Scudder
[LOGO]
Investments(SM)
EQUITY/GROWTH
Scudder Classic
Growth Fund
Annual Report
October 31, 2000
The fund seeks long-term growth of capital with reduced share price volatility
compared to other growth mutual funds.
Scudder Classic Growth Fund is properly known as Classic Growth Fund.
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
15 Investment Portfolio
19 Financial Statements
22 Financial Highlights
23 Notes to Financial Statements
32 Report of Independent Accountants
33 Tax Information
34 Shareholder Meeting Results
35 Officers and Trustees
36 Investment Products and Services
38 Account Management Resources
2
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Scudder Classic Growth Fund
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ticker symbol SCCGX fund number 058
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Date of o The fund's Scudder Shares returned 15.69% for the
Inception: 12-month period, beating the 6.10% return of its
9/9/96 unmanaged benchmark, the S&P 500, and the 9.71%
average return for the large-cap core fund category,
as calculated by Lipper, Inc.^1
Total Net
Assets of o While growth equity investors saw a great deal of
Scudder volatility, particularly after March of this year,
Shares as of the fund's more conservative approach to growth
10/31/00: investing enabled it to hold up well relative to its
$195 million peer group.Moreover, these results are in line with
our expectations as the fund's strategy is designed
to participate in broad advances made by growth
stocks generally, while limiting volatility relative
to more aggressive growth funds and indices.
o We believe the market will remain very selective,
rewarding only those companies that are able to
consistently demonstrate above-average earnings
growth.
^1 Lipper, Inc. is an independent analyst of investment performance.
3
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Letter from the Fund's President
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Dear Shareholders,
An ongoing battle for market dominance between "new economy" technology and
Internet stocks and more conservative value-oriented stocks resulted in a
volatile market environment during much of the past 12 months. Early in the
period, a combination of strong economic momentum, moderate inflation, and an
improving corporate profits outlook helped to ease concerns about the impact of
rising energy and labor prices and the threat of a more aggressive monetary
tightening by the Federal Reserve Board (the Fed). In the spring, however,
leadership shifted from technology and Internet stocks, as financial and
cyclical sectors responded favorably to a more benign economic outlook. At the
same time, investors once again focused on valuation and earnings, shied away
from companies with unproven business plans and no current earnings, and sought
out more seasoned and reasonably valued companies.
We believe Classic Growth Fund, which seeks to invest in quality growing
companies while paying attention to valuation and risk management, was well
positioned for this environment. The fund uses an investment approach known as
GARP, or Growth at a Reasonable Price, a relatively conservative style of growth
investing designed to weather volatile periods within the market cycle.
4
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Over the past 12 months, Scudder Shares of the fund outperformed both its
benchmark, the S&P 500 Index, and the average for funds in the large-cap core
fund category, as calculated by Lipper, Inc. For more information on the market
environment and management's approach to stockpicking, please turn to the
Portfolio Management Discussion that begins on page 10.
Thank you for your continued interest in Scudder 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/ Lin Coughlin
Linda C. Coughlin
President
Scudder Classic Growth Fund
5
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Performance Update
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October 31, 2000
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Growth of a $10,000 Investment
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A GRAPH IN THE FORM OF A LINE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Classic Growth Fund - Scudder Shares S&P 500 Index*
9/96 10000 10000
10/96 10159 10276
4/97 11632 11788
10/97 13921 13577
4/98 16454 16632
10/98 15418 16563
4/99 18316 20260
10/99 20370 20817
4/00 23346 22315
10/00 23566 22088
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 10/31/2000 $10,000 Cumulative Annual
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Classic Growth Fund -- Scudder Shares
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1 year $ 11,569 15.69% 15.69%
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Life of Class** $ 24,764 147.64% 24.47%
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S&P 500 Index*
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1 year $ 10,610 6.10% 6.10%
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Life of Class** $ 22,088 120.88% 21.39%
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6
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Returns and Per Share Information
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Yearly periods ended October 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE FUND TOTAL
RETURN (%) AND INDEX TOTAL RETURN (%)
1996** 1997 1998 1999 2000
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Class Total
Return (%) 6.75 37.04 10.75 32.12 15.69
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Index Total
Return (%) 2.76 32.12 21.99 25.68 6.10
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Net Asset
Value ($) 12.81 17.51 19.04 24.20 26.84
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Income
Dividends ($) -- .04 .04 -- --
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Capital Gains
Distributions ($) -- -- .29 .81 1.11
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* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. 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
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Portfolio Summary
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October 31, 2000
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Asset Allocation
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
The fund remains close
to fully invested
in domestic
growth stocks.
Equity Holdings 97%
Cash Equivalents 3%
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100%
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Sector Diversification
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(Excludes 3% Cash Equivalents)
The fund benefited
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, from its moderate
ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW. overweightings, relative
to the S&P 500, in
technology and health
care, which both
outperformed.
Technology 28%
Health 18%
Financial 10%
Media 8%
Communications 8%
Consumer Staples 7%
Energy 6%
Manufacturing 6%
Consumer Discretionary 4%
Other 5%
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100%
------------------------------------
8
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Ten Largest Equity Holdings
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(31% of Portfolio) The fund's top holdings
reflect our desire to
1. General Electric Co. invest in companies that
Producer of electrical equipment we believe can provide
growth at a
2. Pfizer, Inc. reasonable price.
Manufacturer of prescription pharmaceuticals and
non-prescription self medications
3. Microsoft Corp.
Developer of computer software
4. Cisco Systems, Inc.
Manufacturer of computer network products
5. Intel Corp.
Producer of semiconductor memory circuits
6. American Express Co.
Provider of travel-related, financial advisory and
international banking services
7. Sun Microsystems, Inc.
Manufacturer of high-performance workstations, servers
and software
8. Merck & Co., Inc.
Developer and manufacturer of pharmaceutical products,
and provider of pharmaceutical benefit services
9. EMC Corp.
Provider of enterprise storage systems, software,
networks and services
10. PepsiCo, Inc.
Provider of soft drinks, snack foods and food services
For more complete details about the Fund's investment portfolio, see page 15. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
Portfolio Management Discussion
9
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Portfolio Management Discussion
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October 31, 2000
In the following interview, William F. Gadsden, portfolio manager of the Classic
Growth Fund, discusses the fund's strategy and the market environment during the
12-month period ended October 31, 2000.
Q: How did the fund perform over the period?
A: The fund's Scudder Shares returned 15.69% during the
period, beating the 6.10% return of its unmanaged benchmark,
the S&P 500. In addition, the fund's returns placed it ahead
of the 9.71% average of the Lipper large-cap core fund
category. While growth equity investors saw a great deal of
volatility, particularly after March of this year, our more
conservative approach to growth investing enabled the fund to
hold up well relative to its peer group.
Q: Could you tell us a little more about your growth investing
strategy?
A: We use an approach known as GARP, or Growth at a Reasonable
Price. We believe this approach should help the fund to
outperform on a long-term basis by fully participating in
broad advances while limiting portfolio volatility and risk in
the event that conditions become less favorable. Additionally,
our approach helps us assess opportunities in sectors that are
often not represented in traditional growth styles. We believe
that good companies that offer superior long-term growth
characteristics, and the strength of competitive franchise to
sustain them, are worth more than less reliable companies that
are often "cheap" for a reason. 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
fund's 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 the fund to
participate in some of the market's biggest winners, and to
avoid an inordinate number of negative surprises.
10
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Q: Please give us an overview of the market and how it
impacted the fund.
A: Market volatility was quite high during much of the period.
Late last year and early this year, a combination of strong
economic momentum, moderate inflation, and an improving
corporate profits outlook helped to alleviate prior concerns
about the impact of rising energy and labor prices and the
threat of a more aggressive monetary tightening by the Federal
Reserve Board (the Fed). In March, however, leadership shifted
from technology and Internet stocks as financial and cyclical
sectors responded favorably to a more benign economic outlook
and interest rate stability. Throughout the summer, rapid
sector rotation resulted in increased market volatility. Many
of the top contributors to the S&P 500 in the second quarter
were health care companies such as Pfizer and Merck, while
many of the poorest performers were technology stocks,
including Microsoft and Cisco Systems. In many ways, the first
quarter's laggards took the lead in the second quarter, as
investors once again focused on valuation and earnings. They
shied away from companies with unproven business plans and no
current earnings, and sought out more seasoned and reasonably
valued companies. In August, a strong rally in growth stocks
gave way to profit-taking brought about by concerns as to how
the now-slowing economy, higher oil prices, and a weak euro
currency will impact corporate earnings. In September, the
selling intensified. Many bellwether companies, across
different economic sectors, pre-announced that earnings would
likely fail to meet expectations. The most visible
pre-announcements came in technology, which reinforced
investor concerns that third-quarter revenues and earnings may
be significantly lower than anticipated and not attributable
to company-specific factors. Throughout the third quarter,
however, the fund's diversified approach and attention to risk
management helped mitigate losses, particularly in the
technology sector.
11
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Q: Which industries and stocks have had the greatest impact on
performance?
A: Over the past year, portfolio sector weightings had a
slightly positive impact on performance relative to the S&P
500 Index. The fund was helped by underweighted positions in
basic industries and communications, two of the market's
poorest performing sectors. A low inflation environment and a
lack of pricing power for many companies operating in these
sectors contributed to the weakness. The fund also benefited
from its moderate overweightings, relative to the S&P 500, in
technology and health care, which both outperformed. These
sectors have traditionally housed many of the market's top
growth companies and have historically been well represented
in the fund's investment style. Mild underweightings in the
utility and financial sectors detracted from performance. Both
groups had been fairly depressed and performed well in
reaction to declining interest rates.
The fund's outperformance versus the benchmark was primarily
attributable to good stock selection. This result is by design
as we seek to identify the best companies within the different
economic sectors. Our issue selections added value across
several economic sectors but the greatest contributions came
from technology, health care, and financials. Technology
holdings were led by EMC, Corning, and Sun Microsystems, which
all outperformed dramatically. Our small allocations to
biotech companies Genentech and Immunex Corp. nicely
complemented long-time holdings in drug stocks Eli Lilly and
Pfizer. Strength in the finance sector of the portfolio was
broad as American International Group, American Express, and
Citigroup all benefited from declining interest rates and
continued to post strong operating results.
Q: Where do you see things going from here in technology?
A: First, we see no quick resolution to the anti-trust
litigation involving Microsoft. However, when the legal
situation stabilizes, we think investors will focus on the
12
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company's good fundamentals and the wider acceptance of
Windows 2000 at the corporate level. Also, the market has
refocused its attention on fundamentals. This means that while
investors are looking for growth, they want growth at a
reasonable price. This renewed focus on valuation is the
reason many high-flying stocks came crashing down. We don't
think this is a temporary situation. A market focused on
fundamentals should benefit the fund's portfolio. Holdings
such as Pepsi and Pfizer are solid companies with strong
earnings but with stock prices that had been depressed by the
singular focus on technology. At the same time, many of the
fundamentally sound technology companies the fund holds have
begun to regain their footing. In fact, we have recently added
to select technology holdings on short-term weakness.
Q: And, what's your outlook for the market in general?
A: We continue to believe the market will remain very
selective, rewarding only those companies that are able to
consistently demonstrate above-average earnings growth. In
this environment, we believe our focus on risk control and
identifying companies with dominant competitive positions and
the ability to sustain superior earnings growth is
particularly important.
13
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Classic Growth Fund:
A Team Approach to Investing
Classic Growth Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom
plays an important role in the fund's management process. Team
members work together to develop investment strategies and
select securities for the fund's portfolio. They are supported
by the Adviser's large staff of economists, research analysts,
traders, and other investment specialists who work in offices
across the United States and abroad. The Adviser believes that
a team approach benefits fund investors by bringing together
many disciplines and leveraging the firm's extensive
resources.
Portfolio manager William F. Gadsden joined the Adviser in
1983 and is responsible for the fund's overall investment
strategy and daily operation. Mr. Gadsden has over 18 years of
investment industry experience.
14
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Investment Portfolio as of October 31, 2000
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<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
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<S> <C> <C>
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Repurchase Agreements 0.7%
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State Street Bank and Trust Company, 6.55%,
to be repurchased at $3,511,639 on 11/1/2000**
(Cost $3,511,000)................................. 3,511,000 3,511,000
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Short-Term Investments 2.1%
------------------------------------------------------------------------------------
Student Loan Marketing Association, 6.45%***,
11/1/2000 (Cost $10,000,000)...................... 10,000,000 10,000,000
Shares
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Common Stocks 97.2%
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Consumer Discretionary 4.2%
Department & Chain Stores
Home Depot, Inc. .................................... 184,650 7,939,950
Target Corp. ........................................ 160,800 4,442,100
Wal-Mart Stores, Inc. ............................... 173,400 7,868,025
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20,250,075
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Consumer Staples 7.2%
Alcohol & Tobacco 1.2%
Anheuser-Busch Companies, Inc. ...................... 126,400 5,782,800
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Food & Beverage 3.8%
Coca-Cola Co. ....................................... 101,400 6,122,025
PepsiCo, Inc. ....................................... 255,300 12,366,094
-----------
18,488,119
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Package Goods/Cosmetics 2.2%
Colgate-Palmolive Co. ............................... 107,600 6,322,576
Gillette Co. ........................................ 114,800 4,003,650
-----------
10,326,226
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Health 17.3%
Biotechnology 3.6%
Genentech, Inc.* .................................... 69,000 5,692,500
Immunex Corp.* ..................................... 64,000 2,724,000
MedImmune, Inc.* .................................... 61,200 4,000,950
PE Corp.-PE Biosystems Group ........................ 43,500 5,089,500
-----------
17,506,950
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The accompanying notes are an integral part of the financial statements.
15
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Shares Value ($)
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Medical Supply & Specialty 4.8%
Baxter International, Inc. .......................... 122,350 10,055,641
Becton, Dickinson & Co. ............................. 194,300 6,509,050
Medtronic, Inc. ..................................... 117,900 6,403,444
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22,968,135
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Pharmaceuticals 8.9%
Bristol-Myers Squibb Co. ............................ 65,600 3,997,500
Eli Lilly & Co. ..................................... 91,200 8,151,000
Merck & Co., Inc. ................................... 145,500 13,085,906
Pfizer, Inc. ........................................ 415,050 17,924,972
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43,159,378
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Communications 7.3%
Cellular Telephone 2.2%
Nokia Oyj (ADR) ..................................... 122,300 5,228,325
Vodafone Group PLC (ADR) ............................ 133,100 5,665,069
-----------
10,893,394
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Telephone/Communications 5.1%
AT&T Wireless Group* ................................ 153,000 3,815,433
BroadWing, Inc.* .................................... 174,800 4,938,100
JDS Uniphase Corp.* ................................. 59,500 4,841,813
Qwest Communications International, Inc.* ........... 114,260 5,555,893
Verizon Communications .............................. 93,150 5,385,234
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24,536,473
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Financial 9.4%
Insurance 2.5%
American International Group, Inc. .................. 122,875 12,041,750
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Consumer Finance 5.4%
American Express Co. ................................ 240,800 14,448,000
Citigroup, Inc. ..................................... 224,466 11,812,523
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26,260,523
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Other Financial Companies 1.5%
Marsh & McLennan Companies, Inc. .................... 54,000 7,060,500
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Media 7.5%
Advertising 1.7%
Interpublic Group of Companies, Inc. ................ 64,700 2,778,056
Omnicom Group, Inc. ................................. 60,800 5,608,800
-----------
8,386,856
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Broadcasting & Entertainment 2.7%
Infinity Broadcasting Corp. "A"* .................... 108,600 3,610,950
The accompanying notes are an integral part of the financial statements.
16
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Shares Value ($)
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Viacom, Inc. "B"* ................................... 90,800 5,164,250
Walt Disney Co. ..................................... 122,200 4,376,288
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13,151,488
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Cable Television 3.1%
AT&T Corp.-- Liberty Media Group "A"* ............... 441,100 7,939,800
Comcast Corp. "A"* .................................. 168,900 6,882,675
-----------
14,822,475
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Service Industries 3.2%
EDP Services 0.8%
Electronic Data Systems Corp. ....................... 83,000 3,895,813
-----------
Investment 1.3%
Goldman Sachs Group, Inc. ........................... 23,400 2,335,613
Merrill Lynch & Co., Inc. ........................... 54,500 3,815,000
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6,150,613
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Miscellaneous Commercial Services 1.1%
Siebel Systems, Inc.* .............................. 52,100 5,467,244
-----------
Durables 2.0%
Aerospace
United Technologies Corp. ........................... 137,800 9,620,163
-----------
Manufacturing 5.7%
Diversified Manufacturing 4.4%
General Electric Co. ................................ 381,500 20,910,969
-----------
Industrial Specialty 1.3%
Corning, Inc. ....................................... 83,600 6,395,400
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Technology 27.5%
Computer Software 9.1%
America Online, Inc.* ............................... 143,500 7,236,705
i2 Technologies, Inc.* .............................. 20,100 3,417,000
Intuit, Inc.* ....................................... 126,600 7,777,988
Microsoft Corp.* .................................... 235,200 16,199,400
Oracle Corp.* ....................................... 270,400 8,923,200
-----------
43,554,293
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Diverse Electronic Products 2.8%
Applied Materials, Inc.* ............................ 139,000 7,384,375
Dell Computer Corp.* ................................ 137,800 4,065,100
The accompanying notes are an integral part of the financial statements.
17
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Shares Value ($)
------------------------------------------------------------------------------------
Teradyne, Inc.* ..................................... 67,800 2,118,750
-----------
13,568,225
-----------
EDP Peripherals 2.6%
EMC Corp.* .......................................... 141,300 12,584,531
-----------
Electronic Components/Distributors 3.9%
Applied Micro Circuits Corp* ........................ 40,000 3,055,000
Cisco Systems, Inc.* ................................ 294,200 15,850,025
-----------
18,905,025
-----------
Electronic Data Processing 4.3%
International Business Machines Corp. ............... 72,100 7,101,850
Sun Microsystems, Inc.* ............................. 123,600 13,704,150
-----------
20,806,000
-----------
Semiconductors 4.8%
Intel Corp. ......................................... 329,080 14,808,600
Vitesse Semiconductor Corp.* ........................ 60,000 4,196,250
Xilinx, Inc.* ....................................... 55,900 4,049,256
-----------
23,054,106
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Energy 5.8%
Oil & Gas Production 3.9%
Anadarko Petroleum Corp. ............................ 63,600 4,073,580
Exxon Mobil Corp. ................................... 114,136 10,179,505
Nabors Industries, Inc.* ............................ 89,500 4,555,550
-----------
18,808,635
-----------
Oilfield Services/Equipment 1.9%
Schlumberger Ltd. ................................... 121,200 9,226,350
-----------
Utilities 0.1%
Electric Utilities
Southern Energy, Inc.* .............................. 21,400 583,150
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Total Common Stocks (Cost $407,195,754) 469,165,659
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Total Investment Portfolio-- 100.0% (Cost $420,706,754) (a) 482,676,659
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</TABLE>
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
*** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $421,199,092. At October 31,
2000, net unrealized appreciation for all securities based on tax cost was
$61,477,567. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$79,400,525 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $17,922,958.
The accompanying notes are an integral part of the financial statements.
18
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Financial Statements
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--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of October 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
----------------------------------------------------------------------------------------------
Investments in securities, at value (cost $420,706,754)........................ $ 482,676,659
Cash .......................................................................... 1,231
Dividends receivable .......................................................... 134,829
Interest receivable ........................................................... 639
Receivable for Fund shares sold ............................................... 657,817
Deferred organization expenses ................................................ 8,907
Due from Adviser............................................................... 139,190
--------------
Total assets .................................................................. 483,619,272
Liabilities
----------------------------------------------------------------------------------------------
Payable for Fund shares redeemed .............................................. 918,575
Accrued Trustees' fees and expenses............................................ 66,700
Other accrued expenses and payables ........................................... 692,073
--------------
Total liabilities ............................................................. 1,677,348
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Net assets, at value $ 481,941,924
----------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments ..................... 61,969,905
Accumulated net realized gain (loss)........................................... 26,738,362
Paid-in capital ............................................................... 393,233,657
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Net assets, at value $ 481,941,924
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Net Asset Value
----------------------------------------------------------------------------------------------
Scudder Shares
Netasset value, offering and redemption price per share ($195,082,569 /
7,268,722 outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized)...................................... $ 26.84
Class A
Netasset value and redemption price per share ($152,893,342 / 5,670,342
outstanding shares of beneficial interest, $.01 par value, unlimited number
of shares authorized)....................................................... $ 26.96
Maximum offering price per share (100 / 94.25 of $26.96)....................... $ 28.60
Class B
Netasset value, offering and redemption price (subject to contingent
deferred sales charge) per share ($108,465,773 / 4,115,429 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares
authorized)................................................................. $ 26.36
Class C
Netasset value, offering and redemption price (subject to contingent
deferred sales charge) per share ($25,500,240 / 971,158 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares
authorized)................................................................. $ 26.26
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
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--------------------------------------------------------------------------------
Statement of Operations for the year ended October 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $11,549)............ $ 2,195,360
Interest ....................................................... 891,497
---------------
Total Income.................................................... 3,086,857
---------------
Expenses:
Management fee.................................................. 2,708,964
Services to shareholders........................................ 2,194,554
Custodian and accounting fees................................... 157,211
Distribution services fees...................................... 772,141
Administrative services fees.................................... 538,223
Auditing........................................................ 39,809
Legal........................................................... 24,185
Trustees' fees and expenses..................................... 90,197
Reports to shareholders......................................... 137,319
Registration fees............................................... 109,995
Amortization of organization expenses........................... 4,073
Other........................................................... 33,383
---------------
Total expenses, before expense reductions....................... 6,810,054
Expense reductions.............................................. (1,022,633)
---------------
Total expenses, after expense reductions 5,787,421
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Net investment income (loss) (2,700,564)
------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
------------------------------------------------------------------------------------
Net realized gain (loss) from investments....................... 30,180,422
Net unrealized appreciation (depreciation) during the 14,010,654
period on investments........................................
------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 44,191,076
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 41,490,512
------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
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Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Two Months
Year Ended Ended Year Ended
Increase (Decrease) in October 31, October 31, August 31,
Net Assets 2000 1999 1999
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss).......... $ (2,700,564) $ (293,550) $ (932,342)
Net realized gain (loss) on
investment transactions............ 30,180,422 2,343,968 9,396,870
Net unrealized appreciation
(depreciation) on investment
transactions during the period..... 14,010,654 14,900,813 44,795,107
---------------- --------------- ---------------
Net increase (decrease) in net
assets resulting from operations... 41,490,512 16,951,231 53,259,635
---------------- --------------- ---------------
Distributions to shareholders from:
Net realized gains -- Scudder Shares.. (6,405,855) -- (4,994,696)
Net realized gains -- Class A......... (3,271,517) -- (734,391)
Net realized gains -- Class B......... (2,298,852) -- (597,986)
Net realized gains -- Class C......... (413,112) -- (91,871)
---------------- --------------- ---------------
Fund share transactions:
Proceeds from shares sold............. 358,067,430 22,858,479 167,868,674
Reinvestment of distributions......... 12,138,523 -- 6,289,899
Cost of shares redeemed............... (167,738,823) (13,479,531) (114,518,626)
---------------- --------------- ---------------
Net increase (decrease) in net assets
from Fund share transactions....... 202,467,130 9,378,948 59,639,947
---------------- --------------- ---------------
Increase (decrease) in net assets..... 231,568,306 26,330,179 106,480,638
Net assets at beginning of period..... 250,373,618 224,043,439 117,562,801
Net assets at end of period........... $ 481,941,924 $ 250,373,618 $ 224,043,439
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Scudder Shares (b)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Periods Ended October 31, 2000 1999(f) 1999(c) 1998(c) 1997(d)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $24.20 $22.55 $16.61 $17.38 $12.00
--------------------------------------------
------------------------------------------------------------------------------------
Income (loss) from investment
operations:
------------------------------------------------------------------------------------
Net investment income (loss) (.12) (.03) (.10) .01 .06
------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions 3.87 1.68 6.85 (.45) 5.36
--------------------------------------------
------------------------------------------------------------------------------------
Total from investment operations 3.75 1.65 6.75 (.44) 5.42
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net investment income -- -- -- (.04) (.04)
------------------------------------------------------------------------------------
Net realized gains on investment
transactions (1.11) -- (.81) (.29) --
--------------------------------------------
------------------------------------------------------------------------------------
Total distributions (1.11) -- (.81) (.33) (.04)
------------------------------------------------------------------------------------
Net asset value, end of period $26.84 $24.20 $22.55 $16.61 $17.38
--------------------------------------------
------------------------------------------------------------------------------------
Total Return (%) (e) 15.69 7.36** 41.06 (2.72) 45.20**
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 195.1 143.2 133.3 103.5 53.2
------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 1.54(g) 1.78* 1.84 1.61 2.25*
------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.27(g) 1.53* 1.59 1.30 1.25*
------------------------------------------------------------------------------------
Ratio of net investment income (loss)
(%) (.47) (.71)* (.48) .03 .43*
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 61 58* 68 49 27*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On April 16, 1998, existing shares of the Fund were designated as Scudder
Shares and are generally not available to new investors.
(c) For the year ended August 31.
(d) For the period September 9, 1996 (commencement of operations) to August 31,
1997.
(e) Total return would have been lower had certain expenses not been reduced.
(f) For the two months ended October 31, 1999. On August 10, 1999, the Board of
Trustees of the Fund changed the fiscal year end from August 31 to October
31.
(g) The ratios of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions were 1.52% and 1.26%,
respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
22
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Classic Growth Fund (the "Fund") is a diversified series of Investment Trust
(the "Trust") which is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company organized
as a Massachusetts business trust.
On August 10, 1999, the Fund changed its fiscal year end for financial reporting
and federal income tax purposes to October 31 from August 31.
The Fund offers multiple classes of 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 accounting
principles generally accepted in the United States of America which require the
use of management estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated
23
<PAGE>
mean between the most recent bid and asked quotations. If there are no such bid
and asked quotations, the most recent bid quotation is used. Securities quoted
on the Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are
valued at the most recent sale price reported. If there are no such sales, the
value is the most recent bid quotation. Securities which are not quoted on
Nasdaq but are traded in another over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the calculated mean between the
most recent bid and asked quotations on such market. If there are no such bid
and asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Trust, whose
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
24
<PAGE>
regulations which may differ from accounting principles generally accepted in
the United States of America. As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. Accordingly, the
Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
All discounts are accreted for both tax and financial 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.
B. Purchases and Sales of Securities
For the year ended October 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $407,116,114 and
$226,019,544, respectively.
C. Related Parties
Management Agreement. Under the Investment Management Agreement (the
"Agreement") with Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser") the Adviser directs the investments of the Fund in accordance 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 0.25% of its management fee until January 31, 2001. For the year
ended October 31, 2000, the Adviser did not impose a portion of its management
fee amounting to $967,494, and the fee imposed amounted to $1,741,470.
25
<PAGE>
Distribution Service Agreement. In accordance with Rule 12b-1 under the
Investment Company Act of 1940, Kemper Distributors, Inc. ("KDI"), a subsidiary
of the Adviser, receives a fee of 0.75% of average daily net assets of Classes B
and C. Pursuant to the agreement, KDI enters into related selling group
agreements with various firms at various rates for sales of Class B and C
shares. For the year ended October 31, 2000, the Distribution Fee was as
follows:
Unpaid at
Total October 31,
Distribution Fee Aggregated 2000
--------------------------------------------------------------------------------
Class B.................................. $ 641,264 $ 127,184
Class C.................................. 130,877 29,690
$ 772,141 $ 156,874
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 October
31, 2000 aggregated $295,674, of which $236,274 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 October 31, 2000, the CDSC for Classes B and C aggregated $183,314 and
$963, 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
26
<PAGE>
these firms based on assets of shareholder accounts the firms service. For the
year ended October 31, 2000, the Administrative Service Fee was as follows:
Unpaid at
Total October 31,
Administrative Service Fee Aggregated 2000
--------------------------------------------------------------------------------
Class A.................................. $ 280,844 $ --
Class B.................................. 213,754 --
Class C.................................. 43,625 --
$ 538,223 $ --
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 October 31, 2000, 2000, the
amount charged to Classes A, B and C by KSC aggregated $344,671, $343,047 and
$112,809, respectively, of which $106,448 is unpaid at October 31, 2000. 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 October 31, 2000, the amount charged to the Scudder Shares by SSC for
shareholder services aggregated $304,908, of which $49,048 is unpaid at October
31, 2000.
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 October 31, 2000, the Special Servicing Agreement expense
charged to the Scudder Shares amounted to $684,171, of which $85,270 is unpaid
at October 31, 2000.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Scudder Shares of the Fund. For the year
ended October 31, 2000, the amount charged to the Scudder Shares by STC
aggregated $117,879, of which $10,885 is unpaid at October 31, 2000.
27
<PAGE>
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 October 31, 2000, the amount charged to the Fund by SFAC
aggregated $147,019, of which $24,796 is unpaid at October 31, 2000.
Trustees' Fees. The Fund pays each of its Trustees not affiliated with the
Adviser an annual retainer plus specified amounts for attended board and
committee meetings. For the year ended October 31, 2000, the Trustees' fees and
expenses aggregated $23,483. In addition, a one-time fee of $66,714 was accrued
for payment to those Trustees not affiliated with the Adviser who are not
standing for re-election, under the reorganization discussed in Note G. Inasmuch
as the Adviser will also benefit from administrative efficiencies of a
consolidated Board, the Adviser has agreed to bear $33,357 of such costs.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agents
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the year ended October 31, 2000,
the Fund's custodian and transfer agent fees were reduced by $1,095 and $20,687,
respectively, under these arrangements.
E. Line of Credit
The Fund and several other Scudder Funds (the "Participants") share in a $1
billion revolving credit facility with Chase Manhattan Bank for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Participants are
charged an annual commitment fee which is allocated, pro rata based upon net
assets, among each of the Participants. Interest is calculated based on the
market rates at the time of borrowing. The Fund may borrow up to a maximum of 33
percent of its net assets under the agreement.
28
<PAGE>
--------------------------------------------------------------------------------
F. Share Transactions
The following table summarizes shares of beneficial interest and dollar activity
in the Fund:
<TABLE>
<CAPTION>
Year Ended Two Months Ended
October 31, 2000 October 31, 1999
----------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Shares Dollars Shares Dollars
Shares sold
------------------------------------------------------------------------------------
Scudder Shares 3,007,008 $ 79,812,412 191,253 $ 4,368,502
Class A............ 6,365,261 169,698,800 467,676 10,792,550
Class B............ 3,321,680 86,245,038 282,287 6,387,191
Class C............ 854,446 22,311,180 57,839 1,310,236
13,548,395 $ 358,067,430 999,055 $ 22,858,479
Shares issued to shareholders in reinvestment of distributions
------------------------------------------------------------------------------------
Scudder Shares 246,889 $ 6,362,318 -- $ --
Class A............ 123,977 3,209,724 -- --
Class B............ 85,387 2,176,533 -- --
Class C............ 15,303 389,948 -- --
471,556 $ 12,138,523 -- $ --
Shares redeemed
------------------------------------------------------------------------------------
Scudder Shares (1,901,521) $ (49,835,087) (186,095) $ (4,242,573)
Class A............ (3,396,132) (90,592,754) (307,088) (7,090,317)
Class B............ (853,084) (22,212,889) (83,158) (1,889,264)
Class C............ (195,776) (5,098,093) (11,341) (257,377)
(6,346,513) $ (167,738,823) (587,682) $ (13,479,531)
Net increase (decrease)
------------------------------------------------------------------------------------
Scudder Shares 1,352,376 $ 36,339,643 5,158 $ 125,929
Class A............ 3,093,106 82,315,770 160,588 3,702,233
Class B............ 2,553,983 66,208,682 199,129 4,497,927
Class C............ 673,973 17,603,035 46,498 1,052,859
7,673,438 $ 202,467,130 411,373 $ 9,378,948
</TABLE>
29
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
August 31, 1999
---------------------------------
<S> <C> <C>
Shares Dollars
Shares sold
------------------------------------------------------------------------------------
Scudder Shares 1,767,053 $ 36,814,454
Class A............ 4,181,810 89,719,684
Class B............ 1,703,242 35,213,582
Class C............ 290,638 6,120,954
7,942,743 $ 167,868,674
Shares issued to shareholders in reinvestment of distributions
------------------------------------------------------------------------------------
Scudder Shares 241,446 $ 4,918,255
Class A............ 34,363 700,664
Class B............ 28,770 583,153
Class C............ 4,331 87,827
308,910 $ 6,289,899
Shares redeemed
------------------------------------------------------------------------------------
Scudder Shares (2,330,780) $ (48,909,586)
Class A............ (2,232,659) (48,175,880)
Class B............ (727,039) (15,294,433)
Class C............ (99,616) (2,138,727)
(5,390,094) $(114,518,626)
Net increase (decrease)
------------------------------------------------------------------------------------
Scudder Shares (322,281) $ (7,176,877)
Class A............ 1,983,514 42,244,468
Class B............ 1,004,973 20,502,302
Class C............ 195,353 4,070,054
2,861,559 $ 59,639,947
</TABLE>
30
<PAGE>
--------------------------------------------------------------------------------
G. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds.
On November 29, 2000, the Trustees of the Fund approved an Agreement and Plan of
Reorganization (the "Reorganization") between the Fund and Scudder Capital
Growth Fund, pursuant to which Scudder Capital Growth Fund would acquire all or
substantially all of the assets and liabilities of the Fund in exchange for
shares of the Scudder Capital Growth Fund. The Reorganization can be consummated
only if, among other things, it is approved by a majority vote of the
shareholders of the Fund. A special meeting of the shareholders of the Fund to
approve the Reorganization will be held on or about May 24, 2001.
As a result of the Reorganization, each shareholder of the Scudder Classic
Growth Fund will become a shareholder of the Scudder Capital Growth Fund and
would hold, immediately after the closing of the Reorganization (the "Closing"),
that number of full and fractional voting shares of the Scudder Capital Growth
Fund having an aggregate net asset value equal to the aggregate net asset value
of such shareholder's shares held in the Fund as of the close of business on the
business day preceding the Closing. The Closing is expected to take place during
the second quarter of 2001. In the event the shareholders of the Fund fail to
approve the Reorganization, the Fund will continue to operate and the Fund's
Trustees may resubmit the Plan for shareholder approval or consider other
proposals.
31
<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 (the "Fund") at October 31,
2000, the results of its operations, the changes in its net assets and
the Scudder Shares financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally
accepted in the United States of America. These financial statements
and Scudder Shares financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with auditing standards
generally accepted in the United States of America which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at October 31, 2000 by correspondence with the custodian,
provide a reasonable basis for our opinion.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 20, 2000
32
<PAGE>
Tax Information (Unaudited)
--------------------------------------------------------------------------------
The Fund paid distributions of $1.11 per share from net long-term
capital gains during its year ended October 31, 2000, of which 100%
represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund
designates $25,000,000 as capital gain dividends for its year ended
October 31, 2000, 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.
33
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder Classic Growth Fund
(the "fund"), a series of Investment Trust, was held on July 13, 2000, 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 elect Trustees of the Investment Trust.
Number of Votes:
Trustee For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 8,302,774 88,280
Linda C. Coughlin 8,304,579 86,475
Dawn-Marie Driscoll 8,305,567 85,487
Edgar R. Fiedler 8,304,051 87,003
Keith R. Fox 8,306,457 84,597
Joan E. Spero 8,303,428 87,627
Jean Gleason Stromberg 8,305,031 86,023
Jean C. Tempel 8,304,910 86,145
Steven Zaleznick 8,303,594 87,461
--------------------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the fiscal year ending October 31, 2000.
Number of Votes:
For Against Abstain Broker
Non-Votes*
--------------------------------------------------------------------------------
8,249,773 56,073 85,208 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* 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.
34
<PAGE>
Officers and Trustees
--------------------------------------------------------------------------------
Linda C. Coughlin*
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President, WGBH
Educational Foundation
Dawn-Marie Driscoll
o Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics, Bentley
College
Edgar R. Fiedler
o Trustee; Senior Fellow and
Economic Counsellor, The
Conference Board, Inc.
Keith R. Fox
o Trustee; General Partner,
The Exeter Group of Funds
Joan E. Spero
o Trustee; President, The Doris
Duke Charitable Foundation
Jean Gleason Stromberg
o Trustee; Consultant
Jean C. Tempel
o Trustee; Managing Director,
First Light Capital, LLC
Steven Zaleznick
o Trustee; President and
Chief Executive Officer,
AARP Services, Inc.
Thomas V. Bruns*
o Vice President
James M. Eysenbach*
o Vice President
William F. Gadsden*
o Vice President
William F. Glavin*
o Vice President
Valerie F. Malter*
o Vice President
James E. Masur*
o Vice President
Kathleen T. Millard*
o Vice President
Howard S. Schneider*
o Vice President
John Millette*
o Vice President and Secretary
Kathryn L. Quirk*
o Vice President and
Assistant Secretary
John R. Hebble*
o Treasurer
Brenda Lyons*
o Assistant Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
35
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Scudder Funds
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund
Prime Reserve Shares Scudder Small Company Value Fund
Premium Shares
Managed Shares Growth
Scudder Tax Free Money Fund Scudder Classic Growth Fund
Scudder Capital Growth Fund
Tax Free Scudder Large Company Growth Fund
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund Scudder Small Company Stock Fund
Scudder California Tax Free Fund Scudder 21st Century Growth Fund
Scudder Massachusetts Tax Free Fund
Scudder New York Tax Free Fund Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund
Scudder GNMA Fund Scudder Global Discovery Fund
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio Scudder Health Care Fund
Scudder Pathway Growth Portfolio Scudder Technology Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
36
<PAGE>
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
--------------------------------------------------------------------------------
Closed-End Funds
--------------------------------------------------------------------------------
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
Scudder funds are offered by prospectus only. For more complete information on
any fund or variable annuity registered in your state, including information
about a fund's objectives, strategies, risks, advisory fees, distribution
charges, and other expenses, please order a free prospectus. Read the prospectus
before investing in any fund to ensure the fund is appropriate for your goals
and risk tolerance. There is no assurance that the objective of any fund will be
achieved, and fund returns and net asset values fluctuate. Shares are redeemable
at current net asset value, which may be more or less than their original cost.
A money market mutual fund investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although a
money market mutual fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in such a fund.
The services and products described should not be considered a solicitation to
buy or an offer to sell a security to any person in any jurisdiction where such
offer, solicitation, purchase, or sale would be unlawful under the securities
laws of such jurisdiction.
Scudder Investor Services, Inc.
37
<PAGE>
Account Management Resources
--------------------------------------------------------------------------------
For shareholders of Scudder funds including those in the AARP Investment Program
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly
to regularly purchase fund shares and "dollar cost
average" -- buy more shares when the fund's price is
lower and fewer when it's higher, which can reduce
your average purchase price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to
purchase shares -- use distributions from one Scudder
fund to purchase shares in another, automatically
(accounts with identical registrations or the same
social security or tax identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of
your transactions is electronically debited from a
previously designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government
checks -- invested in up to four Scudder funds at one
time.
* Dollar cost averaging involves continuous
investment in securities regardless of price
fluctuations and does not assure a profit or
protect against loss in declining markets.
Investors should consider their ability to
continue such a plan through periods of low
price levels.
Around-the- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to
exchange or redeem shares, and information on other
Scudder funds and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.scudder.com
Personal Investment Organizer: Offering account
information and transactions, interactive worksheets,
prospectuses and applications for all Scudder funds,
plus your current asset allocation, whenever you need
them. Scudder's site also provides news about Scudder
funds, retirement planning information, and more.
38
<PAGE>
--------------------------------------------------------------------------------
Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the
proceeds for schedule (as frequently as once a month) and amount
living expenses of the redemptions, and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into
automated the bank account you designate within three business
withdrawal days after each distribution is paid.
programs
QuickSell
Provides speedy access to your money by
electronically crediting your redemption proceeds to
the bank account you previously designated.
For more Scudder Class S Shareholders:
information
about these Call a Scudder representative at
services 1-800-SCUDDER
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 219669
Kansas City, MO
64121-9669
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 219735
Kansas City, MO
64121-9735
39
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
[LOGO] Scudder Investments(SM)
PO Box 219669
Kansas City, MO 64121-9669
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
<PAGE>
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 2000
KEMPER CLASSIC
GROWTH FUND
"... The fund performed quite well early in the period, as did most other
growth-style funds. As the pendulum shifted to value-oriented stocks, our
price-conscious investment approach enabled us to hold up better than many other
growth-style funds. The fund performed as it was designed to, and we're quite
proud of the results. ..."
[KEMPER FUNDS LOGO]
<PAGE>
CONTENTS
3
ECONOMIC OVERVIEW
7
PERFORMANCE UPDATE
11
INDUSTRY SECTORS
12
LARGEST HOLDINGS
13
PORTFOLIO OF INVESTMENTS
16
FINANCIAL STATEMENTS
19
FINANCIAL HIGHLIGHTS
22
NOTES TO
FINANCIAL STATEMENTS
29
REPORT OF
INDEPENDENT ACCOUNTANTS
30
TAX INFORMATION
31
SHAREHOLDER MEETING
RESULTS
AT A GLANCE
KEMPER CLASSIC GROWTH FUND
TOTAL RETURNS
FOR THE YEAR ENDED OCTOBER 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH KEMPER CLASSIC GROWTH LIPPER LARGE CAP CORE
KEMPER CLASSIC GROWTH FUND CLASS A FUND CLASS B FUND CLASS C FUNDS CATEGORY AVERAGE*
---------------------------------- --------------------- --------------------- -----------------------
<S> <C> <C> <C>
15.7 14.71 14.33 9.71
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH CHANGING MARKET
CONDITIONS, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/00 10/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER CLASSIC GROWTH FUND
CLASS A $26.96 $24.30
.........................................................
KEMPER CLASSIC GROWTH FUND
CLASS B $26.36 $23.98
.........................................................
KEMPER CLASSIC GROWTH FUND
CLASS C $26.26 $23.97
.........................................................
</TABLE>
KEMPER CLASSIC GROWTH
FUND RANKINGS
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER LARGE-CAP CORE FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS CLASS CLASS
A B C
..................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #91 of 488 funds #104 of 488 funds #110 of 488 funds
..................................................................................
</TABLE>
*LIPPER, INC. RANKINGS ARE BASED UPON CHANGES IN NET ASSET VALUE WITH ALL
DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES CHARGES; IF SALES
CHARGES HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS FAVORABLE. RANKINGS ARE
HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE.
DIVIDEND REVIEW
DURING THE YEAR ENDED OCTOBER 31, 2000, KEMPER CLASSIC GROWTH FUND PAID THE
FOLLOWING DIVIDENDS:
<TABLE>
<CAPTION>
LONG-TERM
CAPITAL GAIN
.........................................................
<S> <C> <C> <C>
KEMPER CLASSIC GROWTH FUND CLASS A $1.11
.........................................................
KEMPER CLASSIC GROWTH FUND CLASS B $1.11
.........................................................
KEMPER CLASSIC GROWTH FUND CLASS C $1.11
.........................................................
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc., Chicago, IL, (312)
BOX] 696-6000. The Morningstar Equity Style Box(TM)
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 BOX REPRESENTS A SNAPSHOT OF THE FUND'S
PORTFOLIO ON A SINGLE DAY. IT IS NOT AN EXACT
ASSESSMENT OF RISK AND DOES NOT REPRESENT FUTURE
PERFORMANCE. THE FUND'S PORTFOLIO CHANGES FROM
DAY TO DAY. A LONGER-TERM VIEW IS REPRESENTED BY
THE FUND'S MORNINGSTAR CATEGORY, WHICH IS BASED
ON ITS ACTUAL INVESTMENT STYLE AS MEASURED BY ITS
UNDERLYING PORTFOLIO HOLDINGS OVER THE PAST THREE
YEARS. CATEGORY PLACEMENTS OF NEW FUNDS ARE
ESTIMATED. MORNINGSTAR HAS PLACED KEMPER CLASSIC
GROWTH FUND IN THE LARGE CAP CATEGORY. PLEASE
CONSULT THE PROSPECTUS FOR A DESCRIPTION OF
INVESTMENT POLICIES.
</TABLE>
GROWTH STOCK Growth stocks are shares in companies that are expected to
experience rapid growth resulting from strong sales, talented management and
dominant market position. Because these stocks are typically in demand, they
tend to carry relatively high price tags and can also be volatile, based on
changing perceptions of the companies' growth.
PRICE-TO-EARNINGS RATIO (P/E) A P/E is a company's stock price divided by its
earnings for the past four quarters. The P/E ratio, also known as the multiple,
is a measure of how much an investor is paying for a company's earning power.
SECTOR A sector comprises stocks usually found in related industries. Financial,
economic, business and other developments may affect stocks within a market
sector similarly.
VALUE STOCK Value stocks are considered to be bargain stocks because they are
perceived as undervalued and attractively priced relative to a measure of their
true worth, such as earnings potential, book value, cash flow or dividend yield.
<PAGE>
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Times have been good. During the first half of 2000, the global economy grew
faster than it has in over a decade. All regions participated. The United
States, of course, was still powering ahead. The growth rate in Europe was
nearly 4 percent. Asia fed off an electronics boom and a revitalized China.
South America got a boost from an improved credit rating. New money pumped up
energy producers from Mexico to the Middle East.
Now for the bad news, which is that the best news is probably behind us.
Global growth peaked in the spring, and in the United States, at least, the
slowdown was abrupt. After 6 percent growth in the year ending June 30, the
economy grew at a rate of just 2.43 percent during the summer. It seems that
expensive energy, currency volatility and more widespread profit problems are
bringing the exuberant global economy, including the United States, to heel.
Let's explore these factors in more detail.
OIL, OIL, TOIL AND TROUBLE
Although oil prices have receded somewhat, everyone's still jittery, and with
good reason: Of the seven recessions since World War II, six were preceded by a
spike in crude oil prices.
Oil prices have already been strong enough for long enough to crimp growth,
and they're biting the rest of the world even harder than the United States. But
there are two factors working to our advantage. First, oil prices are still
historically low. Oil is slightly more than $30 per barrel today, but it peaked
at over $75 per barrel back in 1980 (stated in today's dollars). Second, our
dependence on oil has decreased: The United States uses only roughly half as
much oil to produce a unit of GDP as it did thirty years ago. This gives us hope
that the economy can escape recession this time around.
What would make us worry more? Outright energy shortages or a political
crisis. If either happens, the odds of a recession occurring would rise steeply.
People panic or become excessively cautious when they have to fret. Can I fill
up my oil tank? Will there be a war? Their loss of confidence can be much more
devastating than price increases alone.
CURRENCY CONCERNS
Currency turmoil is a second danger to the economy. Central bankers have
intervened to halt the euro's decline, and they're right that the euro is
fundamentally undervalued. But intervention is a hazardous game. Let's hope they
don't convince the markets that the euro should rise a lot very quickly. A
suddenly weak dollar might make Europeans think about selling all those American
stocks and bonds they've been buying, and would greatly complicate the Fed's
inflation fight.
BUSINESS: BIG PLANS BUT PROFIT DISAPPOINTMENTS
Profit warnings escalated late this summer, and we believe there's fire amid
that smoke.
Sure, businesses have had a voracious appetite for money -- and until very
recently, corporate treasurers were finding it easily: Banks increased business
lending by 10.8 percent in the past year. Bond markets have suddenly become a
lot more picky, especially for low-quality credits, but money is still available
for investment grade borrowers. Capital goods orders reflect executives'
enthusiasm -- while volatile month-to-month, they have been up an average of 15
to 20 percent compared to a year ago for the past six months.
Still, we expect total capital spending to slow, from this year's estimated 14
percent to 12.5 percent in 2001. The reason? A profit squeeze is about to take
some of the edge off executives' animal spirits.
We've always been more cautious than Wall Street about 2001 profits, and our
forecast hasn't changed. Profits are likely to be flat to down next year for
several reasons. First, the growth slowdown will make it harder to keep up the
productivity gains that have kept labor costs under control. We saw the first
evidence of how productivity slows along with economic growth in the third
quarter: Productivity gains dipped to just 3.3 percent from the second quarter's
remarkable 6.1 percent. Second, interest expense will surge (thanks to higher
rates and all that new debt. Third, depreciation costs are escalating. And
finally, the excessively weak euro and higher oil costs will sap earnings.
3
<PAGE>
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (11/30/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.70 6.40 6.00 4.80
Prime rate (2) 9.50 9.25 8.50 8.00
Inflation rate (3)* 3.50 3.10 2.60 1.40
The U.S. dollar (4) 11.10 4.30 -0.70 1.20
Capital goods orders (5)* 7.00 17.10 12.30 -0.60
Industrial production (5)* 5.20 6.50 4.40 4.00
Employment growth (6)* 1.80 2.50 2.30 2.50
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 10/31/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
SAVING GRACES: FISCAL POLICY AND CONSUMER SPENDING
While growth has peaked and is now slowing, we can be thankful that growth
probably won't slow too much, thanks in part to a more stimulative fiscal policy
and consumer spending.
Fiscal policy is likely to be more stimulative. Of course, most economists
agree that the last thing this pumped-up economy needs is another shot of
stimulants -- too much stimulus, after all, is widely believed to cause
inflation. But economists weren't running for office; politicians were. And
inflation risk was about the last thing on the mind of either candidate in the
heat of election campaigning. They wanted to win votes, and the time-tested way
to do so was to make promises. Although we didn't have the name of the winner as
of press time, neither candidate seems to be planning a lot of fiscal
restraint -- but the good news is that neither candidate's plan is likely to be
enacted until 2002 at the earliest.
Second, consumers continue to spend, spend, spend. The personal savings rate
keeps falling, from an already low 2.2 percent last year to a nearly invisible
0.1 percent this year. Critics of this admittedly squishy statistic claim it
doesn't adequately capture households' growing wealth. As it turns out, however,
the average American not only doesn't save much, but he's not getting wealthier
in leaps and bounds, either.
Net worth for the median family where the head of the household is over 45
(and where thoughts are presumably beginning to turn to retirement), rose less
than $13,000 between 1995 and 1998. That's less than a 12 percent gain during
the same three years the stock market nearly doubled and the market value of
owner-occupied homes jumped 21 percent. Why didn't the average family get richer
in that time? Because they were borrowing and spending like crazy. House values
were up 21 percent -- but mortgage debt rose even faster, by 25 percent!
Consumers' profligacy worries many financial professionals. Some people aren't
saving enough for retirement because they have inflated expectations of future
investment returns. Other people aren't saving enough for retirement because
they don't realize just how much money they'll need. Either way, people aren't
saving.
Still, no one wants consumers to change their profligate ways too fast. After
all, hearty consumer spending is a prime reason America's growth has stayed on a
fast track so far. Most economists would like to see shoppers be a bit more
moderate -- but only a bit. If Americans suddenly turned thrifty, the economy
would lurch into reverse.
4
<PAGE>
ECONOMIC OVERVIEW
Luckily, there's little chance of that happening, unless lenders get cold
feet. So far, they're hot to trot. In the past year, mortgage lending by banks
rocketed nearly 17 percent while loans to consumers jumped 10 percent. Brokers
are selling the loans banks don't want on their balance sheets to mortgage pools
and the asset-backed securities market, where eager non-bank lenders are
snapping them up. In the past year, these markets provided $625 billion of new
credit, a leap of more than 12 percent.
With so much money at their disposal, consumers didn't stay out of the
shopping centers and restaurants for long. Consumer spending growth jumped up to
4.5 percent in the summer, and we expect it to stay well above 3 percent through
2001.
OMINOUS SIGNS?
Decelerations are always tricky, to be sure. But barring some unexpected
shock, overall economic growth should to pop back into the 3.5 percent to 4
percent range in 2001. Why? Borrowing costs a little more than it did last year,
but money is still freely available for good quality borrowers. Capital goods
orders are strong, so there's a lot of life left in business spending. Shoppers
are a little pickier, but they're still more interested in visiting the mall
than in filling their piggy banks. And after the election, no matter who wins,
fiscal policy is likely to be more stimulative than it has been for years. The
price to pay will likely be a rise in core inflation (inflation excluding food
and energy). We expect it to hit 3 percent next year, up from its recent rate of
2.5 percent. We believe we'll make it safely through 2001, but investors should
keep their hands on the wheel and their eyes peeled.
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED
TO BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE
OPINIONS AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER
KEMPER INVESTMENTS, INC. AS OF DECEMBER 6, 2000, AND MAY NOT ACTUALLY COME TO
PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS
INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
Sincerely,
Scudder Kemper Investments, Economics Group
5
<PAGE>
ECONOMIC OVERVIEW
[INTENTIONALLY LEFT BLANK]
6
<PAGE>
PERFORMANCE UPDATE
[GADSDEN PHOTO]
LEAD PORTFOLIO MANAGER WILLIAM F. GADSDEN JOINED SCUDDER KEMPER INVESTMENTS,
INC. IN 1983 AND HAS MORE THAN 18 YEARS OF INVESTMENT INDUSTRY EXPERIENCE.
GADSDEN HAS MANAGED THE FUND SINCE ITS INCEPTION IN 1996. SCUDDER KEMPER
INVESTMENT'S LARGE STAFF OF ANALYSTS, RESEARCHERS, TRADERS, ECONOMISTS AND OTHER
INVESTMENT PROFESSIONALS SUPPORTS GADSDEN.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE REPORTING PERIOD INDICATED ON THE COVER. THE MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS.
DESPITE SHIFTING MARKET SENTIMENT AMID A VOLATILE MARKET ENVIRONMENT, KEMPER
CLASSIC GROWTH FUND POSTED STRONG RETURNS AND OUTPERFORMED ITS BENCHMARK AND
PEER GROUP DURING ITS FISCAL REPORTING PERIOD. BELOW, LEAD PORTFOLIO MANAGER
BILL GADSDEN EXPLAINS WHY HE BELIEVES THE FUND'S INVESTMENT DISCIPLINE WAS
DIRECTLY RESPONSIBLE FOR THE FUND'S OUTSTANDING PERFORMANCE.
Q HOW DID KEMPER CLASSIC GROWTH FUND PERFORM DURING ITS ANNUAL
PERIOD--NOVEMBER 1, 1999 THROUGH OCTOBER 31, 2000?
A We're very pleased with Kemper Classic Growth Fund's performance. The fund
handily outperformed both its benchmark and its peer group. The fund's Class A
shares (unadjusted for any sales charge) gained 15.70 percent, while its
benchmark, the Standard & Poor's 500 stock index, gained just 6.10 percent and
the Lipper Large-Cap Core Funds Category average was 9.71 percent for the same
period.
We attribute our outperformance to good stock selection but, most important,
to our adherence to our "growth at a reasonable price" investment strategy.
Q WILL YOU PROVIDE AN OVERVIEW OF THE MARKET AND HOW IT IMPACTED THE FUND?
A The market environment changed dramatically over the 12-month period.
Until early March, the markets were volatile as the Federal Reserve Board (the
Fed) aggressively raised interest rates and a small group of large growth
stocks -- primarily technology and Internet-related stocks -- gained momentum
and dominated market returns.
It seemed as if nothing could stop the momentum of the technology sector and
specifically Internet or "dot-com" stocks. Momentum for almost any company tied
to the Internet in some way grew, while nearly every other type of stock endured
lackluster returns or losses.
In March, we witnessed the beginning of a sharp change in market leadership.
The market broadened beyond technology, and we began to see sharp gains by more
value-oriented stocks such as financials, health care and energy. A tug-of-war
took hold and continued through the remainder of the year between technology
stocks and more conservative stocks, but essentially the latter half of the
period favored value investors.
The fund performed quite well early in the period, as did most other
growth-style funds. As the pendulum shifted to value-oriented stocks, our
price-conscious investment approach enabled us to hold up better than many other
growth-style funds. The fund performed as it was designed to, and we're quite
proud of the results.
Q YOU MENTIONED THAT YOUR INVESTMENT PROCESS WAS ONE OF THE MOST IMPORTANT
CONTRIBUTORS TO PERFORMANCE. WILL YOU EXPLAIN THE PROCESS AND WHY YOU BELIEVE IT
WORKS SO WELL?
A Kemper Classic Growth Fund pursues long-term growth of capital, with
reduced share-price volatility compared with other growth-stock funds. To do
this, we follow a growth-at-a-reasonable-price (GARP) investment process. This
is a core growth strategy.
7
<PAGE>
PERFORMANCE UPDATE
Our investment process targets high-quality, large-cap growth stocks. We seek
established companies with strong competitive positions, stable and consistent
earnings-growth prospects, excellent balance sheets and superior management.
Outstanding fundamentals and growth potential are only a part of what we want,
however. Our analysis must indicate that the stocks are "reasonably valued," or
in other words, trading at an attractive price.
We sell stocks when we see indications of deteriorating fundamentals or
slowing earnings growth. Also, in keeping with our price-conscious philosophy,
we reduce positions when valuations become stretched.
Our adherence to the process was key this period, especially as technology
valuations soared to historic levels early in the year. We do have a significant
position in technology stocks -- close to that of our S&P 500 benchmark -- but
generally we hold only companies that fit our "growth at a reasonable price"
discipline.
We didn't invest in the momentum stocks that were skyrocketing without strong
fundamentals or current earnings to back the gains up. Instead, we stuck to just
the market leaders and selected those companies within the context of the
overall portfolio and how they impacted its risk profile. So, while we did hold
some high-P/E technology names, they were those with attractive fundamentals and
solid competitive positions -- the ones that tended to hold up better when
technology struggled.
Q WHICH AREAS OF KEMPER CLASSIC GROWTH FUND CONTRIBUTED THE MOST TO
PERFORMANCE DURING THE YEAR?
A It's important to note that we are bottom-up investors. By that I mean we
choose stocks based on their individual merit, not because a certain sector is
performing well. With that said, three areas -- technology, health care and
finance -- were strong contributors.
As mentioned before, our technology holdings had a good run during the first
part of the period. Some of the better performers were Oracle, Corning, Sun and
EMC. Essentially we picked the right names and overweighted these names relative
to the S&P 500.
We were well diversified in health care, and that was a key to the sector's
strong performance. We held some large pharmaceutical companies such as
Warner-Lambert and Merck as well as some biotech names such as Genentech and
Immunex and medical device manufacturers such as Medtronic.
Our price-conscious investment approach also led us to a number of financial
holdings -- traditionally a value-oriented sector. Our financial stocks gained
considerable ground from March through October as investors came to perceive
that the Fed's policy of raising rates had run its course and that we were
entering a period of slower economic growth. Consistent with our strategy, we
held companies that have dominant competitive positions in their respective
businesses. The biggest contributions came from insurance company AIG and
diversified financial services firms Marsh & McLennan Companies and Citigroup.
Q WHAT AREAS OF THE FUND HINDERED PERFORMANCE?
A Retail stocks were extremely weak during the year in response to the Fed's
attempt to slow the economy by raising interest rates. Even though our retail
holdings posted good earnings, the expectations that those earnings would slow
as the economy slowed down hurt the stocks' performance. We narrowed our
exposure to three names that we thought had the best prospects -- Home Depot,
Target and Wal-Mart. It appears that the Fed is at the end of its interest-rate
tightening program, and we've seen data suggesting that the economy has begun to
slow. Barring any changes in direction, we expect a recovery in retail during
the first part of 2001.
Q DID ANY SPECIFIC STOCKS PERFORM EXTRAORDINARILY WELL?
A EMC Corporation has been a standout performer for the fund. We visited the
company in mid-1999 and were impressed with its management and the competitive
niche they were carving out for the company. Historically, data storage had been
seen as a commodity-driven industry with intense competition. We saw something
different with EMC and believed it was poised to pull away from the pack. We
made a big investment in
8
<PAGE>
PERFORMANCE UPDATE
the company and have held on to it. EMC now holds the number one position (with
virtually no competition) in the high-performance data storage area.
The company has benefited from seemingly unstoppable growth fueled by the
explosion of the Internet and networking in general. EMC is a good example of
our core growth approach to technology. We identified the company that we
believed would hold the clear number one competitive position in the storage
segment. Then, we stuck with that company and as a result have garnered solid
gains for the fund.
Q WHAT ABOUT A HOLDING THAT DISAPPOINTED?
A Procter & Gamble (P&G) was a holding that didn't meet our expectations. We
bought the company because it fit our core growth strategy. It was the premier
company in the consumer packaged goods industry, and we believed it had strong
growth potential.
Early in 2000, however, we became concerned as the company made an attempt to
purchase pharmaceutical giant Warner Lambert. We viewed this as a negative shift
in its strategy and didn't understand why P&G was looking for growth outside of
its existing businesses. We reduced our position. Soon after, the deal fell
through, and the company began to announce weak earnings. The stock plummeted,
and we then liquidated our position.
Although P&G's recent decline was disappointing, we still believe it is a good
company with a strong competitive position. We'd add the stock again if we had
confidence that the company's earnings were entering a period of acceleration.
However, that will happen only if the company comes up with new and unique
products to sustain its long-term sales growth. Currently, that's not happening
to the extent it needs to. For the most part, P&G is looking for revenue growth
by repackaging existing products.
Q WHAT'S YOUR OUTLOOK FOR THE MARKETS AND KEMPER CLASSIC GROWTH FUND IN
PARTICULAR?
A We are optimistic about the resilience of the U.S. markets and believe
there are many good opportunities for investment. We'll continue to stick to our
growth-at-a-reasonable-price discipline, which has served the fund and its
shareholders quite well.
9
<PAGE>
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR CLASS
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER CLASSIC GROWTH FUND CLASS A 9.05% 22.84% (since 9/9/96)
...................................................................................................
KEMPER CLASSIC GROWTH FUND CLASS B 11.71 13.46 (since 4/16/98)
...................................................................................................
KEMPER CLASSIC GROWTH FUND CLASS C 14.33 14.26 (since 4/16/98)
...................................................................................................
</TABLE>
KEMPER CLASSIC GROWTH FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 9/30/96 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH STANDARD & POOR'S 500 U.S. CONSUMER PRICE
FUND CLASS A1 STOCK INDEX+ INDEX++
--------------------- --------------------- -------------------
<S> <C> <C> <C>
9/30/96 9426.00 10000.00 10000.00
10034.00 10777.00 10051.00
12394.00 12878.00 10158.00
12/31/97 13531.00 14119.00 10222.00
15622.00 16496.00 10330.00
16590.00 17884.00 10387.00
6/30/99 18313.00 19972.00 10532.00
22194.00 21376.00 10665.00
22640.00 21163.00 10925.00
10/31/00 22318.00 20796.00 11016.00
</TABLE>
KEMPER CLASSIC GROWTH FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 4/30/98 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH STANDARD & POOR'S 500 U.S. CONSUMER PRICE
FUND CLASS B1 STOCK INDEX+ INDEX++
--------------------- --------------------- -------------------
<S> <C> <C> <C>
4/30/98 10000.00 10000.00 10000.00
9808.00 9812.00 10018.00
10054.00 10199.00 10031.00
9803.00 10080.00 10043.00
8155.00 8611.00 10055.00
8514.00 9148.00 10068.00
9341.00 9882.00 10092.00
9941.00 10467.00 10092.00
10627.00 11057.00 10086.00
1/31/99 11052.00 11510.00 10111.00
10658.00 11139.00 10123.00
10986.00 11571.00 10154.00
11057.00 12010.00 10228.00
10786.00 11710.00 10228.00
11681.00 12347.00 10228.00
11426.00 11952.00 10258.00
11441.00 11877.00 10283.00
11359.00 11538.00 10332.00
10/31/99 12270.00 12259.00 10351.00
12822.00 12494.00 10357.00
14096.00 13216.00 10357.00
13424.00 12543.00 10388.00
13408.00 12291.00 10449.00
14470.00 13479.00 10535.00
14006.00 13064.00 10542.00
13456.00 12776.00 10554.00
14438.00 13084.00 10609.00
14198.00 12870.00 10634.00
15057.00 13651.00 10640.00
14118.00 12921.00 10689.00
10/31/00 13789.00 12857.00 10698.00
</TABLE>
KEMPER CLASSIC GROWTH FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 4/30/98 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH STANDARD & POOR'S 500 U.S. CONSUMER PRICE
FUND CLASS C1 STOCK INDEX+ INDEX++
--------------------- --------------------- -------------------
<S> <C> <C> <C>
4/30/98 10000.00 10000.00 10000.00
9813.00 9812.00 10018.00
10059.00 10199.00 10031.00
9808.00 10080.00 10043.00
8155.00 8611.00 10055.00
8514.00 9148.00 10068.00
9341.00 9882.00 10092.00
9946.00 10467.00 10092.00
10632.00 11057.00 10086.00
1/31/99 11057.00 11510.00 10111.00
10663.00 11139.00 10123.00
10996.00 11571.00 10154.00
11062.00 12010.00 10228.00
10791.00 11710.00 10228.00
11691.00 12347.00 10228.00
11436.00 11952.00 10258.00
11451.00 11877.00 10283.00
11359.00 11538.00 10332.00
10/31/99 12265.00 12259.00 10351.00
12817.00 12494.00 10357.00
14086.00 13216.00 10357.00
13413.00 12543.00 10388.00
13386.00 12291.00 10449.00
14443.00 13479.00 10535.00
13973.00 13064.00 10542.00
13424.00 12776.00 10554.00
14390.00 13084.00 10609.00
14150.00 12870.00 10634.00
15004.00 13651.00 10640.00
14070.00 12921.00 10689.00
10/31/00 14035.00 12857.00 10698.00
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES
REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE WITH CHANGING
MARKET CONDITIONS, SO THAT WHEN
REDEEMED, SHARES MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN MEASURES
NET INVESTMENT INCOME AND CAPITAL GAIN
OR LOSS FROM PORTFOLIO INVESTMENTS,
ASSUMING REINVESTMENT OF ALL
DIVIDENDS. TOTAL RETURNS ARE DERIVED
FROM HISTORICAL PERFORMANCE OF CLASS S
SHARES.
(1)THE MAXIMUM SALES CHARGE FOR CLASS A
SHARES IS 5.75%, FOR CLASS B SHARES
ADJUSTMENT FOR THE APPLICABLE
CONTINGENT DEFERRED SALES CHARGE
(CDSC) OF 3%, AND FOR CLASS C SHARES
NO ADJUSTMENT FOR SALES CHARGE. THE
MAXIMUM CDSC FOR CLASS B SHARES IS
4%. FOR CLASS C SHARES, THERE IS A
1% CDSC ON CERTAIN REDEMPTIONS
WITHIN THE FIRST YEAR OF PURCHASE.
CLASS A FUND PERFORMANCE PRIOR TO
APRIL 16, 1998, IS DERIVED FROM THE
SCUDDER "S" SHARE INCEPTION DATE AND
HAS BEEN ADJUSTED TO REFLECT THE
CURRENT MAXIMUM INITIAL SALES CHARGE
OF 5.75%. CLASS S SHARES ARE SUBJECT
TO CERTAIN OTHER, OR DIFFERENT
LEVELS OF, EXPENSES THAN CLASS A.
THE EXPENSES APPLICABLE TO CLASS S
SHARES HAVE BEEN REFLECTED IN THE
PERFORMANCE PRESENTED FOR CLASS A.
THE DIFFERENCE IN EXPENSES WILL
AFFECT PERFORMANCE. THE FUND'S
SHARES WERE OFFERED WITHOUT A SALES
CHARGE UNTIL APRIL 15, 1998. KEMPER
CLASS A, B AND C SHARES WERE
INITIALLY OFFERED ON APRIL 16, 1998.
CLASS B SHARES IS ADJUSTED FOR THE
CDSC IN EFFECT AT THE END OF THE
PERIOD. RETURNS DURING PART OF THE
PERIODS SHOWN INCLUDE THE EFFECT OF
A TEMPORARY WAIVER OF MANAGEMENT
FEES AND/OR ABSORPTION OF CERTAIN
OPERATING EXPENSES BY THE INVESTMENT
ADVISOR. WITHOUT SUCH WAIVER OR
ABSORPTION, RETURNS WOULD HAVE BEEN
LOWER AND RATINGS OR RANKINGS MIGHT
HAVE BEEN LESS FAVORABLE. DURING THE
PERIODS NOTED, SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS,
STATEMENT OF ADDITIONAL INFORMATION
AND THE FINANCIAL HIGHLIGHTS AT THE
END OF THIS REPORT.
+THE STANDARD & POOR'S 500 STOCK INDEX
IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK
MARKET. SOURCE IS WIESENBERGER(R).
++THE U.S. CONSUMER PRICE INDEX IS A
STATISTICAL MEASURE OF CHANGE, OVER
TIME, IN THE PRICES OF GOODS AND
SERVICES IN MAJOR EXPENDITURE GROUPS
FOR ALL URBAN CONSUMERS. IT IS
GENERALLY CONSIDERED TO BE A MEASURE
OF INFLATION. SOURCE IS
WIESENBERGER(R).
10
<PAGE>
INDUSTRY SECTORS
SECTOR COMPOSITION OF KEMPER CLASSIC GROWTH FUND*
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF CLASSIC GROWTH FUND REPRESENTED ON OCTOBER 31, 2000, AND OCTOBER 31, 1999.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH FUND ON KEMPER CLASSIC GROWTH FUND ON
10/31/00 10/31/99
----------------------------- -----------------------------
<S> <C> <C>
Technology 28.20 23.20
Health care 17.80 15.90
Communication services 15.30 14.40
Consumer non-durables 15.00 20.30
Financial 9.70 10.00
Capital goods 7.90 11.20
Energy 6.00 5.00
Utilities 0.10 0.00
</TABLE>
*Portfolio composition is subject to change.
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX*
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF KEMPER CLASSIC GROWTH FUND REPRESENTED ON OCTOBER 31, 2000, COMPARED WITH THE
INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE STANDARD & POOR'S 500
STOCK INDEX.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CLASSIC GROWTH FUND ON S&P 500 STOCK INDEX ON
10/31/00 10/31/00
----------------------------- ----------------------
<S> <C> <C>
Technology 28.2 29.5
Health care 17.8 11.4
Communication services 15.3 6.3
Consumer non-durables 15 17.1
Financial 9.7 15.7
Capital goods 7.9 8.6
Energy 6 5.9
Utilities 0.1 3.3
Basic materials 0 1.7
Transportation 0 0.5
</TABLE>
* The Standard & Poor's 500 Stock index is an unmanaged index generally
representative of the U.S. stock market. Source is Wiesenberger(R).
11
<PAGE>
LARGEST HOLDINGS
KEMPER CLASSIC GROWTH FUND'S 10 LARGEST HOLDINGS*
Representing 31.5 percent of the fund's total portfolio on October 31, 2000.
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
1. GENERAL ELECTRIC A broadly diversified company with 4.3%
major businesses in power
generators, appliances, lighting,
plastics, medical systems, aircraft
engines, financial services and
broadcasting
---------------------------------------------------------------------------------------
2. PFIZER A globally diversified 3.7%
research-based health-care company
that develops, manufactures and
markets a wide variety of products
for human and animal health care
---------------------------------------------------------------------------------------
3. MICROSOFT Develops, manufactures, licenses, 3.4%
sells and supports software
products
---------------------------------------------------------------------------------------
4. CISCO SYSTEMS Large, comprehensive supplier of 3.3%
routing software and related
systems that direct the flow of
data between local networks
---------------------------------------------------------------------------------------
5. INTEL Engaged in the design, development, 3.1%
manufacturing and sale of advanced
semiconductors and integrated
circuits
---------------------------------------------------------------------------------------
6. AMERICAN EXPRESS A diversified financial services 3.0%
firm, which has three units: Travel
Related Services, American Express
Financial Advisors, and American
Express Bank
---------------------------------------------------------------------------------------
7. SUN MICROSYSTEMS A provider of high-performance 2.8%
workstations, servers and
networking software for the
engineering, scientific, commercial
and technical industries
---------------------------------------------------------------------------------------
8. MERCK A global pharmaceutical company 2.7%
that discovers, develops,
manufactures and markets human and
animal health products
---------------------------------------------------------------------------------------
9. EMC Designs, manufactures, markets and 2.6%
supports high-performance storage
products and provides related
services. The storage products
include hardware, software and
switching products
---------------------------------------------------------------------------------------
10. PEPSICO A diversified manufacturer of food 2.6%
products, including soft drinks
(Pepsi, Mountain Dew, Slice), snack
foods (Doritos, Fritos, Lays,
Ruffles, Rold Gold pretzels), fruit
juices (Tropicana Pure Premium) and
bottled water (Aquafina)
---------------------------------------------------------------------------------------
</TABLE>
*The fund's holdings are subject to change.
12
<PAGE>
PORTFOLIO OF INVESTMENTS
KEMPER CLASSIC GROWTH FUND
Portfolio of Investments as of October 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENTS--0.7% AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
State Street Bank and Trust Company, 6.55%,
to be repurchased at $3,511,639 on
11/1/2000**
(Cost $3,511,000) $3,511,000 $ 3,511,000
---------------------------------------------------------------------------
<CAPTION>
SHORT-TERM INVESTMENTS--2.1%
<S> <C> <C> <C> <C> <C>
Student Loan Marketing Association,
6.45%***, 11/1/2000
(Cost $10,000,000) 10,000,000 10,000,000
---------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--97.2% SHARES
<S> <C> <C> <C> <C> <C>
CONSUMER DISCRETIONARY--4.2%
DEPARTMENT & CHAIN STORES
Home Depot, Inc. 184,650 7,939,950
Target Corp. 160,800 4,442,100
Wal-Mart Stores, Inc. 173,400 7,868,025
---------------------------------------------------------------------------
20,250,075
------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.2%
ALCOHOL & TOBACCO--1.2%
Anheuser-Busch Companies, Inc. 126,400 5,782,800
---------------------------------------------------------------------------
FOOD & BEVERAGE--3.8%
Coca-Cola Co. 101,400 6,122,025
PepsiCo, Inc. 255,300 12,366,094
---------------------------------------------------------------------------
18,488,119
PACKAGE GOODS/COSMETICS--2.2%
Colgate-Palmolive Co. 107,600 6,322,576
Gillette Co. 114,800 4,003,650
---------------------------------------------------------------------------
10,326,226
------------------------------------------------------------------------------------------------------------------------
HEALTH--17.3%
BIOTECHNOLOGY--3.6%
Genentech, Inc.* 69,000 5,692,500
Immunex Corp.* 64,000 2,724,000
MedImmune, Inc.* 61,200 4,000,950
PE Corp.-PE Biosystems Group 43,500 5,089,500
---------------------------------------------------------------------------
17,506,950
MEDICAL SUPPLY & SPECIALTY--4.8%
Baxter International, Inc. 122,350 10,055,641
Becton, Dickinson & Co. 194,300 6,509,050
Medtronic, Inc. 117,900 6,403,444
---------------------------------------------------------------------------
22,968,135
PHARMACEUTICALS--8.9%
Bristol-Myers Squibb Co. 65,600 3,997,500
Eli Lilly & Co. 91,200 8,151,000
Merck & Co., Inc. 145,500 13,085,906
Pfizer, Inc. 415,050 17,924,972
---------------------------------------------------------------------------
43,159,378
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
COMMUNICATIONS--7.3%
CELLULAR TELEPHONE--2.2%
Nokia Oyj (ADR) 122,300 $ 5,228,325
Vodafone Group PLC (ADR) 133,100 5,665,069
---------------------------------------------------------------------------
10,893,394
TELEPHONE/COMMUNICATIONS--5.1%
AT&T Wireless Group* 153,000 3,815,433
BroadWing, Inc.* 174,800 4,938,100
JDS Uniphase Corp.* 59,500 4,841,813
Qwest Communications International, Inc.* 114,260 5,555,893
Verizon Communications 93,150 5,385,234
---------------------------------------------------------------------------
24,536,473
------------------------------------------------------------------------------------------------------------------------
FINANCIAL--9.4%
INSURANCE--2.5%
American International Group, Inc. 122,875 12,041,750
---------------------------------------------------------------------------
CONSUMER FINANCE--5.4%
American Express Co. 240,800 14,448,000
Citigroup, Inc. 224,466 11,812,523
---------------------------------------------------------------------------
26,260,523
OTHER FINANCIAL COMPANIES--1.5%
Marsh & McLennan Companies, Inc. 54,000 7,060,500
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
MEDIA--7.5%
ADVERTISING--1.7%
Interpublic Group of Companies, Inc. 64,700 2,778,056
Omnicom Group, Inc. 60,800 5,608,800
---------------------------------------------------------------------------
8,386,856
BROADCASTING & ENTERTAINMENT--2.7%
Infinity Broadcasting Corp. "A"* 108,600 3,610,950
Viacom, Inc. "B"* 90,800 5,164,250
Walt Disney Co. 122,200 4,376,288
---------------------------------------------------------------------------
13,151,488
CABLE TELEVISION--3.1%
AT&T Corp. -- Liberty Media Group "A"* 441,100 7,939,800
Comcast Corp. "A"* 168,900 6,882,675
---------------------------------------------------------------------------
14,822,475
------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--3.2%
EDP SERVICES--0.8%
Electronic Data Systems Corp. 83,000 3,895,813
---------------------------------------------------------------------------
INVESTMENT--1.3%
Goldman Sachs Group, Inc. 23,400 2,335,613
Merrill Lynch & Co., Inc. 54,500 3,815,000
---------------------------------------------------------------------------
6,150,613
MISCELLANEOUS COMMERCIAL
SERVICES--1.1%
Siebel Systems, Inc.* 52,100 5,467,244
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
DURABLES--2.0%
AEROSPACE
United Technologies Corp. 137,800 9,620,163
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--5.7%
DIVERSIFIED MANUFACTURING--4.4%
General Electric Co. 381,500 20,910,969
---------------------------------------------------------------------------
INDUSTRIAL SPECIALTY--1.3%
Corning, Inc. 83,600 6,395,400
---------------------------------------------------------------------------
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
TECHNOLOGY--27.5%
COMPUTER SOFTWARE--9.1%
America Online, Inc.* 143,500 $ 7,236,705
i2 Technologies, Inc.* 20,100 3,417,000
Intuit, Inc.* 126,600 7,777,988
Microsoft Corp.* 235,200 16,199,400
Oracle Corp.* 270,400 8,923,200
---------------------------------------------------------------------------
43,554,293
DIVERSE ELECTRONIC PRODUCTS--2.8%
Applied Materials, Inc.* 139,000 7,384,375
Dell Computer Corp.* 137,800 4,065,100
Teradyne, Inc.* 67,800 2,118,750
---------------------------------------------------------------------------
13,568,225
EDP PERIPHERALS--2.6%
EMC Corp.* 141,300 12,584,531
---------------------------------------------------------------------------
ELECTRONIC COMPONENTS/
DISTRIBUTORS--3.9%
Applied Micro Circuits Corp* 40,000 3,055,000
Cisco Systems, Inc.* 294,200 15,850,025
---------------------------------------------------------------------------
18,905,025
ELECTRONIC DATA PROCESSING--4.3%
International Business Machines Corp. 72,100 7,101,850
Sun Microsystems, Inc.* 123,600 13,704,150
---------------------------------------------------------------------------
20,806,000
SEMICONDUCTORS--4.8%
Intel Corp. 329,080 14,808,600
Vitesse Semiconductor Corp.* 60,000 4,196,250
Xilinx, Inc.* 55,900 4,049,256
---------------------------------------------------------------------------
23,054,106
------------------------------------------------------------------------------------------------------------------------
ENERGY--5.8%
OIL & GAS PRODUCTION--3.9%
Anadarko Petroleum Corp. 63,600 4,073,580
Exxon Mobil Corp. 114,136 10,179,505
Nabors Industries, Inc.* 89,500 4,555,550
---------------------------------------------------------------------------
18,808,635
OILFIELD SERVICES/ EQUIPMENT--1.9%
Schlumberger Ltd. 121,200 9,226,350
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
UTILITIES--0.1%
ELECTRIC UTILITIES
Southern Energy, Inc.* 21,400 583,150
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $407,195,754) 469,165,659
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $420,706,754) (a) $482,676,659
---------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
*** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $421,199,092. At October 31,
2000, net unrealized appreciation for all securities based on tax cost was
$61,477,567. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$79,400,525 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $17,922,958.
The accompanying notes are an integral part of the financial statements. 15
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of October 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $420,706,754) $482,676,659
----------------------------------------------------------------------------
Cash 1,231
----------------------------------------------------------------------------
Dividends receivable 134,829
----------------------------------------------------------------------------
Interest receivable 639
----------------------------------------------------------------------------
Receivable for Fund shares sold 657,817
----------------------------------------------------------------------------
Deferred organization expenses 8,907
----------------------------------------------------------------------------
Due from Adviser 139,190
----------------------------------------------------------------------------
TOTAL ASSETS 483,619,272
----------------------------------------------------------------------------
LIABILITIES
Payable for Fund shares redeemed 918,575
----------------------------------------------------------------------------
Accrued Trustees' fees and expenses 66,700
----------------------------------------------------------------------------
Other accrued expenses and payables 692,073
----------------------------------------------------------------------------
Total liabilities 1,677,348
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $481,941,924
----------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Net unrealized appreciation (depreciation) on investments 61,969,905
----------------------------------------------------------------------------
Accumulated net realized gain (loss) 26,738,362
----------------------------------------------------------------------------
Paid-in capital 393,233,657
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $481,941,924
----------------------------------------------------------------------------
NET ASSET VALUE
SCUDDER SHARES
Net asset value, offering and redemption price per share
($195,082,569/7,268,722 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $26.84
----------------------------------------------------------------------------
CLASS A
Net asset value and redemption price per share
($152,893,342/5,670,342 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $26.96
----------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $26.96) $28.60
----------------------------------------------------------------------------
CLASS B
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($108,465,773/4,115,429 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $26.36
----------------------------------------------------------------------------
CLASS C
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($25,500,240/971,158 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $26.26
----------------------------------------------------------------------------
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
for the year ended October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $11,549) $ 2,195,360
--------------------------------------------------------------------------------
Interest 891,497
--------------------------------------------------------------------------------
Total Income 3,086,857
--------------------------------------------------------------------------------
Expenses:
Management fee 2,708,964
--------------------------------------------------------------------------------
Services to shareholders 2,194,554
--------------------------------------------------------------------------------
Custodian and accounting fees 157,211
--------------------------------------------------------------------------------
Distribution services fees 772,141
--------------------------------------------------------------------------------
Administrative services fees 538,223
--------------------------------------------------------------------------------
Auditing 39,809
--------------------------------------------------------------------------------
Legal 24,185
--------------------------------------------------------------------------------
Trustees' fees and expenses 90,197
--------------------------------------------------------------------------------
Reports to shareholders 137,319
--------------------------------------------------------------------------------
Registration fees 109,995
--------------------------------------------------------------------------------
Amortization of organization expenses 4,073
--------------------------------------------------------------------------------
Other 33,383
--------------------------------------------------------------------------------
Total expenses, before expense reductions 6,810,054
--------------------------------------------------------------------------------
Expense reductions (1,022,633)
--------------------------------------------------------------------------------
Total expenses, after expense reductions 5,787,421
--------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (2,700,564)
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from investments 30,180,422
--------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 14,010,654
--------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENT TRANSACTIONS 44,191,076
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $41,490,512
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999 AUGUST 31, 1999
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
-------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (2,700,564) $ (293,550) $ (932,342)
-------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 30,180,422 2,343,968 9,396,870
-------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period 14,010,654 14,900,813 44,795,107
-------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 41,490,512 16,951,231 53,259,635
-------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net realized gains-- Scudder Shares (6,405,855) -- (4,994,696)
-------------------------------------------------------------------------------------------------------------------
Net realized gains-- Class A (3,271,517) -- (734,391)
-------------------------------------------------------------------------------------------------------------------
Net realized gains-- Class B (2,298,852) -- (597,986)
-------------------------------------------------------------------------------------------------------------------
Net realized gains-- Class C (413,112) -- (91,871)
-------------------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 358,067,430 22,858,479 167,868,674
-------------------------------------------------------------------------------------------------------------------
Reinvestment of distributions 12,138,523 -- 6,289,899
-------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (167,738,823) (13,479,531) (114,518,626)
-------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS 202,467,130 9,378,948 59,639,947
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 231,568,306 26,330,179 106,480,638
-------------------------------------------------------------------------------------------------------------------
Net assets at beginning of period 250,373,618 224,043,439 117,562,801
-------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 481,941,924 $250,373,618 $ 224,043,439
-------------------------------------------------------------------------------------------------------------------
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<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.
<TABLE>
<CAPTION>
CLASS A
YEARS ENDED OCTOBER 31,
---------------------------------------
2000 1999(B) 1999(C) 1998(D)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $24.30 $22.63 $16.62 $ 20.30
----------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.12) (.02) (.04) .01
----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 3.89 1.69 6.86 (3.69)
----------------------------------------------------------------------------------------
Total from investment operations 3.77 1.67 6.82 (3.68)
----------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (1.11) -- (.81) --
----------------------------------------------------------------------------------------
Net asset value, end of period $26.96 $24.30 $22.63 $ 16.62
----------------------------------------------------------------------------------------
TOTAL RETURN (%) (E) (F) 15.70 7.38** 41.54 (18.13)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 152.9 62.6 54.7 7.2
----------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.49(g) 1.52* 1.65 1.74*
----------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.23(g) 1.27* 1.24 1.24*
----------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.44) (.44)* (.17) .10*
----------------------------------------------------------------------------------------
Portfolio turnover rate (%) 61 58* 68 49
----------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the two months ended October 31, 1999.
(c) For the year ended August 31, 1999.
(d) For the period April 16, 1998 (commencement of sale of Class A shares) to
August 31, 1998.
(e) Total return would have been lower had certain expenses not been reduced.
(f) Total return does not reflect the effect of any sales charges.
(g) The ratios of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions were 1.48% and 1.22%,
respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
19
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B
YEARS ENDED OCTOBER 31,
---------------------------------------
2000 1999(B) 1999(C) 1998(D)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $23.98 $22.37 $16.57 $ 20.30
----------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.34) (.05) (.22) (.05)
----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 3.83 1.66 6.83 (3.68)
----------------------------------------------------------------------------------------
Total from investment operations 3.49 1.61 6.61 (3.73)
----------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (1.11) -- (.81) --
----------------------------------------------------------------------------------------
Net asset value, end of period $26.36 $23.98 $22.37 $ 16.57
----------------------------------------------------------------------------------------
TOTAL RETURN (%) (E) (F) 14.71 7.20** 40.30 (18.37)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 108.5 37.4 30.5 5.9
----------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.36(g) 2.47* 2.51 2.52*
----------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.10(g) 2.22* 2.12 2.12*
----------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.30) (1.38)* (1.04) (.79)*
----------------------------------------------------------------------------------------
Portfolio turnover rate (%) 61 58* 68 49
----------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the two months ended October 31, 1999.
(c) For the year ended August 31, 1999.
(d) For the period April 16, 1998 (commencement of sale of Class B shares) to
August 31, 1998.
(e) Total return would have been lower had certain expenses not been reduced.
(f) Total return does not reflect the effect of any sales charges.
(g) The ratios of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions were 2.34% and 2.09%,
respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
20
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEARS ENDED OCTOBER 31,
---------------------------------------
2000 1999(B) 1999(C) 1998(D)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $23.97 $22.38 $16.57 $ 20.30
----------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.43) (.07) (.22) (.05)
----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 3.83 1.66 6.84 (3.68)
----------------------------------------------------------------------------------------
Total from investment operations 3.40 1.59 6.62 (3.73)
----------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (1.11) -- (.81) --
----------------------------------------------------------------------------------------
Net asset value, end of period $26.26 $23.97 $22.38 $ 16.57
----------------------------------------------------------------------------------------
TOTAL RETURN (%) (E) (F) 14.33 7.10** 40.42 (18.37)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 25.5 7.1 5.6 .9
----------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.70(g) 2.94* 2.88 3.00*
----------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.44(g) 2.69* 2.09 2.09*
----------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.65) (1.86)* (1.02) (.73)*
----------------------------------------------------------------------------------------
Portfolio turnover rate (%) 61 58* 68 49
----------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the two months ended October 31, 1999.
(c) For the year ended August 31, 1999.
(d) For the period April 16, 1998 (commencement of sale of Class C shares) to
August 31, 1998.
(e) Total return would have been lower had certain expenses not been reduced.
(f) Total return does not reflect the effect of any sales charges.
(g) The ratios of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions were 2.69% and 2.43%,
respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Classic Growth Fund (the "Fund") is a diversified
series of Investment Trust (the "Trust") which is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end
management investment company organized as a
Massachusetts business trust.
On August 10, 1999, the Fund changed its fiscal
year end for financial reporting and federal income
tax purposes to October 31 from August 31.
The Fund offers multiple classes of 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
Scudder 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 accounting principles generally
accepted in the United States of America which
require the use of management estimates. The
policies described below are followed consistently
by the Fund in the preparation of its financial
statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated 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
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
techniques. If the pricing agents are unable to
provide such quotations, the most recent bid
quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased
with an original maturity of sixty days or less are
valued at amortized cost.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from accounting principles
generally accepted in the United States of America.
As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for
a reporting period may differ significantly from
distributions during such period. Accordingly, the
Fund may periodically make reclassifications among
certain of its capital accounts without impacting
the net asset value of the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis.
All discounts are accreted for both tax and
financial 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.
--------------------------------------------------------------------------------
2 PURCHASES AND SALES
OF SECURITIES For the year ended October 31, 2000, purchases and
sales of investment securities (excluding
short-term investments) aggregated $407,116,114 and
$226,019,544, respectively.
--------------------------------------------------------------------------------
3 RELATED PARTIES MANAGEMENT AGREEMENT. Under the Investment
Management Agreement (the "Agreement") with Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser") the Adviser directs the investments of
the Fund in accordance with its investment
objectives, policies and restrictions. The Adviser
determines
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 0.25% of
its management fee until January 31, 2001. For the
year ended October 31, 2000, the Adviser did not
impose a portion of its management fee amounting to
$967,494, and the fee imposed amounted to
$1,741,470.
DISTRIBUTION SERVICE AGREEMENT. In accordance with
Rule 12b-1 under the Investment Company Act of
1940, Kemper Distributors, Inc. ("KDI"), a
subsidiary of the Adviser, receives a fee of 0.75%
of average daily net assets of Classes B and C.
Pursuant to the agreement, KDI enters into related
selling group agreements with various firms at
various rates for sales of Class B and C shares.
For the year ended October 31, 2000, the
Distribution Fee was as follows:
<TABLE>
<CAPTION>
UNPAID AT
TOTAL OCTOBER 31,
DISTRIBUTION FEE AGGREGATED 2000
-----------------------------------------------------------------------------
<S> <C> <C>
Class B $641,264 $127,184
Class C 130,877 29,690
$772,141 $156,874
</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 year ended October 31, 2000
aggregated $295,674, of which $236,274 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 October 31, 2000, the
CDSC for Classes B and C aggregated $183,314 and
$963, 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 October 31, 2000, the Administrative
Service Fee was as follows:
<TABLE>
<CAPTION>
UNPAID AT
TOTAL OCTOBER 31,
ADMINISTRATIVE SERVICE FEE AGGREGATED 2000
-----------------------------------------------------------------------------
<S> <C> <C>
Class A $280,844 $--
Class B 213,754 --
Class C 43,625 --
$538,223 $--
</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 year ended October 31, 2000, the
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
amount charged to Classes A, B and C by KSC
aggregated $344,671, $343,047 and $112,809,
respectively, of which $106,448 is unpaid at
October 31, 2000. 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
October 31, 2000, the amount charged to the Scudder
Shares by SSC for shareholder services aggregated
$304,908, of which $49,048 is unpaid at October 31,
2000.
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 October 31, 2000, the
Special Servicing Agreement expense charged to the
Scudder Shares amounted to $684,171, of which
$85,270 is unpaid at October 31, 2000.
Scudder Trust Company ("STC"), a subsidiary of the
Adviser, provides recordkeeping and other services
in connection with certain retirement and employee
benefit plans invested in the Scudder Shares of the
Fund. For the year ended October 31, 2000, the
amount charged to the Scudder Shares by STC
aggregated $117,879, of which $10,885 is unpaid at
October 31, 2000.
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 October 31, 2000, the amount charged to
the Fund by SFAC aggregated $147,019, of which
$24,796 is unpaid at October 31, 2000.
TRUSTEES' FEES. The Fund pays each of its Trustees
not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and
committee meetings. For the year ended October 31,
2000, the Trustees' fees and expenses aggregated
$23,483. In addition, a one-time fee of $66,714 was
accrued for payment to those Trustees not
affiliated with the Adviser who are not standing
for re-election, under the reorganization discussed
in Note G. Inasmuch as the Adviser will also
benefit from administrative efficiencies of a
consolidated Board, the Adviser has agreed to bear
$33,357 of such costs.
--------------------------------------------------------------------------------
4 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian and transfer agents whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of the Fund's
expenses. During the year ended October 31, 2000,
the Fund's custodian and transfer agent fees were
reduced by $1,095 and $20,687, respectively, under
these arrangements.
--------------------------------------------------------------------------------
5 LINE OF CREDIT The Fund and several other Scudder Funds (the
"Participants") share in a $1 billion revolving
credit facility with Chase Manhattan Bank for
temporary or
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
emergency purposes, including the meeting of
redemption requests that otherwise might require
the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated, pro rata based upon net assets,
among each of the Participants. Interest is
calculated based on the market rates at the time of
borrowing. The Fund may borrow up to a maximum of
33 percent of its net assets under the agreement.
--------------------------------------------------------------------------------
6 SHARE TRANSACTIONS The following table summarizes shares of beneficial
interest and dollar activity in the Fund:
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
--------------------------- ------------------------
SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
SHARES SOLD
Scudder Shares 3,007,008 $ 79,812,412 191,253 $ 4,368,502
--------------------------------------------------------------------------------
Class A 6,365,261 169,698,800 467,676 10,792,550
--------------------------------------------------------------------------------
Class B 3,321,680 86,245,038 282,287 6,387,191
--------------------------------------------------------------------------------
Class C 854,446 22,311,180 57,839 1,310,236
--------------------------------------------------------------------------------
13,548,395 $ 358,067,430 999,055 $ 22,858,479
--------------------------------------------------------------------------------
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
Scudder Shares 246,889 $ 6,362,318 -- $ --
--------------------------------------------------------------------------------
Class A 123,977 3,209,724 -- --
--------------------------------------------------------------------------------
Class B 85,387 2,176,533 -- --
--------------------------------------------------------------------------------
Class C 15,303 389,948 -- --
--------------------------------------------------------------------------------
471,556 $ 12,138,523 -- $ --
--------------------------------------------------------------------------------
SHARES REDEEMED
Scudder Shares (1,901,521) $ (49,835,087) (186,095) $ (4,242,573)
--------------------------------------------------------------------------------
Class A (3,396,132) (90,592,754) (307,088) (7,090,317)
--------------------------------------------------------------------------------
Class B (853,084) (22,212,889) (83,158) (1,889,264)
--------------------------------------------------------------------------------
Class C (195,776) (5,098,093) (11,341) (257,377)
--------------------------------------------------------------------------------
(6,346,513) $(167,738,823) (587,682) $(13,479,531)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE)
Scudder Shares 1,352,376 $ 36,339,643 5,158 $ 125,929
--------------------------------------------------------------------------------
Class A 3,093,106 82,315,770 160,588 3,702,233
--------------------------------------------------------------------------------
Class B 2,553,983 66,208,682 199,129 4,497,927
--------------------------------------------------------------------------------
Class C 673,973 17,603,035 46,498 1,052,859
--------------------------------------------------------------------------------
7,673,438 $ 202,467,130 411,373 $ 9,378,948
--------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, 1999
------------------------------
SHARES DOLLARS
<S> <C> <C>
SHARES SOLD
Scudder Shares 1,767,053 $ 36,814,454
----------------------------------------------------------------------------
Class A 4,181,810 89,719,684
----------------------------------------------------------------------------
Class B 1,703,242 35,213,582
----------------------------------------------------------------------------
Class C 290,638 6,120,954
----------------------------------------------------------------------------
7,942,743 $ 167,868,674
----------------------------------------------------------------------------
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
Scudder Shares 241,446 $ 4,918,255
----------------------------------------------------------------------------
Class A 34,363 700,664
----------------------------------------------------------------------------
Class B 28,770 583,153
----------------------------------------------------------------------------
Class C 4,331 87,827
----------------------------------------------------------------------------
308,910 $ 6,289,899
----------------------------------------------------------------------------
SHARES REDEEMED
Scudder Shares (2,330,780) $ (48,909,586)
----------------------------------------------------------------------------
Class A (2,232,659) (48,175,880)
----------------------------------------------------------------------------
Class B (727,039) (15,294,433)
----------------------------------------------------------------------------
Class C (99,616) (2,138,727)
----------------------------------------------------------------------------
(5,390,094) $(114,518,626)
----------------------------------------------------------------------------
NET INCREASE (DECREASE)
Scudder Shares (322,281) $ (7,176,877)
----------------------------------------------------------------------------
Class A 1,983,514 42,244,468
----------------------------------------------------------------------------
Class B 1,004,973 20,502,302
----------------------------------------------------------------------------
Class C 195,353 4,070,054
----------------------------------------------------------------------------
2,861,559 $ 59,639,947
----------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
7 REORGANIZATION In early 2000, Scudder Kemper initiated a
restructuring program for most of its Scudder
no-load open-end funds in response to changing
industry conditions and investor needs. The program
proposes to streamline the management and
operations of most of the no-load open-end funds
Scudder Kemper advises principally through the
liquidation of several small funds, mergers of
certain funds with similar investment objectives,
the creation of one Board of Directors/ Trustees
and the adoption of an administrative fee covering
the provision of most of the services currently
paid for by the affected funds. Costs incurred in
connection with this restructuring initiative are
being borne jointly by Scudder Kemper and certain
of the affected funds.
On November 29, 2000, the Trustees of the Fund
approved an Agreement and Plan of Reorganization
(the "Reorganization") between the Fund and Scudder
Capital Growth Fund, pursuant to which Scudder
Capital Growth Fund would acquire all or
substantially all of the assets and liabilities of
the Fund in exchange for shares of the Scudder
Capital Growth Fund. The Reorganization can be
consummated only if, among other things, it is
approved by a majority vote of the shareholders of
the Fund. A special meeting of the shareholders of
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
the Fund to approve the Reorganization will be held
on or about May 24, 2001.
As a result of the Reorganization, each shareholder
of the Scudder Classic Growth Fund will become a
shareholder of the Scudder Capital Growth Fund and
would hold, immediately after the closing of the
Reorganization (the "Closing"), that number of full
and fractional voting shares of the Scudder Capital
Growth Fund having an aggregate net asset value
equal to the aggregate net asset value of such
shareholder's shares held in the Fund as of the
close of business on the business day preceding the
Closing. The Closing is expected to take place
during the second quarter of 2001. In the event the
shareholders of the Fund fail to approve the
Reorganization, the Fund will continue to operate
and the Fund's Trustees may resubmit the Plan for
shareholder approval or consider other proposals.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF INVESTMENT TRUST AND TO THE
CLASS A, CLASS B AND CLASS C SHAREHOLDERS OF CLASSIC GROWTH FUND:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations and
of changes in net assets and the financial highlights for the Class A, Class B
and Class C shares present fairly, in all material respects, the financial
position of Classic Growth Fund (the "Fund") at October 31, 2000, the results of
its operations, the changes in its net assets and the financial highlights for
the Class A, Class B and Class C shares for each of the periods indicated
therein, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
for the Class A, Class B and Class C shares (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 2000 by correspondence with the custodian, provide
a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 20, 2000
29
<PAGE>
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
The Fund paid distributions of $1.11 per share from net long-term capital gains
during its year ended October 31, 2000, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$25,000,000 as capital gain dividends for its year ended October 31, 2000, 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.
30
<PAGE>
SHAREHOLDERS' MEETING
SHAREHOLDER MEETING RESULTS (UNAUDITED)
A Special Meeting of Shareholders (the "Meeting") of Scudder Classic Growth Fund
(the "fund"), a series of Investment Trust, was held on July 13, 2000, 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 elect Trustees of the Investment Trust.
<TABLE>
<CAPTION>
Number of Votes:
---------------------
TRUSTEE For Withheld
<S> <C> <C>
Henry P. Becton, Jr. 8,302,774 88,280
Linda C. Coughlin 8,304,579 86,475
Dawn-Marie Driscoll 8,305,567 85,487
Edgar R. Fiedler 8,304,051 87,003
Keith R. Fox 8,306,457 84,597
Joan E. Spero 8,303,428 87,627
Jean Gleason Stromberg 8,305,031 86,023
Jean C. Tempel 8,304,910 86,145
Steven Zaleznick 8,303,594 87,461
</TABLE>
2) To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the fiscal year ending October 31, 2000.
<TABLE>
<CAPTION>
Number of Votes:
------------------------------------------
Broker
For Against Abstain Non-Votes*
<S> <C> <C> <C>
8,249,773 56,073 85,208 0
</TABLE>
* 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.
31
<PAGE>
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
HENRY P. BECTON, JR. THOMAS V. BRUNS KATHRYN L. QUIRK
Trustee Vice President Vice President and
Assistant Secretary
LINDA C. COUGHLIN MAC EYSENBACH
President and Trustee Vice President HOWARD SCHNEIDER
Vice President
DAWN-MARIE DRISCOLL WILLIAM F. GADSDEN
Trustee Vice President JOHN R. HEBBLE
Treasurer
EDGAR R. FIELDER WILLIAM F. GLAVIN
Trustee Vice President BRENDA LYONS
Assistant Treasurer
KEITH R. FOX VALERIE F. MALTER
Trustee Vice President CAROLINE PEARSON
Assistant Secretary
JEAN E. SPERO JAMES E. MASUR
Trustee Vice President
JEAN GLEASON STROMBERG KATHLEEN T. MILLARD
Trustee Vice President
JEAN C. TEMPEL JOHN MILLETTE
Trustee Vice President and
Secretary
STEVEN ZALEZNICK
Trustee
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL DECHERT
Ten Post Office Square South
Boston, MA 02109
.............................................................................................
TRANSFER AND SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
.............................................................................................
INDEPENDENT ACCOUNTANTS PRICEWATERHOUSECOOPERS LLP
160 Federal Street
Boston, MA 02110
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
</TABLE>
KEMPER FUNDS LOGO Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Growth Style Fund prospectus.
KCGF-2 (12/22/00) 4986
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
