Scudder
Classic Growth
Fund
Semiannual Report
February 28, 1999
For investors seeking long-term growth of capital with reduced share price
volatility compared to other growth mutual funds.
Scudder Classic Growth Fund is properly known as Classic Growth Fund.
The Fund is a diversified series of Investment Trust.
SCUDDER (logo)
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Scudder Classic Growth Fund
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<S> <C> <C> <C> <C> <C> <C>
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Date of Inception: 9/9/96 Total Net Assets of Scudder Shares as of 2/28/99: $135.5 million Ticker Symbol: SCCGX
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o The Fund was well positioned to benefit from a market environment that
favored large company growth stocks. In the six-month period ended February
28, 1999 the Fund's total return of 31.11% outpaced the 30.26% return of
its unmanaged benchmark, the S&P 500 Index.
o A strategy emphasizing "growth at a reasonable price" uncovered several
high quality, attractively valued stocks in the technology sector.
o Management capitalized on the continued strength of the U.S. consumer by
taking a substantial position in large, domestic retail stocks.
Table of Contents
3 Letter from the Fund's President 17 Financial Highlights
4 Performance Update 21 Notes to Financial Statements
5 Portfolio Summary 26 Shareholder Meeting Results
6 Portfolio Management Discussion 28 Officers and Trustees
9 Glossary of Investment Terms 29 Investment Products and Services
10 Investment Portfolio 30 Scudder Solutions
14 Financial Statements
2 - Scudder Classic Growth Fund
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Letter from the Fund's President
Dear Shareholders,
In the past six months, Classic Growth Fund has benefited from the ongoing
cyclical shift toward large-cap growth stocks. As corporate pricing power has
been constrained by an environment of disinflation and increased global
competition, domestic profit growth has slowed significantly. Even in this
challenging environment, however, a few companies have emerged as the winners by
building market share and continuing to grow their earnings. Those that have
done so have been rewarded by investors, while those that have not have seen
their stock prices punished. Although this trend does not represent a permanent
shift, it has been highly positive for Scudder Classic Growth Fund, which
invests in large growth companies such as those that have been leading the
market higher throughout this period.
Buoyed by the positive backdrop, the Fund outpaced its unmanaged benchmark,
the S&P 500, during the six-month reporting period. By using valuation as one of
its primary investment criteria, management was able to avoid some of the price
declines that beset firms whose stocks were more richly valued. At the same
time, they were able to uncover some excellent opportunities in the retail and
technology sectors. For more information on the strategy employed by the Fund's
management team, please see the Portfolio Management Discussion beginning on
page 6.
For those of you who are interested in new Scudder products, we are pleased
to introduce Scudder Select 500 Fund and Scudder Select 1000 Growth Fund. Both
funds are managed with the goal of providing long term outperformance compared
to their benchmark indices, the S&P 500 Index and the Russell 1000 Growth Index,
respectively. For more information on either Select fund, please call us at the
number below.
Thank you for your continued investment in Scudder Classic Growth Fund. If
you have any questions about your investment, please call Scudder Investor
Information at 1-800-225-2470, or visit our Web site at www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Classic Growth Fund
3 - Scudder Classic Growth Fund
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Performance Update as of February 28, 1999
Fund Index Comparison
===============================================
Total Return
--------------------------------------------
Period Ended Growth of Cumulative Average
2/28/99 $10,000 Annual
--------------------------------------------
Classic Growth Fund -- Scudder Shares
--------------------------------------------
1 Year $ 11,261 12.61% 12.61%
Life of Fund* $ 18,531 85.31% 28.42%
--------------------------------------------
S&P 500 Index
--------------------------------------------
1 Year $ 11,974 19.74% 19.74%
Life of Fund* $ 18,755 87.55% 29.76%
* The Fund commenced operations on September 9, 1996.
Index comparisons begin September 30, 1996.
Growth of a $10,000 Investment
===============================================
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Classic Growth Fund --
Scudder Shares S&P 500 Index
----------------------- -------------
9/96* 10000 10000
11/96 10928 11053
2/97 11361 11601
5/97 12419 12506
8/97 13818 13317
11/97 14160 14206
2/98 15660 15664
5/98 16154 16346
8/98 13450 14398
11/98 16422 17569
2/99 17635 18755
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.
Returns and Per Share Information
==========================================
Yearly Periods Ended February 28
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
1997* 1998 1999
- --------------------------------------------------------------------
Net Asset Value $ 14.29 $ 19.34 $ 20.95
- --------------------------------------------------------------------
Income Dividends $ .04 $ .04 $ --
- --------------------------------------------------------------------
Capital Gains Distributions $ -- $ .29 $ .81
- --------------------------------------------------------------------
Fund Total Return (%) 19.39 37.84 12.61
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Index Total Return (%) 16.01 35.02 19.74
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Effective April 16, 1998, the Fund changed its name from Scudder Classic Growth
Fund to Classic Growth Fund and an additional three classes of shares were
offered. Existing shares of Classic Growth Fund outstanding on that date were
redesignated Scudder Shares of the Fund. The total return information provided
is for the Fund's Scudder Share class. 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 Fund periods would have been lower.
4 - Scudder Classic Growth Fund
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Portfolio Summary as of February 28, 1999
Asset Allocation
=========================================
A graph in the form of a pie chart appears here, illustrating the
data in the table below.
Equity Holdings 93%
Cash Equivalents 7%
--------------------------------------
100%
======================================
The Fund remains close to fully invested in domestic growth stocks.
Sector Diversification
(Excludes 7% Cash Equivalents)
==============================
A graph in the form of a pie chart appears here, illustrating the
data in the table below.
Technology 18%
Health 15%
Financial 14%
Consumer Discretionary 13%
Consumer Staples 8%
Media 7%
Energy 6%
Manufacturing 6%
Durables 5%
Other 8%
--------------------------------------
100%
======================================
We focused on leading technology companies with sustainable earnings and
reasonable valuations.
Ten Largest Equity Holdings
(26% of Portfolio)
=========================================
1. MCI WorldCom, Inc.
Provider of telephone and
internet services
2. Home Depot, Inc.
Building supply and home
improvement stores
3. Dayton Hudson Corp.
Owner and operator of department
and specialty stores
4. American International Group, Inc.
Major international insurance
holding company
5. Intel Corp.
Producer of semiconductor memory
circuits
6. Pfizer, Inc.
Leading international
pharmaceutical company
7. Tele-Comm Liberty Media Group
Producer of cable television
programming
8. Sun Microsystems, Inc.
Producer of high-performance
workstations, servers and
networking software
9. Microsoft Corp.
Developer of computer operating
systems software
10. United Technologies Corp.
Developer of aerospace equipment,
climate control systems, and
elevators
The Fund's top holdings reflect our desire to invest in companies less
susceptible to downside earnings surprises.
For more complete details about the Fund's investment portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Classic Growth Fund
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Portfolio Management Discussion
In the following interview, William F. Gadsden and Bruce F. Beaty, portfolio
managers of Classic Growth Fund, discuss the Fund's strategy and the market
environment during the six-month period ended February 28, 1999.
Q: Despite a rocky start, this has proven to be an excellent period for stocks.
How would you characterize this rally?
A: The market's recovery from its autumn lows was notable due to the
outperformance of large-cap growth stocks, the sector in which the Fund's
holdings are most heavily concentrated. When equities began to rebound in
October and November, the rally was broad-based at first, encompassing sectors
that had been under pressure during the downturn. As the period progressed,
however, larger companies with the strongest growth characteristics established
themselves as market leaders. To understand why this is so, it helps to look at
how the broader macroeconomic outlook has affected domestic equities.
The investment backdrop in the U.S. has been highly positive in recent years,
with low unemployment, strong GDP growth, and high levels of consumer confidence
providing a foundation for strong stock market performance. As a result,
Americans have put their purchasing power to work in both the shopping malls and
the stock market. At the same time, however, an environment of disinflation has
negatively impacted many corporations by inhibiting their pricing power,
increasing pressure on margins, and pushing profits lower. Responding to this
environment, investors have gravitated toward the companies that have
demonstrated dependable earnings growth and clear leadership within their
markets. In general, companies that met these criteria were most likely to be
the large-cap growth names that have shown that they can maintain pricing power
and gain market share at the expense of less competitive firms. Since these are
the types of companies we seek to include in the portfolio, this trend has
proven beneficial for Fund performance.
Q: In addition to looking for dominant market leaders, what other criteria do
you use to select stocks for Classic Growth Fund?
A: Our investment strategy is focused on finding growth at a reasonable price,
or "GARP." Essentially, we are using a value-oriented approach to select the
strongest candidates from a growth universe. Utilizing a strict quantitative
discipline, we evaluate current and potential holdings based on their
fundamental strengths, sustainability of earnings, and valuations. In the
process, we screen out stocks whose valuations have climbed to excessive levels
with respect to their growth potential, a condition that usually increases their
vulnerability to disappointments. For example, when our discipline revealed
Coca-Cola and Gillette to be overvalued in early 1998, we avoided these stocks
even though they are both good companies with strong management. Both stocks
ultimately cratered following missed earnings estimates, hurting the many growth
investors who had bought them at high price-to-earnings multiples. In short, by
employing a disciplined approach, we seek to distinguish between a "good
company" and a "good stock."
6 - Scudder Classic
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Q: How did the strategy work in this environment?
A: Although the effectiveness of various investment styles changes over time,
our focus on large-cap growth stocks was well suited to the investment backdrop.
In the six-month period ended February 28, 1999, the Fund posted a total return
of 31.11%, outpacing the 30.26% return of its unmanaged benchmark, the S&P 500
Index.
Q: Earlier, you mentioned the continued strength of the U.S. consumer. Has this
led you to find opportunities in the retail sector?
A: Yes, retail stocks made an important contribution to Fund performance in the
period. Companies such as Home Depot, Wal-Mart, and Dayton Hudson are the direct
beneficiaries of rising real income, low unemployment, and booming U.S. consumer
confidence. Flush with cash, many Americans have continued to boost their
consumption levels, and the sales figures at the leading retailers have been
astounding as a result. In the twelve-month period ended January 31, 1999, for
example, Home Depot posted gains of 25% in sales and 40% in net income. Home
Depot is still a growth story with the opportunity to add stores in new and
existing markets and to take market share from smaller regional operators.
Despite its huge scale, the company has still been able to show consistent gains
in its profit margins and return-on-equity, and stands to further increase
revenues through the rollout of new sales formats. Growth is also strong at
Wal-Mart, where sales increased 17% in the fiscal year ended January 31, and net
income rose 25%. As the results at these companies would indicate, the retail
sector has been one of the better plays on the booming U.S. economy in the last
six months.
Q: Technology stocks have also been strong performers in this period. How was
the Fund positioned in that sector?
A: Anyone who follows the stock market probably knows that the incredible rise
in Internet stocks such as Yahoo! and Amazon.com has been one of the biggest
stories of the past year. Although our discipline has generally prevented us
from investing in companies of that nature due to their high valuations, we have
found other ways to participate in the growth of the `Net. For example, our top
holding is MCI Worldcom, whose entrepreneurial management team has, in our
opinion, assembled a unique set of assets that has positioned the company to
capitalize on the future growth of Internet data traffic. What's more, its
purchase of MCI also gives it a competitive edge in voice traffic. We believe
that in its role as the "backbone" of the Internet, MCI Worldcom is uniquely
positioned to profit from the ongoing revolution in communications.
The Fund benefited from its holdings in EMC and Sun Microsystems, which also
stand to profit from the continued growth of the Internet. A maker of data
storage systems, EMC has been able to increase its sales substantially as the
need for storage capabilities has risen along with the level of data traffic.
After buying shares at 25 times the next year's earnings during the market
correction last summer, we have been able to benefit from the stock's sharp rise
in the last six months. Sun Microsystems is similar to EMC in that it also is
positioned to capitalize on the growing need for Internet infrastructure. In
addition to producing
7 - Scudder Classic Growth Fund
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servers, which are the hardware of the `Net, Sun developed
Java software, which is becoming the common language for Internet-related
devices. We feel that by virtue of this powerful combination, Sun is well
positioned to benefit from the enormous opportunities in its consumer-oriented
businesses. During the six-month reporting period, Sun's share price gained an
astounding 145%.
Q: Of the holdings that did not perform as well, was there a common thread?
A: Yes -- a lack of execution. In a market where the companies with the most
reliable earnings enjoyed the best performance, the converse was also true:
those that did not deliver saw their stock prices plummet. Most of our poor
performers were stocks with problems specific to the individual companies, such
as Service Corporation International, HEALTHSOUTH, Suiza Foods, and Lockheed
Martin. Service Corp, for example, is a funeral home operator with a stable
business and, prior to 1998, an excellent long-term track record. When it lost
track of its cost structure and began paying inflated prices for its
acquisitions, however, it was forced to announce an earnings shortfall, and the
market cut its stock price in half. Although we closely monitor Fund holdings
for signs of fundamental deterioration, such surprises are part of the territory
for growth investors.
Q: After such a strong rally in the wake of last year's correction, where do you
see the market going from here?
A: Despite problems in Russia, Japan, Brazil, and the developing countries of
Asia, the U.S. economy has defied expectations by maintaining its incredible
growth rate. One of the results of this expansion is that large-cap domestic
equities have posted four straight years of 20%-plus gains, as measured by the
S&P 500. Although the outlook remains positive, it is essential to consider two
key points: first, that we are very late in the economic cycle, and second, that
only on rare occasions has the stock market done so well for so long. With this
in mind, we urge investors to keep their expectations to a rational level as the
latest leg of this great bull market enters its fifth year. Regardless of the
market's direction, however, we remain confident that in owning stocks of some
of the nation's best companies, we are well positioned to withstand further
surprises in the global economy.
8 - Scudder Classic Growth Fund
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Glossary of Investment Terms
BUSINESS CYCLE The recurrence of periods of
expansion (recovery) and contraction
(recession) in economic activity with
effects on growth, inflation, and
employment.
DISINFLATION The slowing down of the rate at which
prices increase. This phenomenon is
generally associated with a slowing
economy, and is distinct from deflation,
which is an outright decline in prices.
FUNDAMENTAL RESEARCH Analysis of companies based on
the projected impact of management,
products, sales, and earnings on their
balance sheets and income statements.
Distinct from technical analysis, which
evaluates the attractiveness of a stock
based on historical price and trading
volume movements, rather than the
financial results of the underlying
company.
GROWTH STOCK Stock of a company that has displayed
above-average earnings growth
and is expected to continue to increase
profits rapidly going forward. Stocks of
such companies usually trade at higher
multiples to earnings (see price/earnings
ratio) and experience more price
volatility than the market as a whole.
Distinct from value stock.
PRICE/EARNINGS RATIO (P/E) A widely used gauge of a stock's
(also "earnings multiple") valuation that indicates what investors
are paying for a company's earning
power at the current stock price. A P/E
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.
REAL INCOME The income of an individual,
group, or country, adjusted for changes
in purchasing power caused by inflation.
For instance, if inflation rises by 3%
and personal income rises by 4% in a
given year, real income has risen by 1%.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Investment
Terms)
9 - Scudder Classic Growth Fund
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Investment Portfolio as of February 28, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
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<S> <C> <C>
Repurchase Agreements 6.8%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 2/26/1999 a
4.74%, to be repurchased at $13,444,308 on 3/1/1999, collateralized by a ------------
$14,150,000 U.S. Treasury Note, 3.375%, 1/15/2007 (Cost $13,439,000) ..................... 13,439,000 13,439,000
------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 93.2%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 12.2%
Department & Chain Stores 10.0%
Dayton Hudson Corp. ....................................................................... 89,300 5,586,831
Gap Inc. .................................................................................. 9,400 608,063
Home Depot, Inc. .......................................................................... 98,900 5,903,094
Rite Aid Corp. ............................................................................ 65,600 2,714,200
Wal-Mart Stores Inc. ...................................................................... 33,300 2,876,288
Walgreen Co. .............................................................................. 65,400 2,092,800
-------------
19,781,276
-------------
Hotels & Casinos 1.2%
Carnival Corp. "A" ........................................................................ 53,900 2,398,550
-------------
Specialty Retail 1.0%
Office Depot Inc.* ........................................................................ 53,600 1,912,850
-------------
Consumer Staples 7.2%
Alcohol & Tobacco 2.6%
Anheuser-Busch Companies, Inc. ............................................................ 37,700 2,891,119
Philip Morris Companies, Inc. ............................................................. 56,900 2,226,213
-------------
5,117,332
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Food & Beverage 2.9%
Albertson's Inc. .......................................................................... 53,900 3,072,294
ConAgra, Inc. ............................................................................. 89,200 2,687,150
-------------
5,759,444
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Package Goods/Cosmetics 1.7%
Procter & Gamble Co. ...................................................................... 37,400 3,347,300
-------------
Health 14.3%
Biotechnology 1.8%
Amgen Inc.* 16,850 2,104,144
Genentech, Inc.* .......................................................................... 17,800 1,420,663
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3,524,807
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The accompanying notes are an integral part of the financial statements.
10 - Scudder Classic Growth Fund
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Market
Shares Value ($)
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Medical Supply & Specialty 2.8%
Baxter International Inc. ................................................................. 55,050 3,874,144
Becton, Dickinson & Co. ................................................................... 49,950 1,673,325
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5,547,469
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Pharmaceuticals 9.7%
American Home Products Corp. .............................................................. 45,000 2,677,500
Bristol-Myers Squibb Co. .................................................................. 31,700 3,992,219
Pfizer, Inc. .............................................................................. 38,000 5,013,625
Schering-Plough Corp. ..................................................................... 65,300 3,652,719
Warner-Lambert Co. ........................................................................ 54,200 3,743,188
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19,079,251
-------------
Communications 4.7%
Telephone/Communications
Bell Atlantic Corp. ....................................................................... 47,250 2,713,922
MCI WorldCom, Inc.* ....................................................................... 79,950 6,595,875
-------------
9,309,797
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Financial 13.0%
Banks 0.9%
BankAmerica Corp. ......................................................................... 27,213 1,777,349
-------------
Insurance 6.1%
Allstate Corp. ............................................................................ 42,300 1,586,250
American International Group, Inc. ........................................................ 47,200 5,377,850
MBIA, Inc. ................................................................................ 36,300 2,234,719
XL Capital Ltd. " A" ...................................................................... 45,400 2,780,750
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11,979,569
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Consumer Finance 3.9%
American Express Credit Corp. ............................................................. 23,200 2,517,200
Associates First Capital Corp. ............................................................ 52,400 2,128,750
Citigroup Inc. ............................................................................ 51,500 3,025,625
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7,671,575
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Other Financial Companies 2.1%
Federal National Mortgage Association ..................................................... 58,900 4,123,000
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Media 6.8%
Advertising 1.9%
Omnicom Group, Inc. ....................................................................... 55,500 3,676,875
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The accompanying notes are an integral part of the financial statements.
11 - Scudder Classic Growth Fund
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Market
Shares Value ($)
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Broadcasting & Entertainment 1.1%
Infinity Broadcasting Corp.* .............................................................. 38,800 921,500
Viacom Inc. "B"* .......................................................................... 14,000 1,237,250
-------------
2,158,750
-------------
Cable Television 2.4%
Tele-Comm Liberty Media Group "A"* ........................................................ 86,450 4,657,494
-------------
Print Media 1.4%
Tribune Co. ............................................................................... 42,900 2,844,806
-------------
Service Industries 1.7%
EDP Services 0.7%
Automatic Data Processing, Inc. ........................................................... 37,700 1,498,575
-------------
Environmental Services 1.0%
Waste Management, Inc. .................................................................... 40,050 1,957,444
-------------
Durables 4.9%
Aerospace 2.1%
United Technologies Corp. ................................................................. 33,900 4,199,363
-------------
Telecommunications Equipment 2.8%
Cisco Systems, Inc.* ...................................................................... 31,200 3,051,750
Nokia AB Oy "A" (ADR) ..................................................................... 17,800 2,414,125
-------------
5,465,875
-------------
Manufacturing 5.3%
Diversified Manufacturing 3.4%
General Electric Co. ...................................................................... 30,400 3,049,500
Textron, Inc. ............................................................................. 23,500 1,833,000
Tyco International Ltd. (New) ............................................................. 25,100 1,868,381
-------------
6,750,881
-------------
Electrical Products 0.9%
Emerson Electric Co. ...................................................................... 32,700 1,878,206
-------------
Machinery/Components/Controls 1.0%
Parker-Hannifin Corp. ..................................................................... 50,850 1,887,806
-------------
Technology 16.8%
Computer Software 5.3%
Computer Associates International, Inc. ................................................... 60,000 2,520,000
Microsoft Corp.* .......................................................................... 28,200 4,233,525
Oracle Systems Corp.* ..................................................................... 42,800 2,391,450
The accompanying notes are an integral part of the financial statements.
12 - Scudder Classic Growth Fund
<PAGE>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Sterling Commerce, Inc.* .................................................................. 46,400 1,206,400
-------------
10,351,375
-------------
Diverse Electronic Products 0.8%
Applied Materials, Inc.* .................................................................. 29,800 1,657,625
-------------
EDP Peripherals 1.4%
EMC Corp.* ................................................................................ 27,700 2,835,788
-------------
Electronic Data Processing 6.1%
Compaq Computer Corp. ..................................................................... 84,750 2,987,438
Hewlett-Packard Co. ....................................................................... 25,900 1,720,731
International Business Machines Corp. ..................................................... 16,900 2,873,000
Sun Microsystems, Inc.* ................................................................... 44,900 4,369,331
-------------
11,950,500
-------------
Semiconductors 3.2%
Intel Corp. ............................................................................... 44,770 5,369,602
Linear Technology Corp. ................................................................... 22,600 990,163
-------------
6,359,765
-------------
Energy 6.0%
Oil Companies 3.7%
Exxon Corp. ............................................................................... 33,400 2,223,188
Mobil Corp. ............................................................................... 27,100 2,254,381
Royal Dutch Petroleum Co. (New York shares) ............................................... 65,200 2,860,650
-------------
7,338,219
-------------
Oil/Gas Transmission 1.1%
Williams Cos., Inc. ....................................................................... 56,850 2,103,450
-------------
Oilfield Services/Equipment 1.2%
Schlumberger Ltd. ......................................................................... 48,200 2,340,713
-------------
Transportation 0.3%
Railroads
Wisconsin Central Transportation Co.* ..................................................... 44,500 611,875
- -----------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $155,244,311) 183,854,954
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $168,683,311) (a) 197,293,954
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $168,702,575. At February 28,
1999, net unrealized appreciation for all securities based on tax cost was
$28,591,379. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $33,345,198 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$4,753,819.
The accompanying notes are an integral part of the financial statements.
13 - Scudder Classic Growth Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of February 28, 1999 (Unaudited)
<TABLE>
<S> <C>
Assets
- ------------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $168,683,311) ........................... $197,293,954
Cash ............................................................................ 190
Receivable for Fund shares sold ................................................. 746,737
Dividends and interest receivable ............................................... 173,095
Deferred organization expenses .................................................. 15,334
Other assets .................................................................... 84,245
----------------
Total assets .................................................................... 198,313,555
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ............................................... 6,094,743
Payable for Fund shares redeemed ................................................ 774,524
Accrued management fee .......................................................... 70,540
Other payables and accrued expenses ............................................. 130,908
----------------
Total liabilities ............................................................... 7,070,715
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, at market value ..................................................... $191,242,840
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss ................................................. (237,529)
Unrealized appreciation (depreciation) on investments ........................... 28,610,643
Accumulated net realized gain (loss) ............................................ (1,399,063)
Paid-in capital ................................................................. 164,268,789
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, at market value $191,242,840
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Shares
Net asset value, offering and redemption price per share
($135,507,853 / 6,468,911 outstanding shares of beneficial interest, -------------
$.01 par value, unlimited number of shares authorized) ......................... $20.95
-------------
Class A Shares
Net asset value and redemption price per share
($29,133,345 / 1,388,160 outstanding shares of beneficial interest, -------------
$.01 par value, unlimited number of shares authorized) ......................... $20.99
-------------
-------------
Maximum offering price per share (100 / 94.25 of $20.99) ........................ $22.27
-------------
Class B Shares
Net asset value, offering and redemption price (subject to contingent
deferred sales charge) per share($22,960,780 / 1,102,298 outstanding
shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) ......................................... $20.83
-------------
Class C Shares
Net asset value, offering and redemption price (subject to contingent
deferred sales charge) per share ($3,640,862 / 174,695 outstanding
shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) ......................................... $20.84
-------------
The accompanying notes are an integral part of the financial statements.
14 - Scudder Classic Growth Fund
<PAGE>
Statement of Operations
for the six months ended February 28, 1999 (Unaudited)
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $7,411) ..................... $ 718,006
Interest ................................................................ 248,256
----------------
966,262
----------------
Expenses:
Management fee .......................................................... 543,110
Services to shareholders ................................................ 591,717
Custodian and accounting fees ........................................... 55,305
Distribution service fees ............................................... 59,137
Administrative services fees ............................................ 40,919
Trustees' fees and expenses ............................................. 17,777
Auditing ................................................................ 17,009
Registration fees ....................................................... 47,992
Reports to shareholders ................................................. 27,857
Legal ................................................................... 6,546
Amortization of organization expense .................................... 2,697
Other ................................................................... 22,283
----------------
Total expenses before reductions ........................................ 1,432,349
Expense reductions ...................................................... (228,558)
----------------
Expenses, net ........................................................... 1,203,791
-------------------------------------------------------------------------------------------
Net investment income (loss) (237,529)
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments ............................... (1,339,784)
Net unrealized appreciation (depreciation) during the period
on investments ......................................................... 40,347,312
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 39,007,528
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 38,769,999
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Classic Growth Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) in Net Assets Six Months Year
Ended February Ended
28, 1999 August 31,
(Unaudited) 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ......................... $ (237,529) $ 16,867
Net realized gain (loss) on investment transactions .. (1,339,784) 6,411,034
Net unrealized appreciation (depreciation) on
investment transactions during the period ........... 40,347,312 (18,592,485)
---------------- ----------------
Net increase (decrease) in net assets resulting
from operations .................................... 38,769,999 (12,164,584)
---------------- ----------------
Distributions to shareholders from:
Net investment income-- Scudder Shares ............... -- (134,261)
---------------- ----------------
Net realized gains-- Scudder Shares .................. (4,994,881) (1,093,271)
Net realized gains-- Class A ......................... (734,396) --
Net realized gains-- Class B ......................... (599,784) --
Net realized gains-- Class C ......................... (91,933) --
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ............................ 77,675,248 123,389,959
Net asset value of shares issued to shareholders in
reinvestment of distributions ....................... 6,288,618 1,215,373
Cost of shares redeemed .............................. (42,632,832) (46,876,198)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ........................................ 41,331,034 77,729,134
---------------- ----------------
Increase (decrease) in net assets .................... 73,680,039 64,337,018
Net assets at beginning of period .................... 117,562,801 53,225,783
Net assets at end of period (including accumulated
net investment loss of $237,529 in 1999) ............ $191,242,840 $117,562,801
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Classic Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Scudder Shares (b)
For the Period
September 9, 1996
(commencementof
Six Months Ended Year Ended operations) to
February 28, August 31, August 31,
1999 (Unaudited) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------
Net asset value, beginning of period ................................ $16.61 $17.38 $12.00
Income from investment operations: ----------------------------------------------------
Net investment income (loss) ........................................ (.03) .01 .06
Net realized and unrealized gain (loss) on investment transactions .. 5.18 (.45) 5.36
---------------------------------------------------
Total from investment operations .................................... 5.15 (.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 ...................................... $20.95 $16.61 $17.38
-----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) ................................................ 31.11** (2.72) 45.20**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 136 103.5 53.2
Ratio of operating expenses, net, to average daily net assets (%) ... 1.52* 1.30 1.25*
Ratio of operating expenses before expense reductions, to average
daily net assets (%) ............................................... 1.77* 1.61 2.25*
Ratio of net investment income (loss) to average daily net
assets (%) ........................................................ (.29)* .03 .43*
Portfolio turnover rate (%) ......................................... 67* 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) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
17 - Scudder Classic Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class A
For the Period
April 16, 1998
Six Months (commencementof
Ended sale of
February Class A shares)
1999 to August 31,
(Unaudited) 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
---------------------------------------------
Net asset value, beginning of period ................................ $16.62 $20.30
---------------------------------------------
Income from investment operations:
Net investment income (loss) ........................................ -- .01
Net realized and unrealized gain (loss) on investment transactions .. 5.18 (3.69)
---------------------------------------------
Total from investment operations .................................... 5.18 (3.68)
---------------------------------------------
Less distributions from net realized gains on investment (.81) --
transactions ...................................................... ---------------------------------------------
Net asset value, end of period ...................................... $20.99 $16.62
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................ 31.28** (18.13)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 29 7.2
Ratio of operating expenses, net, to average daily net assets (%) ... 1.24* 1.24*
Ratio of operating expenses before expense reductions,
to average daily net assets (%) .................................... 1.73* 1.74*
Ratio of net investment income (loss) to average daily
net assets (%) ..................................................... (.01)* .10*
Portfolio turnover rate (%) ......................................... 67* 49
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
18 - Scudder Classic Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class B
For the Period
April 16, 1998
Six Months (commencementof
Ended sale of
February Class B shares)
1999 to August 31,
(Unaudited) 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
---------------------------------------------
Net asset value, beginning of period ................................ $16.57 $20.30
---------------------------------------------
Income from investment operations:
Net investment income (loss) ........................................ (.09) (.05)
Net realized and unrealized gain (loss) on investment transactions .. 5.16 (3.68)
---------------------------------------------
Total from investment operations .................................... 5.07 (3.73)
---------------------------------------------
Less distributions from net realized gains on
investment transactions (.81) --
---------------------------------------------
Net asset value, end of period ...................................... $20.83 $16.57
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................ 30.70** (18.37)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 23 5.9
Ratio of operating expenses, net, to average daily net assets (%) ... 2.12* 2.12*
Ratio of operating expenses before expense reductions,
to average daily net assets (%) ................................... 2.50* 2.52*
Ratio of net investment income (loss) to average daily
net assets (%) .................................................... (.89)* (.79)*
Portfolio turnover rate (%) ......................................... 67* 49
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
19 - Scudder Classic Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class C
For the Period
April 16, 1998
Six Months (commencementof
Ended sale of
February Class C shares)
1999 to August 31,
(Unaudited) 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
---------------------------------------------
Net asset value, beginning of period ................................ $16.57 $20.30
---------------------------------------------
Income from investment operations:
Net investment income (loss) ........................................ (.09) (.05)
Net realized and unrealized gain (loss) on investment transactions .. 5.17 (3.68)
---------------------------------------------
Total from investment operations .................................... 5.08 (3.73)
---------------------------------------------
Less distributions from net realized gains on investment
transactions ...................................................... (.81) --
.................................................................... ---------------------------------------------
Net asset value, end of period $20.84 $16.57
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................ 30.76** (18.37)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 4 .9
Ratio of operating expenses, net, to average daily net assets (%) ... 2.09* 2.09*
Ratio of operating expenses before expense reductions,
to average daily net assets (%) ................................... 2.87* 3.00*
Ratio of net investment income (loss) to average daily
net assets (%) .................................................... (.86)* (.73)*
Portfolio turnover rate (%) ......................................... 67* 49
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
20 - Scudder Classic Growth Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Classic Growth Fund (the "Fund") is a diversified series of Investment Trust
(the "Trust"), a Massachusetts business trust registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
Effective April 16, 1998, the Fund changed its name from Scudder Classic Growth
Fund to Classic Growth Fund and an additional three classes of shares were
offered, namely Classes A, B and C. Existing shares of Classic Growth Fund
outstanding on that date were redesignated Scudder Shares. Class A shares are
sold to investors subject to an initial sales charge. Class B shares are sold
without an initial sales charge but are subject to higher ongoing expenses than
Class A and Scudder Shares and a contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically convert to Class A shares six
years after issuance. Class C shares are sold without an initial sales charge
but are subject to higher ongoing expenses than Class A and Scudder Shares and a
contingent deferred sales charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert into another class. Scudder
Shares are generally not available to new investors and are not subject to
initial or contingent deferred sales charges.
Investment income, realized and unrealized capital gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears expenses unique to that class. Each class of shares differs in
its respective distribution, shareholder services, administrative services and
certain other class-specific expenses and expense reductions. All shares of the
Fund have equal rights with respect to voting.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq Stock Market, Inc.
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported on such system. If there are no such sales, the value is the most
recent bid quotation. Securities which are not quoted on Nasdaq but are traded
in another over-the-counter market are valued at the most recent sale price on
such market. If no sale occurred, the security is then valued at the calculated
mean between the most recent bid and asked quotations. If there are no such bid
and asked quotations the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Fund, whose
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. 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.
21 - Scudder Classic Growth Fund
<PAGE>
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value is equal to at least the repurchase price.
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. The Fund paid no federal income taxes and no federal income tax
provision was required.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
During the six months ended February 28, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $86,231,727 and
$49,356,981, 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, 2000. Certain subsidiaries of the Adviser have also
22 - Scudder Classic Growth Fund
<PAGE>
agreed to waive a portion of their fees. For the six months ended February 28,
1999, the Adviser did not impose a portion of its management fee amounting to
$194,043, and the fee imposed amounted to $349,067, of which $70,540 is unpaid
at February 28, 1999.
Effective September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner
of the Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's Agreement with Scudder Kemper was deemed to have been
assigned and, therefore, terminated. In December 1998, the Board of Trustees and
the shareholders of the Fund approved a new investment management agreement with
Scudder Kemper, which is substantially identical to the former Agreement, except
for the dates of execution and termination.
Distribution Service Agreement. In accordance with Rule 12b-1 under the
Investment Company Act of 1940, Kemper Distributors, Inc. ("KDI"), a subsidiary
of the Adviser, receives a fee of .75% of average daily net assets of Classes B
and C. Pursuant to the agreement, KDI enters into related selling group
agreements with various firms at various rates for sales of Class B and C
shares. For the six months ended February 28, 1999, the Distribution Fee was as
follows:
<TABLE>
<CAPTION>
Distribution Fee Total Aggregated Fees Unpaid at
Waived by KDI February 28, 1999
------------------------------------ ------------------ ----------------- --------------------
<S> <C> <C> <C>
Class B ......................... $ 51,134 $ -- $ 11,813
Class C ......................... 8,003 3,062 1,271
------------ ------------ --------------
$ 59,137 $ 3,062 $ 13,084
========= ========= =========
</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 six months ended
February 28, 1999 aggregated 229,803, of which $222,046 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 six
months ended February 28, 1999, the CDSC for Classes B and C aggregated $10,419
and $342, respectively.
23 - Scudder Classic Growth Fund
<PAGE>
Administrative Service Fees. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to .25% of
average daily net assets for each such class. KDI in turn has various agreements
with financial services firms that provide these services and pays these firms
based on assets of shareholder accounts the firms service. For the six months
ended February 28, 1999, the Administrative Services Fee was as follows:
<TABLE>
<CAPTION>
Total Fees Unpaid at
Administrative Service Fee Aggregated Waived by KDI February 28, 1999
------------------------------------ ------------------ ----------------- --------------------
<S> <C> <C> <C>
Class A $ 21,436 $ 20,018 $ 1,418
Class B 17,045 8,997 --
Class C 2,438 2,438 --
------------ ------------ --------------
$ 40,919 $ 31,453 $ 1,418
========= ========= =========
</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 six months ended February 28, 1999,
the amount charged to Classes A, B and C by KSC aggregated $40,678, $29,826 and
$7,456, respectively, of which $28,846 is unpaid at February 28, 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
six months ended February 28, 1999 the amount charged to the Scudder Shares by
SSC for shareholder services aggregated $139,408, of which $24,013 is unpaid at
February 28, 1999.
The Scudder Shares of the Fund are one of several Scudder Funds (the "Underlying
Funds") in which the Scudder Pathway Series Portfolios (the "Portfolios")
invest. In accordance with the Special Servicing Agreement entered into by the
Adviser, the Portfolios, the Underlying Funds, SSC, SFAC, STC, and Scudder
Investor Services, Inc., expenses from the operation of the Portfolios are borne
by the Underlying Funds based on each Underlying Fund's proportionate share of
assets owned by the Portfolios. No Underlying Funds will be charged expenses
that exceed the estimated savings to such Underlying Fund. These estimated
savings result from the elimination of separate shareholder accounts which
either currently are or have potential to be invested in the Underlying Funds.
For the year ended February 28, 1999, the Special Servicing Agreement expense
charged to the Scudder Shares amounted to $317,508.
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 six
months ended February 28, 1999, the amount charged to the Scudder Shares by STC
aggregated $25,507, of which $4,624 is unpaid at February 28, 1999.
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 six months ended February 28, 1999, the amount charged to the Fund by
SFAC aggregated $46,992, of which $16,624 is unpaid at February 28, 1999.
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 six months ended February 28, 1999, the Trustees
fees and expenses aggregated $17,777.
24 - Scudder Classic Growth Fund
<PAGE>
D. Share Transactions
The following table summarizes shares of beneficial interest and dollar activity
in the Fund:
<TABLE>
<CAPTION>
Period ended Period ended
February 28, 1999 August 31, 1998
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Shares Dollars Shares Dollars
Shares sold
Scudder Shares ....................................... 1,101,662 $ 22,083,741 5,261,810 $ 100,865,048
Class A .............................................. 1,697,938 34,209,564 686,665 13,861,440
Class B .............................................. 948,252 18,669,664 388,134 7,520,415
Class C .............................................. 136,002 2,712,279 59,192 1,143,056
--------- -------------- --------- ---------------
3,883,854 77,675,248 6,395,801 123,389,959
--------- -------------- --------- ---------------
Shares issued to shareholders in reinvestment of
distributions
Scudder Shares ....................................... 241,446 $ 4,918,261 70,172 $ 1,215,373
Class A .............................................. 34,316 699,714 -- --
Class B .............................................. 28,753 582,816 -- --
Class C .............................................. 4,331 87,827 -- --
--------- -------------- --------- ---------------
308,846 6,288,618 70,172 1,215,373
--------- -------------- --------- ---------------
Shares redeemed
Scudder Shares ....................................... (1,107,666) $ (21,776,328) (2,160,627) $ (40,949,391)
Class A .............................................. (777,228) (15,845,768) (253,531) (5,236,843)
Class B .............................................. (232,051) (4,591,998) (30,790) (608,304)
Class C .............................................. (20,972) (418,738) (3,858) (81,660)
--------- -------------- --------- ---------------
(2,137,917) (42,632,832) (2,448,806) (46,876,198)
--------- -------------- --------- ---------------
Net increase (decrease)
Scudder Shares ....................................... 235,442 $ 5,225,674 3,171,355 $ 61,131,030
Class A .............................................. 955,026 19,063,510 433,134 8,624,597
Class B .............................................. 744,954 14,660,482 357,344 6,912,111
Class C .............................................. 119,361 2,381,368 55,334 1,061,396
--------- -------------- --------- ---------------
2,054,783 $ 41,331,034 4,017,167 $ 77,729,134
--------- -------------- --------- ---------------
</TABLE>
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.
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Classic Growth Fund
(the "Fund") was held on December 17, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
4,977,316 63,743 65,733 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
4,572,082 105,164 84,030 345,516
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
26 - Scudder Classic Growth Fund
<PAGE>
This Page
intentionally
left blank.
27 - Scudder Classic
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll Associates; Executive Fellow,
Center for Business Ethics, Bentley College
Peter B. Freeman
Trustee; Corporate Director and Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration,
Northeastern University, College of Business
Administration
Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner, Technology Equity Partners
Bruce F. Beaty*
Vice President
Philip S. Fortuna*
Vice President
William F. Gadsden*
Vice President
Ann M. McCreary*
Vice President
Robert T. Hoffman*
Vice President
Thomas W. Joseph*
Vice President
Valerie F. Malter*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
28 - Scudder Classic
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
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.
Scudder New Europe Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. +++ +++ +++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.
29 - Scudder Classic
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
30 - Scudder Classic
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
31 - Scudder Classic
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $280 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
[LOGO]
<PAGE>
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED FEBRUARY 28, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKS LONG-TERM GROWTH OF CAPITAL WITH REDUCED SHARE PRICE VOLATILITY COMPARED
TO OTHER GROWTH MUTUAL FUNDS. KEMPER CLASSIC GROWTH FUND IS REGISTERED AS
CLASSIC GROWTH FUND.
KEMPER CLASSIC GROWTH FUND
"... Our commitment to our investment style paid
off. As the stocks of attractive companies declined
to more sensible levels, we used that volatility to
the fund's advantage. ..."
[KEMPER FUNDS LOGO]
<PAGE>
CONTENTS
3
Economic Overview
5
Performance Update
8
Shareholders' Meeting
9
Industry Sectors
10
Largest Holdings
11
Portfolio Of Investments
14
Financial Statements
17
Financial Highlights
19
Notes to Financial Statements
24
Shareholders' Meeting
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER CLASSIC GROWTH FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTHS ENDED FEBRUARY 28, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 31.28
CLASS B 30.70
CLASS C 30.76
LIPPER GROWTH FUNDS CATEGORY AVERAGE* 29.91
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE, SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. KEMPER CLASSIC GROWTH
FUND CLASS A, B AND C SHARES WERE INITIALLY OFFERED APRIL 16, 1998.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES. IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE. RANKING
INFORMATION IS FOR CLASS S SHARES. CLASS S SHARES (UNLIKE CLASS A, B AND C
SHARES) DO NOT HAVE ANY CHARGES, 12B-1 FEES, OR OTHER CLASS SPECIFIC EXPENSES
LIKE ADMINISTRATIVE AND TRANSFER AGENT EXPENSES. KEMPER CLASSIC GROWTH FUND
CLASS A, B AND C WERE INITIALLY OFFERED ON APRIL 16, 1998, AND HAVE NOT YET
BEEN RANKED.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
2/28/99 8/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER CLASSIC GROWTH FUND
CLASS A $20.99 $16.62
- --------------------------------------------------------------------------------
KEMPER CLASSIC GROWTH FUND
CLASS B $20.83 $16.57
- --------------------------------------------------------------------------------
KEMPER CLASSIC GROWTH FUND
CLASS C $20.84 $16.57
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
CLASSIC GROWTH FUND
RANKINGS AS OF 2/28/99*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS S
- --------------------------------------------------------------------------------
<S> <C>
1-YEAR #559 of
1011 funds
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE SIX-MONTH PERIOD ENDED FEBRUARY 28, 1999, KEMPER CLASSIC GROWTH FUND
PAID THE FOLLOWING DIVIDENDS PER SHARE:
<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
CAPITAL GAIN CAPITAL GAIN
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER CLASSIC
GROWTH FUND CLASS A $.125 $.680
- --------------------------------------------------------------------------------
KEMPER CLASSIC
GROWTH FUND CLASS B $.125 $.680
- --------------------------------------------------------------------------------
KEMPER CLASSIC
GROWTH FUND CLASS C $.125 $.680
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
<TABLE>
<S> <C>
Source: Morningstar, Inc., Chicago, IL.
(312)696-6000. The Morningstar Style Box is based on
Scudder Shares of Classic Growth Fund as of 2/28/99.
The Morningstar Equity 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 style boxes represent a snapshot of a 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
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>
GROWTH STOCK Shares in companies that are expected to experience rapid growth
resulting from strong sales, talented management and dominant market position.
Growth stocks can be volatile, based on changing perceptions of the underlying
companies' growth potential.
IMF AND G7 NATIONS Two international groups focusing on international economics
and monetary policy. The International Monetary Fund (IMF) is an agency of the
United Nations. The Group of Seven (G7) is an economic alliance of seven leading
nations, including the United States.
MARKET CAPITALIZATION A measure of the size of a company that offers publicly
traded stock. Market capitalization is determined by multiplying the number of
shares outstanding by the current price of the stock.
SECTOR A specific group of related industries make up a sector. The health care
sector, for instance, consists of companies in several industries, including
medical supplies, hospital management, pharmaceuticals, and biotechnology.
<PAGE>
ECONOMIC OVERVIEW
[SILVIA LETTER HERE]
3
<PAGE>
ECONOMIC OVERVIEW
[SILVIA LETTER HERE]
4
<PAGE>
PERFORMANCE UPDATE
[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. AS A TEAM, THEY HAVE
MANAGED THE FUND SINCE ITS INCEPTION.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE REPORTING PERIOD INDICATED ON THE COVER. THE MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS.
DURING THE SEMIANNUAL PERIOD, KEMPER CLASSIC GROWTH FUND OUTPERFORMED THE MARKET
AND ITS PEER GROUP AVERAGE. BELOW, CO-LEAD PORTFOLIO MANAGERS WILLIAM GADSDEN
AND BRUCE BEATY PROVIDE AN OVERVIEW OF THE MARKET CLIMATE, DISCUSS HOW THEIR
GROWTH-AT-A-REASONABLE-PRICE STRATEGY CONTRIBUTED TO THE FUND'S SUCCESS, AND
DESCRIBE WHERE THEY'RE FINDING ATTRACTIVE OPPORTUNITIES.
Q BILL AND BRUCE, HOW DID THE FUND PERFORM DURING THE SEMIANNUAL PERIOD?
A We're pleased with the fund's performance, on both an absolute and
relative basis. For the six-month period ended February 28, 1999, Kemper Classic
Growth Fund earned 31.28 percent (Class A shares, unadjusted for any sales
charges). This gain compares very favorably with its peers. Kemper Classic
Growth Fund surpassed the Lipper Growth Fund's category average of 29.91
percent.
Q BEFORE WE DISCUSS THE FUND'S PERFORMANCE IN GREATER DETAIL, COULD YOU
PROVIDE US WITH A BRIEF OVERVIEW OF HOW THE OVERALL STOCK MARKET PERFORMED
DURING THE SEMIANNUAL PERIOD?
A During the semiannual period we saw a continuation of the narrow, two-tier
market that has existed since late 1997. By "narrow," we mean that only a
handful of stocks drove the market's performance. This elite group represents
the market's first tier. Large, household-name companies and technology firms
dominate its exclusive ranks.
The vast majority of stocks fall into the second tier. These stocks have not
fared nearly so well as the first tier. Smaller-cap stocks and value stocks have
been relegated to this currently less-favored group.
The Standard & Poor's Index of 500 Common Stocks (S&P 500) gained 30.26
percent for the semiannual period ending February 28, 1999. While the
performance of this index is often cited as a gauge of the overall market, it's
important to keep in mind that only a small handful of the largest-cap stocks
within the index earned the majority of its gains.
Q IN YOUR OPINION, WHAT ARE SOME OF THE MOST IMPORTANT FACTORS THAT
CONTRIBUTED TO THE MARKET CLIMATE DURING THE SEMIANNUAL PERIOD?
A Throughout the semiannual period, global economic uncertainty and
volatility were key factors that shaped the market. In late August 1998, just
prior to the start of the fund's fiscal year, Russia defaulted on its debt and
sent shock waves throughout the global markets. Concerns about Latin American
and Asian economic instability exacerbated the crisis atmosphere. The market
corrected dramatically and stocks of all varieties tumbled. The market began the
semiannual period on an extremely pessimistic note.
Investors sped back to stocks in the fourth quarter of 1998, but not all
stocks participated equally in the rebound. Uncertainty continued to drive
market sentiment. Anxious investors placed a premium on liquidity and perceived
safety, preferring large, mega-cap growth-oriented companies over smaller-cap
and value stocks.
5
<PAGE>
PERFORMANCE UPDATE
Q YOU STATE THAT THE RUSSIAN DEBT DEFAULT UNLEASHED A CRISIS CLIMATE. WAS
THE FRANTIC TONE DISPELLED DURING THE SEMIANNUAL PERIOD? IF SO, WHAT CONTRIBUTED
TO THE IMPROVED OUTLOOK?
A As the semiannual period progressed, the crisis climate lessened markedly.
Through quick and cohesive responses, the Federal Reserve, IMF and G7 nations
restored investor confidence. The Federal Reserve cut interest rates repeatedly,
and more than 30 other nations followed suit. The IMF and G7 nations developed
well-received plans to bolster the flagging international economies.
Consumer confidence also helped dispel the crisis atmosphere. Here in the
United States, nice wage gains and low inflation have translated into strong
purchasing power. The consumer continues to shop.
As a result, a group of high-powered "winner-takes-all" companies have
increased their profits and earnings. These superstar companies -- the
Microsofts and Wal-Marts -- are executing their business plans exceedingly well,
leaving worldwide competitors far behind.
Q COULD YOU ELABORATE ON YOUR INVESTMENT APPROACH AND HOW YOU BELIEVE IT
BENEFITED THE FUND DURING THE SEMIANNUAL PERIOD?
A Our investment approach is disciplined and research-intensive. We adhere
to a "growth-at-a-reasonable-price" (GARP) strategy. We look for high-quality,
domestic, large-cap stocks with strong prospects for sustainable, consistent
earnings growth. To meet our strict criteria, however, a stock must not only
offer above-average growth potential, it must also be trading at an attractive
price.
GARP requires patience, but we have high confidence in the long-term benefits
of our approach. The events of the recent months affirmed this conviction.
During the summer of 1998, our unwillingness to chase after
"growth-at-any-price" (GAAP) precluded us from owning several of the stocks that
were driving the market. We recognized that shareholders expect us to remain
true to our reasonable-price discipline.
In the wake of the Russian debt default, our commitment to our investment
style paid off. As the stocks of attractive companies declined to more sensible
levels, we used that volatility to the fund's advantage. We purchased stocks
such as Wal-Mart and Cisco Systems at more sensible valuations, and reaped solid
gains in the months that followed.
Q MANY OF THE FUND'S TOP HOLDINGS REMAIN UNCHANGED FROM THE START OF THE
FISCAL YEAR. WHAT DOES THIS REVEAL ABOUT YOUR STOCK SELECTION STRATEGY?
A We want to invest in stocks that will be successful long-term performers.
Great companies are not everyday occurrences, nor do they appear out of the
blue. We're prepared to take the time and do the work to seek the great
companies.
We don't buy or sell stocks on impulse, and we don't chase trends. We instead
rely on Scudder Kemper Investment's independent research to lead us to the most
compelling long-term opportunities. Before we buy a stock, we need to have a
clear picture of where a company has been, and a high degree of conviction of
where it's going.
Keeping turnover in check also helps shareholders in another way: Buying and
selling stocks generates expenses. By avoiding unnecessary transaction fees, we
preserve a greater amount of gains for shareholders.
Q COULD YOU HIGHLIGHT SOME EXAMPLES OF YOUR STOCK SELECTION PROCESS IN
ACTION?
A Our GARP discipline led us to several fine retail stocks. Here, we looked
for stocks that could best capitalize on the vigorous consumer confidence of
today's economy. Home Depot, Dayton Hudson, and Wal-Mart were among the stocks
that met our criteria. Each has the "winner-takes-all" characteristics that
today's market demands: strong competitive position, solid management, and the
demonstrated ability to execute their business plans. We've backed Home Depot
and Dayton Hudson with conviction since before the start of the semiannual
period. Meanwhile, the addition of Wal-Mart to the portfolio typifies our
opportunistic use of market volatility. We'd been following Wal-Mart for a long
time and were familiar with its fundamental strengths. Our research indicated
that the stock was just too pricey during the first half of 1998. We purchased
Wal-Mart for the fund when its price declined to a reasonable level in September
1998, allowing shareholders to participate in the stock's subsequent gains.
MCI WorldCom also fulfilled our stringent criteria. We've held the stock since
March 1998. Through entrepreneurial management, successful acquisitions and
creative positioning, MCI WorldCom has established itself as a global
telecommunications superstar. The company reaped tremendous benefits as a result
of the MCI WorldCom merger. In our view, MCI WorldCom is well positioned to
6
<PAGE>
PERFORMANCE UPDATE
benefit from the growth of the Internet and from a less-regulated
telecommunications environment. Given the company's potential for above-average
growth, we continue to believe that its stock price is very reasonable. In fact,
MCI Worldcom is now the fund's largest holding.
We've also found compelling opportunities among media stocks.
Tele-Communications Liberty Media, for instance, embodies the characteristics we
demand. One of three subsidiaries operated by Tele-communications, Inc. (TCI),
Liberty Media occupies a dominant position in the digital information industry.
The company is involved in a variety of media, cable, Internet and television
programming. We believe that Liberty Media could benefit as a result of AT&T's
agreement to purchase it from TCI. Under this plan, Liberty Media would continue
to operate independently, while receiving access to capital and distribution
from its new parent.
Q EVERYONE SEEMS TO BE TALKING ABOUT THE INTERNET. HOW HAVE YOU POSITIONED
THE PORTFOLIO TO TAKE ADVANTAGE OF THE INTERNET'S GROWTH POTENTIAL?
A At this time, we're not invested in any of the fledgling names of the
Internet, such as Yahoo! or Amazon.com. These simply do not meet our investment
criteria, and no matter how tantalizing their short-term gains seem, we're
comfortable passing them by.
We feel that the best opportunities exist in the large, high-quality
technology companies that are creating the infrastructure of the Internet. Here,
too, we've sought out the "winner-takes-all" names. For instance, the fund owns
a large position in Sun Microsystems. Sun Microsystems is one of the leading
providers of network servers, a key requirement for the Internet revolution. We
purchased the stock at a very attractive price, before the firm entered into a
complex cross-purchasing agreement with America Online.
During the semiannual period, we also established a stake in EMC. We believe
that EMC offers an excellent pure-play on electronic data storage. As a result
of the explosive increase in electronic data traffic, companies must increase
their storage capacity. Our research led us to purchase EMC at a considerably
reduced price relative to its earnings estimates, and our conviction translated
into a sizeable gain.
Q BESIDES FINDING ATTRACTIVE OPPORTUNITIES AMONG RETAIL, MEDIA AND
TECHNOLOGY STOCKS, ARE THERE OTHER AREAS WHERE YOU'RE FINDING APPEALING STOCKS?
A The portfolio includes many health care and financial services stocks.
During the semiannual period, we increased the fund's exposure to health care
stocks, favoring major drug companies such as Pfizer, Schering-Plough and Warner
Lambert. Given the fund's focus on seeking reduced volatility, the increase
makes sense: Because health care needs remain stable, the earnings of
pharmaceutical companies have historically been more resilient to economic
swings than the earnings of other types of companies.
While we slightly reduced the fund's overall position in financial services
stocks during the semiannual period, we continue to back many stocks in the
group with conviction. Although the financial services sector was hit
particularly hard in the wake of the Russian debt default, the crisis
surrounding the group has lessened. In fact, many financial-service stocks, such
as American Express and American International Group, came roaring back to reach
new highs.
Q ALTHOUGH KEMPER CLASSIC GROWTH FUND EARNED A GOOD TOTAL RETURN FOR THE
SEMIANNUAL PERIOD, DID THE PORTFOLIO HOLD STOCKS THAT FELL SHORT OF
EXPECTATIONS?
A Yes, we did invest in some poor performing stocks. Service Corporation
International, a funeral-services operator, fell far short of earnings
expectations. The management lost track of costs, and destroyed a great
long-term record by embarking on pricey acquisition plans. The collapse of the
stock came as a surprise, especially given the fact that the funeral business
tends to be a fairly stable industry. Based on the deterioration of the
company's fundamentals, we eliminated the stock from the portfolio.
Sterling Commerce hindered performance. We had originally purchased the stock
with hopes that it could benefit from the explosion of electronic commerce.
However, the management of the company hasn't been able to develop a strategy
that effectively addresses the growth potential of the Internet. We haven't
liquidated the fund's position in Sterling Commerce, however, because we believe
that the stock's price decline is overdone.
Defense-industry giant Lockheed Martin also disappointed us. We had thought
that the stock could offer defensive characteristics and downside protection in
volatile markets. However, this aerospace firm wasn't showing signs of revenue
growth, nor was the stock behaving as defensively as we would have liked.
We also eliminated positions in Suiza Foods and HEALTHSOUTH.
7
<PAGE>
PERFORMANCE UPDATE
These two companies were unable to execute their business plans, and no longer
offered the earnings-growth potential we require.
Q THE GLOBALIZATION OF THE ECONOMY OFFERS NEW OPPORTUNITIES, BUT ALSO
ADDITIONAL RISKS. WHAT SORT OF INTERNATIONAL EXPOSURE DOES THE FUND HAVE?
A Kemper Classic Growth Fund is designed to be a more conservative approach
to growth-stock investing. Consistent with this risk-conscious approach, the
fund invests primarily in large, domestic companies.
But, because we live in a global marketplace, international events and foreign
competitors do impact businesses in the United States. In recognition of these
global relationships, we favor companies that are well-positioned to seize the
opportunities of the world market, while seeking to avoid companies that carry
concentrated exposure to international "hot spots."
Anheuser-Busch's product positioning illustrates how a domestic company can
capitalize on global opportunities. The firm has made aggressive strategic
inroads into the Latin American alcoholic beverage markets with its own
products, as well as through its stake in Grupo Modelo, the manufacturer of
Corona beer.
While we've found an attractive opportunity in Anheuser-Busch, we've steered
clear of some other stocks with international exposure. At this time, for
instance, we're not currently invested in Coca-Cola and Gillette. Each of these
companies has been hindered recently by their exposure to emerging markets, and
we feel that shareholders would likely be better served if we invest elsewhere.
Q YOU NOTE THAT THE OVERALL INVESTMENT CLIMATE IMPROVED OVER THE SEMIANNUAL
PERIOD. HAS THE WORST PASSED, OR DO YOU ADVOCATE CONTINUED CAUTION?
A Although the semiannual period has closed on a far brighter note than it
opened, we still believe that volatility will continue. We advise investors to
be prepared for short-term market swings. No one can predict with certainty how
long or at what rate the domestic and global economies will grow. Also, because
investors are extremely jittery, every earnings shortfall carries considerable
consequence. Should a "winner-takes-all" company fail to execute at its expected
level, the misstep could cause its stock price to plummet, as well as triggering
those of other stocks to fall.
Despite these cautions, we continue to believe in the merits of Kemper Classic
Growth Fund's GARP strategy. We recognize that volatility can create discomfort,
and understand that the past few years have tested the mettle of investors.
However, the fund's performance during the semiannual period demonstrates that
volatility does not necessarily preclude earning solid total returns. We remain
committed to using this same investment discipline to address the market's
future challenges.
SHAREHOLDERS MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held. Shareholders of
Classic Growth Fund, a Series of Investment Trust, were asked to vote on two
separate issues: approval of the new Investment Management Agreement between the
fund and Scudder Kemper Investments, Inc., and the approval of the revision of
the fund's fundamental lending policy. The results include all classes of the
Classic Growth Fund including the Kemper shares and the Scudder shares. The
following are the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
4,977,315 63,742 65,733
</TABLE>
2) Approval of the revision of the fund's fundamental lending policy. This item
was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
4,572,081 105,164 84,030
</TABLE>
8
<PAGE>
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
Data shows the percentage of the common stocks in the portfolio that each sector
represented on February 28, 1999, and on August 31, 1998.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH FUND ON KEMPER CLASSIC GROWTH FUND ON
2/28/99 8/31/98
----------------------------- -----------------------------
<S> <C> <C>
Technology 18.00 16.00
Health 15.00 12.00
Financial 14.00 18.00
Consumer Discretionary 13.00 15.00
Consumer Staples 8.00 6.00
Media 7.00 6.00
Energy 6.00 9.00
Manufacturing 6.00 8.00
Durables 5.00 5.00
Other 8.00 5.00
</TABLE>
9
<PAGE>
LARGEST HOLDINGS
KEMPER CLASSIC GROWTH FUND'S 10 LARGEST HOLDINGS*
Representing 25.8 percent of the fund's portfolio on February 28, 1999.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
HOLDINGS PERCENT
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
1. MCI WORLDCOM Provides intrastate, interstate 3.3%
and international long-distance
voice and data services.
- ---------------------------------------------------------------------------------------
2. HOME DEPOT Operates retail stores carrying 3.0%
building supplies and home
improvement products.
- ---------------------------------------------------------------------------------------
3. DAYTON HUDSON Operates retail stores 2.8%
throughout the United States.
Subsidiaries include Dayton's,
Hudson's, Marshall Field's,
Target, and Mervyn's.
- ---------------------------------------------------------------------------------------
4. AMERICAN The leading U.S.-based 2.7%
INTERNATIONAL GROUP international insurance
organization and among the
largest underwriters of
commercial and industrial
coverage in the United States.
- ---------------------------------------------------------------------------------------
5. INTEL Engaged in the design, 2.7%
development, manufacture and
sale of advanced microcomputer
components, such as integrated
circuits and other related
products.
- ---------------------------------------------------------------------------------------
6. PFIZER Global, diversified 2.5%
research-based health care
company that develops,
manufactures, and markets a wide
variety of products for human
and animal health care.
- ---------------------------------------------------------------------------------------
7. TELE-COMM Liberty Media has positions in a 2.4%
LIBERTY MEDIA GROUP variety of cable television
channels, such as the Discovery
Channel, as well as exposure to
the Internet and other media.
- ---------------------------------------------------------------------------------------
8. SUN MICROSYSTEMS Provides high-performance 2.2%
workstations, servers and
networking software for the
engineering, scientific,
commercial and technical
industries.
- ---------------------------------------------------------------------------------------
9. MICROSOFT Develops, markets and supports a 2.1%
variety of microcomputer
software, operating systems,
language and application
programs, related books and
peripheral devices.
- ---------------------------------------------------------------------------------------
10. UNITED TECHNOLOGIES Manufactures aerospace, 2.1%
automotive, heating and cooling,
automotive and elevator products
for global distribution.
- ---------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
10
<PAGE>
PORTFOLIO OF INVESTMENTS
KEMPER CLASSIC GROWTH FUND
Portfolio of Investments as of February 28, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
REPURCHASE AGREEMENTS 6.8% AMOUNT ($) VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Repurchase Agreement with State Street Bank
and Trust Company dated 2/26/1999 at
4.74%, to be repurchased at $13,444,308
on 3/1/1999, collateralized by a
$14,150,000 U.S. Treasury Note, 3.375%,
1/15/2007 (Cost $13,439,000) 13,439,000 13,439,000
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 93.2% SHARES
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER
DISCRETIONARY--12.2%
DEPARTMENT & CHAIN
STORES--10.0%
Dayton Hudson Corp. 89,300 5,586,831
Gap Inc. 9,400 608,063
Home Depot, Inc. 98,900 5,903,094
Rite Aid Corp. 65,600 2,714,200
Wal-Mart Stores Inc. 33,300 2,876,288
Walgreen Co. 65,400 2,092,800
--------------------------------------------------------------------------
19,781,276
HOTELS & CASINOS--1.2%
Carnival Corp. "A" 53,900 2,398,550
--------------------------------------------------------------------------
SPECIALTY RETAIL--1.0%
Office Depot Inc.* 53,600 1,912,850
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.2%
ALCOHOL & TOBACCO--2.6%
Anheuser-Busch Companies, Inc. 37,700 2,891,119
Philip Morris Companies, Inc. 56,900 2,226,213
--------------------------------------------------------------------------
5,117,332
FOOD & BEVERAGE--2.9%
Albertson's Inc. 53,900 3,072,294
ConAgra, Inc. 89,200 2,687,150
--------------------------------------------------------------------------
5,759,444
PACKAGE GOODS/
COSMETICS--1.7%
Procter & Gamble Co. 37,400 3,347,300
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
HEALTH--14.3%
BIOTECHNOLOGY--1.8%
Amgen Inc.* 16,850 2,104,144
Genentech, Inc.* 17,800 1,420,663
--------------------------------------------------------------------------
3,524,807
MEDICAL SUPPLY & SPECIALTY--2.8%
Baxter International Inc. 55,050 3,874,144
Becton, Dickinson & Co. 49,950 1,673,325
--------------------------------------------------------------------------
5,547,469
PHARMACEUTICALS--9.7%
American Home Products Corp. 45,000 2,677,500
Bristol-Myers Squibb Co. 31,700 3,992,219
Pfizer, Inc. 38,000 5,013,625
Schering-Plough Corp. 65,300 3,652,719
Warner-Lambert Co. 54,200 3,743,188
--------------------------------------------------------------------------
19,079,251
- -----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--4.7%
TELEPHONE/COMMUNICATIONS
Bell Atlantic Corp. 47,250 2,713,922
MCI WorldCom, Inc.* 79,950 6,595,875
--------------------------------------------------------------------------
9,309,797
</TABLE>
11
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL--13.0%
BANKS--0.9% BankAmerica Corp. 27,213 1,777,349
--------------------------------------------------------------------------
INSURANCE--6.1% Allstate Corp. 42,300 1,586,250
American International Group, Inc. 47,200 5,377,850
MBIA, Inc. 36,300 2,234,719
XL Capital Ltd. " A" 45,400 2,780,750
--------------------------------------------------------------------------
11,979,569
CONSUMER FINANCE--3.9% American Express Credit Corp. 23,200 2,517,200
Associates First Capital Corp. 52,400 2,128,750
Citigroup Inc. 51,500 3,025,625
--------------------------------------------------------------------------
7,671,575
OTHER FINANCIAL COMPANIES--2.1% Federal National Mortgage Association 58,900 4,123,000
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
MEDIA--6.8%
ADVERTISING--1.9% Omnicom Group, Inc. 55,500 3,676,875
--------------------------------------------------------------------------
BROADCASTING & ENTERTAINMENT--1.1% Infinity Broadcasting Corp.* 38,800 921,500
Viacom Inc. "B"* 14,000 1,237,250
--------------------------------------------------------------------------
2,158,750
CABLE TELEVISION--2.4% Tele-Comm Liberty Media Group "A"* 86,450 4,657,494
--------------------------------------------------------------------------
PRINT MEDIA--1.4% Tribune Co. 42,900 2,844,806
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--1.7%
EDP SERVICES--0.7% Automatic Data Processing, Inc. 37,700 1,498,575
--------------------------------------------------------------------------
ENVIRONMENTAL SERVICES--1.0% Waste Management, Inc. 40,050 1,957,444
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
DURABLES--4.9%
AEROSPACE--2.1% United Technologies Corp. 33,900 4,199,363
--------------------------------------------------------------------------
TELECOMMUNICATIONS
EQUIPMENT--2.8% Cisco Systems, Inc.* 31,200 3,051,750
Nokia AB Oy "A" (ADR) 17,800 2,414,125
--------------------------------------------------------------------------
5,465,875
- -----------------------------------------------------------------------------------------------------------------------
MANUFACTURING--5.3%
DIVERSIFIED MANUFACTURING--3.4% General Electric Co. 30,400 3,049,500
Textron, Inc. 23,500 1,833,000
Tyco International Ltd. (New) 25,100 1,868,381
--------------------------------------------------------------------------
6,750,881
ELECTRICAL PRODUCTS--0.9% Emerson Electric Co. 32,700 1,878,206
--------------------------------------------------------------------------
MACHINERY/COMPONENTS/
CONTROLS--1.0% Parker-Hannifin Corp. 50,850 1,887,806
--------------------------------------------------------------------------
</TABLE>
12
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--16.8%
COMPUTER SOFTWARE--5.3% Computer Associates International, Inc. 60,000 2,520,000
Microsoft Corp.* 28,200 4,233,525
Oracle Systems Corp.* 42,800 2,391,450
Sterling Commerce, Inc.* 46,400 1,206,400
--------------------------------------------------------------------------
10,351,375
DIVERSE ELECTRONIC
PRODUCTS--0.8% Applied Materials, Inc.* 29,800 1,657,625
--------------------------------------------------------------------------
EDP PERIPHERALS--1.4% EMC Corp.* 27,700 2,835,788
--------------------------------------------------------------------------
ELECTRONIC DATA
PROCESSING--6.1% Compaq Computer Corp. 84,750 2,987,438
Hewlett-Packard Co. 25,900 1,720,731
International Business Machines Corp. 16,900 2,873,000
Sun Microsystems, Inc.* 44,900 4,369,331
--------------------------------------------------------------------------
11,950,500
SEMICONDUCTORS--3.2% Intel Corp. 44,770 5,369,602
Linear Technology Corp. 22,600 990,163
--------------------------------------------------------------------------
6,359,765
- -----------------------------------------------------------------------------------------------------------------------
ENERGY--6.0%
OIL COMPANIES--3.7% Exxon Corp. 33,400 2,223,188
Mobil Corp. 27,100 2,254,381
Royal Dutch Petroleum Co. (New York shares) 65,200 2,860,650
--------------------------------------------------------------------------
7,338,219
OIL/GAS TRANSMISSION--1.1% Williams Cos., Inc. 56,850 2,103,450
--------------------------------------------------------------------------
OILFIELD
SERVICES/EQUIPMENT--1.2% Schlumberger Ltd. 48,200 2,340,713
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.3%
RAILROADS Wisconsin Central Transportation Co.* 44,500 611,875
--------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $155,244,311) 183,854,954
--------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $168,683,311)(a) 197,293,954
--------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $168,702,575. At February 28,
1999, net unrealized appreciation for all securities based on tax cost was
$28,591,379. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$33,345,198 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $4,753,819.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of February 28, 1999
(UNAUDITED)
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------
Investments, at market (identified cost $168,683,311) $197,293,954
- ----------------------------------------------------------------------------
Cash 190
- ----------------------------------------------------------------------------
Receivable for Fund shares sold 746,737
- ----------------------------------------------------------------------------
Dividends and interest receivable 173,095
- ----------------------------------------------------------------------------
Deferred organization expenses 15,334
- ----------------------------------------------------------------------------
Other assets 84,245
- ----------------------------------------------------------------------------
TOTAL ASSETS 198,313,555
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------
Payable for investments purchased 6,094,743
- ----------------------------------------------------------------------------
Payable for Fund shares redeemed 774,524
- ----------------------------------------------------------------------------
Accrued management fee 70,540
- ----------------------------------------------------------------------------
Other payables and accrued expenses 130,908
- ----------------------------------------------------------------------------
Total liabilities 7,070,715
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $191,242,840
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment loss (237,529)
- ----------------------------------------------------------------------------
Unrealized appreciation (depreciation) on investments 28,610,643
- ----------------------------------------------------------------------------
Accumulated net realized gain (loss) (1,399,063)
- ----------------------------------------------------------------------------
Paid-in capital 164,268,789
- ----------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $191,242,840
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
NET ASSET VALUE
- ----------------------------------------------------------------------------
SCUDDER SHARES
Net asset value, offering and redemption price per share
($135,507,853/6,468,911 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $20.95
- ----------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($29,133,345/1,388,160 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $20.99
- ----------------------------------------------------------------------------
Maximum offering price per share (100 / 94.25 of $20.99) $22.27
- ----------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($22,960,780/1,102,298 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $20.83
- ----------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($3,640,862/174,695 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $20.84
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
for the six months ended February 28, 1999 (Unaudited)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
INVESTMENT INCOME
- ---------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $7,411) $ 718,006
- ---------------------------------------------------------------------------
Interest 248,256
- ---------------------------------------------------------------------------
966,262
- ---------------------------------------------------------------------------
Expenses:
Management fee 543,110
- ---------------------------------------------------------------------------
Services to shareholders 591,717
- ---------------------------------------------------------------------------
Custodian and accounting fees 55,305
- ---------------------------------------------------------------------------
Distribution service fees 59,137
- ---------------------------------------------------------------------------
Administrative services fees 40,919
- ---------------------------------------------------------------------------
Trustees' fees and expenses 17,777
- ---------------------------------------------------------------------------
Auditing 17,009
- ---------------------------------------------------------------------------
Registration fees 47,992
- ---------------------------------------------------------------------------
Reports to shareholders 27,857
- ---------------------------------------------------------------------------
Legal 6,546
- ---------------------------------------------------------------------------
Amortization of organization expense 2,697
- ---------------------------------------------------------------------------
Other 22,283
- ---------------------------------------------------------------------------
Total expenses before reductions 1,432,349
- ---------------------------------------------------------------------------
Expense reductions (228,558)
- ---------------------------------------------------------------------------
Expenses, net 1,203,791
- ---------------------------------------------------------------------------
Net investment income (loss) (237,529)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ---------------------------------------------------------------------------
Net realized gain (loss) from investments (1,339,784)
- ---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 40,347,312
- ---------------------------------------------------------------------------
Net gain (loss) on investment transactions 39,007,528
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $38,769,999
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED
1999 AUGUST 31,
(UNAUDITED) 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- ----------------------------------------------------------------------------------------------------
Operations:
Net investment income (loss) $ (237,529) $ 16,867
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (1,339,784) 6,411,034
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period 40,347,312 (18,592,485)
- ----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 38,769,999 (12,164,584)
- ----------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income-- Scudder Shares -- (134,261)
- ----------------------------------------------------------------------------------------------------
Net realized gains-- Scudder Shares (4,994,881) (1,093,271)
- ----------------------------------------------------------------------------------------------------
Net realized gains-- Class A (734,396) --
- ----------------------------------------------------------------------------------------------------
Net realized gains-- Class B (599,784) --
- ----------------------------------------------------------------------------------------------------
Net realized gains-- Class C (91,933) --
- ----------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 77,675,248 123,389,959
- ----------------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in
reinvestment of distributions 6,288,618 1,215,373
- ----------------------------------------------------------------------------------------------------
Cost of shares redeemed (42,632,832) (46,876,198)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions 41,331,034 77,729,134
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 73,680,039 64,337,018
- ----------------------------------------------------------------------------------------------------
Net assets at beginning of period 117,562,801 53,225,783
- ----------------------------------------------------------------------------------------------------
Net assets at end of period (including accumulated net
investment loss of $237,529 in 1999) $191,242,840 $117,562,801
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
------------------------- ------------------------ ------------------------
CLASS A CLASS B CLASS C
------------------------- ------------------------ ------------------------
<CAPTION>
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
APRIL 16, APRIL 16, APRIL 16,
1998 1998 1998
(COMMENCEMENT (COMMENCEMENT (COMMENCEMENT
SIX MONTHS OF SALE OF SIX MONTHS OF SALE OF SIX MONTHS OF SALE OF
ENDED CLASS A ENDED CLASS B ENDED CLASS C
FEBRUARY 28, SHARES) FEBRUARY 28, SHARES) FEBRUARY 28, SHARES)
1999 TO AUGUST 31, 1999 TO AUGUST 31, 1999 TO AUGUST 31,
(UNAUDITED) 1998 (UNAUDITED) 1998 (UNAUDITED) 1998
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------- ------------------------ ------------------------
Net asset value, beginning of period $16.62 $20.30 $16.57 $20.30 $16.57 $20.30
- --------------------------------------------------------------- ------------------------ ------------------------
Income from investment operations:
Net investment income (loss) -- .01 (.09) (.05) (.09) (.05)
- --------------------------------------------------------------- ------------------------ ------------------------
Net realized and unrealized gain
(loss) on investment transactions 5.18 (3.69) 5.16 (3.68) 5.17 (3.68)
- --------------------------------------------------------------- ------------------------ ------------------------
Total from investment operations 5.18 (3.68) 5.07 (3.73) 5.08 (3.73)
- --------------------------------------------------------------- ------------------------ ------------------------
Less distributions from net realized
gains on investment transactions (.81) -- (.81) -- (.81) --
- --------------------------------------------------------------- ------------------------ ------------------------
Net asset value, end of period $20.99 $16.62 $20.83 $16.57 $20.84 $16.57
- --------------------------------------------------------------- ------------------------ ------------------------
TOTAL RETURN (%)(B)(C) 31.28** (18.13)** 30.70** (18.37)** 30.76** (18.37)**
- --------------------------------------------------------------- ------------------------ ------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------- ------------------------ ------------------------
Net assets, end of period ($
millions) 29 7.2 23 5.9 4 .9
- --------------------------------------------------------------- ------------------------ ------------------------
Ratio of operating expenses, net, to
average daily net assets (%) 1.24* 1.24* 2.12* 2.12* 2.09* 2.09*
- --------------------------------------------------------------- ------------------------ ------------------------
Ratio of operating expenses before
expense reductions, to average daily
net assets (%) 1.73* 1.74* 2.50* 2.52* 2.87* 3.00*
- --------------------------------------------------------------- ------------------------ ------------------------
Ratio of net investment income (loss)
to average daily net assets (%) (.01)* .10* (.89)* (.79)* (.86)* (.73)*
- --------------------------------------------------------------- ------------------------ ------------------------
Portfolio turnover rate (%) 67* 49 67* 49 67* 49
- --------------------------------------------------------------- ------------------------ ------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
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 S(b)
-----------------------------------------
FOR THE
PERIOD
SEPTEMBER 9,
1996
SIX MONTHS (COMMENCEMENT
ENDED OF
FEBRUARY 28, YEAR ENDED OPERATIONS)
1999 AUGUST 31, TO AUGUST 31,
(UNAUDITED) 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.61 $17.38 $12.00
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.03) .01 .06
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 5.18 (.45) 5.36
- ------------------------------------------------------------------------------------------------------
Total from investment operations 5.15 (.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 $20.95 $16.61 $17.38
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (C) 31.11** (2.72) 45.20**
- ------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 136 103.5 53.2
- ------------------------------------------------------------------------------------------------------
Ratio of operating expenses, net, to average daily net
assets (%) 1.52* 1.30 1.25*
- ------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 1.77* 1.61 2.25*
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets (%) (.29)* .03 .43*
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 67* 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) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
18
<PAGE>
NOTES TO Financial Statements
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Classic Growth Fund (the "Fund") is a diversified
series of Investment Trust (the "Trust"), a
Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as an
open-end management investment company.
Effective April 16, 1998, the Fund changed its name
from Scudder Classic Growth Fund to Classic Growth
Fund and an additional three classes of shares were
offered, namely Classes A, B and C. Existing shares
of Classic Growth Fund outstanding on that date
were redesignated Scudder Shares. Class A shares
are sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A and Scudder Shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A and Scudder Shares and a contingent
deferred sales charge payable upon certain
redemptions within one year of purchase. Class C
shares do not convert into another class. Scudder
Shares are generally not available to new investors
and are not subject to initial or contingent
deferred sales charges.
Investment income, realized and unrealized capital
gains and losses, and certain fund-level expenses
and expense reductions, if any, are borne pro rata
on the basis of relative net assets by the holders
of all classes of shares except that each class
bears expenses unique to that class. Each class of
shares differs in its respective distribution,
shareholder services, administrative services and
certain other class-specific expenses and expense
reductions. All shares of the Fund have equal
rights with respect to voting.
The Fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market, Inc. ("Nasdaq"), for which there have
been sales, are valued at the most recent sale
price reported on such system. If there are no such
sales, the value is the most recent bid quotation.
Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are
valued at the most recent sale price on such
market. If no sale occurred, the security is then
valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the Fund, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
less are valued at amortized cost. All other
securities are valued at their fair value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian, receives delivery of the underlying
securities, the amount of which at the time of
purchase and each subsequent business day is
required to be maintained at such a level that the
market value is equal to at least the repurchase
price.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders. The
Fund paid no federal income taxes and no federal
income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income are made annually. During any
particular year net realized gains from investment
transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not
distributed and, therefore, will be distributed to
shareholders annually. An additional distribution
may be made to the extent necessary to avoid the
payment of a four percent federal excise tax.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
The Fund uses the identified cost method for
determining realized gain or loss on investments
for both financial and federal income tax reporting
purposes.
ORGANIZATION COSTS. Costs incurred by the Fund in
connection with its organization have been deferred
and are being amortized on a straight-line basis
over a five-year period.
OTHER. Investment security transactions are
accounted for on a trade-date basis. Dividend
income and distributions to shareholders are
recorded on the ex-dividend date. Interest income
is recorded on the accrual basis.
- --------------------------------------------------------------------------------
2 PURCHASES AND SALES
OF SECURITIES During the six months ended February 28, 1999,
purchases and sales of investment securities
(excluding short-term investments) aggregated
$86,231,727 and $49,356,981, 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 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
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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, 2000. Certain
subsidiaries of the Adviser have also agreed to
waive a portion of their fees. For the six months
ended February 28, 1999, the Adviser did not impose
a portion of its management fee amounting to
$194,043, and the fee imposed amounted to $349,067,
of which $70,540 is unpaid at February 28, 1999.
Effective September 7, 1998, Zurich Insurance
Company ("Zurich"), majority owner of the Adviser,
entered into an agreement with B.A.T Industries
p.l.c. ("B.A.T") pursuant to which the financial
services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance
and financial services company known as Zurich
Financial Services. Upon consummation of the
transaction, the Fund's Agreement with Scudder
Kemper was deemed to have been assigned and,
therefore, terminated. The Board Of Trustees of the
Fund approved a new investment management agreement
with Scudder Kemper, which is substantially
identical to the former Agreement, except for the
dates of execution and termination and the
shareholders approved the new investment Management
Agreement through a proxy that concluded in
December 1998.
DISTRIBUTION SERVICE AGREEMENT. In accordance with
Rule 12b-1 under the Investment Company Act of
1940, Kemper Distributors, Inc. ("KDI"), a
subsidiary of the Adviser, receives a fee of .75%
of average daily net assets of Classes B and C.
Pursuant to the agreement, KDI enters into related
selling group agreements with various firms at
various rates for sales of Class B and C shares.
For the six months ended February 28, 1999, the
Distribution Fee was as follows:
<TABLE>
<CAPTION>
TOTAL FEES UNPAID AT
DISTRIBUTION FEE AGGREGATED WAIVED BY KDI FEBRUARY 28, 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Class B $51,134 $ -- $11,813
Class C 8,003 3,062 1,271
------- ------ -------
$59,137 $3,062 $13,084
======= ====== =======
</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 six months ended February 28, 1999
aggregated 229,803, of which $222,046 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 six months ended February 28,
1999, the CDSC for Classes B and C aggregated
$10,419 and $342, respectively.
ADMINISTRATIVE SERVICE FEES. KDI provides
information and administrative services to Classes
A, B and C shareholders at an annual rate of up to
.25% of
21
<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 six months ended
February 28, 1999, the Administrative Services Fee
was as follows:
<TABLE>
<CAPTION>
TOTAL FEES UNPAID AT
ADMINISTRATIVE SERVICE FEE AGGREGATED WAIVED BY KDI FEBRUARY 28, 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Class A $21,436 $20,018 $1,418
Class B 17,045 8,997 --
Class C 2,438 2,438 --
------- ------- ------
$40,919 $31,453 $1,418
======= ======= ======
</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 six months ended February 28, 1999, the amount
charged to Classes A, B and C by KSC aggregated
$40,678, $29,826 and $7,456, respectively, of which
$28,846 is unpaid at February 28, 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 six months ended February 28, 1999 the
amount charged to the Scudder Shares by SSC for
shareholder services aggregated $139,408, of which
$24,013 is unpaid at February 28, 1999.
The Scudder Shares of the Fund are one of several
Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the
"Portfolios") invest. In accordance with the
Special Servicing Agreement entered into by the
Adviser, the Portfolios, the Underlying Funds, SSC,
SFAC, STC, and Scudder Investor Services, Inc.,
expenses from the operation of the Portfolios are
borne by the Underlying Funds based on each
Underlying Fund's proportionate share of assets
owned by the Portfolios. No Underlying Funds will
be charged expenses that exceed the estimated
savings to such Underlying Fund. These estimated
savings result from the elimination of separate
shareholder accounts which either currently are or
have potential to be invested in the Underlying
Funds. For the year ended February 28, 1999, the
Special Servicing Agreement expense charged to the
Scudder Shares amounted to $317,508.
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 six months ended February 28, 1999,
the amount charged to the Scudder Shares by STC
aggregated $25,507, of which $4,624 is unpaid at
February 28, 1999.
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 six
months ended February 28, 1999, the amount charged
to the Fund by SFAC aggregated $46,992, of which
$16,624 is unpaid at February 28, 1999.
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 six months ended
February 28, 1999, the Trustees fees and expenses
aggregated $17,777.
22
<PAGE>
NOTES TO Financial Statements
- --------------------------------------------------------------------------------
4 SHARE TRANSACTIONS The following table summarizes shares of beneficial
interest and dollar activity in the Fund:
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
-------------------------- --------------------------
SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
SHARES SOLD
---------------------------------------------------------------------------------
Scudder Shares 1,101,662 $ 22,083,741 5,261,810 $100,865,048
---------------------------------------------------------------------------------
Class A 1,697,938 34,209,564 686,665 13,861,440
---------------------------------------------------------------------------------
Class B 948,252 18,669,664 388,134 7,520,415
---------------------------------------------------------------------------------
Class C 136,002 2,712,279 59,192 1,143,056
---------------------------------------------------------------------------------
3,883,854 77,675,248 6,395,801 123,389,959
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
---------------------------------------------------------------------------------
Scudder Shares 241,446 $ 4,918,261 70,172 $ 1,215,373
---------------------------------------------------------------------------------
Class A 34,316 699,714 -- --
---------------------------------------------------------------------------------
Class B 28,753 582,816 -- --
---------------------------------------------------------------------------------
Class C 4,331 87,827 -- --
---------------------------------------------------------------------------------
308,846 6,288,618 70,172 1,215,373
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES REDEEMED
---------------------------------------------------------------------------------
Scudder Shares (1,107,666) $(21,776,328) (2,160,627) $(40,949,391)
---------------------------------------------------------------------------------
Class A (777,228) (15,845,768) (253,531) (5,236,843)
---------------------------------------------------------------------------------
Class B (232,051) (4,591,998) (30,790) (608,304)
---------------------------------------------------------------------------------
Class C (20,972) (418,738) (3,858) (81,660)
---------------------------------------------------------------------------------
(2,137,917) (42,632,832) (2,448,806) (46,876,198)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
NET INCREASE (DECREASE)
---------------------------------------------------------------------------------
Scudder Shares 235,442 $ 5,225,674 3,171,355 $ 61,131,030
---------------------------------------------------------------------------------
Class A 955,026 19,063,510 433,134 8,624,597
---------------------------------------------------------------------------------
Class B 744,954 14,660,482 357,344 6,912,111
---------------------------------------------------------------------------------
Class C 119,361 2,381,368 55,334 1,061,396
---------------------------------------------------------------------------------
2,054,783 $ 41,331,034 4,017,167 $ 77,729,134
---------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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.
23
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<S> <C>
TRUSTEES OFFICERS
DANIEL PIERCE BRUCE F. BEATY
President and Trustee Vice President
HENRY P. BECTON, JR. PHILIP S. FORTUNA
Trustee Vice President
DAWN-MARIE DRISCOLL WILLIAM F. GADSDEN
Trustee Vice President
PETER B. FREEMAN ROBERT T. HOFFMAN
Trustee Vice President
GEORGE M. LOVEJOY, JR. THOMAS W. JOSEPH
Trustee Vice President
WESLEY W. MARPLE, JR. VALERIE F. MALTER
Trustee Vice President
JEAN C. TEMPEL JOHN R. HEBBLE
Trustee Treasurer
KATHRYN L. QUIRK CAROLINE PEARSON
Trustee, Vice President Assistant Secretary
and Assistant Secretary
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
LEGAL COUNSEL DECHERT PRICE & RHOADS
Ten Post Office Square South
Boston, MA 02109
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
</TABLE>
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Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
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unless preceded or accompanied by a
Kemper Classic Growth Fund prospectus.
KCGF - 3(4/22/99) 1071100
