N-30D 1 c62123n-30d.txt SEMIANNUAL REPORT 1 SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED APRIL 30, 2001 Seeking growth of capital and of income SCUDDER BLUE CHIP FUND "A few newly purchased names posted tremendous gains, enabling us to take profits and regain some of the ground lost to competitors earlier in the period. The real story, however, was the stellar performance of some of the fund's longest-held names." [SCUDDER INVESTMENTS LOGO] 2 CONTENTS ECONOMIC OVERVIEW 3 PERFORMANCE UPDATE 7 TERMS TO KNOW 9 INDUSTRY SECTORS 10 LARGEST HOLDINGS 11 PORTFOLIO OF INVESTMENTS 12 FINANCIAL STATEMENTS 16 FINANCIAL HIGHLIGHTS 19 NOTES TO FINANCIAL STATEMENTS 21 AT A GLANCE SCUDDER BLUE CHIP FUND TOTAL RETURNS FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2001 (UNADJUSTED FOR ANY SALES CHARGE) [BAR GRAPH]
LIPPER GROWTH AND SCUDDER BLUE CHIP FUND SCUDDER BLUE CHIP FUND INCOME FUNDS CATEGORY SCUDDER BLUE CHIP FUND CLASS A CLASS B CLASS C AVERAGE* ------------------------------ ---------------------- ---------------------- --------------------- -13.25 -13.59 -13.53 -12.75
PERFORMANCE IS HISTORICAL AND INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE WITH CHANGING MARKET CONDITIONS, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. *LIPPER, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES CHARGES; IF SALES CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS FAVORABLE. NET ASSET VALUE
AS OF AS OF 4/30/01 10/31/00 ......................................................... SCUDDER BLUE CHIP FUND CLASS A $18.29 $21.76 ......................................................... SCUDDER BLUE CHIP FUND CLASS B $17.82 $21.30 ......................................................... SCUDDER BLUE CHIP FUND CLASS C $17.98 $21.47 .........................................................
SCUDDER BLUE CHIP FUND LIPPER RANKINGS AS OF 4/30/01 COMPARED WITH ALL OTHER FUNDS IN THE LIPPER GROWTH AND INCOME FUNDS CATEGORY*
CLASS A CLASS B CLASS C .......................................................................................... 1-YEAR #267 of 605 funds #311 of 605 funds #305 of 605 funds .......................................................................................... 5-YEAR #141 of 230 funds #159 of 230 funds #157 of 230 funds .......................................................................................... 10-YEAR #58 of 81 funds n/a n/a ..........................................................................................
DIVIDEND REVIEW DURING THE SIX-MONTH PERIOD, SCUDDER BLUE CHIP FUND PAID THE FOLLOWING DIVIDENDS PER SHARE:
CLASS A CLASS B CLASS C ........................................................... LONG-TERM CAPITAL GAIN $0.60 $0.60 $0.60 ...........................................................
YOUR FUND'S STYLE MORNINGSTAR EQUITY STYLE BOX [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 SCUDDER BLUE CHIP FUND IN THE LARGE GROWTH CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION OF INVESTMENT POLICIES.
3 ECONOMIC OVERVIEW ZURICH SCUDDER INVESTMENTS, INC., A LEADING GLOBAL INVESTMENT MANAGEMENT FIRM, IS A MEMBER OF THE ZURICH FINANCIAL SERVICES GROUP. ZURICH SCUDDER INVESTMENTS IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE WORLD, MANAGING MORE THAN $360 BILLION IN ASSETS FOR CORPORATE CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND INVESTORS AND INDIVIDUALS WORLDWIDE. HEADQUARTERED IN NEW YORK, ZURICH SCUDDER 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. HEADQUARTERED IN ZURICH, SWITZERLAND, ZURICH FINANCIAL SERVICES GROUP IS ONE OF THE GLOBAL LEADERS IN THE FINANCIAL SERVICES INDUSTRY, PROVIDING ITS CUSTOMERS WITH PRODUCTS AND SOLUTIONS IN THE AREA OF FINANCIAL PROTECTION AND ASSET ACCUMULATION. DEAR SHAREHOLDER: Just one year ago, the U.S. economy seemed to be on solid footing. Now, cracks have appeared virtually everywhere. Production and retail sales growth have plunged, profits have nose-dived, layoff announcements have soared and even the strong equity rally in the spring has failed to restore the wealth eaten up by the recent bear market. U.S. economic growth ground almost to a halt during the winter, and there is little momentum heading into the spring. We have lowered our growth forecasts to just under 2 percent this year and next. That doesn't leave much of a cushion for anything to go wrong, and the chance of an outright recession is high -- about one in three. Naturally, the hunt is on for villains and scapegoats. The last decade's hero, Federal Reserve Board Chairman Alan Greenspan, risks becoming this year's flogging boy. Many believe he triggered the current economic slowdown and equity market drop by raising interest rates inappropriately. But our view is different: Greenspan should have tried harder to curb credit excesses and speculative imbalances early on, but he hardly created the euphoria single-handedly, and he is not solely responsible for the current malaise. For one idea of what did cause the current malaise, we only need look at the speed with which production and retail sales growth have headed south. Although it isn't unprecedented, big falloffs in sales and production do tend to set in motion a dangerous chain of events, one that very much increases the risks of recession. First, profits suffer. Not even the most trigger-happy, cost-cutting executive can save his bottom line in the short run when revenues dry up unexpectedly. And earnings disappointments for this cycle are flooding in. First quarter 2001 Standard & Poor's (S&P) operating earnings were down 22 percent compared to a year ago, dropping them all the way back to early 1998 levels. More importantly, when CEOs confessed to missing their first quarter targets, they warned investors that the earnings outlook was bleak indeed. And the carnage is not confined to any particular sector. We agree that there is trouble ahead. We look for a 12 percent decline in S&P operating earnings this year, with profits not likely to touch bottom until early 2002. Profit shortfalls obviously force executives to curb capital spending, the second link in the chain. First, they have less money to bandy about. Second, why expand when you already have idle facilities? Factory operating rates have fallen to 77 percent, the lowest since the last recession. Services, such as advertising, have excesses, too. So we do think it's reasonable to expect declines in traditional capital goods, such as machine tools, trucks and office furniture. We've cut our capital spending estimate to around 3 percent for this year and next. Why have we forecast any capital spending growth at all? First, America has neglected its energy infrastructure, and now it is paying the price. Orders for energy generating capacity have catapulted, and natural gas exploration will mean soaring demand for pipelines, processing facilities and other equipment. Second, technology prices are falling again with a vengeance. That stimulates demand, especially since these products help save on labor, which is getting more expensive. Companies will probably try to hold the line on the dollars they spend for high-tech products for the next year or so, but we think the number of computers and storage devices they purchase will still go up. Still, despite our relative optimism that America is likely to avoid a capital spending bust, we doubt the country will soon return to the glory days of double-digit growth in either profits or investment. The equity market has taken this more sober outlook on board, and Wall Street has suffered its first bear market in over a decade. Bear markets are normally nothing to be afraid of, but the stock market has never been this big relative to the economy. At its peak last winter, equity market capitalization was 86 percent larger than gross domestic product (GDP), compared to 45 percent smaller in 1987. Wall Street matters more to the average family, too. Last winter, stocks comprised 27 percent of households' net worth, compared just 10 percent in 1987. The stocks Americans own are even worth more than the equity they have in their homes. That's why, despite a sharp rise in house 3 4 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]
NOW (5/31/01) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO ------------- ------------ ---------- ----------- 10-year Treasury rate1 5.40 5.70 6.40 5.50 Prime rate2 7.00 9.50 9.25 7.75 Inflation rate3* 3.30 3.40 3.10 2.20 The U.S. dollar4 10.00 11.10 4.30 -0.90 Capital goods orders5* 1.70 22.20 13.30 5.40 Industrial production 5* -1.00 5.10 6.50 3.20 Employment growth6 0.40 1.70 2.70 2.30
(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 4/30/01. SOURCE: ECONOMICS DEPARTMENT, ZURICH SCUDDER INVESTMENTS, INC. prices last year, falling stock prices dealt the biggest blow to the household wealth in over 25 years. Can U.S. consumers shrug off the big losses? We don't think so. There are only so many Scrooges who pile up money just to count it. People have been saving little because they assumed their stock market gains would take care of their retirement. Many are already having second thoughts; hence the frugality during the Christmas shopping season and the falloff in consumer confidence. History tells us to expect much slower consumer spending when net worth is under pressure. So far, though, consumers haven't panicked. Vehicle sales ran at a fantastic rate of more than 17,000,000 annually during the opening months of the year (although sales have slowed in the past couple of months, as car makers became more judicious with incentives). Recreation spending is up sharply, especially at casinos and amusement parks. Folks are not eager to buy another personal computer, but they're still having a love affair with the Internet: Annualized spending on Internet service providers was $22 billion in the first four months of this year (the latest data available from the Bureau of Economic Analysis compared to $10 billion in the first four months of 2000. Despite these bright spots, we think businesses vying for a share of consumer wallets will find it tough going during the next couple of years. The recently passed tax cut, with rebates scheduled to begin during the summer should help shoppers stay in the game. But we doubt overall consumption will rise much more than two percent for the next couple of years, as the damage the bear market has done sinks in. As the clouds gather over both capital spending and consumption, a little help from our friends would be most welcome. We're not likely to get much. Japan's economy is struggling. Smaller Asian nations are hurting from the rout in the electronics industry, among other things. Political problems have resurfaced in the largest economies in South America. And Europe is slowing down. This is not the stuff of vibrant export growth, and the surprisingly strong dollar has provided an additional headwind. Export volume declined in both the final quarter of 2000 as well as in the first three months of this year. We've trimmed this year's export growth estimate to just 1 percent from the 7 percent to 8 percent we thought likely at the beginning of the year. At least imports fell, too, in the first quarter, so lessened the damage on first quarter growth. However, trade will still likely be a drag on U.S. growth 4 5 ECONOMIC OVERVIEW for the rest of this year and 2002, just as it has been every year since 1996. As virtually every part of the economy decelerates, it puts enormous strain on the credit markets, the final link in our chain and the one that holds everything together. The most recent boom encouraged virtually everyone to borrow. People expected profits and incomes to grow so fast that making future payments would be no problem. Now, falling profits and surging layoffs will test that optimism. There's little margin for error. Debt service now eats up 14.3 percent of families' after-tax income, an all time high. And non-financial companies have pushed their debt up to 64 percent of GDP, only a smidgen lower than during the junk bond heyday. Defaults are high. But consumers and non-financial businesses look downright conservative next to financial companies. In just the past six years, they've doubled their leverage -- from under $4 trillion to over $8 trillion, or nearly 85 percent of GDP. Most of this debt is backed by other debt, such as mortgage pools, asset-backed securities and other structured products. But that doesn't mean it's risk free. The math underlying the securities is complex, counter-parties to the transactions are legion and markets must be almost perfectly liquid to assure constant refunding. The whizzes who concocted this financial legerdemain had better hope they got their models right. So should the rest of us. Of all the risks that come from a slowing economy, a breakdown in the credit markets would have the greatest fallout of all. Economic slowdowns and bear markets are no fun whatsoever. They test a country's policymakers, businesspeople and citizens. So far, the evidence strongly suggests that all are keeping their heads and acting appropriately. If that continues to be the case -- as we expect it will -- the worst should be behind us sometime in the second half of the year. Until then, be careful out there. Zurich Scudder Investments, Inc. Economics Group THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF ZURICH SCUDDER INVESTMENTS, INC. AS OF JUNE 6, 2001, AND MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 5 6 ECONOMIC OVERVIEW [INTENTIONALLY LEFT BLANK] 6 7 PERFORMANCE UPDATE [McCORMICK PHOTO] PORTFOLIO MANAGER TRACY MCCORMICK IS A MANAGING DIRECTOR OF ZURICH SCUDDER INVESTMENTS, INC., AND LEAD PORTFOLIO MANAGER OF SCUDDER BLUE CHIP FUND. MCCORMICK BRINGS MORE THAN 15 YEARS OF INVESTMENT INDUSTRY EXPERIENCE TO THE FUND. [LANGBAUM PHOTO] PORTFOLIO MANAGER GARY A. LANGBAUM, C.F.A., CONTRIBUTES MORE THAN 20 YEARS OF INVESTMENT INDUSTRY EXPERIENCE TO THE FUND. THE MANAGEMENT TEAM IS SUPPORTED BY ZURICH SCUDDER INVESTMENTS' LARGE STAFF OF ANALYSTS, RESEARCHERS, TRADERS AND ECONOMISTS. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS. SCUDDER BLUE CHIP FUND, DURING THE SEMIANNUAL PERIOD, FACED A MARKET PLAGUED BY A SLOWING U.S. ECONOMY, PERSISTENT VOLATILITY AND DISAPPOINTING CORPORATE EARNINGS. AMID THESE AND OTHER CHALLENGES, THE PORTFOLIO SUFFERED LOSSES, ALONG WITH THE BENCHMARK AND THE MAJORITY OF ITS PEERS. HERE, LEAD PORTFOLIO MANAGER TRACY MCCORMICK REVISITS THE SIX MONTHS ENDED APRIL 30, 2001. Q WILL YOU PROVIDE AN OVERVIEW OF MARKET CONDITIONS DURING THE PERIOD, HIGHLIGHTING THE PARTICULAR CHALLENGES TO SCUDDER BLUE CHIP FUND PERFORMANCE? A The semiannual period began in the waning months of 2000, when slower-than-expected U.S. economic growth and disappointing corporate earnings intensified the anxieties of investors already wearied by historically high levels of sustained market volatility. Fearing recession (see Terms To Know on page 9), many turned away from technology and other high-valuation/high-expectation sectors, choosing instead more traditionally defensive industries, such as health care and finance. Then, in an aggressive attempt to avert recession, the Federal Reserve Board cut short-term interest rates soon after the New Year. It was widely believed, however, that this friendlier monetary policy was instituted too late, and that an extended economic downturn would be unavoidable. Despite a successive cut in interest rates, increasingly worried investors sold stocks across the board. In the end, few sectors were left untouched. The period ended on a high note, however, when the equity markets rallied strongly in response to the Fed's April move to reduce rates a third time. Overall, value stocks (see Terms To Know on page 9) reversed a long-time trend, outperforming their growth (see Terms To Know on page 9) counterparts. Likewise, small-capitalization stocks (see Terms To Know on page 9) outstripped larger caps during the period. The fund's objective creates a natural bias toward larger growth stocks, which put the fund at a disadvantage during this market cycle. Q HOW DID SCUDDER BLUE CHIP FUND PERFORM AGAINST THIS VOLATILE BACKDROP? A Despite our best efforts, the portfolio lost ground -- slightly underperforming the benchmark Standard & Poor's 500 index and the average of its peers. For the semiannual period ended April 30, 2001, Scudder Blue Chip Fund Class A Shares dipped 13.25 percent, while the index lost 12.06 percent and the Lipper Large-Cap Core Funds category slipped 12.75 percent. It's tough for any manager or investor to see negative returns of this magnitude. Our disappointment is tempered to some extent, however, by our recognition of the extraordinary challenges presented by this fickle market. Everything that had worked prior to the Fed's unexpected and dramatic reversal of its monetary policy in January failed thereafter. The portfolio's defensive positioning caused the fund to lose ground to its competitors, when this first in a series of interest-rate cuts set off a flurry of buying activity in technology stocks. Conversely, the portfolio's heavy overweighting in 7 8 PERFORMANCE UPDATE health care stocks dragged performance when this sector reversed. But the tech rally was short-lived. In February, significant shortfalls in corporate earnings and other "bad business" reports resulted in a ratcheting down of earning power for many technology companies. The portfolio's underweighted position in technology then proved beneficial. Q WHAT WORKED PARTICULARLY WELL FOR SCUDDER BLUE CHIP FUND DURING THE PERIOD? A Ironically, in the end it was the fund's technology holdings that proved to be the primary driver of performance during the period. Let's continue the technology story. By March, we could hardly imagine a more negative scenario, and we believed we were beginning to see a bottom forming. By April, all the bad news seemed to have been priced in to the sector. Valuations had been decimated, and earnings expectations had become more reasonable. We were no longer willing to bet against technology. During the first week of April, we aggressively increased the portfolio's technology stake, ultimately bringing the fund's weighting up to par with the benchmark. Following the April cut in interest rates, we began to see more significant and sustained technology stock performance. A few newly purchased names posted tremendous gains, enabling us to take profits and recover some of the ground lost to our competitors earlier in the period. The real story, however, was the stellar performance of some of the fund's longest-held names, including IBM, Intel and Microsoft, all among the portfolio's 10 largest holdings. Microsoft, the fund's largest holding, provides a great example of our investment discipline at work. We rely on intensive, proprietary research to uncover a stock's fundamental strengths. We make our buying and selling decisions based on the results of that analysis, not on unsubstantiated rumor or the whims of Wall Street. In the case of Microsoft, the stock price had been driven down by what we believed to be investor overreaction to protracted antitrust litigation and the failure of the government to reach a resolution. Our analysis at the time showed the company to be well positioned to expand sales and earnings. We took advantage of the opportunity to build our position in the stock. Since that time, the price has rebounded, and we expect to see greater gains as fundamentals further improve. All eyes are focused on the launch this fall of Microsoft XP, a new application that could prompt another software and microprocessor upgrade cycle. In addition, most people believe -- as do we -- that the company will win its appeal. Q WERE THERE STRATEGIES OR SPECIFIC STOCKS THAT PROVED DISAPPOINTING? A Many of the health care and financial names that had been important contributors to performance in the past suffered losses during the period. In general, a shift in market sentiment away from health care, based in part on rising political risks and pending patent issues, dragged performance. Falling from the top 10 holdings were Abbott Laboratories and Baxter International, both of which we trimmed due to price appreciation during the period. Market psychology, more than any fundamental changes, hampered the performance of some financial stocks, including American International Group, which remains among the portfolio's top 10 holdings. There was some concern that the volatile equity markets would impede revenue and earnings growth in the company's life insurance business. Given the stock's strong performance during the prior six months, many investors took profits opportunistically. Q WHAT IS YOUR NEAR-TERM OUTLOOK FOR THE ECONOMY? ARE THERE EMERGING TRENDS THAT MAY HELP GUIDE YOUR INVESTMENT STRATEGY IN THE COMING MONTHS? A Falling interest rates during the period may not have assuaged investor fears of an extended economic downturn immediately, but the Fed's actions gave people hope that by the end of 2001 we will see a meaningful turn in the economy. The steepening yield curve suggests that it already may be turning. In addition, the Bush administration's proposed tax reductions are friendly to big business. Therefore, we believe that U.S. fiscal and monetary policy eventually will achieve traction and that corporate earnings and economic growth will show signs of improvement. In general, there seems to be a six- to nine-month lag between the time that the Federal Reserve alters its monetary policy and that change is evident. So, the question is: where do we want to be when the economy turns around? Our growing conviction in the renewal of economic growth is supported by the positive earnings reports of many retailers, some of 8 9 PERFORMANCE UPDATE which far exceeded expectations during the period. This suggests that the American consumer is in better shape than most people believe. The Fed has proven time and again that it is interested in keeping the consumer healthy. Moreover, falling interest rates have given rise to a booming refinancing market for mortgages, which should put a bit more money in the hands of consumers. While we do not foresee a major shift in sector weightings, we are in the process of making the portfolio somewhat more aggressive. We intend to actively seek opportunities in cyclical stocks, retail and media in particular, which we believe can help us capture the benefits of an impending upturn in the economy. And we will selectively reduce our weightings in classically defensive sectors, such as health care. We expect we will continue to see the wild swings in stock prices that have marked the technology sector for some time. Generally speaking, there has been no real improvement in the fundamentals of technology companies. While the market already has anticipated much potentially bad news, we have yet to see how investors will react to the negative earnings releases (see Terms To Know, below) that are almost certain in the coming months. Earnings expectations may have to be further reduced. With price consciousness paramount, however, we will continue to seek opportunities to invest in technology. TERMS TO KNOW EARNINGS RELEASE A quarterly report to the public of a corporation's earnings. Earnings are revenues minus the cost of sales, operating expenses and taxes over a given period of time. Earnings are often the most important determinant of a corporation's stock price. GROWTH STOCK A stock issued by a company that is expected to experience rapid growth resulting from strong sales, adept management and market dominance. Because growth stocks are typically in demand, they tend to carry relatively high price tags and can be volatile due to changing perceptions of the company's ability to grow. RECESSION A period of general economic decline; specifically, a decline in gross domestic product for two or more consecutive quarters. SMALL-CAPITALIZATION STOCK Capitalization is a measure of the size of a company that offers publicly traded stock, as determined by multiplying the current share price by the number of shares outstanding. Small-capitalization, or "small-cap," stocks are generally $250 million to $1 billion. VALUE STOCK A stock that is considered to be "on sale" or bargain-priced because it has fallen out of favor with investors. These stocks are perceived to be undervalued relative to their true worth as determined by earnings potential, book value, cash flow, dividend yields or other fundamental measures. 9 10 INDUSTRY SECTORS A SIX-MONTH COMPARISON DATA SHOW THE PERCENTAGE OF THE STOCK HOLDINGS IN THE PORTFOLIO THAT EACH SECTOR REPRESENTED ON APRIL 30, 2001, AND ON OCTOBER 31, 2000. [BAR GRAPH]
SCUDDER BLUE CHIP FUND ON SCUDDER BLUE CHIP FUND ON 4/30/01 10/31/00 ------------------------- ------------------------- Health care 20.40 17.80 Consumer nondurables 20.10 12.30 Finance 18.50 19.90 Technology 16.10 24.10 Capital goods 9.30 7.90 Energy 8.50 6.20 Communication services 3.20 8.60 Transportation 2.50 0.00 Basic materials 0.90 3.20 Utilities 0.50 0.00
A COMPARISON WITH THE S&P 500 STOCK INDEX* DATA SHOW THE PERCENTAGE OF STOCK HOLDINGS IN THE PORTFOLIO THAT EACH SECTOR OF SCUDDER BLUE CHIP FUND REPRESENTED ON APRIL 30, 2001, COMPARED WITH THE INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE S&P 500 STOCK INDEX. [BAR GRAPH]
SCUDDER BLUE CHIP FUND ON S&P 500 STOCK INDEX ON 4/30/01 4/30/01 ------------------------- ---------------------- Health care 20.40 13.10 Consumer nondurables 20.10 21.30 Finance 18.50 17.40 Technology 16.10 18.70 Capital goods 9.30 9.10 Energy 8.50 6.90 Communication services 3.20 6.10 Transportation 2.50 0.70 Basic materials 0.90 2.60 Utilities 0.50 4.10
* THE S&P 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE U.S. STOCK MARKET. 10 11 LARGEST HOLDINGS THE FUND'S 10 LARGEST HOLDINGS* Representing 27.6 percent of the portfolio on April 30, 2001.
HOLDINGS PERCENT -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- 1. MICROSOFT A company that develops, markets 4.4% and supports a variety of microcomputer software, operating systems, language and application programs, related books and peripheral devices. -------------------------------------------------------------------------------------- 2. GENERAL ELECTRIC A broadly diversified company with 4.2% major businesses in power generators, appliances, lighting, plastics, medical systems, aircraft engines, financial services and broadcasting. -------------------------------------------------------------------------------------- 3. PFIZER A research-based pharmaceutical 3.1% company involved in the discovery, development, manufacturing and marketing of medicines for humans and animals. -------------------------------------------------------------------------------------- 4. EXXON MOBIL A company engaged in exploration, 2.7% production, manufacture, transportation and sale of crude oil, natural gas and petroleum products. -------------------------------------------------------------------------------------- 5. CITIGROUP A diversified holding company that 2.4% provides a wide range of financial services to individual and corporate clients. -------------------------------------------------------------------------------------- 6. WAL-MART A large global retailer with 2.3% operations in the United States, Asia and Latin America. Wal-Mart operates Wal-Mart, Wal-Mart Supercenter and Sam's Club. It also sells branded merchandise under the Popular Mechanics, Better Homes & Gardens and Sam's American Choice labels. -------------------------------------------------------------------------------------- 7. INTEL A company engaged in the design, 2.2% development, manufacture and sale of advanced microcomputer components. -------------------------------------------------------------------------------------- 8. AMERICAN INTERNATIONAL GROUP A holding company engaged in 2.2% insurance and insurance-related activities in the United States and abroad. AIG's primary activities are general insurance and life insurance operations. -------------------------------------------------------------------------------------- 9. IBM International Business Machines 2.1% (IBM) is the world's top provider of computer equipment, including PCs, notebooks, mainframes, network servers, software and peripherals. The company's service arm is the largest in the world. -------------------------------------------------------------------------------------- 10. UNITED TECHNOLOGIES Through such well-known names as 2.0% Otis, United Technologies Corporation makes building systems and aerospace products, including elevators and helicopters. Its subsidiary Carrier is the world's largest maker of heating and air-conditioning systems. --------------------------------------------------------------------------------------
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE. 11 12 PORTFOLIO OF INVESTMENTS SCUDDER BLUE CHIP FUND Portfolio of Investments at April 30, 2001 (Unaudited)
REPURCHASE AGREEMENTS--0.1% PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------------------------------- State Street Bank and Trust Company, 4.520% to be repurchased at $599,075 on 05/01/2001** (Cost $599,000) $ 599,000 $ 599,000 -------------------------------------------------------------------------------- COMMERCIAL PAPER--3.0% ----------------------------------------------------------------------------------------------------------------------------- UBS Finance, Inc., 4.65%, 05/01/2001*** (Cost $31,000,000) 31,000,000 31,000,000 -------------------------------------------------------------------------------- COMMON STOCKS--96.9% SHARES ----------------------------------------------------------------------------------------------------------------------------- COMMUNICATIONS--4.2% CELLULAR TELEPHONE--1.9% AT&T Wireless Group* 405,000 8,140,500 Nokia Oyj "A" (ADR) 320,000 10,940,800 -------------------------------------------------------------------------------- 19,081,300 TELEPHONE/ COMMUNICATIONS--2.3% BroadWing, Inc.* 456,600 11,323,680 Qwest Communications International, Inc.* 155,000 6,339,500 SBC Communications, Inc. 140,000 5,775,000 -------------------------------------------------------------------------------- 23,438,180 ----------------------------------------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY--9.4% DEPARTMENT & CHAIN STORES Costco Wholesale Corp.* 230,000 8,033,900 Gap, Inc. 350,000 9,698,500 Home Depot, Inc. 290,000 13,659,000 Kohl's Corp.* 217,000 13,250,020 Lowe's Companies, Inc. 140,000 8,820,000 Target Corp. 470,000 18,071,500 Wal-Mart Stores, Inc. 455,600 23,572,744 -------------------------------------------------------------------------------- 95,105,664 ----------------------------------------------------------------------------------------------------------------------------- CONSUMER STAPLES--4.0% FOOD & BEVERAGE--2.0% Coca-Cola Co., Inc. 235,000 10,854,650 PepsiCo, Inc. 225,000 9,857,250 -------------------------------------------------------------------------------- 20,711,900 PACKAGE GOODS/ COSMETICS--2.0% Colgate-Palmolive Co. 220,000 12,287,000 Procter & Gamble Co. 130,000 7,806,500 -------------------------------------------------------------------------------- 20,093,500 ----------------------------------------------------------------------------------------------------------------------------- DURABLES--2.5% AEROSPACE--2.0% United Technologies Corp. 255,000 19,910,400 -------------------------------------------------------------------------------- TELECOMMUNICATIONS EQUIPMENT--0.5% CIENA Corp.* 85,600 4,713,135 -------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------- ENERGY--7.8% OIL & GAS PRODUCTION--4.6% BP Amoco PLC (ADR) 193,000 10,437,440 Exxon Mobil Corp. 307,443 27,239,450 Royal Dutch Petroleum Co. (New York shares)* 160,000 9,524,800 -------------------------------------------------------------------------------- 47,201,690 OILFIELD SERVICES/ EQUIPMENT--3.2% BJ Services Co.* 185,000 15,216,250 Nabors Industries, Inc.* 281,000 16,753,220 -------------------------------------------------------------------------------- 31,969,470
12 The accompanying notes are an integral part of the financial statements. 13 PORTFOLIO OF INVESTMENTS
SHARES VALUE ----------------------------------------------------------------------------------------------------------------------------- FINANCIAL--16.8% BANKS--7.5% Bank of America Corp. 185,000 $ 10,360,000 Citigroup, Inc. 496,666 24,411,134 JP Morgan Chase & Co. 320,000 15,353,600 Mellon Financial Corp. 241,000 9,864,130 National City Corp. 250,000 6,802,500 Wells Fargo Co. 200,000 9,394,000 -------------------------------------------------------------------------------- 76,185,364 CONSUMER FINANCE--2.0% Household International, Inc. 235,916 15,103,342 Providian Financial Corp. 100,000 5,330,000 -------------------------------------------------------------------------------- 20,433,342 INSURANCE--7.3% Allstate Corp. 350,000 14,612,500 American International Group, Inc. 268,562 21,968,372 Hartford Financial Services Group, Inc. 244,200 15,164,820 Jefferson Pilot Corp. 222,225 10,369,019 St. Paul Companies, Inc. 274,800 12,393,480 -------------------------------------------------------------------------------- 74,508,191 ----------------------------------------------------------------------------------------------------------------------------- HEALTH--17.2% BIOTECHNOLOGY--2.8% Amgen, Inc.* 95,000 5,808,300 Biogen, Inc.* 130,000 8,405,800 Genentech, Inc.* 155,000 8,137,500 Genzyme Corporation--General Division* 57,700 6,287,569 -------------------------------------------------------------------------------- 28,639,169 HEALTH INDUSTRY SERVICES--1.0% Cigna Corp. 92,900 9,912,430 -------------------------------------------------------------------------------- HOSPITAL MANAGEMENT--0.9% Tenet Healthcare Corp.* 210,000 9,374,400 -------------------------------------------------------------------------------- MEDICAL SUPPLY & SPECIALTY--3.7% Abbott Laboratories 330,000 15,305,400 Baxter International, Inc. 110,000 10,026,500 Becton, Dickinson & Co. 364,000 11,775,400 -------------------------------------------------------------------------------- 37,107,300 PHARMACEUTICALS--8.8% Allergan, Inc. 122,800 9,332,800 Alza Corp.* 327,500 14,973,300 American Home Products Corp. 240,000 13,860,000 Eli Lilly & Co. 150,000 12,750,000 Johnson & Johnson 75,000 7,236,000 Pfizer, Inc. 732,500 31,717,250 -------------------------------------------------------------------------------- 89,869,350 ----------------------------------------------------------------------------------------------------------------------------- MANUFACTURING--6.5% DIVERSIFIED MANUFACTURING--4.2% General Electric Co. 878,400 42,628,752 -------------------------------------------------------------------------------- INDUSTRIAL SPECIALTY--1.1% PPG Industries, Inc. 210,000 11,161,500 -------------------------------------------------------------------------------- MACHINERY/COMPONENTS/ CONTROLS--1.2% Illinois Tool Works, Inc. 195,000 12,359,100 -------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------- MEDIA--5.6% ADVERTISING--1.0% Omnicom Group, Inc. 115,000 10,102,750 -------------------------------------------------------------------------------- BROADCASTING & ENTERTAINMENT--2.5% Clear Channel Communications, Inc.* 180,001 10,044,056 Viacom, Inc. "B"* 304,749 15,865,233 -------------------------------------------------------------------------------- 25,909,289
The accompanying notes are an integral part of the financial statements. 13 14 PORTFOLIO OF INVESTMENTS
SHARES VALUE ----------------------------------------------------------------------------------------------------------------------------- CABLE TELEVISION--0.8% AT&T Corp.--Liberty Media Group "A"* 495,000 $ 7,920,000 -------------------------------------------------------------------------------- PRINT MEDIA--1.3% Tribune Co. 311,000 13,105,540 -------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------- SERVICE INDUSTRIES--2.2% INVESTMENT--1.2% Merrill Lynch & Co., Inc. 100,000 6,170,000 Morgan Stanley Dean Witter & Co. 100,000 6,279,000 -------------------------------------------------------------------------------- 12,449,000 MISCELLANEOUS COMMERCIAL SERVICES--1.0% United Parcel Service "B" Air Freight Charges 180,000 10,341,000 -------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY--18.7% COMPUTER SOFTWARE--6.8% BEA Systems, Inc.* 150,000 6,127,500 Brocade Communications Systems, Inc.* 170,000 6,458,300 i2 Technologies, Inc.* 275,000 4,787,750 Microsoft Corp.* 660,000 44,715,000 VERITAS Software Corp.* 100,000 5,961,000 -------------------------------------------------------------------------------- 68,049,550 DIVERSE ELECTRONIC PRODUCTS--0.6% General Motors Corp. "H"* 290,000 6,162,500 -------------------------------------------------------------------------------- EDP PERIPHERALS--0.6% EMC Corp. 190,000 7,524,000 -------------------------------------------------------------------------------- ELECTRONIC DATA PROCESSING--4.0% Dell Computer Corp.* 530,000 13,933,700 International Business Machines Corp. 185,000 21,300,900 Sun Microsystems, Inc.* 302,000 5,170,240 -------------------------------------------------------------------------------- 40,404,840 MILITARY ELECTRONICS--1.0% General Dynamics Corp. 135,000 10,405,800 -------------------------------------------------------------------------------- SEMICONDUCTORS--5.7% Applied Materials, Inc.* 112,000 6,115,200 Intel Corp. 711,800 22,001,738 KLA-Tencor Corp.* 125,000 6,870,000 Linear Technology Corp. 120,000 5,764,800 Texas Instruments, Inc. 335,000 12,964,500 Xilinx, Inc.* 100,000 4,747,000 -------------------------------------------------------------------------------- 58,463,238 ----------------------------------------------------------------------------------------------------------------------------- TRANSPORTATION--1.5% RAILROADS Union Pacific Corp. 260,000 14,791,400 -------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------- UTILITIES--0.5% ELECTRIC UTILITIES Mirant Corp.* 120,000 4,896,000 -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $867,575,050) 984,929,044 -------------------------------------------------------------------------------- TOTAL INVESTMENT PORTFOLIO--100.0% (Cost $899,174,050)(a) $1,016,528,044 --------------------------------------------------------------------------------
14 The accompanying notes are an integral part of the financial statements. 15 PORTFOLIO OF INVESTMENTS NOTES TO PORTFOLIO OF INVESTMENTS * Non-income producing security. ** Repurchase agreements are fully collateralized by U.S. Treasury and Government agency securities. *** Annualized yield at time of purchase, not a coupon rate. (a) The cost for federal income tax purposes was $899,271,762. At April 30, 2001, net unrealized appreciation for all securities based on tax cost was $117,256,282. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $141,442,226 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $24,185,944. The accompanying notes are an integral part of the financial statements. 15 16 FINANCIAL STATEMENTS STATEMENT OF ASSETS & LIABILITIES As of April 30, 2001 (Unaudited) ASSETS ------------------------------------------------------------------------------ Investments in securities, at value, (cost $899,174,050) $1,016,528,044 ------------------------------------------------------------------------------ Cash 3,232 ------------------------------------------------------------------------------ Receivable for investments sold 6,800,916 ------------------------------------------------------------------------------ Dividends receivable 457,389 ------------------------------------------------------------------------------ Interest receivable 75 ------------------------------------------------------------------------------ Receivable for Fund shares sold 2,145,814 ------------------------------------------------------------------------------ Other assets 9,910 ------------------------------------------------------------------------------ TOTAL ASSETS 1,025,945,380 ------------------------------------------------------------------------------ LIABILITIES ------------------------------------------------------------------------------ Payable for investments purchased 10,302,627 ------------------------------------------------------------------------------ Payable for Fund shares redeemed 3,816,263 ------------------------------------------------------------------------------ Accrued management fee 425,594 ------------------------------------------------------------------------------ Accrued Trustees' fees and expenses 20,903 ------------------------------------------------------------------------------ Accrued reorganization costs 217,038 ------------------------------------------------------------------------------ Other payables and accrued expenses 1,074,090 ------------------------------------------------------------------------------ Total liabilities 15,856,515 ------------------------------------------------------------------------------ NET ASSETS, AT VALUE $1,010,088,865 ------------------------------------------------------------------------------ NET ASSETS ------------------------------------------------------------------------------ Net assets consist of: Accumulated net investment loss $ (2,510,613) ------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) on investment securities 117,353,994 ------------------------------------------------------------------------------ Accumulated net realized gain (loss) (38,317,442) ------------------------------------------------------------------------------ Paid-in capital 933,562,926 ------------------------------------------------------------------------------ NET ASSETS, AT VALUE $1,010,088,865 ------------------------------------------------------------------------------ NET ASSETS VALUE ------------------------------------------------------------------------------ CLASS A SHARES Net asset value and redemption price per share ($549,145,803 / 30,025,667 shares outstanding of beneficial interest, $.01 par value, unlimited number of shares authorized) $18.29 ------------------------------------------------------------------------------ Maximum offering price per share (100/94.25 of $18.29) $19.41 ------------------------------------------------------------------------------ CLASS B SHARES Net asset value, offering and redemption price (subject to contingent deferred sales charge) per share ($383,006,297 / 21,496,252 shares outstanding of beneficial interest, $.01 par value, unlimited number of shares authorized) $17.82 ------------------------------------------------------------------------------ CLASS C SHARES Net asset value, offering and redemption price (subject to contingent deferred sales charge) per share ($69,418,665 / 3,860,797 shares outstanding of beneficial interest, $.01 par value, unlimited number of shares authorized) $17.98 ------------------------------------------------------------------------------ CLASS I SHARES Net asset value, offering and redemption price ($8,518,100 / 456,828 shares outstanding of beneficial interest, $.01 par value, unlimited number of shares authorized) $18.65 ------------------------------------------------------------------------------
16 The accompanying notes are an integral part of the financial statements. 17 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS Six months ended April 30, 2001 (Unaudited) INVESTMENT INCOME ----------------------------------------------------------------------------- Dividends (net of foreign taxes withheld of $10,763) $ 4,721,592 ----------------------------------------------------------------------------- Interest 1,200,111 ----------------------------------------------------------------------------- Total income 5,921,703 ----------------------------------------------------------------------------- Expenses: Management fee 2,889,863 ----------------------------------------------------------------------------- Services to shareholders 2,054,303 ----------------------------------------------------------------------------- Custodian fees 15,375 ----------------------------------------------------------------------------- Distribution services fees 1,741,567 ----------------------------------------------------------------------------- Administrative services fees 1,288,474 ----------------------------------------------------------------------------- Auditing 28,045 ----------------------------------------------------------------------------- Legal 9,007 ----------------------------------------------------------------------------- Trustees' fees and expenses 25,159 ----------------------------------------------------------------------------- Reports to shareholders 140,315 ----------------------------------------------------------------------------- Registration fees 25,131 ----------------------------------------------------------------------------- Reorganization 341,920 ----------------------------------------------------------------------------- Other 15,573 ----------------------------------------------------------------------------- Total expenses before expense reductions 8,574,732 ----------------------------------------------------------------------------- Expense reductions (142,416) ----------------------------------------------------------------------------- Total expenses, after expense reductions 8,432,316 ----------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) (2,510,613) ----------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS ----------------------------------------------------------------------------- Net realized gain (loss) from investments (34,754,054) ----------------------------------------------------------------------------- Net unrealized appreciation (depreciation) during the period on investments (122,962,260) ----------------------------------------------------------------------------- Net gain (loss) on investment transactions (157,716,314) ----------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(160,226,927) -----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 17 18 FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR APRIL 30, ENDED 2001 OCTOBER 31, (UNAUDITED) 2000 INCREASE (DECREASE) IN NET ASSETS ------------------------------------------------------------------------------------------------------- Operations: Net investment income (loss) $ (2,510,613) (5,449,849) ------------------------------------------------------------------------------------------------------- Net realized gain (loss) (34,754,054) 30,909,775 ------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) on investment transactions during the period (122,962,260) 53,432,133 ------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (160,226,927) 78,892,059 ------------------------------------------------------------------------------------------------------- Distributions to shareholders: From net realized gains Class A (17,874,809) (20,180,311) ------------------------------------------------------------------------------------------------------- Class B (12,842,035) (12,653,899) ------------------------------------------------------------------------------------------------------- Class C (2,170,392) (1,821,374) ------------------------------------------------------------------------------------------------------- Class I (272,420) (354,023) ------------------------------------------------------------------------------------------------------- Fund share transactions: Proceeds from shares sold 211,243,146 780,761,798 ------------------------------------------------------------------------------------------------------- Reinvestment of distributions 31,083,239 33,068,135 ------------------------------------------------------------------------------------------------------- Cost of shares redeemed (228,751,210) (582,820,955) ------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from Fund share transactions 13,575,175 231,008,978 ------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets (179,811,408) 274,891,430 ------------------------------------------------------------------------------------------------------- Net assets at beginning of period 1,189,900,273 915,008,843 ------------------------------------------------------------------------------------------------------- Net assets at end of period (including accumulated net investment loss of $2,510,613 at April 30, 2001) $1,010,088,865 1,189,900,273 -------------------------------------------------------------------------------------------------------
18 The accompanying notes are an integral part of the financial statements. 19 FINANCIAL HIGHLIGHTS THE FOLLOWING TABLES INCLUDE SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
CLASS A ----------------------------------------------------------------- SIX MONTHS ENDED APRIL 30, YEARS ENDED OCTOBER 31, 2001 --------------------------------------------------- (UNAUDITED) 2000 1999 1998 1997 1996 PER SHARE OPERATING PERFORMANCE --------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $21.76 20.76 16.61 17.68 17.14 14.87 --------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (a) (.01) (.03) .02 .11 .18 .22 --------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (2.86) 1.78 4.55 1.17 3.70 3.45 --------------------------------------------------------------------------------------------------------------------- Total from investment operations (2.87) 1.75 4.57 1.28 3.88 3.67 --------------------------------------------------------------------------------------------------------------------- Less distributions from: Net investment income -- -- -- (.16) (.21) (.20) --------------------------------------------------------------------------------------------------------------------- Net realized gain on investment transactions (.60) (.75) (.42) (2.19) (3.13) (1.20) --------------------------------------------------------------------------------------------------------------------- Total distributions (.60) (.75) (.42) (2.35) (3.34) (1.40) --------------------------------------------------------------------------------------------------------------------- Net asset value, end of year $18.29 21.76 20.76 16.61 17.68 17.14 --------------------------------------------------------------------------------------------------------------------- TOTAL RETURN % (B) (13.25)** 8.51 27.96 7.80 26.78 26.72 RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA --------------------------------------------------------------------------------------------------------------------- Net assets, end of period ($ in thousands) 549,146 650,881 547,027 378,450 307,726 198,968 --------------------------------------------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 1.26* 1.17 1.19 1.29 1.19 1.26 --------------------------------------------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 1.25* 1.16 1.19 1.29 1.19 1.26 --------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.11)* (.14) .13 .62 1.07 1.40 --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 122* 89 75 157 183 166 ---------------------------------------------------------------------------------------------------------------------
CLASS B ----------------------------------------------------------------- SIX MONTHS ENDED APRIL 30, YEARS ENDED OCTOBER 31, 2001 --------------------------------------------------- (UNAUDITED) 2000 1999 1998 1997 1996 PER SHARE OPERATING PERFORMANCE --------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $21.30 20.50 16.55 17.61 17.09 14.82 --------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (a) (.09) (.20) (.14) (.03) .04 .10 --------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (2.79) 1.75 4.51 1.17 3.67 3.45 --------------------------------------------------------------------------------------------------------------------- Total from investment operations (2.88) 1.55 4.37 1.14 3.71 3.55 --------------------------------------------------------------------------------------------------------------------- Less distributions from: Net investment income -- -- -- (.01) (.06) (.08) --------------------------------------------------------------------------------------------------------------------- Net realized gain on investment transactions (.60) (.75) (.42) (2.19) (3.13) (1.20) --------------------------------------------------------------------------------------------------------------------- Total distributions (.60) (.75) (.42) (2.20) (3.19) (1.28) --------------------------------------------------------------------------------------------------------------------- Net asset value, end of year $17.82 21.30 20.50 16.55 17.61 17.09 --------------------------------------------------------------------------------------------------------------------- TOTAL RETURN % (B) (13.59)** 7.62 26.83 6.96 25.62 25.82 RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA --------------------------------------------------------------------------------------------------------------------- Net assets, end of period ($ in thousands) 383,006 453,924 314,154 174,475 123,449 54,085 --------------------------------------------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 2.08* 1.98 2.07 2.10 2.06 2.08 --------------------------------------------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 2.06* 1.97 2.07 2.10 2.06 2.08 --------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.92)* (.95) (.75) (.19) .20 .58 --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 122* 89 75 157 183 166 ---------------------------------------------------------------------------------------------------------------------
19 20 FINANCIAL HIGHLIGHTS
CLASS C ---------------------------------------------------------- SIX MONTHS ENDED APRIL 30, YEARS ENDED OCTOBER 31, 2001 --------------------------------------------- (UNAUDITED) 2000 1999 1998 1997 1996 PER SHARE OPERATING PERFORMANCE ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $21.47 20.64 16.65 17.69 17.15 14.88 ------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (a) (.07) (.20) (.13) (.01) .03 .10 ------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (2.82) 1.78 4.54 1.18 3.71 3.45 ------------------------------------------------------------------------------------------------------------------- Total from investment operations (2.89) 1.58 4.41 1.17 3.74 3.55 ------------------------------------------------------------------------------------------------------------------- Less distributions from: Net investment income -- -- -- (.02) (.07) (.08) ------------------------------------------------------------------------------------------------------------------- Net realized gain on investment transactions (.60) (.75) (.42) (2.19) (3.13) (1.20) ------------------------------------------------------------------------------------------------------------------- Total distributions (.60) (.75) (.42) (2.21) (3.20) (1.28) ------------------------------------------------------------------------------------------------------------------- Net asset value, end of year $17.98 21.47 20.64 16.65 17.69 17.15 ------------------------------------------------------------------------------------------------------------------- TOTAL RETURN % (B) (13.53)** 7.72 26.91 7.08 25.71 25.75 RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------- Net assets, end of period ($ in thousands) 69,419 75,076 44,158 22,745 10,609 3,105 ------------------------------------------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 1.95* 1.93 1.98 2.03 2.00 2.05 ------------------------------------------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 1.92* 1.93 1.97 2.03 2.00 2.05 ------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.78)* (.91) (.65) (.12) .26 .61 ------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 122* 89 75 157 183 166 -------------------------------------------------------------------------------------------------------------------
CLASS I -------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 22, APRIL 30, YEARS ENDED OCTOBER 31, 1995 TO 2001 ------------------------------ OCTOBER 31, (UNAUDITED) 2000 1999 1998 1997 1996 PER SHARE OPERATING PERFORMANCE ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $22.11 20.99 16.68 17.72 17.18 15.30 ----------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (a) .04 .08 .13 .21 .32 .36 ----------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (2.90) 1.79 4.60 1.19 3.58 2.96 ----------------------------------------------------------------------------------------------------------------------- Total from investment operations (2.86) 1.87 4.73 1.40 3.90 3.32 ----------------------------------------------------------------------------------------------------------------------- Less distributions from: Net investment income -- -- -- (.25) (.23) (.24) ----------------------------------------------------------------------------------------------------------------------- Net realized gain on investment transactions (.60) (.75) (.42) (2.19) (3.13) (1.20) ----------------------------------------------------------------------------------------------------------------------- Total distributions (.60) (.75) (.42) (2.44) (3.36) (1.44) ----------------------------------------------------------------------------------------------------------------------- Net asset value, end of year $18.65 22.11 20.99 16.68 17.72 17.18 ----------------------------------------------------------------------------------------------------------------------- TOTAL RETURN % (12.99)** 9.01 28.81 8.53 26.89 21.89** RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA ----------------------------------------------------------------------------------------------------------------------- Net assets, end of period ($ in thousands) 8,518 10,018 9,669 5,600 5,107 14 ----------------------------------------------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) .71* .69 .72 .68 .70 1.31* ----------------------------------------------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) .70* .68 .72 .68 .70 1.31* ----------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) .44* .34 .60 1.23 1.56 1.33* ----------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 122* 89 75 157 183 166* -----------------------------------------------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period. (b) Total return does not reflect the effect of sales charge. (c) The ratios of operating expenses excluding costs incurred with the reorganization before expense reductions for Class A, Class B, Class C and Class I were 1.23%, 2.04%, 1.92% and .69%, respectively, and after expense reductions for Class A, Class B, Class C and Class I were 1.23%, 2.03%, 1.92% and .69%, respectively. * Annualized ** Not annualized 20 21 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 1 SIGNIFICANT ACCOUNTING POLICIES Scudder Blue Chip Fund (the "Fund"), formerly Kemper Blue Chip Fund is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified management investment company organized as a Massachusetts business trust. 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. Class I shares are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes. 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 which require the use of management estimates. Actual results could differ from those 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. Money market instruments purchased with an original maturity of sixty days or less are valued at amortized cost. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board of Trustees. 21 22 NOTES TO FINANCIAL STATEMENTS FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions. Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gains and losses on investment securities. 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 semiannually. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually. The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from generally accepted accounting principles. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. OTHER. 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. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. 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. 22 23 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 2 TRANSACTIONS WITH AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management agreement with Zurich Scudder Investments, Inc. ("ZSI" or "the Advisor"), formerly Scudder Kemper Investments, Inc. and pays a monthly investment management fee of 1/12 of the annual rate of 0.58% of the first $250 million of average daily net assets declining to 0.42% of average daily net assets in excess of $12.5 billion. The Fund incurred a management fee of $2,889,863 for the six months ended April 30, 2001 which is equivalent to an annualized effective rate of .55%. UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The Fund has an underwriting and distribution services agreement with Scudder Distributors, Inc. (SDI), formerly Kemper Distributors, Inc. Underwriting commissions retained by SDI in connection with the distribution of Class A shares for the six months ended April 30, 2001 are $45,000. For services under the distribution services agreement, the Fund pays SDI a fee of 0.75% of average daily net assets of the Class B and Class C shares pursuant to separate Rule 12b-1 plans for the Class B and Class C shares. Pursuant to the agreement, SDI enters into related selling group agreements with various firms at various rates for sales of Class B and Class C shares. In addition, SDI receives any contingent deferred sales charges (CDSC) from redemptions of Class B and Class C shares. Distribution fees and CDSC received by SDI for the six months ended April 30, 2001 are $2,192,730 of which $248,520 is unpaid at April 30, 2001. ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an administrative services agreement with SDI. For providing information and administrative services to Class A, Class B and Class C shareholders, the Fund pays SDI a fee at an annual rate of up to 0.25% of average daily net assets of each class. SDI in turn has various agreements with financial services firms that provide these services and pays these firms based on assets of Fund accounts the firms service. Administrative services fees paid by the Fund to SDI for the six months ended April 30, 2001 are $1,288,474 of which $203,290 was unpaid at April 30, 2001, and of which $1,520 was paid to SDI affiliates. SHAREHOLDER SERVICE AGREEMENT. Pursuant to a services agreement with the Fund's transfer agent, Scudder Investments Service Company (SISC), formerly Kemper Service Company, is the shareholder service agent of the Fund. Under the agreement, SISC received shareholder services fees of $1,358,761 for the six months ended April 30, 2001 of which $422,771 is unpaid at April 30, 2001. OFFICERS AND TRUSTEES. Certain officers or trustees of the Fund are also officers or directors of the Advisor. For the six months ended April 30, 2001, the Fund made no payments to its officers and incurred trustees fees of $7,501 to independent trustees. In addition, a one-time fee of $17,658 was accrued for payment to these Trustees not affiliated with the Advisor who are not standing for re-election under the Reorganization discussed in Note 7. -------------------------------------------------------------------------------- 3 INVESTMENT TRANSACTIONS For the six months ended April 30, 2001, investment transactions (excluding short-term instruments) are as follows: Purchases $631,068,025 Proceeds from sales 626,266,877 23 24 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 4 CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in capital shares of the Fund:
SIX MONTHS ENDED YEAR ENDED APRIL 30, 2001 OCTOBER 31, 2000 ----------------------------- ------------------------------ SHARES AMOUNT SHARES AMOUNT SHARES SOLD -------------------------------------------------------------------------------------- Class A 7,308,563 $ 136,430,571 20,925,009 $ 453,359,979 -------------------------------------------------------------------------------------- Class B 2,779,062 51,340,132 12,084,997 256,660,809 -------------------------------------------------------------------------------------- Class C 954,134 17,793,293 2,571,117 54,940,426 -------------------------------------------------------------------------------------- Class I 39,303 767,134 245,812 5,443,016 -------------------------------------------------------------------------------------- SHARES ISSUED IN REINVESTMENT OF DIVIDENDS -------------------------------------------------------------------------------------- Class A 905,183 16,945,074 903,118 19,209,226 -------------------------------------------------------------------------------------- Class B 646,139 11,817,897 562,070 11,786,584 -------------------------------------------------------------------------------------- Class C 110,994 2,047,847 81,359 1,718,306 -------------------------------------------------------------------------------------- Class I 14,262 272,421 16,443 354,019 -------------------------------------------------------------------------------------- SHARES REDEEMED -------------------------------------------------------------------------------------- Class A (8,360,588) (155,997,915) (18,749,225) (407,630,597) -------------------------------------------------------------------------------------- Class B (2,972,143) (54,059,656) (6,176,446) (131,261,047) -------------------------------------------------------------------------------------- Class C (700,775) (12,852,283) (1,295,015) (27,656,672) -------------------------------------------------------------------------------------- Class I (49,768) (929,340) (269,884) (5,915,071) -------------------------------------------------------------------------------------- CONVERSION OF SHARES -------------------------------------------------------------------------------------- Class A 262,779 4,912,016 478,806 10,357,568 -------------------------------------------------------------------------------------- Class B (267,403) (4,912,016) (487,010) (10,357,568) -------------------------------------------------------------------------------------- NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS $ 13,575,175 $ 231,008,978 --------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 5 EXPENSE OFF-SET ARRANGEMENTS The Fund has entered into arrangements with its custodian and transfer agent whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the period, the Fund's custodian fees and transfer agent fees were reduced by $805 and $12,710, respectively, under these arrangements. -------------------------------------------------------------------------------- 6 LINE OF CREDIT The Fund and several affiliated funds (the "Participants") share in a $750 million revolving credit facility with J.P. Morgan Chase & Co., 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 among each of the Participants. Interest is calculated at the Federal Funds Rate plus .5%. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. 24 25 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 7 REORGANIZATION ZSI has initiated a program to reorganize and combine its two fund families, Scudder and Kemper, in response to changing industry conditions and investor needs. The program proposes to streamline the management and operations of most of the funds ZSI advises principally through the liquidation of several small funds, mergers of certain funds with similar investment objectives, the consolidation of certain 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 ZSI and certain of the affected funds. Those costs, including printing, shareholder meeting expenses and professional fees, are presented as reorganization expenses in the Statement of Operations of the Fund. ZSI has agreed to bear $128,901 of such costs. 25 26 NOTES 26 27 NOTES 27 28 TRUSTEES OFFICERS JOHN W. BALLANTINE MARK S. CASADY MAUREEN E. KANE Trustee President Secretary LEWIS A. BURNHAM PHILIP J. COLLORA CAROLINE PEARSON Trustee Vice President and Assistant Secretary Assistant Secretary LINDA C. COUGHLIN BRENDA LYONS Chairperson, Trustee JOHN R. HEBBLE Assistant Treasurer and Vice President Treasurer DONALD L. DUNAWAY TRACY MCCORMICK Trustee Vice President ROBERT B. HOFFMAN KATHRYN L. QUIRK Trustee Vice President DONALD R. JONES WILLIAM F. TRUSCOTT Trustee Vice President SHIRLEY D. PETERSON LINDA J. WONDRACK Trustee Vice President WILLIAM P. SOMMERS Trustee
............................................................................................. LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ 222 North LaSalle Street Chicago, IL 60601 ............................................................................................. SHAREHOLDER SCUDDER INVESTMENTS SERVICE COMPANY SERVICE AGENT P.O. Box 219557 Kansas City, MO 64121 ............................................................................................. CUSTODIAN AND STATE STREET BANK AND TRUST COMPANY TRANSFER AGENT 225 Franklin Street Boston, MA 02110 ............................................................................................. INDEPENDENT AUDITORS ERNST & YOUNG LLP 233 South Wacker Drive Chicago, IL 60606 ............................................................................................. PRINCIPAL UNDERWRITER SCUDDER DISTRIBUTORS, INC. 222 South Riverside Plaza Chicago, IL 60606 www.scudder.com
TRUSTEES&OFFICERS [SCUDDER INVESTMENTS LOGO] Printed on recycled paper in the U.S.A. This report is not to be distributed unless preceded or accompanied by a Scudder Equity Funds/Growth Style prospectus. SBCF - 3 (6/21/01) 12903