co. 61,200 4,884,525
--------------------------------------------------------------------------
24,089,713
- -----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--5.9%
CELLULAR TELEPHONE--1.9%
Nokia Oy "A" (ADR) 41,600 4,807,400
--------------------------------------------------------------------------
TELEPHONE/ COMMUNICATIONS--4.0%
Bell Atlantic Corp. 53,450 3,470,907
MCI WorldCom, Inc.* 75,350 6,465,972
--------------------------------------------------------------------------
9,936,879
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL--9.8%
INSURANCE--3.0%
AFLAC, Inc. 50,000 2,556,250
American International Group, Inc. 47,350 4,874,091
--------------------------------------------------------------------------
7,430,341
CONSUMER FINANCE--4.6%
American Express Credit Corp. 35,300 5,436,200
Associates First Capital Corp. 59,300 2,164,450
Citigroup, Inc. 70,650 3,823,931
--------------------------------------------------------------------------
11,424,581
OTHER FINANCIAL COMPANIES--2.2%
Federal National Mortgage Association 78,200 5,532,650
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
MEDIA--8.2%
ADVERTISING--1.6%
Omnicom Group, Inc. 46,200 4,065,600
--------------------------------------------------------------------------
BROADCASTING & ENTERTAINMENT--1.8%
Infinity Broadcasting Corp.* 62,400 2,156,700
Viacom Inc. "B"* 52,100 2,331,475
--------------------------------------------------------------------------
4,488,175
CABLE TELEVISION--3.3%
AT&T Corp-- Liberty Media Group* 126,400 5,016,500
Comcast Corp. "A" 80,000 3,370,000
--------------------------------------------------------------------------
8,386,500
PRINT MEDIA--1.4%
Tribune Co. 58,900 3,534,000
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--2.7%
EDP SERVICES
Automatic Data Processing, Inc. 67,500 3,252,656
Electronic Data Systems Corp. 60,200 3,521,700
--------------------------------------------------------------------------
6,774,356
- -----------------------------------------------------------------------------------------------------------------------
DURABLES--2.9%
AEROSPACE--0.9%
United Technologies Corp. 37,600 2,274,800
--------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--2.0%
Lucent Technologies, Inc. 81,100 5,210,675
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
MANUFACTURING--7.9%
DIVERSIFIED MANUFACTURING--4.9%
General Electric Co. 53,700 7,279,706
Textron, Inc. 26,700 2,060,906
Tyco International Ltd. (New) 75,000 2,995,312
--------------------------------------------------------------------------
12,335,924
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRICAL PRODUCTS--0.9%
Emerson Electric Co. 37,000 2,222,312
--------------------------------------------------------------------------
INDUSTRIAL SPECIALTY--2.1%
Corning, Inc. 66,400 5,220,700
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY 22.5%
COMPUTER SOFTWARE--7.5%
America Online Inc.* 40,500 5,252,344
Electronic Arts Inc.* 18,100 1,462,706
Microsoft Corp.* 91,500 8,469,469
Oracle Systems Corp.* 76,100 3,619,506
--------------------------------------------------------------------------
18,804,025
DIVERSE ELECTRONIC PRODUCTS--2.8%
Applied Materials, Inc.* 48,200 4,328,963
Motorola, Inc. 27,700 2,699,019
--------------------------------------------------------------------------
7,027,982
EDP PERIPHERALS--1.6%
EMC Corp.* 55,100 4,022,300
--------------------------------------------------------------------------
ELECTRONIC COMPONENTS/
DISTRIBUTORS--2.4%
Broadcom Corp.* 15,200 1,942,750
Cisco Systems, Inc.* 54,900 4,062,600
--------------------------------------------------------------------------
6,005,350
ELECTRONIC DATA PROCESSING--4.1%
Hewlett-Packard Co. 22,300 1,651,594
International Business Machines Corp. 40,400 3,974,350
Sun Microsystems, Inc.* 45,100 4,772,144
--------------------------------------------------------------------------
10,398,088
SEMICONDUCTORS--4.0%
Intel Corp. 105,140 8,141,778
Xilinx, Inc.* 24,500 1,926,313
--------------------------------------------------------------------------
10,068,091
- -----------------------------------------------------------------------------------------------------------------------
ENERGY--4.9%
OIL & GAS PRODUCTION--2.4%
Royal Dutch Petroleum Co. (New York shares) 101,300 6,071,669
--------------------------------------------------------------------------
OIL COMPANIES--1.1%
Mobil Corp. 29,700 2,866,050
--------------------------------------------------------------------------
OILFIELD SERVICES/ EQUIPMENT--1.3%
Schlumberger Ltd. 54,500 3,300,656
--------------------------------------------------------------------------
TOTAL COMMON STOCKS--97.2%
(Cost $195,918,762) 243,878,013
--------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $202,836,762)(a) 250,796,013
--------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $203,204,299. At October 31,
1999, net unrealized appreciation for all securities based on tax cost was
$47,591,714. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$50,447,640 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $2,855,926.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of October 31, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------
Investments,
at market (identified cost $202,836,762) $250,796,013
- ----------------------------------------------------------------------------
Receivable for Fund shares sold 422,614
- ----------------------------------------------------------------------------
Dividends and interest receivable 115,688
- ----------------------------------------------------------------------------
Deferred organization expenses 12,980
- ----------------------------------------------------------------------------
Other assets 87
- ----------------------------------------------------------------------------
TOTAL ASSETS 251,347,382
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------
Due to custodian bank 813
- ----------------------------------------------------------------------------
Payable for Fund shares redeemed 360,815
- ----------------------------------------------------------------------------
Accrued management fee 86,750
- ----------------------------------------------------------------------------
Other payables and accrued expenses 525,386
- ----------------------------------------------------------------------------
Total liabilities 973,764
- ----------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $250,373,618
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation (depreciation) on investments 47,959,251
- ----------------------------------------------------------------------------
Accumulated net realized gain (loss) 11,647,274
- ----------------------------------------------------------------------------
Paid-in capital 190,767,093
- ----------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $250,373,618
- ----------------------------------------------------------------------------
NET ASSET VALUE
CLASS A SHARES
Net asset value and redemption price per share
($62,624,202/2,577,236 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $24.30
- ----------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $24.30) $25.78
- ----------------------------------------------------------------------------
CLASS B SHARES
Net asset value offering and redemption price (subject to
contingent deferred sales change) per share
($37,439,981/1,561,446 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $23.98
- ----------------------------------------------------------------------------
CLASS C SHARES
Net asset value offering and redemption price (subject to
contingent deferred sales change) per share
($7,124,893/297,185 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $23.97
- ----------------------------------------------------------------------------
CLASS S SHARES
Net asset value, offering and redemption price per share
($143,184,542/5,916,346 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $24.20
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWO MONTHS
ENDED YEAR ENDED
OCTOBER 31, 1999 AUGUST 31, 1999
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $23 and
$26,929, respectively) $ 257,469 $ 1,623,231
- ---------------------------------------------------------------------------------------------------
Interest 60,060 431,526
- ---------------------------------------------------------------------------------------------------
317,529 2,054,757
- ---------------------------------------------------------------------------------------------------
Expenses:
Management fee 268,928 1,307,022
- ---------------------------------------------------------------------------------------------------
Services to shareholders 240,776 1,454,320
- ---------------------------------------------------------------------------------------------------
Custodian and accounting fees 19,672 109,414
- ---------------------------------------------------------------------------------------------------
Distribution service fees 48,220 184,290
- ---------------------------------------------------------------------------------------------------
Administrative services fees 39,857 137,913
- ---------------------------------------------------------------------------------------------------
Trustees' fees and expenses 6,893 35,708
- ---------------------------------------------------------------------------------------------------
Auditing 33,306 21,670
- ---------------------------------------------------------------------------------------------------
Registration fees 20,374 128,855
- ---------------------------------------------------------------------------------------------------
Reports to shareholders 24,980 114,028
- ---------------------------------------------------------------------------------------------------
Legal 2,013 13,482
- ---------------------------------------------------------------------------------------------------
Amortization of organization expense 801 4,073
- ---------------------------------------------------------------------------------------------------
Other 2,011 42,873
- ---------------------------------------------------------------------------------------------------
Total expenses before reductions 707,831 3,553,648
- ---------------------------------------------------------------------------------------------------
Expense reductions (96,752) (566,549)
- ---------------------------------------------------------------------------------------------------
Expenses, net 611,079 2,987,099
- ---------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (293,550) (932,342)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments 2,343,968 9,396,870
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 14,900,813 44,795,107
- ---------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENT TRANSACTIONS 17,244,781 54,191,977
- ---------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $16,951,231 $53,259,635
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TWO MONTHS YEARS ENDED AUGUST 31,
ENDED -----------------------------
OCTOBER 31, 1999 1999 1998
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (293,550) $ (932,342) $ 16,867
- -----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 2,343,968 9,396,870 6,411,034
- -----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period 14,900,813 44,795,107 (18,592,485)
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 16,951,231 53,259,635 (12,164,584)
- -----------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income -- Class S -- -- (134,261)
- -----------------------------------------------------------------------------------------------------------------
Net realized gains -- Class S -- (4,994,696) (1,093,271)
- -----------------------------------------------------------------------------------------------------------------
Net realized gains -- Class A -- (734,391) --
- -----------------------------------------------------------------------------------------------------------------
Net realized gains -- Class B -- (597,986) --
- -----------------------------------------------------------------------------------------------------------------
Net realized gains -- Class C -- (91,871) --
- -----------------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 22,858,479 167,868,674 123,389,959
- -----------------------------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in
reinvestment of distributions -- 6,289,899 1,215,373
- -----------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (13,479,531) (114,518,626) (46,876,198)
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS 9,378,948 59,639,947 77,729,134
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 26,330,179 106,480,638 64,337,018
- -----------------------------------------------------------------------------------------------------------------
Net assets at beginning of period 224,043,439 117,562,801 53,225,783
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $250,373,618 $ 224,043,439 $117,562,801
- -----------------------------------------------------------------------------------------------------------------
</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
------------------------------------------------------
FOR THE
PERIOD ENDED YEARS ENDED AUGUST 31,
OCTOBER 31, -------------------------------
1999 1999 1998(B)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $22.63 $16.62 $ 20.30
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.02) (.04) .01
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 1.69 6.86 (3.69)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.67 6.82 (3.68)
- ----------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains on investment
transactions -- (.81) --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $24.30 $22.63 $ 16.62
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (C) (D) 7.38 ** 41.54 (18.13)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 62.6 54.7 7.2
- ----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses, net, to average daily net
assets (%) 1.27 * 1.24 1.24 *
- ----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 1.52 * 1.65 1.74 *
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets (%) (.44)* (.17) .10 *
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 58 * 68 49
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------
CLASS B
------------------------------------------------------
FOR THE
PERIOD ENDED YEARS ENDED AUGUST 31,
OCTOBER 31, -------------------------------
1999 1999 1998(B)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $22.37 $16.57 $ 20.30
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.05) (.22) .05
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 1.66 6.83 (3.68)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.61 6.61 (3.73)
- ----------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains on investment
transactions -- (.81) --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.98 $22.37 $ 16.57
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (C) (D) 7.20 ** 40.30 (18.37)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 37.4 30.5 5.9
- ----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses, net, to average daily net
assets (%) 2.22 * 2.12 2.12 *
- ----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 2.47 * 2.51 2.52 *
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets (%) (1.38)* (1.04) (.79)*
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 58 * 68 49
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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 C
--------------------------------------------------------
FOR THE PERIOD
ENDED YEARS ENDED AUGUST 31,
OCTOBER 31, ------------------------
1999 1999 1998(B)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $22.38 $16.57 $ 20.30
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.07) (.22) (.05)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 1.66 6.84 (3.68)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.59 6.62 (3.73)
- -----------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains on investment
transactions -- (.81) --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.97 22.38 16.57
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C)(D) 7.10 ** 40.42 (18.37)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 7.1 5.6 .9
- -----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses, net, to average daily net
assets (%) 2.69 * 2.09 2.09 *
- -----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 2.94 * 2.88 3.00 *
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets (%) (1.86)** (1.02) (.73)*
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 58 * 68 49
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)Based on monthly average shares outstanding during the period.
(b)For the period April 16, 1998 (commencement of sale of Class A, B and C
shares) to August 31, 1998.
(c)Total return would have been lower had certain expenses not been reduced.
(d)Total return does not reflect the effect of any sales charges.
* 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") which is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company organized
as a Massachusetts business trust.
On August 10, 1999, the Fund changed its fiscal year end for financial reporting
and federal income tax purposes to October 31 from August 31.
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 Class S Shares. Class A shares are
offered to investors subject to an initial sales charge. Class B shares are
offered without an initial sales charge but are subject to higher ongoing
expenses than Class A 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 offered without an initial sales charge
but are subject to higher ongoing expenses than Class A 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. Class S Shares,
generally not available to new investors, are not subject to initial or
contingent deferred sales charges. Certain detailed financial information for
the Class S shares is provided separately and is available upon request.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears certain expenses unique to that class such as distribution
services, shareholder services, administrative services and certain other class
specific expenses. Differences in class expenses may result in payment of
different per share dividends by class. All shares of the Fund have equal rights
with respect to voting subject to class specific arrangements.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sale price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Trust, whose
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
All discounts are accreted for both tax and financial reporting purposes.
- --------------------------------------------------------------------------------
2 PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the two months ended October 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $28,998,266 and
$21,732,018, respectively. During the year ended August 31, 1999, purchases and
sales of investment securities (excluding short-term investments) aggregated
$178,602,008 and $121,482,661, respectively.
- --------------------------------------------------------------------------------
3 RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser") the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.70% of the Fund's
average daily net assets, computed and accrued daily and payable monthly.
Effective April 16, 1998, the Adviser has agreed to waive .25% of its management
fee until December 31, 1999. For the two months ended October 31, 1999, the
Adviser did not impose a portion of its management fee amounting to $96,046, and
the fee imposed amounted to $172,882, of which $86,750 is unpaid at October 31,
1999. For the year ended August 31, 1999, the Adviser did not impose a portion
of its management fee amounting to $466,794, and the fee imposed amounted to
$840,228.
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 0.75% 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 two months ended October 31, 1999, the Distribution Fee was as
follows:
<TABLE>
<CAPTION>
TOTAL UNPAID AT
DISTRIBUTION FEE AGGREGATED OCTOBER 31, 1999
- ---------------- ---------- ----------------
<S> <C> <C>
Class B $40,572 $28,916
Class C 7,648 10,513
------- -------
$48,220 $39,429
======= =======
</TABLE>
For the year ended August 31, 1999, the Distribution Fee was as follows:
<TABLE>
<CAPTION>
TOTAL FEES WAIVED
DISTRIBUTION FEE AGGREGATED BY KDI
- ---------------- ---------- -----------
<S> <C> <C>
Class B $158,298 $ --
Class C 25,992 10,314
-------- -------
$184,290 $10,314
======== =======
</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 two months ended
October 31, 1999 aggregated $19,655, of which $9,466 was paid to other firms.
Underwriting commissions paid in connection with the distribution of Class A
shares for the year ended August 31, 1999 aggregated $514,882, of which $475,896
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 ranging from 4% to 1% for
Class B and 1% for Class C, of the value of the shares redeemed. For the two
months ended October 31, 1999, the CDSC for Classes B and C aggregated $10,506
and $49, respectively. For the year ended August 31, 1999, the CDSC for Classes
B and C aggregated $72,290 and $2,116, respectively.
ADMINISTRATIVE SERVICE FEES. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to 0.25% of
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 two months
ended October 31, 1999, the Administrative Services Fee was as follows:
<TABLE>
<CAPTION>
TOTAL UNPAID AT
ADMINISTRATIVE SERVICE FEE AGGREGATED OCTOBER 31, 1999
- -------------------------- ---------- ----------------
<S> <C> <C>
Class A $23,784 $18,107
Class B 13,524 2,117
Class C 2,549 1,060
------- -------
$39,857 $21,284
======= =======
</TABLE>
For the year ended August 31, 1999, the Administrative Services Fee was as
follows:
<TABLE>
<CAPTION>
TOTAL FEES WAIVED
ADMINISTRATIVE SERVICE FEE AGGREGATED BY KDI
- -------------------------- ---------- -----------
<S> <C> <C>
Class A $ 76,483 $49,784
Class B 52,766 30,993
Class C 8,664 8,664
-------- -------
$137,913 $89,441
======== =======
</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 two months ended October 31, 1999, the
amount charged to Classes A, B and C by KSC aggregated $27,727, $25,982, and
$10,244, respectively, of which $55,125 is unpaid at October 31, 1999. Scudder
Service Corporation ("SSC"), a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Class S Shares. For the
two months ended October 31, 1999 the amount charged to the Class S Shares by
SSC for shareholder services aggregated $40,842, all of which is unpaid at
October 31, 1999. For the year ended August 31, 1999, the amount charged to
Classes A, B and C by KSC aggregated $109,888, $84,916, and $30,807,
respectively. For the year ended August 31, 1999 the amount charged to the Class
S Shares by SSC for shareholder services aggregated $285,028.
The Class S 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 two months ended October 31, 1999, the Special Servicing Agreement
expense charged to the Class S Shares amounted to $107,735, $147,907 of which is
unpaid at October 31, 1999. For the year ended August 31, 1999, the Special
Servicing Agreement expense charged to the Class S Shares amounted to $742,760.
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 Class S Shares of the Fund. For the two
months ended October 31, 1999, the amount charged to the Class S Shares by STC
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
aggregated $12,256, all of which is unpaid at October 31, 1999. For the year
ended August 31, 1999, the amount charged to the Class S Shares by STC
aggregated $58,712.
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 two months ended October 31, 1999, the amount charged to the Fund by
SFAC aggregated $17,040, all of which is unpaid at October 31, 1999. For the
year ended August 31, 1999, the amount charged to the Fund by SFAC aggregated
$99,733.
TRUSTEES FEES. The Trust pays each of its Trustees not affiliated with the
Adviser an annual retainer plus specified amounts for attended board and
committee meetings. For the two months ended October 31, 1999, the Trustees fees
and expenses aggregated $6,893. For the year ended August 31, 1999, the Trustees
fees and expenses aggregated $35,708.
- --------------------------------------------------------------------------------
4 EXPENSE OFF-SET ARRANGEMENTS
- --------------------------------------------------------------------------------
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the period, the Fund's custodian
and transfer agent fees were reduced by $3 and $703, respectively under these
arrangements.
- --------------------------------------------------------------------------------
5 LINE OF CREDIT
- --------------------------------------------------------------------------------
The Fund and several Scudder Funds (the "Participants") share in a $850 million
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
The following tables summarizes shares of beneficial interest and dollar
activity in the Fund:
<TABLE>
<CAPTION>
TWO MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 AUGUST 31, 1999
-------------------------- ---------------------------
SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
SHARES SOLD
- ----------------------------------------------------------------------------------
Class A 467,676 $ 10,792,550 4,181,810 $ 89,719,684
- ----------------------------------------------------------------------------------
Class B 282,287 6,387,191 1,703,242 35,213,582
- ----------------------------------------------------------------------------------
Class C 57,839 1,310,236 290,638 6,120,954
- ----------------------------------------------------------------------------------
Class S 191,253 4,368,502 1,767,053 36,814,454
- ----------------------------------------------------------------------------------
999,055 $ 22,858,479 7,942,743 $ 167,868,674
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
- ----------------------------------------------------------------------------------
Class A -- -- 34,363 $ 700,664
- ----------------------------------------------------------------------------------
Class B -- -- 28,770 583,153
- ----------------------------------------------------------------------------------
Class C -- -- 4,331 87,827
- ----------------------------------------------------------------------------------
Class S -- -- 241,446 4,918,255
- ----------------------------------------------------------------------------------
-- -- 308,910 $ 6,289,899
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
SHARES REDEEMED
- ----------------------------------------------------------------------------------
Class A (307,088) $ (7,090,317) (2,232,659) $ (48,175,880)
- ----------------------------------------------------------------------------------
Class B (83,158) (1,889,264) (727,039) (15,294,433)
- ----------------------------------------------------------------------------------
Class C (11,341) (257,377) (99,616) (2,138,727)
- ----------------------------------------------------------------------------------
Class S (186,095) (4,242,573) (2,330,780) (48,909,586)
- ----------------------------------------------------------------------------------
(587,682) $(13,479,531) (5,390,094) $(114,518,626)
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
NET INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 160,588 $ 3,702,233 1,983,514 $ 42,244,468
- ----------------------------------------------------------------------------------
Class B 199,129 4,497,927 1,004,973 20,502,302
- ----------------------------------------------------------------------------------
Class C 46,498 1,052,859 195,353 4,070,054
- ----------------------------------------------------------------------------------
Class S 5,158 125,929 (322,281) (7,176,877)
- ----------------------------------------------------------------------------------
411,373 $ 9,378,948 2,861,559 $ 59,639,947
- ----------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Notes to FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1998
-----------------------------
SHARES DOLLARS
<S> <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
---------------------------------------------------------------------------
6,395,801 $123,389,959
---------------------------------------------------------------------------
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
Class A -- $ --
---------------------------------------------------------------------------
Class B -- --
---------------------------------------------------------------------------
Class C -- --
---------------------------------------------------------------------------
Class S 70,172 1,215,373
---------------------------------------------------------------------------
70,172 $ 1,215,373
---------------------------------------------------------------------------
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)
---------------------------------------------------------------------------
(2,448,806) $(46,876,198)
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
4,017,167 $ 77,729,134
---------------------------------------------------------------------------
</TABLE>
TAX INFORMATION (UNAUDITED)
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$2,500,000 as capital gain dividends for its year ended October 31, 1999, of
which 100% 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.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF INVESTMENT TRUST AND TO THE CLASS A,
CLASS B AND CLASS C 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 for the Class A, Class B
and Class C shares present fairly, in all material respects, the financial
position of Classic Growth Fund (formerly Scudder Classic Growth Fund) (the
"Fund") at October 31, 1999, the results of its operations, the changes in its
net assets, and the financial highlights for the Class A, Class B and Class C
shares for the periods indicated therein, in conformity with generally accepted
accounting principles. These financial statements and the Class A, Class B and
Class C financial highlights (hereafter referred to as "financial statements")
are the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 10, 1999
27
<PAGE>
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
LYNN S. BIRDSONG BRUCE F. BEATY JOHN R. HEBBLE
President and Trustee Vice President Treasurer
HENRY P. BECTON, JR. JENNIFER P. CARTER CAROLINE PEARSON
Trustee Vice President Assistant Secretary
DAWN-MARIE DRISCOLL MAC EYSENBACH
Trustee Vice President
PETER B. FREEMAN WILLIAM F. GADSDEN
Trustee Vice President
GEORGE M. LOVEJOY, JR. VALERIE F. MALTER
Trustee Vice President
WESLEY W. MARPLE, JR. KATHLEEN T. MILLARD
Trustee Vice President
JEAN C. TEMPEL JOHN MILLETTE
Trustee Vice President and
Secretary
KATHRYN L. QUIRK
Trustee, Vice President ANN M. MCCREARY
and Assistant Secretary Vice President
ROBERT TYMOCZKO
Vice President
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------------------------------------------------------
LEGAL COUNSEL DECHERT PRICE & RHOADS
Ten Post Office Square South
Boston, MA 02109
- ----------------------------------------------------------------------------------------------
TRANSFER AND SHAREHOLDER SERVICE KEMPER SERVICE COMPANY
AGENT P.O. Box 219557
Kansas City, MO 64121
- ----------------------------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
- ----------------------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS PRICEWATERHOUSECOOPERS LLP
160 Federal Street
Boston, MA 02110
- ----------------------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
</TABLE>
[KEMPER FUNDS LOGO]
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 Equity Funds/Growth Style Fund prospectus.
KCGF-2 (12/28/99) 1100590
