UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM N-CSR Investment Company Act file number 811-5357 SCUDDER BLUE CHIP FUND ---------------------- (Exact Name of Registrant as Specified in Charter) 222 South Riverside Plaza, Chicago, IL 60606 ---------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (212) 454-7190 -------------- Paul Schubert 345 Park Avenue New York, NY 10154 --------------------------------------- (Name and Address of Agent for Service) Date of fiscal year end: 10/31 Date of reporting period: 10/31/05ITEM 1. REPORT TO STOCKHOLDERS
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| Annual Report to Shareholders | |
| October 31, 2005 |
Contents |
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Click Here Performance Summary Click Here Information About Your Fund's Expenses Click Here Portfolio Management Review Click Here Portfolio Summary Click Here Investment Portfolio Click Here Financial Statements Click Here Financial Highlights Click Here Notes to Financial Statements Click Here Report of Independent Registered Public Accounting Firm Click Here Tax Information Click Here Investment Management Agreement Approval Click Here Trustees and Officers Click Here Account Management Resources |
This report must be preceded or accompanied by a prospectus. To obtain a prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest.
Investments in mutual funds involve risk. Some funds have more risk than others. This fund is subject to stock market risk. The fund may invest in various industries and certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Please read this fund's prospectus for specific details regarding its investments and risk profile.
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Bank Trust Company Americas and Scudder Trust Company.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.
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Classes A, B, C and Institutional
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. 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. Current performance may be lower or higher than the performance quoted. Please visit scudder.com for the Fund's most recent month-end performance.
The maximum sales charge for Class A shares is 5.75%. For Class B shares, the maximum contingent deferred sales charge (CDSC) is 4% within the first year after purchase, declining to 0% after six years. Class C shares have no adjustment for front-end sales charges but redemptions within one year of purchase may be subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and would have been lower if they had. Institutional Class shares are not subject to sales charges.
To discourage short-term trading, shareholders redeeming shares held less than 15 days will have a lower total return due to the effect of the 2% short-term redemption fee.
Returns during all periods shown for Classes B, C and Institutional Class and for the 5- and 10- year periods shown for Class A reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 10/31/05 | ||||
Scudder Blue Chip Fund |
1-Year | 3-Year | 5-Year | 10-Year |
Class A | 10.54% | 13.96% | -1.93% | 8.11% |
Class B | 9.59% | 13.01% | -2.75% | 7.21% |
Class C | 9.62% | 13.02% | -2.72% | 7.26% |
Russell 1000 Index+ | 10.47% | 13.89% | -1.38% | 9.50% |
S&P 500 Index++ | 8.72% | 12.85% | -1.74% | 9.34% |
Scudder Blue Chip Fund | 1-Year | 3-Year | 5-Year | Life of Class* |
Institutional Class | 11.04% | 14.48% | -1.50% | 8.35% |
Russell 1000 Index+ | 10.47% | 13.89% | -1.38% | 9.11% |
S&P 500 Index++ | 8.72% | 12.85% | -1.74% | 8.95% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
* Institutional Class shares commenced operations on November 22, 1995. Index returns begin November 30, 1995.
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Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
[] Scudder Blue Chip Fund — Class A [] Russell 1000 Index+ [] S&P 500 Index++ |
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Yearly periods ended October 31 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 5.75%. This results in a net initial investment of $9,425.
Comparative Results (Adjusted for Maximum Sales Charge) as of 10/31/05 | |||||
Scudder Blue Chip Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,419 | $13,951 | $8,549 | $20,557 |
Average annual total return | 4.19% | 11.74% | -3.09% | 7.47% | |
Class B | Growth of $10,000 | $10,659 | $14,233 | $8,615 | $20,070 |
Average annual total return | 6.59% | 12.49% | -2.94% | 7.21% | |
Class C | Growth of $10,000 | $10,962 | $14,438 | $8,714 | $20,163 |
Average annual total return | 9.62% | 13.02% | -2.72% | 7.26% | |
Russell 1000 Index+ | Growth of $10,000 | $11,047 | $14,773 | $9,331 | $24,793 |
Average annual total return | 10.47% | 13.89% | -1.38% | 9.50% | |
S&P 500 Index++ | Growth of $10,000 | $10,872 | $14,371 | $9,162 | $24,429 |
Average annual total return | 8.72% | 12.85% | -1.74% | 9.34% |
The growth of $10,000 is cumulative.
+ The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index.
++ The Standard & Poor's 500 (S&P 500) Index is an unmanaged 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. It is not possible to invest directly into an index.
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Comparative Results as of 10/31/05 | |||||
Scudder Blue Chip Fund | 1-Year | 3-Year | 5-Year | Life of Class* | |
Institutional Class | Growth of $1,000,000 | $1,110,400 | $1,500,100 | $927,300 | $2,219,800 |
Average annual total return | 11.04% | 14.48% | -1.50% | 8.35% | |
Russell 1000 Index+ | Growth of $1,000,000 | $1,104,700 | $1,477,300 | $933,100 | $2,373,400 |
Average annual total return | 10.47% | 13.89% | -1.38% | 9.11% | |
S&P 500 Index++ | Growth of $1,000,000 | $1,087,200 | $1,437,100 | $916,200 | $2,340,200 |
Average annual total return | 8.72% | 12.85% | -1.74% | 8.95% |
The growth of $1,000,000 is cumulative.
The minimum initial investment for the Institutional Class is $1,000,000.
* Institutional Class commenced operations on November 22, 1995. Index returns begin November 30, 1995.
+ The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index.
++ The Standard & Poor's 500 (S&P 500) Index is an unmanaged 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. It is not possible to invest directly into an index.
Net Asset Value and Distribution Information | ||||
| Class A | Class B | Class C | Institutional Class |
Net Asset Value: 10/31/05 | $ 19.07 | $ 17.94 | $ 18.12 | $ 19.73 |
10/31/04 | $ 17.30 | $ 16.37 | $ 16.53 | $ 17.90 |
Distribution Information: Twelve Months: Income Dividends as of 10/31/05 | $ .05 | $ — | $ — | $ .14 |
Class A Lipper Rankings — Multi-Cap Core Funds Category as of 10/31/05 | ||||
Period | Rank |
| Number of Funds Tracked | Percentile Ranking |
1-Year | 366 | of | 761 | 49 |
3-Year | 255 | of | 570 | 45 |
5-Year | 287 | of | 403 | 72 |
10-Year | 82 | of | 129 | 64 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return unadjusted for sales charges with distributions reinvested. If sales charges had been included, rankings might have been less favorable. Rankings are for Class A shares; other share classes may vary.
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Class S
Class S shares are no longer available to new investors except under certain circumstances. (Please refer to the Fund's Statement of Additional Information.)
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. 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. Current performance may be lower or higher than the performance quoted. Please visit myScudder.com for the Fund's most recent month-end performance.
To discourage short-term trading, shareholders redeeming shares held less than 15 days will have a lower total return due to the effect of the 2% short-term redemption fee.
Returns during the Life of Class period shown reflects a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemptions of fund shares. Returns may differ by share class.
Average Annual Total Returns as of 10/31/05 | |
Scudder Blue Chip Fund | Life of Class* |
Class S | 3.58% |
Russell 1000 Index+ | 4.87% |
S&P 500 Index++ | 3.58% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
* The Class commenced operations on February 1, 2005. Index returns begin January 31, 2005.
Net Asset Value and Distribution Information | |
| Class S |
Net Asset Value: 10/31/05 | $ 19.10 |
2/1/05 (commencement of operations) | $ 18.44 |
+ The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index.
++ The Standard & Poor's 500 (S&P 500) Index is an unmanaged 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. It is not possible to invest directly into an index.
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As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher for Class B, C, S and Institutional shares. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended October 31, 2005.
The tables illustrates your Fund's expenses in two ways:
Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A | Class B | Class C | Class S | Institutional Class |
Scudder Blue Chip Fund | 1.21% | 2.00% | 2.00% | 1.02% | .73% |
For more information, please refer to the Fund's prospectuses.
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Scudder Blue Chip Fund: A Team Approach to Investing
Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for Scudder Blue Chip Fund. DeIM and its predecessors have more than 80 years of experience managing mutual funds and DeIM provides a full range of investment advisory services to institutional and retail clients. DeIM is also responsible for selecting brokers and dealers and for negotiating brokerage commissions and dealer charges.
Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
DeIM is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.
Portfolio Management Team
Janet Campagna
Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.
Joined Deutsche Asset Management in 1999 and the fund in 2003.
Head of global and tactical asset allocation.
Investment strategist and manager of the asset allocation strategies group for Barclays Global Investors from 1994 to 1999.
Over 17 years of investment industry experience.
BS, Northeastern University; MS, California Institute of Technology; Ph.D in Political Science from University of California at Irvine.
Robert Wang
Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.
Global Asset Allocation senior portfolio manager: New York.
Joined Deutsche Asset Management in 1995 as a senior fixed income portfolio manager after 13 years of experience at J.P. Morgan & Co. trading fixed income, derivatives and foreign exchange products.
Joined the fund in 2003.
BS, The Wharton School, University of Pennsylvania.
In the following interview, Lead Portfolio Managers Janet Campagna and Robert Wang discuss Scudder Blue Chip Fund's performance, management strategy and the market environment during the 12-month period ended October 31, 2005.
Q: How would you describe the market environment over the last year?
A: Equity returns were positive, but there were many ups and downs in the economy and markets over the last 12 months. A year ago, there was considerable doubt about the sustainability of the US economy's expansion. Now, four years into the recovery that followed a brief recession in 2001, the economic expansion still appears to be in place. Recent economic news has been reasonably positive, especially regarding productivity, the proportion of manufacturing capacity that is being used, and end demand.
Energy was much in the news over the last year. Oil prices continued to move upward through much of 2004 and 2005. More recently, oil prices peaked as the damaging effects of Hurricanes Katrina and Rita on the US oil industry became evident. Oil prices began to have a powerful influence on financial markets at the end of the summer, as equities were sold off on fears that rapidly rising gasoline prices would produce more-generalized inflation and dampen spending by US consumers. The September and October decisions by the Federal Reserve Board (the Fed) to continue raising interest rates provided conclusive evidence that the Fed is more concerned about inflation than about an economic slowdown.
Over the last 12 months, stocks of smaller companies generally outperformed stocks of large companies: The Russell 2000 Index had a return of 12.08%, compared with the Standard & Poor's 500 Index (S&P 500), which had a return of 8.72%.1 Within the large-capitalization category, value performed better than growth: The Russell 1000 Value Index had a return of 11.86%, compared with an 8.81% return for the Russell 1000 Growth Index.2
1 The Russell 2000 Index is an unmanaged, capitalization-weighted measure of approximately 2,000 small US stocks.
The Standard & Poor's 500 (S&P 500) Index is an unmanaged 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.
2 The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Q: How did the fund perform during this period?
A: Scudder Blue Chip Fund (Class A shares) produced a total return of 10.54% for the 12 months ended October 31, 2005. (Returns are unadjusted for sales charges. If sales charges had been included, returns would have been lower. Past performance is no guarantee of future results. Please see pages 3 through 5 for complete performance information.) The fund outperformed its benchmarks, the S&P 500 Index, which returned 8.72% for the period, and the Russell 1000 Index, which had a return of 10.47%.3 For the 12 months, the fund finished just above the median of its peer group, the Lipper Multi-Cap Core Funds category, which posted an average return of 10.50%.4
3 The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index.
Index returns assume reinvestment of any and all distributions and, unlike fund returns, do not reflect fees or expenses. It is not possible to invest directly in an index.
4 Source: Lipper Inc. Lipper's Multi-Cap Core Funds category includes portfolios that invest in a variety of market capitalization ranges, without concentrating 75% of their equity assets in any one market capitalization range over an extended period. Multi-Cap Core Funds have wide latitude in the companies in which they invest. These portfolios will normally have an average price-to-earnings ratio, price-to-book ratio and 3-year earnings growth figure, compared with the US diversified multi-cap equity funds universe average. It is not possible to invest directly in the Lipper category.
Q: How is this fund managed?
A: Our investment process is focused on stock selection, using a combination of quantitative processes and fundamental analysis. We use a quantitative process to identify attractively valued stocks with above-average capital appreciation potential from the fund's potential investment universe of approximately 1,000 large-cap companies. We begin by sorting the universe of 1,000 stocks into 24 clearly defined industry groups. Next, we compare the stocks based on current and historical data, including valuation, a measure of how expensive a stock is; earnings growth and growth potential; and market sentiment, which enables us to pinpoint short-term price movements outside of fundamental analysis.
Using all of this information, our model ranks stocks by their expected level of outperformance. Our model also creates an "optimal" portfolio, suggesting which stocks should be included in the fund and which ones should be omitted, as well as proportions of individual stocks to be held. We carefully analyze our model's suggestions, double-checking data and seeking additional information about each potential holding. We generally maintain weights of our 24 industry groups within one percentage point of the benchmark. This step-by-step approach leads to a portfolio of approximately 130 stocks. By diversifying holdings among a large number of stocks, we reduce the risk associated with each individual stock.
This model makes it possible to analyze far more stocks than can most traditional active portfolio managers, who rely primarily on their own talent and experience as well as the analytic skills of research professionals to assess each stock. We believe that our approach provides an excellent way to reduce risk by helping us choose stocks that are attractively valued in an objective, consistent and repeatable manner.
Q: What decisions enabled the fund to outperform its benchmarks?
A: As described above, our investment strategy is focused almost entirely on stock selection. Since value stocks outperformed growth stocks over the last year, it is not surprising that value-oriented factors contributed meaningfully to stock selection. These factors include the forward earnings to price ratio, cash flow to stock price ratio and earnings quality.5 In the last few months of the period, as growth began to overtake value as a market driver, growth measures became more important.
5 Forward earnings to price is a measure of the analysts' forecasts of future earnings divided by price. High forward earnings to price indicates the expectation of higher future returns from the stock.
Cash flow divided by price measures the relative valuation of a stock. A high score means that for the same dollar price paid, the company is generating more cash flow. Stocks with higher levels of cash flow to price are more attractive.
Quality of earnings aims to determine the degree to which a company's reported earnings are generated from operations. Earnings quality is measured by subtracting the accruals component from net income. (Accruals are income or expenses included in financial statements for a given accounting period for items that actually occur in a future period.) This results in a measure of cash flow from operations. A high level of accruals in earnings has an adverse impact on future stock performance.
Q: Which holdings had the biggest impact on performance?
A: In the materials category, Phelps Dodge Corp. and Monsanto Co. added value. We selected Phelps Dodge because the stock appeared inexpensive relative to peers based on the ratio of cash flow to stock price and on management's capable stewardship of cash. Additionally, the company has strong sales and earnings trends, based on stable to growing global demand for copper. Monsanto looked attractive based on earnings quality and rising earnings resulting from a strong market for seeds. Also, Monsanto is diversifying away from a major herbicide that has come off patent. We continue to hold Phelps Dodge and Monsanto because both stocks still appear to offer good value.
In the energy group, Sunoco, Inc., which we selected based on market sentiment and the ratio of cash flow to stock price, was an important contributor to performance. We sold this stock in October after the price increased to the point that the stock began to look expensive relative to peers; this proved to be a good decision, as the stock dropped after we had eliminated it from the portfolio. Another contributor in the energy group was Burlington Resources, Inc., which has good-quality earnings, strong cash flow and a high return on invested capital. This stock, which is still in the portfolio, continues to benefit from strong natural gas production in Canada and growing crude oil production in the United States. Other energy holdings that contributed to performance include Valero Energy Corp., an oil refining and marketing company, and Devon Energy Corp., an oil and gas exploration and development company. (As of October 31, 2005, the position in Valero Energy was sold.)
A strong contributor in the retailing industry was Safeway, Inc., which has good-quality earnings, a strong cash position and an attractive valuation relative to its peers. Improved customer service and a new ad campaign are contributing to Safeway's recent success.
On the negative side, an underweight position in tobacco giant Altria Group, Inc. hurt performance. This stock seems to trade mainly based on developments in the litigation facing the company, rather than the fundamental measures we use for stock selection. In the technology sector, we were hurt by a position in Dell, Inc., which reported disappointing earnings, and by our being late to take a position in Motorola Inc., which had good earnings momentum, in part because of a gain on the sale of an investment. Both these stocks were sold before the end of the period. Another negative was a position in Comcast Corp., a provider of cable television and Internet services that weakened on investor concerns about a high level of capital spending and increasing competition from satellite companies. We continue to own the stock based on its strong cash flow and good earnings quality.
Q: Do you have other comments for shareholders?
A: We are pleased with the fund's performance, which we believe provides solid evidence of the validity of our security-selection process. Because the nine discrete factors we use for stock selection include measures of growth, value and market sentiment, and because the factors have a low correlation to each other, our model is useful in a wide variety of market conditions. A major advantage of our approach is that it reduces as much as possible the subjectivity that guides stock selection for many managers. Instead, we use an objective approach that is clearly defined and transparent. We believe that our system, based on a combination of quantitative techniques and classic fundamentals, should enable this fund to continue to perform well.
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 and should not be construed as a recommendation.
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Asset Allocation (Excludes Securities Lending Collateral) | 10/31/05 | 10/31/04 |
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Common Stocks | 99% | 98% |
Cash Equivalents | 1% | 2% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 10/31/05 | 10/31/04 |
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Financials | 19% | 20% |
Information Technology | 15% | 15% |
Health Care | 15% | 14% |
Consumer Discretionary | 13% | 12% |
Energy | 11% | 7% |
Industrials | 10% | 14% |
Consumer Staples | 8% | 7% |
Materials | 4% | 4% |
Utilities | 3% | 3% |
Telecommunication Services | 2% | 4% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
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Ten Largest Equity Holdings at October 31, 2005 (22.5% of Net Assets) | |
1. Johnson & Johnson Provider of health care products | 2.6% |
2. Procter & Gamble Co. manufacturer of diversified consumer products | 2.6% |
3. ExxonMobil Corp. Explorer and producer of oil and gas | 2.4% |
4. Microsoft Corp. Developer of computer software | 2.3% |
5. Chevron Corp. Operator of petroleum exploration, delivery and refining facilities | 2.3% |
6. Wells Fargo & Co. Provider of various financial services | 2.3% |
7. General Electric Co. Industrial conglomerate | 2.1% |
8. UnitedHealth Group, Inc. Operator of organized health systems | 2.1% |
9. Intel Corp. Designer, manufacturer and seller of computer components and related products | 2.0% |
10. Verizon Communications, Inc. Provider of wireline voice and data services | 1.8% |
Portfolio holdings are subject to change.
For more complete details about the Fund's investment portfolio, see page 18. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end will be posted to scudder.com on the 15th day of the following month. Please see the Account Management Resources section for contact information.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
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| Value ($) |
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Common Stocks 98.9% | ||
Consumer Discretionary 12.7% | ||
Auto Components 0.3% | ||
TRW Automotive Holdings Corp.* | 57,300 | 1,549,965 |
Hotels Restaurants & Leisure 2.2% | ||
CBRL Group, Inc. | 27,800 | 964,660 |
Darden Restaurants, Inc. | 211,200 | 6,847,104 |
Yum! Brands, Inc. | 120,000 | 6,104,400 |
13,916,164 | ||
Internet & Catalog Retail 0.2% | ||
eBay, Inc.* | 34,900 | 1,382,040 |
Media 4.1% | ||
Comcast Corp. "A"* | 332,500 | 9,253,475 |
John Wiley & Sons, Inc. "A" | 33,000 | 1,293,600 |
McGraw-Hill Companies, Inc. | 107,900 | 5,280,626 |
R.H. Donnelley Corp.* | 70,200 | 4,333,446 |
Viacom, Inc. "B" | 176,700 | 5,472,399 |
25,633,546 | ||
Multiline Retail 1.8% | ||
Federated Department Stores, Inc. | 95,200 | 5,842,424 |
Target Corp. | 90,800 | 5,056,652 |
10,899,076 | ||
Specialty Retail 3.6% | ||
American Eagle Outfitters, Inc. | 194,300 | 4,575,765 |
Barnes & Noble, Inc. | 41,300 | 1,493,408 |
Home Depot, Inc. | 274,000 | 11,244,960 |
Michaels Stores, Inc. | 155,500 | 5,143,940 |
22,458,073 | ||
Textiles, Apparel & Luxury Goods 0.5% | ||
NIKE, Inc. "B" | 37,500 | 3,151,875 |
Consumer Staples 8.4% | ||
Beverages 1.4% | ||
PepsiCo, Inc. | 148,800 | 8,791,104 |
Food & Staples Retailing 0.2% | ||
Kroger Co.* | 25,500 | 507,450 |
Safeway, Inc. | 30,600 | 711,756 |
1,219,206 | ||
Food Products 2.5% | ||
Archer-Daniels-Midland Co. | 408,200 | 9,947,834 |
Pilgrim's Pride Corp. (c) | 172,200 | 5,420,856 |
15,368,690 | ||
Household Products 3.1% | ||
Clorox Co. | 60,400 | 3,268,848 |
Procter & Gamble Co. | 283,600 | 15,878,764 |
19,147,612 | ||
Tobacco 1.2% | ||
Altria Group, Inc. | 30,800 | 2,311,540 |
Loews Corp - Carolina Group | 133,200 | 5,481,180 |
7,792,720 | ||
Energy 10.4% | ||
Oil, Gas & Consumable Fuels | ||
Apache Corp. | 119,200 | 7,608,536 |
Burlington Resources, Inc. | 117,300 | 8,471,406 |
Chevron Corp. | 253,700 | 14,478,659 |
Devon Energy Corp. | 26,400 | 1,594,032 |
ExxonMobil Corp. | 260,686 | 14,634,912 |
Marathon Oil Corp. | 101,300 | 6,094,208 |
Occidental Petroleum Corp. | 42,700 | 3,368,176 |
Overseas Shipholding Group, Inc. (c) | 124,600 | 5,930,960 |
Williams Companies, Inc. | 104,800 | 2,337,040 |
XTO Energy, Inc. | 1 | 43 |
64,517,972 | ||
Financials 18.8% | ||
Banks 6.1% | ||
BB&T Corp. | 42,100 | 1,782,514 |
Golden West Financial Corp. | 35,900 | 2,108,407 |
IndyMac Bancorp., Inc. | 101,000 | 3,770,330 |
M&T Bank Corp. | 12,800 | 1,377,024 |
Marshall & Ilsley Corp. | 30,600 | 1,314,576 |
PNC Financial Services Group, Inc. | 67,600 | 4,103,996 |
US Bancorp. | 214,800 | 6,353,784 |
Wachovia Corp. | 55,100 | 2,783,652 |
Wells Fargo & Co. | 237,700 | 14,309,540 |
37,903,823 | ||
Capital Markets 4.3% | ||
Bear Stearns Companies, Inc. | 49,200 | 5,205,360 |
Lehman Brothers Holdings, Inc. | 86,400 | 10,339,488 |
The Goldman Sachs Group, Inc. | 88,200 | 11,145,834 |
26,690,682 | ||
Consumer Finance 1.1% | ||
Capital One Financial Corp. | 89,500 | 6,833,325 |
Diversified Financial Services 0.9% | ||
Citigroup, Inc. | 75,266 | 3,445,678 |
Fannie Mae | 48,500 | 2,304,720 |
5,750,398 | ||
Insurance 4.8% | ||
American Financial Group, Inc. | 38,200 | 1,305,676 |
Genworth Financial, Inc. "A" | 223,200 | 7,073,208 |
Loews Corp. | 11,100 | 1,032,078 |
MetLife, Inc. | 164,000 | 8,103,240 |
Philadelphia Consolidated Holding Corp.* | 16,800 | 1,617,168 |
W.R. Berkley Corp. | 246,412 | 10,768,204 |
29,899,574 | ||
Real Estate 1.6% | ||
Apartment Investment & Management Co. "A" (REIT) | 26,300 | 1,009,920 |
Boston Properties, Inc. (REIT) | 22,300 | 1,543,606 |
Equity Office Properties Trust (REIT) | 61,800 | 1,903,440 |
Equity Residential (REIT) | 52,400 | 2,056,700 |
Hospitality Properties Trust (REIT) | 20,100 | 797,970 |
Liberty Property Trust (REIT) | 13,200 | 550,308 |
Simon Property Group, Inc. (REIT) | 26,300 | 1,883,606 |
Vornado Realty Trust (REIT) | 5,000 | 405,000 |
10,150,550 | ||
Health Care 14.7% | ||
Biotechnology 2.0% | ||
Genentech, Inc.* | 58,700 | 5,318,220 |
Gilead Sciences, Inc.* | 155,900 | 7,366,275 |
12,684,495 | ||
Health Care Equipment & Supplies 1.1% | ||
Baxter International, Inc. | 180,800 | 6,911,984 |
Health Care Providers & Services 6.6% | ||
AmerisourceBergen Corp. | 97,500 | 7,436,325 |
Cerner Corp.* (c) | 39,600 | 3,344,220 |
Community Health Systems, Inc.* | 120,800 | 4,482,888 |
Express Scripts, Inc.* | 12,800 | 965,248 |
LifePoint Hospitals, Inc.* | 80,700 | 3,155,370 |
McKesson Corp. | 152,000 | 6,905,360 |
Pharmaceutical Product Development, Inc.* | 32,800 | 1,885,016 |
UnitedHealth Group, Inc. | 223,900 | 12,961,571 |
41,135,998 | ||
Pharmaceuticals 5.0% | ||
Allergan, Inc. | 69,200 | 6,179,560 |
Barr Pharmaceuticals, Inc.* | 77,200 | 4,435,140 |
Johnson & Johnson | 257,350 | 16,115,257 |
Merck & Co., Inc. | 89,000 | 2,511,580 |
Pfizer, Inc. | 80,900 | 1,758,766 |
31,000,303 | ||
Industrials 9.8% | ||
Aerospace & Defense 5.2% | ||
Boeing Co. | 155,400 | 10,045,056 |
Lockheed Martin Corp. | 162,300 | 9,828,888 |
Raytheon Co. (c) | 220,400 | 8,143,780 |
Rockwell Collins, Inc. | 102,000 | 4,673,640 |
32,691,364 | ||
Air Freight & Logistics 1.2% | ||
Ryder System, Inc. | 186,100 | 7,382,587 |
Commercial Services & Supplies 0.8% | ||
Cendant Corp. | 63,900 | 1,113,138 |
Corporate Executive Board Co. | 17,300 | 1,429,672 |
Republic Services, Inc. | 27,200 | 961,520 |
The Brink's Co. | 32,400 | 1,272,348 |
4,776,678 | ||
Industrial Conglomerates 2.1% | ||
General Electric Co. | 386,600 | 13,109,606 |
Machinery 0.5% | ||
Cummins, Inc. | 33,800 | 2,885,506 |
Information Technology 15.3% | ||
Communications Equipment 0.9% | ||
Cisco Systems, Inc.* | 11,400 | 198,930 |
Corning, Inc.* | 271,200 | 5,448,408 |
5,647,338 | ||
Computers & Peripherals 1.3% | ||
Apple Computer, Inc.* | 144,700 | 8,333,273 |
Electronic Equipment & Instruments 0.1% | ||
Jabil Circuit, Inc.* | 26,900 | 802,965 |
Internet Software & Services 1.0% | ||
Google, Inc. "A"* | 8,100 | 3,014,334 |
Yahoo!, Inc.* | 88,800 | 3,282,936 |
6,297,270 | ||
IT Consulting & Services 1.6% | ||
Affiliated Computer Services, Inc. "A"* | 124,500 | 6,736,695 |
Computer Sciences Corp.* | 58,600 | 3,003,250 |
9,739,945 | ||
Semiconductors & Semiconductor Equipment 7.2% | ||
Advanced Micro Devices, Inc.* | 175,900 | 4,084,398 |
Broadcom Corp. "A"* | 104,000 | 4,415,840 |
Freescale Semiconductor, Inc. "B"* | 154,700 | 3,694,236 |
Intel Corp. | 532,200 | 12,506,700 |
Lam Research Corp.* | 124,700 | 4,207,378 |
Micron Technology, Inc.* | 346,700 | 4,503,633 |
National Semiconductor Corp. | 195,100 | 4,415,113 |
Texas Instruments, Inc. | 238,200 | 6,800,610 |
44,627,908 | ||
Software 3.2% | ||
BMC Software, Inc.* | 77,600 | 1,520,184 |
Compuware Corp.* | 250,400 | 2,025,736 |
Microsoft Corp. | 565,000 | 14,520,500 |
Symantec Corp.* | 86,400 | 2,060,640 |
20,127,060 | ||
Materials 3.7% | ||
Chemicals 0.1% | ||
Monsanto Co. | 10,400 | 655,304 |
Construction Materials 0.9% | ||
Florida Rock Industries, Inc. | 76,500 | 4,352,850 |
Martin Marietta Materials, Inc. | 18,200 | 1,436,162 |
5,789,012 | ||
Metals & Mining 2.2% | ||
Freeport-McMoRan Copper & Gold, Inc. "B"* | 51,600 | 2,550,072 |
Phelps Dodge Corp.* | 49,300 | 5,939,171 |
Southern Copper Corp. (c) | 94,200 | 5,194,188 |
13,683,431 | ||
Paper & Forest Products 0.5% | ||
Georgia-Pacific Corp. | 87,500 | 2,846,375 |
Telecommunication Services 1.9% | ||
Diversified Telecommunication Services 1.8% | ||
Verizon Communications, Inc. | 359,000 | 11,312,090 |
Wireless Telecommunication Services 0.1% | ||
ALLTEL Corp. | 1,500 | 92,790 |
United States Cellular Corp.* | 6,800 | 346,800 |
439,590 | ||
Utilities 3.2% | ||
Electric Utilities 1.1% | ||
Allegheny Energy, Inc.* | 148,200 | 4,188,132 |
Edison International | 64,200 | 2,809,392 |
6,997,524 | ||
Independent Power Producers & Energy Traders 2.1% | ||
Duke Energy Corp. | 195,600 | 5,179,488 |
TXU Corp. | 75,800 | 7,636,850 |
12,816,338 | ||
Total Common Stocks (Cost $569,057,096) | 615,750,339 |
| Principal Amount ($) | Value ($) |
|
| |
US Treasury Obligations 0.2% | ||
US Treasury Bill, 3.75%**, 1/19/2006 (a) (Cost $1,375,586) | 1,387,000 | 1,375,586 |
|
| Value ($) |
|
| |
Securities Lending Collateral 1.9% | ||
Scudder Daily Asset Institutional, 3.89% (d) (e) (Cost $11,746,985) | 11,746,985 | 11,746,985 |
| ||
Cash Equivalents 1.1% | ||
Scudder Cash Management QP Trust, 3.83% (b) (Cost $6,851,531) | 6,851,531 | 6,851,531 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $589,031,198)+ | 102.1 | 635,724,441 |
Other Assets and Liabilities, Net | (2.1) | (12,899,401) |
Net Assets | 100.0 | 622,825,040 |
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
+ The cost for federal income tax purposes was $591,049,681. At October 31, 2005, net unrealized appreciation for all securities based on tax cost was $44,674,760. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $54,865,869 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $10,191,109.
(a) At October 31, 2005, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.
(b) Scudder Cash Management QP Trust is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) All or a portion of theses securities were on loan (See Notes to Financial Statements). The value of all securities loaned at October 31, 2005 amounted to $11,494,115 which is 1.8% of net assets.
(d) Scudder Daily Assets Fund Institutional, an affiliated fund, is managed by Deutsche Asset Management, Inc. The rate shown is the annualized seven-day yield at period end.
(e) Represents collateral held in connection with securities lending.
REIT: Real Estate Investment Trust
At October 31, 2005, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation ($) |
S&P 500 Index | 12/15/2005 | 27 | 8,150,628 | 8,166,150 | 15,522 |
The accompanying notes are an integral part of the financial statements.
|
Statement of Assets and Liabilities as of October 31, 2005 | |
Assets | |
Investments Investments in securities, at value (cost $570,432,682) — including $11,494,115 of securities loaned | $ 617,125,925 |
Investment in Scudder Daily Asset Fund Institutional (cost $11,746,985)* | 11,746,985 |
Investment in Scudder Cash Management QP Trust (cost $6,851,531) | 6,851,531 |
Total investments in securities, at value (cost $589,031,198) | 635,724,441 |
Cash | 10,000 |
Dividends receivable | 286,069 |
Interest receivable | 28,273 |
Receivable for Fund shares sold | 329,421 |
Receivable for daily variation margin on open futures contracts | 68,175 |
Other assets | 26,747 |
Total assets | 636,473,126 |
Liabilities | |
Payable upon return of securities loaned | 11,746,985 |
Payable for Fund shares redeemed | 825,419 |
Accrued management fee | 278,161 |
Other accrued expenses and payables | 797,521 |
Total liabilities | 13,648,086 |
Net assets, at value | $ 622,825,040 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 981,118 |
Net unrealized appreciation (depreciation) on: Investments | 46,693,243 |
Futures | 15,522 |
Accumulated net realized gain (loss) | (20,187,555) |
Paid-in capital | 595,322,712 |
Net assets, at value | $ 622,825,040 |
* Represents collateral on securities loaned.
The accompanying notes are an integral part of the financial statements.
|
|
Statement of Assets and Liabilities as of October 31, 2005 (continued) | |
Net Asset Value | |
Class A Net Asset Value and redemption price(a) per share ($404,896,401 ÷ 21,235,403 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 19.07 |
Maximum offering price per share (100 ÷ 94.25 of $19.07) | $ 20.23 |
Class B Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($100,429,894 ÷ 5,597,969 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 17.94 |
Class C Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($43,339,838 ÷ 2,391,272 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 18.12 |
Class S Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($965,350 ÷ 50,531 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 19.10 |
Institutional Class Net Asset Value, offering and redemption price(a) per share ($73,193,557 ÷ 3,709,758 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 19.73 |
(a) Redemption price per share for shares held less than 15 days is equal to net asset value less a 2% redemption fee.
The accompanying notes are an integral part of the financial statements.
|
|
Statement of Operations for the year ended October 31, 2005 | |
Investment Income | |
Income: Dividends | $ 10,286,978 |
Interest — Scudder Cash Management QP Trust | 398,843 |
Interest | 38,715 |
Securities lending income, including income from Scudder Daily Assets Fund Institutional, net of borrower rebates | 157,871 |
Total Income | 10,882,407 |
Expenses: Management fee | 3,638,232 |
Services to shareholders | 2,283,539 |
Custodian | 28,643 |
Distribution service fees | 2,651,904 |
Auditing | 48,252 |
Legal | 38,377 |
Trustees' fees and expenses | 41,585 |
Reports to shareholders | 130,239 |
Registration fees | 69,590 |
Other | 58,632 |
Total expenses, before expense reductions | 8,988,993 |
Expense reductions | (223,301) |
Total expenses, after expense reductions | 8,765,692 |
Net investment income (loss) | 2,116,715 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 78,379,055 |
Futures | 1,203,657 |
| 79,582,712 |
Net unrealized appreciation (depreciation) during the period on: Investments | (18,193,581) |
Futures | (154,248) |
| (18,347,829) |
Net gain (loss) on investment transactions | 61,234,883 |
Net increase (decrease) in net assets resulting from operations | $ 63,351,598 |
The accompanying notes are an integral part of the financial statements.
|
|
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended October 31, | |
2005 | 2004 | |
Operations: Net investment income (loss) | $ 2,116,715 | $ 678,934 |
Net realized gain (loss) on investment transactions | 79,582,712 | 82,539,882 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (18,347,829) | (10,632,187) |
Net increase (decrease) in net assets resulting from operations | 63,351,598 | 72,586,629 |
Distributions to shareholders from: Net investment income: Class A | (1,145,671) | — |
Institutional Class | (454,947) | — |
Fund share transactions: Proceeds from shares sold | 136,565,511 | 213,144,074 |
Reinvestment of distributions | 1,529,398 | — |
Cost of shares redeemed | (192,287,172) | (244,315,635) |
Redemption fees | 7,541 | — |
Net increase (decrease) in net assets from Fund share transactions | (54,184,722) | (31,171,561) |
Increase (decrease) in net assets | 7,566,258 | 41,415,068 |
Net assets at beginning of period | 615,258,782 | 573,843,714 |
Net assets at end of period (including undistributed net investment income of $981,118 and $650,538, respectively) | $ 622,825,040 | $ 615,258,782 |
The accompanying notes are an integral part of the financial statements.
|
Class A | |||||
Years Ended October 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 17.30 | $ 15.24 | $ 12.92 | $ 15.03 | $ 21.76 |
Income (loss) from investment operations: Net investment income (loss)a | .09 | .06 | .04 | .03 | (.03) |
Net realized and unrealized gain (loss) on investment transactions | 1.73 | 2.00 | 2.28 | (2.14) | (6.10) |
Total from investment operations | 1.82 | 2.06 | 2.32 | (2.11) | (6.13) |
Less distributions from: Net investment income | (.05) | — | — | — | — |
Net realized gains on investment transactions | — | — | — | — | (.60) |
Total distributions | (.05) | — | — | — | (.60) |
Redemption fees | .00*** | — | — | — | — |
Net asset value, end of period | $ 19.07 | $ 17.30 | $ 15.24 | $ 12.92 | $ 15.03 |
Total Return (%)b | 10.54 | 13.52 | 17.96 | (14.04) | (28.71) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 405 | 382 | 349 | 308 | 430 |
Ratio of expenses before expense reductions (%) | 1.19 | 1.13 | 1.19 | 1.09 | 1.23c |
Ratio of expenses after expense reductions (%) | 1.19 | 1.13 | 1.19 | 1.09 | 1.22c |
Ratio of net investment income (loss) (%) | .49 | .42 | .34 | .21 | (.14) |
Portfolio turnover rate (%) | 329 | 222 | 185 | 143 | 124 |
a Based on average shares outstanding during the period. b Total return does not reflect the effect of any sales charges. c The ratios of operating expenses excluding costs incurred with a fund complex reorganization before and after expense reductions were 1.20% and 1.20%, respectively. *** Amount is less than $.005. |
| |||||
Class B | |||||
Years Ended October 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 16.37 | $ 14.55 | $ 12.43 | $ 14.58 | $ 21.30 |
Income (loss) from investment operations: Net investment income (loss)a | (.04) | (.06) | (.05) | (.09) | (.16) |
Net realized and unrealized gain (loss) on investment transactions | 1.61 | 1.88 | 2.17 | (2.06) | (5.96) |
Total from investment operations | 1.57 | 1.82 | 2.12 | (2.15) | (6.12) |
Less distributions from: Net realized gains on investment transactions | — | — | — | — | (.60) |
Redemption fees | .00*** | — | — | — | — |
Net asset value, end of period | $ 17.94 | $ 16.37 | $ 14.55 | $ 12.43 | $ 14.58 |
Total Return (%)b | 9.59c | 12.51c | 17.06 | (14.75) | (29.30) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 100 | 138 | 178 | 197 | 293 |
Ratio of expenses before expense reductions (%) | 2.16 | 2.09 | 2.00 | 1.93 | 2.04d |
Ratio of expenses after expense reductions (%) | 2.01 | 2.01 | 2.00 | 1.93 | 2.02d |
Ratio of net investment income (loss) (%) | (.33) | (.46) | (.47) | (.63) | (.93) |
Portfolio turnover rate (%) | 329 | 222 | 185 | 143 | 124 |
a Based on average shares outstanding during the period. b Total return does not reflect the effect of any sales charges. c Total return would have been lower had certain expenses not been reduced. d The ratios of operating expenses excluding costs incurred with a fund complex reorganization before and after expense reductions were 1.99% and 1.99%, respectively. *** Amount is less than $.005. |
| |||||
Class C | |||||
Years Ended October 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 16.53 | $ 14.69 | $ 12.55 | $ 14.72 | $ 21.47 |
Income (loss) from investment operations: Net investment income (loss)a | (.04) | (.07) | (.06) | (.09) | (.15) |
Net realized and unrealized gain (loss) on investment transactions | 1.63 | 1.91 | 2.20 | (2.08) | (6.00) |
Total from investment operations | 1.59 | 1.84 | 2.14 | (2.17) | (6.15) |
Less distributions from: Net realized gains on investment transactions | — | — | — | — | (.60) |
Redemption fees | .00*** | — | — | — | — |
Net asset value, end of period | $ 18.12 | $ 16.53 | $ 14.69 | $ 12.55 | $ 14.72 |
Total Return (%)b | 9.62c | 12.53c | 17.05 | (14.74) | (29.21) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 43 | 46 | 47 | 44 | 59 |
Ratio of expenses before expense reductions (%) | 2.02 | 2.06 | 1.99 | 1.90 | 1.95d |
Ratio of expenses after expense reductions (%) | 2.00 | 2.00 | 1.99 | 1.90 | 1.92d |
Ratio of net investment income (loss) (%) | (.32) | (.45) | (.46) | (.60) | (.84) |
Portfolio turnover rate (%) | 329 | 222 | 185 | 143 | 124 |
a Based on average shares outstanding during the period. b Total return does not reflect the effect of any sales charges. c Total return would have been lower had certain expenses not been reduced. d The ratios of operating expenses excluding costs incurred with a fund complex reorganization before and after expense reductions were 1.92% and 1.92%, respectively. *** Amount is less than $.005. |
| |
Class S | |
| 2005a |
Selected Per Share Data | |
Net asset value, beginning of period | $ 18.44 |
Income (loss) from investment operations: Net investment income (loss)b | .07 |
Net realized and unrealized gain (loss) on investment transactions | .59 |
Total from investment operations | .66 |
Redemption fees | .00*** |
Net asset value, end of period | $ 19.10 |
Total Return (%) | 3.58c** |
Ratios to Average Net Assets and Supplemental Data | |
Net assets, end of period ($ millions) | 1 |
Ratio of expenses before expense reductions (%) | 1.12* |
Ratio of expenses after expense reductions (%) | 1.00* |
Ratio of net investment income (loss) (%) | .49* |
Portfolio turnover rate (%) | 329 |
a For the period from February 1, 2005 (commencement of operations of Class S shares) to October 31, 2005. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. |
| |||||
Institutional Class | |||||
Years Ended October 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 17.90 | $ 15.70 | $ 13.25 | $ 15.36 | $ 22.11 |
Income (loss) from investment operations: Net investment income (loss)a | .17 | .12 | .11 | .09 | .07 |
Net realized and unrealized gain (loss) on investment transactions | 1.80 | 2.08 | 2.34 | (2.20) | (6.22) |
Total from investment operations | 1.97 | 2.20 | 2.45 | (2.11) | (6.15) |
Less distributions from: Net investment income | (.14) | — | — | — | — |
Net realized gains on investment transactions | — | — | — | — | (.60) |
Total distributions | (.14) | — | — | — | (.60) |
Redemption fees | .00*** | — | — | — | — |
Net asset value, end of period | $ 19.73 | $ 17.90 | $ 15.70 | $ 13.25 | $ 15.36 |
Total Return (%) | 11.04b | 14.01b | 18.49 | (13.74) | (28.34) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 73 | 50 | .2 | 3 | 6 |
Ratio of expenses before expense reductions (%) | .77 | .74 | .72 | .66 | .70c |
Ratio of expenses after expense reductions (%) | .73 | .74 | .72 | .66 | .70c |
Ratio of net investment income (loss) (%) | .95 | .81 | .81 | .64 | .39 |
Portfolio turnover rate (%) | 329 | 222 | 185 | 143 | 124 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c The ratios of operating expenses excluding costs incurred with a fund complex reorganization before and after expense reductions were .69% and .69%, respectively. *** Amount is less than $.005. |
|
A. Significant Accounting Policies
Scudder Blue Chip Fund (the ``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 which provide investors with different purchase options. 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. Institutional Class 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. On February 1, 2005, the Fund commenced offering Class S shares which are no longer available to new investors except under certain circumstances. (Please refer to the Fund's Statement of Additional Information.) Class S shares are not subject to initial or contingent deferred sales charges.
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 service fees, services to shareholders and certain other class specific expenses. Differences in class-level 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. 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 on each day the exchange is open for trading. Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investment companies and Scudder Cash Management QP Trust are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
Securities Lending. The Fund may lend securities to financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of liquid, unencumbered assets having a value at least equal to the value of the securities loaned. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. The Fund is subject to all investment risks associated with the value of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). The Fund may enter into futures contracts as a hedge against anticipated interest rate, currency or equity market changes, and for duration management, risk management and return enhancement purposes.
Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary an amount ("initial margin") equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value of the underlying security and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid secondary market will limit the Fund's ability to close out a futures contract prior to the settlement date and that a change in the value of a futures contract may not correlate exactly with the changes in the value of the securities or currencies hedged. When utilizing futures contracts to hedge, the Fund gives up the opportunity to profit from favorable price movements in the hedged positions during the term of the contract.
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.
During the year ended October 31, 2005, the Fund utilized approximately $78,943,000 of its capital loss carryforward. At October 31, 2005, the Fund had a net tax basis capital loss carryforward of approximately $18,154,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until October 31, 2010 ($15,296,000) and October 31, 2011 ($2,858,000), the respective expiration dates, whichever occurs first.
Distribution of Income and Gains. Net investment income of the Fund, if any, is declared and distributed to shareholders 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 gain distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to certain securities sold at a loss. 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.
At October 31, 2005, the Fund's components of distributable earnings (accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income* | $ 981,118 |
Capital loss carryforwards | $ (18,154,000) |
Net unrealized appreciation (depreciation) on investments | $ 44,674,760 |
* For tax purposes short-term capital gains distributions are considered ordinary income distributions.
In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
| Years Ended | |
| 2005 | 2004 |
Distributions from ordinary income* | $ 1,600,618 | $ — |
* For tax purposes short-term capital gains distributions are considered ordinary income distributions.
Redemption Fees. Effective February 1, 2005, the Fund imposes a redemption fee of 2% of the total redemption amount on the Fund shares redeemed or exchanged within 15 days of buying them, either by purchase or exchange. This fee is assessed and retained by the Fund for the benefit of the remaining shareholders. The redemption fee is accounted for as an addition to paid-in capital.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. 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.
B. Purchases and Sales of Securities
During the year ended October 31, 2005, purchases and sales of investment securities (excluding short-term instruments) aggregated $1,585,066,083 and $1,631,066,636, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor 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 Advisor provides certain administrative services in accordance with the Management Agreement. The Fund pays a monthly investment management fee of 1/12 of the annual rate of 0.58% of the first $250,000,000 of the Fund's average daily net assets, 0.55% of the next $750,000,000 of such net assets, 0.53% of the next $1,500,000,000 of such net assets, 0.51% of the next $2,500,000,000 of such net assets, 0.48% of the next $2,500,000,000 of such net assets, 0.46% of the next $2,500,000,000 of such net assets, 0.44% of the next $2,500,000,000 of such net assets and 0.42% of such net assets in excess of $12,500,000,000, computed and accrued daily and payable monthly. Accordingly, for the year ended October 31, 2005, the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.56% of the Fund's average daily net assets.
Effective October 1, 2003 through January 31, 2006 for Class A and S shares (Class S commencement of operations February 1, 2005) and through September 30, 2006 for Class B, C and Institutional Class shares, the Advisor has agreed to contractually waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Fund to the extent necessary to maintain the operating expenses at 0.990%, 1.010%, 1.000%, 0.990% and 0.725% for Class A, B, C, S and Institutional Class shares, respectively (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest, Rule 12b-1 distribution and/or service fees, trustees and trustee counsel fees and organizational and offering expenses).
Service Provider Fees. Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, is the transfer agent, shareholder service agent and dividend-paying agent for Class A, B, C and Institutional Class of the Fund. Scudder Service Corporation ("SSC"), a subsidiary of the Advisor, is the transfer agent, shareholder service agent and dividend-paying agent for Class S shares of the Fund. Pursuant to a sub-transfer agency agreement among SISC, SSC and DST Systems, Inc. ("DST"), SISC and SSC have delegated certain transfer agent and dividend-paying agent functions to DST. SISC and SSC compensate DST out of the shareholder servicing fee they receive from the Fund. For the year ended October 31, 2005, the amounts charged to the Fund by SISC and SSC were as follows:
Service to Shareholders | Total Aggregated | Waived | Unpaid at October 31, 2005 |
Class A | $ 1,006,162 | $ — | $ 177,984 |
Class B | 554,709 | 177,675 | 104,660 |
Class C | 155,032 | 11,244 | 36,021 |
Institutional Class | 52,398 | 25,486 | — |
Class S | 1,851 | 619 | — |
| $ 1,770,152 | $ 215,024 | $ 318,665 |
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, Scudder Distributors, Inc., ("SDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of Class B and 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 C shares. For the year ended October 31, 2005, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at October 31, 2005 |
Class B | $ 911,431 | $ 60,188 |
Class C | 346,924 | 27,202 |
| $ 1,258,355 | $ 87,390 |
In addition, SDI provides information and administrative services ("Service Fee") to Class A, B and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. SDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the year ended October 31, 2005, the Service Fee was as follows:
Service Fee | Total Aggregated | Unpaid at October 31, 2005 | Annual Effective Rate |
Class A | $ 989,462 | $ 83,850 | .24% |
Class B | 292,695 | 21,546 | .24% |
Class C | 111,392 | 8,700 | .24% |
| $ 1,393,549 | $ 114,096 |
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Underwriting Agreement and Contingent Deferred Sales Charge. SDI is the principal underwriter for the Fund. Underwriting commissions paid in connection with the distribution of Class A shares for the year ended October 31, 2005 aggregated $46,619.
In addition, SDI 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. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of shares redeemed. For the year ended October 31, 2005, the CDSC for Class B and C shares aggregated $437,622 and $1,274, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions of Class A shares. For the year ended October 31, 2005, SDI received $186.
Typesetting and Filing Service Fees. Under an agreement with DeIM, the Advisor is compensated for providing typesetting and regulatory filing services to the Fund. For the year ended October 31, 2005, the amount charged to the Fund by DeIM included in the reports to shareholder aggregated $11,520, of which $5,760 is unpaid at October 31, 2005.
Trustees' Fees and Expenses. The Fund pays each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
Scudder Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Scudder Cash Management QP Trust (the "QP Trust") and other affiliated funds managed by the Advisor. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay the Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Expense Reductions
For the year ended October 31, 2005, the Advisor agreed to reimburse the Fund $8,040, which represents a portion of the fee savings expected to be realized by the Advisor related to the outsourcing by the Advisor of certain administrative services to an unaffiliated service provider.
In addition, the Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. During the year ended October 31, 2005, the custodian fee was reduced by $237 for custodian credits earned.
E. Line of Credit
The Fund and several other affiliated funds (the ``Participants'') share in a $1.1 billion revolving credit facility administered by J.P. Morgan Chase 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, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.
F. Share Transactions
The following table summarizes share and dollar activity in the Fund:
| Year Ended | Year Ended | ||
| Shares | Dollars | Shares | Dollars |
Shares sold | ||||
Class A | 4,873,780 | $ 90,447,318 | 5,245,266 | $ 86,367,470 |
Class B | 494,202 | 8,630,706 | 1,749,585 | 27,306,248 |
Class C | 603,436 | 10,688,777 | 735,484 | 11,603,808 |
Institutional Class | 1,373,229 | 25,687,873 | 5,140,202 | 87,866,548 |
Class S* | 59,448 | 1,110,837 | — | — |
|
| $ 136,565,511 |
| $ 213,144,074 |
Shares issued to shareholders in reinvestment of distributions | ||||
Class A | 58,263 | $ 1,074,451 | — | $ — |
Class B | — | — | — | — |
Class C | — | — | — | — |
Institutional Class | 23,932 | 454,947 | — | — |
|
| $ 1,529,398 |
| $ — |
Shares redeemed | ||||
Class A | (5,750,315) | $ (106,993,175) | (6,062,517) | $ (100,027,713) |
Class B | (3,306,052) | (58,007,335) | (5,551,834) | (86,715,690) |
Class C | (985,688) | (17,537,615) | (1,182,658) | (18,713,691) |
Institutional Class | (492,612) | (9,580,007) | (2,346,517) | (38,858,541) |
Class S* | (8,917) | (169,040) | — | — |
|
| $ (192,287,172) |
| $ (244,315,635) |
Redemption fees | $ 7,541 |
| $ — | |
Net increase (decrease) | ||||
Class A | (818,272) | $ (15,466,328) | (817,251) | $ (13,660,243) |
Class B | (2,811,850) | (49,376,330) | (3,802,249) | (59,409,442) |
Class C | (382,252) | (6,846,727) | (447,174) | (7,109,883) |
Institutional Class | 904,549 | 16,562,812 | 2,793,685 | 49,008,007 |
Class S* | 50,531 | 941,851 | — | — |
| $ (54,184,722) |
| $ (31,171,561) |
* For the period from February 1, 2005 (commencement of operations of Class S shares) to October 31, 2005.
G. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including Scudder Investments. The funds' advisors have been cooperating in connection with these inquiries and are in discussions with these regulators concerning proposed settlements. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the Scudder funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain Scudder funds, the funds' investment advisors and their affiliates, and certain individuals, including in some cases fund Trustees/Directors, officers, and other parties. Each Scudder fund's investment advisor has agreed to indemnify the applicable Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding market timing, revenue sharing, fund valuation or other subjects arising from or related to the pending inquiries. It is not possible to determine with certainty what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors. Based on currently available information, however, the funds' investment advisors believe the likelihood that the pending lawsuits and any regulatory settlements will have a material adverse financial impact on a Scudder fund is remote and such actions are not likely to materially affect their ability to perform under their investment management agreements with the Scudder funds.
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To the Shareholders and Board of Trustees of Scudder Blue Chip Fund:
We have audited the accompanying statement of assets and liabilities of Scudder Blue Chip Fund (the "Fund"), including the investment portfolio, as of October 31, 2005, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Scudder Blue Chip Fund at October 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts | ![]() |
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For corporate shareholders, 100% of income dividends paid during the Fund's fiscal year ended October 31, 2005 qualified for the dividends received deduction.
For Federal Income Tax purposes, the Fund designates $9,700,000, or the maximum amount allowable under tax law, as qualified dividend income.
Please consult a tax advisor 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 1-800-621-1048.
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The Board of Trustees, including the Independent Trustees, approved the renewal of your Fund's investment management agreement (the "Agreement") with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor") in September 2005. As part of its review process, the Board requested and evaluated all information it deemed reasonably necessary to evaluate the Agreement. Over the course of several months, the Contract Review Committee, in coordination with the Equity Oversight Committee and the Operations Committee of the Board, reviewed comprehensive materials received from the Advisor, independent third parties and independent counsel. The Board also received extensive information throughout the year regarding performance and operating results of the Fund. After their review of the information received, the Committees presented their findings and recommendations to the Independent Trustees as a group. The Independent Trustees then reviewed the Committees' findings and recommendations and presented their recommendations to the full Board.
In connection with the contract review process, the various Committees and the Board considered the factors discussed below, among others. The Board also considered that the Advisor and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders invested in the Fund, or approved the investment management agreement for the Fund, knowing that the Advisor managed the Fund and knowing the investment management fee schedule. In connection with recent and ongoing efforts by Deutsche Bank to restructure its US mutual fund business, which resulted in turnover of senior management and other personnel of the Advisor, the Board considered Deutsche Bank's commitment that it will devote to the Advisor and its affiliates all attention and resources that are necessary to provide the Fund with top-quality investment management and shareholder, administrative and product distribution services.
Nature, Quality and Extent of Services. The Board considered the nature, extent and quality of services provided under the Agreement, including portfolio management services and administrative services. The Board considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of the Advisor to attract and retain high-quality personnel, and the organizational depth and stability of the Advisor. The Board reviewed the Fund's performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market indices and peer groups. The Board considered whether investment results were consistent with the Fund's investment objective and policies. The Board also noted that it has put a process into place of identifying "Focus Funds" (e.g., funds performing poorly relative to their peer group), and receives more frequent reporting and information from the Advisor regarding such funds, along with the Advisor's remedial plans to address underperformance. The Board believes this process is an effective manner of addressing poorly performing funds at this time.
On the basis of this evaluation and the ongoing review of investment results by the Equity Oversight Committee, the Board concluded that the nature, quality and extent of services provided by the Advisor historically have been and continue to be satisfactory, and that the Fund's performance over time was satisfactory.
Fees and Expenses. The Board considered the Fund's management fee rate, operating expenses and total expense ratios and compared management fees to a peer group and total expenses to a broader peer universe based on information and data supplied by Lipper Inc. ("Lipper"). For purposes of this comparison, the Board relied on historical data compiled by Lipper for the peer funds and the Advisor's estimate of current expenses for the Fund (including the effect of the Fund's then-current expense cap). The information provided to the Board showed that the Fund's management fee rate was below the median of the peer group and that the Fund's total expense ratio was below the median of the peer universe for Class A, B, C and Institutional shares. The Board also considered the Fund's management fee rate as compared to fees charged by the Advisor and certain of its affiliates for comparable mutual funds and for similarly managed institutional accounts. With respect to institutional accounts, the Board noted that (i) both the mix of services provided and the level of responsibility required under the Agreement were significantly greater as compared to the Advisor's obligations for similarly managed institutional accounts; and (ii) the management fees of institutional accounts are less relevant to the Board's consideration because they reflect significantly different competitive forces from those in the mutual fund marketplace. With respect to other comparable Scudder Funds, the Board considered differences in fund and fee structures among the various legacy organizations. The Board took into account the Advisor's commitment to cap total expenses through January 31, 2006 (through September 30, 2006 for Institutional Class shares).
Given that the Advisor's estimates of current expenses provided to the Board for Class B, Class C and Institutional Class shares were impacted by the current expense caps, the Board recommended that the expense caps be extended through September 30, 2006 for Class B, Class C and Institutional Class shares. On the basis of the information provided, the Board concluded that management fees, coupled with the Advisor's agreement to cap expenses, were reasonable and appropriate in light of the nature, quality and extent of services provided by the Advisor.
Profitability. The Board reviewed detailed information regarding revenues received by the Advisor under the Agreement. The Board considered the estimated costs and pre-tax profits realized by the Advisor from advising the Scudder Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of the Scudder organization with respect to all fund services in totality and by fund. The Board reviewed DeIM's methodology in allocating its costs to the management of the Fund. Although the Board noted the inherently subjective nature of any allocation methodology, the Board received an attestation report from an accounting firm affirming that the allocation methods were consistently applied and were based upon practices commonly used in the investment management industry. Based on the information provided, the Board concluded that the pre-tax profits realized by DeIM in connection with the management of the Fund were not unreasonable.
Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board considered whether the management fee rate under the Agreement is reasonable in relation to the asset size of the Fund. The Board noted that the management fee schedule included seven breakpoints, designed to share economies of scale with the shareholders. The Board concluded that the management fee schedule, together with the Advisor's agreement to extend the expense caps, reflects an appropriate level of sharing of any economies of scale.
Other Benefits to DeIM and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DeIM and its affiliates, including fees received by the Advisor for administrative services provided to the Fund and fees received by an affiliate of the Advisor for distribution services. The Board also considered benefits to DeIM related to brokerage and soft-dollar allocations, which pertain primarily to funds investing in equity securities. The Board considered that, during the past year, the Advisor agreed to cease allocating brokerage to acquire research services from third-party service providers. The Board concluded that management fees were reasonable in light of these fallout benefits.
Regulatory Matters. The Board also considered information regarding ongoing inquiries of the Advisor regarding market timing, late trading and other matters by federal and state regulators and private lawsuits on related topics. Among other matters, the Board considered the Advisor's commitment to indemnify the Scudder Funds against regulatory actions or lawsuits arising from such inquiries. The Board also considered management's representation that such actions will not materially impact the Advisor's ability to perform under the Agreement or materially impact the Fund.
Based on all of the information considered and the conclusions reached, the Board (including a majority of the Independent Trustees) determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of the Fund. No single factor was determinative in the Board's analysis.
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The following table presents certain information regarding the Trustees and Officers of the fund as of October 31, 2005. Each individual's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each individual has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each individual is c/o Deutsche Asset Management, 222 South Riverside Plaza, Chicago, Illinois 60606. Each Trustee's term of office extends until the next shareholders' meeting called for the purpose of electing Trustees and until the election and qualification of a successor, or until such Trustee sooner dies, retires, resigns or is removed as provided in the governing documents of the fund.
Independent Trustees | ||
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and | Number of Funds in Fund Complex Overseen |
Shirley D. Peterson (1941) Chairperson, 2004-present Trustee, 1995-present | Retired; formerly, President, Hood College (1995-2000); prior thereto, Partner, Steptoe & Johnson (law firm); Commissioner, Internal Revenue Service; Assistant Attorney General (Tax), US Department of Justice. Directorships: Federal Mogul Corp. (supplier of automotive components and subsystems); AK Steel (steel production); Goodyear Tire & Rubber Co. (April 2004-present) ; Champion Enterprises, Inc. (manufactured home building); Wolverine World Wide, Inc. (designer, manufacturer and marketer of footwear) (April 2005-present); Trustee, Bryn Mawr College. Former Directorship: Bethlehem Steel Corp. | 71 |
John W. Ballantine (1946) Trustee, 1999-present | Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: First Oak Brook Bancshares, Inc.; Oak Brook Bank; American Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company) | 71 |
Lewis A. Burnham (1933) Trustee, 1977-present | Retired; formerly, Director of Management Consulting, McNulty & Company (1990-1998); prior thereto, Executive Vice President, Anchor Glass Container Corporation | 66 |
Donald L. Dunaway (1937) Trustee, 1980-present | Retired; formerly, Executive Vice President, A.O. Smith Corporation (diversified manufacturer) (1963-1994) | 71 |
James R. Edgar (1946) Trustee, 1999-present | Distinguished Fellow, University of Illinois, Institute of Government and Public Affairs (1999-present); formerly, Governor, State of Illinois (1991-1999). Directorships: Kemper Insurance Companies; John B. Sanfilippo & Son, Inc. (processor/packager/marketer of nuts, snacks and candy products); Horizon Group Properties, Inc.; Youbet.com (online wagering platform); Alberto-Culver Company (manufactures, distributes and markets health and beauty care products) | 71 |
Paul K. Freeman (1950) Trustee, 2002-present | President, Cook Street Holdings (consulting); Senior Visiting Research Scholar, Graduate School of International Studies, University of Denver; Consultant, World Bank/Inter-American Development Bank; formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998) | 71 |
Robert B. Hoffman (1936) Trustee, 1981-present | Retired; formerly, Chairman, Harnischfeger Industries, Inc. (machinery for the mining and paper industries) (1999-2000); prior thereto, Vice Chairman and Chief Financial Officer, Monsanto Company (agricultural, pharmaceutical and nutritional/food products) (1994-1999). Directorships: RCP Advisors, LLC (a private equity investment advisory firm) | 71 |
William McClayton (1944) Trustee, 2004-present | Managing Director of Finance and Administration, DiamondCluster International, Inc. (global management consulting firm) (2001-present); formerly, Partner, Arthur Andersen LLP (1986-2001). Formerly: Trustee, Ravinia Festival; Board of Managers, YMCA of Metropolitan Chicago | 71 |
Robert H. Wadsworth (1940) Trustee, 2004-present | President, Robert H. Wadsworth Associates, Inc. (consulting firm) (1983-present). Director, The European Equity Fund, Inc. (since 1986), The New Germany Fund, Inc. (since 1992), The Central Europe and Russia Fund, Inc. (since 1990). Formerly, Trustee of New York Board Scudder Funds; President and Trustee, Trust for Investment Managers (registered investment company) (1999-2002). President, Investment Company Administration, L.L.C. (1992*-2001); President, Treasurer and Director, First Fund Distributors, Inc. (June 1990-January 2002); Vice President, Professionally Managed Portfolios (May 1991-January 2002) and Advisors Series Trust (October 1996-January 2002) (registered investment companies) * Inception date of the corporation which was the predecessor to the L.L.C. | 74 |
John G. Weithers (1933) Trustee, 1993-present | Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago Stock Exchange. Directorships: Federal Life Insurance Company; Chairman of the Members of the Corporation and Trustee, DePaul University; formerly, International Federation of Stock Exchanges; Records Management Systems | 66 |
Interested Trustee and Officers2 | ||
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and | Number of Funds in Fund Complex Overseen |
William N. Shiebler4 (1942) Trustee, 2004-present | Vice Chairman, Deutsche Asset Management ("DeAM") and a member of the DeAM Global Executive Committee (since 2002); Vice Chairman of Putnam Investments, Inc. (1999); Director and Senior Managing Director of Putnam Investments, Inc. and President, Chief Executive Officer, and Director of Putnam Mutual Funds Inc. (1990-1999) | 120 |
Vincent J. Esposito4 (1956) President, 2005-present | Managing Director3, Deutsche Asset Management (since 2003); President and Chief Executive Officer of The Central Europe and Russia Fund, Inc., The European Equity Fund, Inc., The New Germany Fund, Inc. (since 2003) (registered investment companies); Vice Chairman and Director of The Brazil Fund, Inc. (2004-present); formerly, Managing Director, Putnam Investments (1991-2002) | n/a |
Philip J. Collora (1945) Vice President and Assistant Secretary, 1986-present | Director3, Deutsche Asset Management | n/a |
Paul H. Schubert4 (1963) Chief Financial Officer, 2004-present Treasurer, 2005-present | Managing Director3, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS Global Asset Management (1994-1998) | n/a |
John Millette5 (1962) Secretary, 2001-present | Director3, Deutsche Asset Management | n/a |
Patricia DeFilippis4 (1963) Assistant Secretary, 2005-present | Vice President, Deutsche Asset Management (since June 2005); Counsel, New York Life Investment Management LLC (2003-2005); legal associate, Lord, Abbett & Co. LLC (1998-2003) | n/a |
Daniel O. Hirsch6 (1954) Assistant Secretary, 2002-present | Consultant. Formerly, Managing Director, Deutsche Asset Management (2002-2005); Director, Deutsche Asset Management (1999-2002), Principal, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Assistant General Counsel, United States Securities and Exchange Commission (1993-1998); Director, Deutsche Global Funds Ltd. (2002-2004) | n/a |
Elisa D. Metzger4,7 (1962) Assistant Secretary 2005-present | Director3, Deutsche Asset Management (since September 2005); Counsel, Morrison and Foerster LLP (1999-2005) | n/a |
Caroline Pearson5 (1962) Assistant Secretary, 1998-present | Managing Director3, Deutsche Asset Management | n/a |
Scott M. McHugh5 (1971) Assistant Treasurer, 2005-present | Director3, Deutsche Asset Management | n/a |
Kathleen Sullivan D'Eramo5 (1957) Assistant Treasurer, 2003-present | Director3, Deutsche Asset Management | n/a |
John Robbins4 (1966) Anti-Money Laundering Compliance Officer, 2005-present | Managing Director3, Deutsche Asset Management (since 2005); formerly, Chief Compliance Officer and Anti-Money Laundering Compliance Officer for GE Asset Management (1999-2005) | n/a |
Philip Gallo4 (1962) Chief Compliance Officer, 2004-present | Managing Director3, Deutsche Asset Management (2003-present); formerly, Co-Head of Goldman Sachs Asset Management Legal (1994-2003) | n/a |
1 Length of time served represents the date that each Trustee was first elected to the common board of Trustees which oversees a number of investment companies, including the fund, managed by the Advisor. For the Officers of the fund, the length of time served represents the date that each officer was first elected to serve as an officer of any fund overseen by the aforementioned common board of Trustees.
2 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.
3 Executive title, not a board directorship
4 Address: 345 Park Avenue, New York, New York 10154
5 Address: Two International Place, Boston, Massachusetts 02110
6 Address: One South Street, Baltimore, Maryland 21202
7 Elected on November 15, 2005
The fund's Statement of Additional Information ("SAI") includes additional information about the Trustees. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: 1-800-621-1048.
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For shareholders of Classes A, B, C and Institutional
Automated Information Lines | ScudderACCESS (800) 972-3060 Personalized account information, information on other Scudder funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a Scudder service representative. |
Written Correspondence | Scudder Investments PO Box 219356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — scudder.com (type "proxy voting" in the search field) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside Plaza (800) 621-1148 |
| Class A | Class B | Class C | Institutional Class |
Nasdaq Symbol | KBCAX | KBCBX | KBCCX | KBCIX |
CUSIP Number | 81111P-100 | 81111P-209 | 81111P-308 | 81111P-407 |
Fund Number | 031 | 231 | 331 | 1431 |
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For shareholders of Class S
| Scudder Class S Shareholders |
Automated Information Lines | SAILTM (800) 343-2890 |
| Personalized account information, the ability to exchange or redeem shares, and information on other Scudder funds and services via touchtone telephone. |
Web Sites | myScudder.com |
| View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) SCUDDER To speak with a Scudder service representative. |
Written Correspondence | Scudder Investments PO Box 219669 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web sites — aarp.scudder.com or myScudder.com (type "proxy voting" in the search field) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call your service representative. |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside Plaza (800) 621-1148 |
| Class S |
Nasdaq Symbol | KBCSX |
Fund Number | 331 |
Notes |
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Notes |
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Notes |
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Notes |
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ITEM 2. CODE OF ETHICS. As of the end of the period, October 31, 2005, Scudder Blue Chip Fund has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer. There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2. A copy of the code of ethics is filed as an exhibit to this Form N-CSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Fund's Board of Directors/Trustees has determined that the Fund has at least one "audit committee financial expert" serving on its audit committee: Mr. Donald L. Dunaway. This audit committee member is "independent," meaning that he is not an "interested person" of the Fund (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940) and he does not accept any consulting, advisory, or other compensatory fee from the Fund (except in the capacity as a Board or committee member). An "audit committee financial expert" is not an "expert" for any purpose, including for purposes of Section 11 of the Securities Act of 1933, as a result of being designated as an "audit committee financial expert." Further, the designation of a person as an "audit committee financial expert" does not mean that the person has any greater duties, obligations, or liability than those imposed on the person without the "audit committee financial expert" designation. Similarly, the designation of a person as an "audit committee financial expert" does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. SCUDDER BLUE CHIP FUND FORM N-CSR DISCLOSURE RE: AUDIT FEES The following table shows the amount of fees that Ernst & Young, LLP ("E&Y"), the Fund's auditor, billed to the Fund during the Fund's last two fiscal years. For engagements with E&Y entered into on or after May 6, 2003, the Audit Committee approved in advance all audit services and non-audit services that E&Y provided to the Fund. The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee). Services that the Fund's Auditor Billed to the Fund - -------------------------------------------------------------------------------- Fiscal Audit Audit- All Year Fees Related Tax Fees Other Fees Ended Billed Fees Billed Billed Billed October 31 to Fund to Fund to Fund to Fund - -------------------------------------------------------------------------------- 2005 $46,064 $0 $6,282 $0 - -------------------------------------------------------------------------------- 2004 $39,853 $0 $7,033 $0 - -------------------------------------------------------------------------------- The above "Tax Fees" were billed for professional services rendered for tax compliance and tax return preparation. Services that the Fund's Auditor Billed to the Adviser and Affiliated Fund Service Providers The following table shows the amount of fees billed by E&Y to Deutsche Investment Management Americas, Inc. ("DeIM" or the "Adviser"), and any entity controlling, controlled by or under common control with DeIM ("Control Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for engagements directly related to the Fund's operations and financial reporting, during the Fund's last two fiscal years. - -------------------------------------------------------------------------------- Tax Fees Audit-Related Billed to All Other Fees Billed Adviser and Fees Billed Fiscal to Adviser Affiliated to Adviser Year and Affiliated Fund and Affiliated Ended Fund Service Service Fund Service October 31 Providers Providers Providers - -------------------------------------------------------------------------------- 2005 $406,000 $70,570 $0 - -------------------------------------------------------------------------------- 2004 $281,500 $0 $0 - -------------------------------------------------------------------------------- The "Audit-Related Fees" were billed for services in connection with the assessment of internal controls, agreed upon procedures and additional related procedures and the above "Tax Fees" were billed in connection with consultation services and agreed upon procedures. 1Non-Audit Services The following table shows the amount of fees that E&Y billed during the Fund's last two fiscal years for non-audit services. For engagements entered into on or after May 6, 2003, the Audit Committee pre-approved all non-audit services that E&Y provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund's operations and financial reporting. The Audit Committee requested and received information from E&Y about any non-audit services that E&Y rendered during the Fund's last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating E&Y's independence. - -------------------------------------------------------------------------------- Total Non-Audit Fees billed to Adviser and Affiliated Fund Total Service Non-Audit Providers Fees billed (engagements to Adviser related and Total directly to the Affiliated Non-Audit operations Fund Service Fees and financial Providers Fiscal Billed to reporting (all other Total of Year Fund of the Fund) engagements) (A), (B) Ended October 31 (A) (B) (C) and (C) - -------------------------------------------------------------------------------- 2005 $6,282 $70,570 $33,307 $110,159 - -------------------------------------------------------------------------------- 2004 $7,033 $0 $386,601 $393,634 - -------------------------------------------------------------------------------- All other engagement fees were billed for services in connection with risk management and process improvement initiatives for DeIM and other related entities that provide support for the operations of the fund. *** E&Y recently advised the Fund's Audit Committee that various E&Y member firms provided certain non-audit services to Deutsche Bank entities and affiliates (collectively, the "DB entities") between 2004 and 2005 that raise issues under the SEC auditor independence rules. The DB entities are within the "Investment Company Complex" (as defined by SEC rules) and therefore covered by the SEC auditor independence rules applicable to the Fund. E&Y advised the Audit Committee that in connection with providing monthly payroll services to employees of certain DB entities from May 2003 to February 2005, a member firm in Chile ("E&Y Chile") received funds from the DB entities that went into an E&Y trust account and were used to pay the net salaries and social security taxes of executives of the DB entities. E&Y has advised the Audit Committee that handling those funds was in violation of Rule 2-01 of Regulation S-X. 2 E&Y also advised the Audit Committee that in connection with providing certain services in assisting a DB entity with various regulatory reporting requirements, a member firm in France ("E&Y France") entered into an engagement with the DB entity that resulted in E&Y France staff functioning under the direct responsibility and direction of a DB entity supervisor. E&Y advised the Audit Committee that, although the services provided were "permitted services" under Rule 2-01 of Regulation S-X, the structure of the engagement was in violation of Rule 2-01 of Regulation S-X. (Rule 2-01(c)(4)(vi) provides that an accountant's independence is impaired if the accountant acts as an employee of an audit client.) The Audit Committee was informed that E&Y Chile received approximately $11,724 and E&Y France received approximately $100,000 for the services they provided to the DB entities. E&Y advised the Audit Committee that it conducted an internal review of the situation and, in view of the fact that similar expatriate tax compliance services were provided to a number of E&Y audit clients unrelated to DB or the Fund, E&Y has advised the SEC and the PCAOB of the independence issues arising from those services. E&Y advised the Audit Committee that E&Y believes its independence as independent registered public accounting firm for the Fund was not impaired during the period the services were provided. In reaching this conclusion, E&Y noted a number of factors, including that none of the E&Y personnel who provided the non-audit services to the DB entities were involved in the provision of audit services to the Fund, the E&Y professionals responsible for the Fund's audits were not aware that these non-audit services took place, and that the fees charged were not significant to E&Y overall or to the fees charged to the Investment Company Complex. E&Y also noted that E&Y Chile is no longer providing these services and that the E&Y France engagement has been restructured. 3 ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS Not Applicable ITEM 6. SCHEDULE OF INVESTMENTS Not Applicable ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not Applicable ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS Not Applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Procedures and Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to the Fund's Secretary for the attention of the Chairman of the Nominating and Governance Committee, Two International Place, Boston, MA 02110. Suggestions for candidates must include a resume of the candidate. ITEM 11. CONTROLS AND PROCEDURES. (a) The Chief Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. (b) There have been no changes in the registrant's internal control over financial reporting that occurred during the registrant's last half-year (the registrant's second fiscal half-year in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal controls over financial reporting. ITEM 12. EXHIBITS. (a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. (a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. Form N-CSR Item F SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: Scudder Blue Chip Fund By: /s/Vincent J. Esposito ------------------------- Vincent J. Esposito President Date: January 3, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Registrant: Scudder Blue Chip Fund By: /s/Vincent J. Esposito ------------------------- Vincent J. Esposito President Date: January 3, 2006 By: /s/Paul Schubert ------------------------- Paul Schubert Chief Financial Officer and Treasurer Date: January 3, 2006