SCUDDER
- -------------
EQUITY/GROWTH
- -------------
Scudder Classic
Growth Fund
Fund #058
Annual Report
August 31, 1999
A fund seeking long-term growth of capital with reduced share price volatility
compared to other growth mutual funds.
Scudder Classic Growth Fund is a class of shares of Classic Growth Fund.
<PAGE>
Contents
- --------------------------------------------------------------------------------
4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
16 Glossary of Investment Terms
17 Investment Portfolio
22 Financial Statements
25 Financial Highlights
26 Notes to Financial Statements
33 Report of Independent Accountants
34 Tax Information
35 Officers and Trustees
36 Investment Products and Services
38 Scudder Solutions
2
<PAGE>
Scudder Classic Growth Fund
- --------------------------------------------------------------------------------
ticker symbol SCCGX fund number 058
- --------------------------------------------------------------------------------
Date of Inception: o Large-cap growth stocks posted strong performance over
9/9/96 the last twelve months, providing a positive investment
backdrop for the fund.
Total Net Assets of
Scudder Shares as of o Management continued to focus on companies at the
8/31/99: forefront of the convergence of communications and
$133.3 million technology, which allowed the fund to participate in
the explosive growth of the internet.
o The Scudder shares of the fund returned 41.06% for the
period, which beat the 39.81% return of its unmanaged
benchmark, the S&P 500, and the 40.37% return for the
growth fund category, as calculated by Lipper
Analytical Services for the period ended August 31,
1999.
3
<PAGE>
Letter from the Fund's President
- --------------------------------------------------------------------------------
Dear Shareholders,
Large-cap growth stocks have consistently outperformed the broader market over
the past year, with the exception of a brief period during the spring when value
stocks rallied sharply. In general, such a narrowly focused market is a sign of
concern on the part of investors. Seeking shelter from a perceived threat in the
external environment, market participants will often sell, or avoid, stocks
whose outlook is less certain. Instead, they will focus on the higher-quality,
well-known names that have delivered consistent earnings growth year in and year
out. This proved to be the case over the last twelve months, during which time
fears of recession, and later inflation, gripped the market at different points.
Classic Growth Fund, which seeks to invest in rapidly growing companies trading
at reasonable prices, was ideally positioned to prosper in such an environment.
While it is unlikely that growth stocks will continue to outperform by such a
wide margin in the coming years, we believe that management's consistent
approach is well-suited for any investment climate.
Over the period, the Scudder shares of the fund outperformed both its benchmark,
the S&P 500 Index, and the Lipper growth fund average. For more information on
management's approach to stockpicking, please turn to the Portfolio Management
Discussion that begins on page 10.
4
<PAGE>
- --------------------------------------------------------------------------------
Finally, it should be noted that Daniel Pierce retired in June of this year as
President of Classic Growth Fund, at which time I assumed that role and its
responsibilities. We are fortunate that Dan's longstanding affiliation with
Scudder is ongoing, and that we will continue to benefit from his counsel going
forward. I am pleased to join Classic Growth Fund's team in this capacity, and
look forward to serving your interests.
Thank you for your continued investment in the Scudder shares of Classic Growth
Fund. If you have any questions about your investment, please call Scudder
Investor Information at 1-800-SCUDDER (1-800-728-3337), or visit our Web site at
www.scudder.com.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Classic Growth Fund
5
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
August 31, 1999
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Classic Growth Fund S&P 500 Index*
-- Scudder Shares
9/96** 10000 10000
2/97 11361 11601
8/97 13818 13317
2/98 15660 15664
8/98 13450 14398
2/99 17635 18755
8/99 18973 20129
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 8/31/1999 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Classic Growth Fund -- Scudder Shares
- --------------------------------------------------------------------------------
1 year $ 14,106 41.06% 41.06%
- --------------------------------------------------------------------------------
Life of Class $ 19,937 99.37% 26.10%
- --------------------------------------------------------------------------------
S&P 500 Index*
- --------------------------------------------------------------------------------
1 year $ 13,981 39.81% 39.81%
- --------------------------------------------------------------------------------
Life of Class $ 20,129 101.29% 27.10%
- --------------------------------------------------------------------------------
* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industies. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on September 9, 1996. Index comparisons begin
September 30, 1996.
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND S&P 500
INDEX TOTAL RETURN (%)
CHART DATA:
Classic Growth Fund
-- Scudder Shares S&P 500 Index*
1997** 45.20 38.08
1998 -2.72 8.13
1999 41.06 39.81
Yearly periods ended August 31
1997** 1998 1999
- --------------------------------------------------------------------------------
Class Total
Return (%) 45.20 -2.72 41.06
- --------------------------------------------------------------------------------
Index Total
Return (%) 38.08 8.13 39.81
- --------------------------------------------------------------------------------
Net Asset
Value ($) 17.38 16.61 22.55
- --------------------------------------------------------------------------------
Income
Dividends ($) .04 .04 --
- --------------------------------------------------------------------------------
Capital Gains
Distributions ($) -- .29 .81
- --------------------------------------------------------------------------------
* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industies. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on September 9, 1996. Index comparisons begin
September 30, 1996.
Effective April 16, 1998, the Fund changed its name from Scudder Classic
Growth Fund to Classic Growth Fund and an additional three classes of shares
were offered. Existing shares of Classic Growth Fund outstanding on that date
were redesignated Scudder Shares of the Fund. The total return information
provided is for the Fund's Scudder Share class. Performance is historical,
assumes reinvestment of all dividends and capital gains and is not indicative
of future results. Total return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than when
purchased. If the Adviser had not maintained expenses, the total return for
the one year and life of Class periods would have been lower.
7
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
August 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Allocation
- --------------------------------------------------------------------------------
Fund management seeks to
remain fully invested in
reasonably valued growth
stocks at all times.
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Equity Holdings 98%
Cash Equivalents 2%
- ------------------------------------
100%
- ------------------------------------
- --------------------------------------------------------------------------------
Sector Diversification
- --------------------------------------------------------------------------------
(Excludes 2% Cash Equivalents) The fund's holdings in
the technology and media
sectors provided strong
returns over the period,
but its position in
health care stocks has
lagged in recent months.
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Technology 19%
Health 16%
Consumer Discretionary 11%
Financial 10%
Consumer Staples 9%
Manufacturing 9%
Media 7%
Service Industries 6%
Energy 5%
Other 8%
- --------------------------------
100%
- --------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------------
(27% of Portfolio) The top ten holdings
reflect a focus on
companies that
management believes are
positioned to
consistently deliver
upside earnings
surprises.
1. Intel Corp.
Producer of semiconductor memory circuits
2. Microsoft Corp.
Developer of computer software
3. AT&T Corp.-Liberty Media Group
Holding company of entertainment networks
4. General Electric Co.
Producer of electrical equipment
5. MCI WorldCom, Inc.
Provider of local, long distance, international, and Internet
services
6. Tyco International Ltd.
Manufacturer of medical products, packaging, electrical and
electronic components
7. Home Depot, Inc.
Building materials and home improvement stores
8. Proctor & Gamble Co.
Diversified manufacturer of consumer products
9. International Business Machines Corp.
Manufacturer of computers and servicer of information
processing units
10. Bristol-Meyers Squibb Co.
Diversified pharmaceutical and consumer products
company
For more complete details about the Fund's investment portfolio, see page 17. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
<PAGE>
Portfolio Management Discussion
- --------------------------------------------------------------------------------
August 31, 1999
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 twelve-month period ended August 31, 1999.
Q: In the past year, the market environment has changed quite a bit. Please
describe what has taken place, and how growth stocks have been affected.
A: The stock market has come full circle in the past year, as a worldwide
financial crisis has gradually given way to stronger growth and fears of higher
interest rates. During this time, a high level of uncertainty with respect to
the direction of the economy has allowed growth stocks to outperform virtually
all other sectors of the market. Fearing that the global economy was going to
tip into a recession earlier in the year, investors sought shelter in companies
whose growth rates were thought to be strong enough to withstand a slowdown. By
the spring, however, evidence had begun to build that the economy was not
contracting as most analysts had expected, but instead growing at a rapid pace.
As the market factored this surprising development into equity prices during
April and May, growth stocks stumbled as money flowed out to previously
depressed sectors such as small companies and value stocks once the need for a
safe haven dissipated. Soon, however, concerns over higher interest rates
spooked market participants, and large-cap growth stocks once again assumed the
mantle of market leadership on the strength of large gains in the technology
sector. Despite the high levels of volatility growth stocks experienced during
the summer, they finished the full twelve-month period with outstanding returns.
We believe that the fund, which emphasizes large-cap growth companies, was
ideally positioned to take advantage of this environment.
Q: How did the Scudder shares of the fund perform over the period?
A: The Scudder shares of the fund returned 41.06% for the period, beating the
39.81% return of its unmanaged
10
<PAGE>
- --------------------------------------------------------------------------------
benchmark, the S&P 500. In addition, the Scudder shares of the fund's return
placed it ahead of the 40.37% average of the Lipper growth fund category. We
believe that the fund's strong performance is a result of our disciplined stock
selection methodology, as well as the fact that the market climate was so
favorable for our investment universe. However, we feel that our use of a GARP
approach -- which stands for Growth at a Reasonable Price -- will allow us to
outperform even when the environment is less favorable for growth stocks.
Q: Please tell us about the concept behind GARP.
A: GARP is a method we use to assess the value in sectors that often defy
valuation by traditional methods. We believe that good companies that offer
superior long-term growth characteristics are worth more than less reliable
companies that are often "cheap" for a reason. Look at a company like Cisco --
for years it has been selling at a multiple well above the market's, but its
growth rate and business model have been phenomenal. Investors who were willing
to pay up to gain a piece of this company have been handsomely rewarded. On the
other hand, when a stock reaches a price that we believe to be excessive in
light of its long-term growth prospects, we will generally trim the position to
avoid what may be substantial downside risk in the event of a disappointment. In
short, GARP is a disciplined methodology that has allowed us to participate in
some of the market's biggest winners and avoid an inordinate amount of negative
surprises.
Q: In what sectors have you found opportunities in recent months?
A: Using a bottom-up approach, we have uncovered a number of quality stocks in
the technology and telecommunications sectors. In our view, one of the most
important developments of recent years has been the convergence of these two
industries. The need for communications infrastructure is increasing
exponentially as the Internet grows, and the worlds of tech and telecom
11
<PAGE>
- --------------------------------------------------------------------------------
are crashing together as a result. The companies at the forefront of this
convergence will experience the fastest growth, which will in turn justify their
higher multiples. Examples of stocks in these categories that have performed
well for us are Sun Microsystems (up 301% over the twelve months), EMC (169%),
Cisco Systems (148%), and MCI WorldCom (85%). We feel that a continued focus on
companies that build the infrastructure for the Internet has been, and should
continue to be, a more effective way to play the sector than to invest in the
pure Internet companies themselves. It is impossible, at this juncture, to say
which of the dozens of public companies hawking their wares online will
ultimately emerge as the leaders in their industries. On the other hand, the
companies we hold in the portfolio have already staked out their territory as
the leaders of their respective businesses, and therefore offer a better way to
capitalize on the growth of the Internet.
Outside of technology, we continue to favor the media and healthcare sectors.
While both have endured choppy performance in recent months, we felt that our
holdings in these industries are on track for continued strong earnings growth
over time, and we are taking advantage of market dips to add to our positions.
Q: What stocks, and sectors, have you been avoiding?
A: We are currently underweighted in the retail and financial sectors based on
our concern that the long-term growth potential of both industries has
deteriorated. In the retail sector, for example, the backdrop has been ideal in
recent years, with a strong economy, low interest rates (until recently), and
high levels of consumer spending all contributing to stronger earnings. The
stocks performed well as a result, giving the fund a lift in the first half of
the year. However, the rosy picture prompted us to ask: How much better can
things get? Seeing a more subdued upside ahead, we trimmed our weightings in
Home Depot and eliminated our holdings of Costco, among others, and put the cash
to work elsewhere. We also added to a handful of
12
<PAGE>
holdings that we feel will continue to deliver superior earnings growth, among
them Wal-Mart and Gap stores.
Similarly, we trimmed our holdings in financials on the belief that their
current growth rate will not be sustainable going forward. Rates are rising,
revenue growth appears to be slowing, and lending spreads are widening.
Consequently, we have eliminated our holdings in Allstate, Conseco, and MBIA,
while holding on to the stocks in which we have a higher level of conviction,
such as American Express, AIG, and Fannie Mae. Our view on financials -- in
comparison to our view on technology -- provides an excellent illustration of
our investment strategy: even though earnings multiples in the tech sector are
much higher on an absolute basis, we find tech stocks more attractive compared
to financials because their earnings momentum seems to be so much stronger.
Q: Please tell us about some other stocks that you find particularly attractive.
A: Two stocks that we think are interesting right now are Pepsi and McDonald's.
Like the other companies we've mentioned, Pepsi offers growth at an attractive
price. The company has been an underperformer for years, due in part to erratic
earnings and a complicated business mix. However, it has recently divested its
restaurant and bottling businesses, creating a slimmer and more focused
operation. Although in our view Pepsi has emerged as a dependable earnings
story, the market has not yet recognized its turnaround potential. Expecting
consistent growth of 12-15% over the next several years, we have taken the
opportunity to accumulate shares at a below-market multiple.
We believe McDonald's is well-positioned as the dominant quick-service
restaurant brand in the world, with a leading market share and store count. We
expect that the company should continue to outperform within its sector due to
favorable same-store volume growth, an ongoing share repurchase program, and an
improving environment in the
13
<PAGE>
- --------------------------------------------------------------------------------
emerging markets. Although the company's growth
rate is above that of the overall market, it is trading at a lower p/e ratio.
Believing that McDonald's is a classic example of growth at the right price, we
have been buyers.
Q: What is your outlook from here?
A: We feel that two important lessons can be drawn from the market's performance
over the past few years. The first is that it has not paid to underestimate the
resilience of the U.S. economy or the ability of the monetary authorities to
keep things on an even keel. Second, it has proven worthwhile to keep a
long-term view and to avoid the temptation to sell when market conditions
deteriorate. While we remain cautious on the outlook for the months ahead,
especially with the Federal Reserve in a tightening mode, we believe that our
disciplined investment style will continue to position the fund for
outperformance.
14
<PAGE>
- --------------------------------------------------------------------------------
Classic Growth Fund:
A Team Approach to Investing
Classic Growth Fund is managed by a team of Scudder Kemper Investments, Inc.
(the "Adviser") professionals, each of whom plays an important role in the
fund's management process. Team members work together to develop investment
strategies and select securities for the fund's portfolio. They are supported by
the Adviser's large staff of economists, research analysts, traders, and other
investment specialists who work in our offices across the United States and
abroad. We believe our team approach benefits fund investors by bringing
together many disciplines and leveraging our extensive resources.
Co-lead portfolio manager William F. Gadsden, who joined the Adviser in 1983,
focuses on overall investment strategy and has 15 years of investment industry
experience.
Co-lead portfolio manager Bruce F. Beaty focuses on securities selection and
assists with the creation and implementation of investment strategy for the
fund. Mr. Beaty joined the Adviser in 1991 and has 16 years of investment
industry experience.
15
<PAGE>
Glossary of Investment Terms
- --------------------------------------------------------------------------------
Bottom-up An investment style that focuses on the use of research to
Investing assess the performance of individual companies before
Style considering the impact of economic trends. This approach,
which is the opposite of "top-down" investing, assumes that
most significant determinant of performance is individual
stock selection, rather than industry or country allocation.
Cyclical Stocks Companies whose earnings are closely tied to the business
cycle. Cyclical industries include steel, cement, paper,
machinery, and autos.
Growth Stock Stock of a company that has displayed above average earnings
growth and is expected to continue to increase profits faster
than the overall market. Stocks of such companies usually
trade at higher valuations and experience more price
volatility than the market as a whole. Distinct from value
stock.
Price/Earnings A widely used gauge of a stock's valuation that indicates what
Ratio (P/E) investors are paying for a company's earning power at the
(also "earnings current stock price. A P/E ratio may be based on a company's
multiple") projected earnings for the coming 12 months. A higher
"earnings multiple" indicates higher expected earnings growth,
along with greater risk of earnings disappointment.
Weighting Refers to the allocation of assets -- usually in terms of
(over/under) sectors, industries, or countries -- within a portfolio
relative to the portfolio's benchmark index or investment
universe.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
16
<PAGE>
Investment Portfolio as of August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Repurchase Agreements 2.5%
- ------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust
Company dated 8/31/1999 at 5.41%, to be repurchased
at $5,554,835 on 9/1/1999, collateralized by a
$5,625,000 U.S. Treasury Note, 3.375%, 1/15/2007
(Cost $5,554,000) .................................... 5,554,000 5,554,000
Shares
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Common Stocks 97.5%
- ------------------------------------------------------------------------------------
Consumer Discretionary 10.4%
Department & Chain Stores 7.8%
Dayton Hudson Corp. .................................... 67,600 3,920,800
Gap Inc. ............................................... 68,000 2,660,500
Home Depot, Inc. ....................................... 85,700 5,238,413
Wal-Mart Stores Inc. ................................... 96,900 4,293,881
Walgreen Co. ........................................... 72,100 1,671,819
---------------
17,785,413
---------------
Recreational Products 1.3%
Electronic Arts Inc.* .................................. 25,700 1,763,663
Premier Parks, Inc.* ................................... 37,400 1,224,850
---------------
2,988,513
---------------
Restaurants 1.3%
McDonald's Corp. ....................................... 68,200 2,821,775
---------------
Consumer Staples 8.7%
Alcohol & Tobacco 2.8%
Anheuser-Busch Companies, Inc. ......................... 51,200 3,942,400
Philip Morris Companies, Inc. .......................... 62,700 2,347,331
---------------
6,289,731
---------------
Food & Beverage 2.6%
Albertson's Inc. ....................................... 59,400 2,847,487
PepsiCo Inc. ........................................... 92,000 3,139,500
---------------
5,986,987
---------------
Package Goods/Cosmetics 3.3%
Gillette Co. ........................................... 51,000 2,377,875
Procter & Gamble Co. ................................... 50,100 4,972,425
---------------
7,350,300
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Health 15.7%
Biotechnology 2.0%
Amgen Inc.* ............................................ 16,400 1,364,275
Immunex Corp.* ......................................... 29,000 1,952,063
MedImmune, Inc.* ....................................... 12,700 1,310,481
---------------
4,626,819
---------------
Health Industry Services 1.0%
IMS Health Inc. ........................................ 79,000 2,182,375
---------------
Medical Supply & Specialty 2.6%
Baxter International Inc. .............................. 60,850 4,080,753
VISX Inc.* ............................................. 19,600 1,773,800
---------------
5,854,553
---------------
Pharmaceuticals 10.1%
Allergan, Inc. ......................................... 26,000 2,596,750
American Home Products Corp. ........................... 59,600 2,473,400
Bristol-Myers Squibb Co. ............................... 68,600 4,827,725
Johnson & Johnson ...................................... 21,600 2,208,600
Pfizer, Inc. ........................................... 75,000 2,831,250
Schering-Plough Corp. .................................. 72,000 3,784,500
Warner-Lambert Co. ..................................... 59,700 3,955,125
---------------
22,677,350
---------------
Communications 3.9%
Telephone/Communications
Bell Atlantic Corp. .................................... 52,150 3,194,188
MCI WorldCom, Inc.* .................................... 73,450 5,563,838
---------------
8,758,026
---------------
Financial 9.7%
Insurance 2.9%
AFLAC, Inc. ............................................ 48,700 2,188,456
American International Group, Inc. ..................... 46,150 4,277,528
---------------
6,465,984
---------------
Consumer Finance 4.7%
American Express Credit Corp. .......................... 34,400 4,730,000
Associates First Capital Corp. ......................... 57,800 1,983,263
Citigroup Inc. ......................................... 85,350 3,792,741
---------------
10,506,004
---------------
Other Financial Companies 2.1%
Federal National Mortgage Association .................. 76,200 4,733,925
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Media 8.2%
Advertising 1.5%
Omnicom Group, Inc. .................................. 45,000 3,391,875
---------------
Broadcasting & Entertainment 1.7%
Infinity Broadcasting Corp.* ......................... 60,800 1,645,400
Viacom Inc. "B"* ..................................... 50,800 2,136,775
---------------
3,782,175
---------------
Cable Television 3.4%
AT&T Corp -- Liberty Media Group* .................... 191,000 6,112,000
Comcast Corp. "A" .................................... 42,600 1,389,825
---------------
7,501,825
---------------
Print Media 1.6%
Tribune Co. .......................................... 39,300 3,667,181
---------------
Service Industries 3.9%
EDP Services 3.0%
America Online Inc.* ................................. 21,800 1,990,613
Automatic Data Processing, Inc. ...................... 65,800 2,586,763
Electronic Data Systems Corp. ........................ 37,100 2,082,238
---------------
6,659,614
---------------
Miscellaneous Commercial Services 0.9%
CMG Information Services, Inc.* ...................... 12,800 1,074,400
Galileo International, Inc. .......................... 19,700 955,450
---------------
2,029,850
---------------
Durables 4.4%
Aerospace 1.7%
United Technologies Corp. ............................ 57,000 3,769,125
---------------
Telecommunications Equipment 2.7%
Lucent Technologies Inc. ............................. 43,000 2,754,688
Nokia AB Oy "A" (ADR) ................................ 40,600 3,385,025
---------------
6,139,713
---------------
Manufacturing 9.2%
Diversified Manufacturing 6.0%
General Electric Co. ................................. 52,400 5,885,175
Textron, Inc. ........................................ 26,000 2,099,500
Tyco International Ltd. (New) ........................ 53,600 5,430,350
---------------
13,415,025
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Electrical Products 1.0%
Emerson Electric Co. ................................. 36,100 2,260,763
---------------
Industrial Specialty 1.9%
Corning Inc. ......................................... 64,700 4,302,550
---------------
Machinery/Components/Controls 0.3%
Parker-Hannifin Corp. ................................ 15,450 675,938
---------------
Technology 18.6%
Computer Software 4.9%
Microsoft Corp.* ..................................... 89,200 8,256,574
Oracle Systems Corp.* ................................ 74,200 2,708,300
---------------
10,964,874
---------------
Diverse Electronic Products 1.5%
Applied Materials, Inc.* ............................. 47,000 3,339,938
---------------
EDP Peripherals 1.4%
EMC Corp.* ........................................... 53,700 3,222,000
---------------
Electronic Components/Distributors 2.1%
Broadcom Corp.* ...................................... 8,500 1,094,375
Cisco Systems, Inc.* ................................. 53,500 3,627,969
---------------
4,722,344
---------------
Electronic Data Processing 5.0%
Hewlett-Packard Co. .................................. 21,700 2,286,638
International Business Machines Corp. ................ 39,400 4,907,763
Sun Microsystems, Inc.* .............................. 50,900 4,046,550
---------------
11,240,951
---------------
Semiconductors 3.7%
Intel Corp. .......................................... 102,540 8,427,500
---------------
Energy 4.8%
Oil & Gas Production 1.9%
Royal Dutch Petroleum Co. (New York shares) .......... 69,700 4,312,688
---------------
Oil Companies 1.3%
Mobil Corp. .......................................... 29,000 2,968,875
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Oilfield Services/Equipment 1.6%
Schlumberger Ltd. .................................... 53,100 3,544,425
---------------
Total Common Stocks (Cost $186,308,546) 219,366,984
Total Investment Portfolio -- 100.0% (Cost $191,862,546) 224,920,984
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $192,278,933. At August 31,
1999, net unrealized appreciation for all securities based on tax cost was
$32,642,051. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$36,933,383 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $4,291,332.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets
- ------------------------------------------------------------------------------------
Investments, at market (identified cost $191,862,546) ..... $ 224,920,984
Cash ...................................................... 994
Receivable for investments sold ........................... 2,160,214
Receivable for Fund shares sold ........................... 325,925
Dividends and interest receivable ......................... 189,549
Deferred organization expenses ............................ 13,781
Other assets .............................................. 4,400
---------------
Total assets .............................................. 227,615,847
Liabilities
- ------------------------------------------------------------------------------------
Payable for investments purchased ......................... 2,852,539
Payable for Fund shares redeemed .......................... 382,130
Accrued management fee .................................... 97,311
Other payables and accrued expenses ....................... 240,428
---------------
Total liabilities ......................................... 3,572,408
Net assets, at market value $ 224,043,439
Net Assets
- ------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation (depreciation) on investments ..... 33,058,438
Accumulated net realized gain (loss) ...................... 9,303,306
Paid-in capital ........................................... 181,681,695
Net assets, at market value $ 224,043,439
Net Asset Value
- ------------------------------------------------------------------------------------
Scudder Shares
Net asset value, offering and redemption price per share ($133,272,949 /
5,911,188 outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) ............................ $22.55
Class A Shares
Net asset value and redemption price per share ($54,691,364 / 2,416,648
outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) ............................ $22.63
Maximum offering price per share (100 / 94.25 of $22.63) ............ $24.01
Class B Shares
Net asset value offering and redemption price (subject to contingent deferred
sales change) per share ($30,468,941 / 1,362,317 outstanding shares of
beneficial interest, $.01 par value, unlimited number of shares
authorized) ....................................................... $22.37
Class C Shares
Net asset value offering and redemption price (subject to contingent deferred
sales change) per share ($5,610,185 / 250,687 outstanding shares of
beneficial interest, $.01 par value, unlimited number of
shares authorized) ................................................ $22.38
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Operations for the year ended August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- ------------------------------------------------------------------------------------
<S> <C>
Income:
Dividends (net of foreign taxes withheld of $26,929) ........... $ 1,623,231
Interest ....................................................... 431,526
---------------
2,054,757
Expenses:
Management fee ................................................. 1,307,022
Services to shareholders ....................................... 1,454,320
Custodian and accounting fees .................................. 109,414
Distribution service fees ...................................... 184,290
Administrative services fees ................................... 137,913
Trustees' fees and expenses .................................... 35,708
Auditing ....................................................... 21,670
Registration fees .............................................. 128,855
Reports to shareholders ........................................ 114,028
Legal .......................................................... 13,482
Amortization of organization expense ........................... 4,073
Other .......................................................... 42,873
---------------
Total expenses before reductions ............................... 3,553,648
Expense reductions ............................................. (566,549)
---------------
Expenses, net .................................................. 2,987,099
Net investment income (loss) (932,342)
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------
Net realized gain (loss) from investments ...................... 9,396,870
Net unrealized appreciation (depreciation) during the period on
investments .................................................. 44,795,107
Net gain (loss) on investment transactions 54,191,977
Net increase (decrease) in net assets resulting from operations $ 53,259,635
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended August 31,
Increase (Decrease) in Net Assets 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .................... $ (932,342) $ 16,867
Net realized gain (loss) on investment
transactions .................................. 9,396,870 6,411,034
Net unrealized appreciation (depreciation) on
investment transactions during the period ..... 44,795,107 (18,592,485)
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations ............................... 53,259,635 (12,164,584)
--------------- ---------------
Distributions to shareholders from:
Net investment income -- Scudder Shares ......... -- (134,261)
--------------- ---------------
Net realized gains -- Scudder Shares ............ (4,994,696) (1,093,271)
Net realized gains -- Class A ................... (734,391) --
Net realized gains -- Class B ................... (597,986) --
Net realized gains -- Class C ................... (91,871) --
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ....................... 167,868,674 123,389,959
Net asset value of shares issued to shareholders
in reinvestment of distributions .............. 6,289,899 1,215,373
Cost of shares redeemed ......................... (114,518,626) (46,876,198)
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ............................ 59,639,947 77,729,134
--------------- ---------------
Increase (decrease) in net assets ............... 106,480,638 64,337,018
Net assets at beginning of period ............... 117,562,801 53,225,783
Net assets at end of period ..................... $ 224,043,439 $ 117,562,801
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Scudder Shares (b)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended August 31, 1999 1998 1997(c)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $16.61 $17.38 $12.00
-------------------------------
Income from investment operations:
Net investment income (loss) (.10) .01 .06
Net realized and unrealized gain (loss) on investment
transactions 6.85 (.45) 5.36
-------------------------------
Total from investment operations 6.75 (.44) 5.42
Less distributions from:
Net investment income -- (.04) (.04)
Net realized gains on investment transactions (.81) (.29) --
--------------------------
Total distributions (.81) (.33) (.04)
Net asset value, end of period $22.55 $16.61 $17.38
--------------------------
Total Return (%) (d) 41.06 (2.72) 45.20**
Ratios and Supplemental Data
- -----------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 133.3 103.5 53.2
- -----------------------------------------------------------------------------------------
Ratio of operating expenses, net, to average daily net
assets (%) 1.59 1.30 1.25*
- -----------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions,
to average daily net assets (%) 1.84 1.61 2.25*
- -----------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily
net assets (%) (.48) .03 .43*
- -----------------------------------------------------------------------------------------
Portfolio turnover rate (%) 68 49 27*
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On April 16, 1998, existing shares of the Fund were designated as Scudder
Shares and are generally not available to new investors.
(c) For the period September 9, 1996 (commencement of operations) to August 31,
1997.
(d) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
25
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
August 31, 1999
A. Significant Accounting Policies
Classic Growth Fund (the "Fund") is a diversified series of Investment Trust
(the "Trust") which is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company organized
as a Massachusetts business trust.
Effective April 16, 1998, the Fund changed its name from Scudder Classic Growth
Fund to Classic Growth Fund and an additional three classes of shares were
offered, namely Classes A, B and C. Existing shares of Classic Growth Fund
outstanding on that date were redesignated Scudder Shares. Class A shares are
offered to investors subject to an initial sales charge. Class B shares are
offered without an initial sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically convert to Class A shares six
years after issuance. Class C shares are offered without an initial sales charge
but are subject to higher ongoing expenses than Class A shares and a contingent
deferred sales charge payable upon certain redemptions within one year of
purchase. Class C shares do not convert into another class. Scudder Shares,
generally not available to new investors, are not subject to initial or
contingent deferred sales charges. Certain detailed financial information for
the Class A, B, and C shares is provided separately and is available upon
request.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears certain expenses unique to that class such as distribution
services, shareholder services, administrative services and certain other class
specific expenses. Differences in class expenses may result in payment of
different per share dividends by class. All shares of the Fund have equal rights
with respect to voting subject to class specific arrangements.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most
26
<PAGE>
- --------------------------------------------------------------------------------
extensively. If no sale occurred, the security is then valued at the calculated
mean between the most recent bid and asked quotations. If there are no such bid
and asked quotations, the most recent bid quotation is used. Securities quoted
on the Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are
valued at the most recent sale price reported. If there are no such sales, the
value is the most recent bid quotation. Securities which are not quoted on
Nasdaq but are traded in another over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the calculated mean between the
most recent bid and asked quotations on such market. If there are no such bid
and asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Trust, whose
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
27
<PAGE>
- --------------------------------------------------------------------------------
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
All discounts are accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
During the year ended August 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $178,602,008 and
$121,482,661, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser") the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.70% of the Fund's
average daily net assets, computed and accrued daily and payable monthly.
Effective April 16, 1998, the Adviser has agreed to waive .25% of its management
fee until December 31, 2000. Certain subsidiaries of the Adviser have also
agreed to waive a portion of their fees. For the year ended August 31, 1999, the
Adviser did not impose a portion of its management fee amounting to $466,794,
and the fee imposed amounted to $840,228, of which $97,311 is unpaid at August
31, 1999.
Distribution Service Agreement. In accordance with Rule 12b-1 under the
Investment Company Act of 1940, Kemper Distributors, Inc. ("KDI"), a
28
<PAGE>
- --------------------------------------------------------------------------------
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 year ended August 31, 1999, the Distribution Fee was as follows:
Total Fees Waived Unpaid at
Distribution Fee Aggregated by KDI August 31, 1999
- --------------------------------------------------------------------------------
Class B .................. $ 158,298 $ -- $ 15,903
Class C .................. 25,992 10,314 --
$ 184,290 $ 10,314 $ 15,903
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 year ended August 31,
1999 aggregated $514,882, of which $475,896 was paid to other firms.
In addition, KDI receives any contingent deferred sales charge (CDSC) from Class
B share redemptions occurring within six years of purchase and Class C share
redemptions occurring within one year of purchase. There is no such charge upon
redemption of any share appreciation or reinvested dividends. Contingent
deferred sales charges are based on declining rates ranging from 4% to 1% for
Class B and 1% for Class C, of the value of the shares redeemed. For the year
ended August 31, 1999, the CDSC for Classes B and C aggregated $72,290 and
$2,116, respectively.
Administrative Service Fees. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to 0.25% of
average daily net assets for each such class. KDI in turn has various agreements
with financial services firms that provide these services and pays these firms
based on assets of shareholder accounts the firms service. For the year ended
August 31, 1999, the Administrative Services Fee was as follows:
Total Fees Waived Unpaid at
Administrative Service Fee Aggregated by KDI August 31, 1999
- --------------------------------------------------------------------------------
Class A .................. $ 76,483 $ 49,784 $ 17,064
Class B .................. 52,766 30,993 --
Class C .................. 8,664 8,664 --
$ 137,913 $ 89,441 $ 17,064
29
<PAGE>
- --------------------------------------------------------------------------------
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 year ended August 31, 1999, the amount
charged to Classes A, B and C by KSC aggregated $109,888, $84,916, and $30,807,
respectively, of which $9,172 is unpaid at August 31, 1999. Scudder Service
Corporation ("SSC"), a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Scudder Shares. For the
year ended August 31, 1999 the amount charged to the Scudder Shares by SSC for
shareholder services aggregated $285,028, of which $25,878 is unpaid at August
31, 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 August 31, 1999, the Special Servicing Agreement expense
charged to the Scudder Shares amounted to $742,760, of which $52,612 is unpaid
at August 31, 1999.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Scudder Shares of the Fund. For the year
ended February 28, 1999, the amount charged to the Scudder Shares by STC
aggregated $58,712, of which $6,244 is unpaid at August 31, 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 year ended August 31, 1999, the amount charged to the Fund by SFAC
aggregated $99,733, of which $26,896 is unpaid at August 31, 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 year ended August 31, 1999, the Trustees fees and
expenses aggregated $35,708.
30
<PAGE>
- --------------------------------------------------------------------------------
D. 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.
31
<PAGE>
E. Share Transactions
The following table summarizes shares of beneficial interest and dollar activity
in the Fund:
<TABLE>
<CAPTION>
Year ended Period Ended
August 31, 1999 August 31, 1998
----------------------------------- -----------------------------------------
<S> <C> <C> <C> <C>
Shares Dollars Shares Dollars
Shares sold
- ------------------------------------------------------------------------------------------------
Scudder Shares 1,767,053 $ 36,814,454 5,261,810 $ 100,865,048
Class A ...... 4,181,810 89,719,684 686,665 13,861,440
Class B ...... 1,703,242 35,213,582 388,134 7,520,415
Class C ...... 290,638 6,120,954 59,192 1,143,056
7,942,743 167,868,674 6,395,801 123,389,959
Shares issued to shareholders in reinvestment of distributions
- ------------------------------------------------------------------------------------------------
Scudder Shares 241,446 $ 4,918,255 70,172 $ 1,215,373
Class A ...... 34,363 700,664 -- --
Class B ...... 28,770 583,153 -- --
Class C ...... 4,331 87,827 -- --
308,910 6,289,899 70,172 1,215,373
Shares redeemed
- ------------------------------------------------------------------------------------------------
Scudder Shares (2,330,780) $ (48,909,586) (2,160,627) $ (40,949,391)
Class A ...... (2,232,659) (48,175,880) (253,531) (5,236,843)
Class B ...... (727,039) (15,294,433) (30,790) (608,304)
Class C ...... (99,616) (2,138,727) (3,858) (81,660)
(5,390,094) (114,518,626) (2,448,806) (46,876,198)
Net increase (decrease)
- ------------------------------------------------------------------------------------------------
Scudder Shares (322,281) $ (7,176,877) 3,171,355 $ 61,131,030
Class A ...... 1,983,514 42,244,468 433,134 8,624,597
Class B ...... 1,004,973 20,502,302 357,344 6,912,111
Class C ...... 195,353 4,070,054 55,334 1,061,396
2,861,559 $ 59,639,947 4,017,167 $ 77,729,134
</TABLE>
32
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of Investment Trust and to the Scudder Shares Shareholders of
Classic Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Scudder Shares financial highlights present
fairly, in all material respects, the financial position of Classic Growth Fund
(formerly Scudder Classic Growth Fund) (the "Fund") at August 31, 1999, the
results of its operations, the changes in its net assets, and the Scudder Shares
financial highlights for the periods indicated therein, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
October 20, 1999
33
<PAGE>
Tax Information
- --------------------------------------------------------------------------------
August 31, 1999
The Fund paid distributions of $0.68 per share from net long-term capital gains
during its year ended August 31, 1999, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$10,432,000 as capital gain dividends for its year ended August 31, 1999, of
which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
34
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Lynn S. Birdsong*
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President and General
Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
o Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
o Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
o Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
o Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
o Trustee; Venture Partner,
Internet Capital Group
Bruce F. Beaty*
o Vice President
Jennifer P. Carter*
o Vice President
Philip S. Fortuna*
o Vice President
William F. Gadsden*
o Vice President
Robert T. Hoffman*
o Vice President
Valerie F. Malter*
o Vice President
Ann M. McCreary*
o Vice President
John Millette*
o Vice President and Secretary
John R. Hebble*
o Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
35
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
36
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Scudder Global High Income Fund, Inc.
The Brazil Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Montgomery Street Income Securities, Inc.
</TABLE>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ Funds within categories are listed in order from expected least
risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family
of Funds.
++ Only the International Shares of the fund are part of the Scudder
Family of Funds.
+++ +++ A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold by Scudder's insurance agencies, 1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on
various other stock exchanges.
37
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank acount.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* Dollar cost averaging involves continuous investment in
securities regardless of price fluctuations and does not
assure a profit or protect against loss in declining
markets. Investors should consider their ability to
continue such a plan through periods of low price
levels.
Around-the- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
38
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distrbution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
39
<PAGE>
About the Fund's Adviser
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations 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 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
