SCUDDER
INVESTMENTS (SM)
[LOGO]
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EQUITY/DOMESTIC
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Scudder 21st Century
Growth Fund
Class S Shares
Fund #050
Annual Report
July 31, 2000
For investors seeking long-term growth of capital by investing primarily in
common stocks of emerging growth companies poised to be leaders in the 21st
century.
<PAGE>
Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
16 Glossary of Investment Terms
18 Investment Portfolio
25 Financial Statements
28 Financial Highlights
29 Notes to Financial Statements
38 Report of Independent Accountants
39 Tax Information
40 Shareholder Meeting Results
41 Officers and Trustees
42 Investment Products and Services
44 Account Management Resources
2
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Scudder 21st Century Growth Fund
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ticker symbol SCTGX fund number 050
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Date of Inception: o The Class S shares of Scudder 21st Century Growth
9/9/96 Fund's total return was 51.52% for the 12 months
ended July 31, 2000, while its benchmark, the unmanaged
Russell 2000 Growth Index, returned 21.13%.
Total Net Assets of
Class S shares as of o The fund has benefited from investments in small
7/31/00: companies in niche markets, with solid franchises,
$352 million predictable earnings, and strong balance sheets.
o While well-managed technology companies have helped the
fund, performance has also been enhanced by investments
in the natural gas sector, particularly in companies
involved in gas exploration and development.
3
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Letter from the Fund's President
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Dear Shareholders,
Thanks largely to technology companies, small-cap growth stocks were very strong
performers during the past 12 months, and your fund's performance was even
better. For the 12 months ended July 31, 2000, Scudder 21st Century Growth
Fund's Class S shares' total return was 51.52%, while its benchmark, the Russell
2000 Growth Index, returned 21.13%.
As noted in the interview that begins on page 10, the market environment for
small-cap stocks changed dramatically earlier this year. August 1, 1999 to March
15, 2000 was a period of very strong performance for small-cap stocks,
especially initial public offerings and technology stocks. Relative to earnings,
stock prices for some technology companies reached extreme levels this past
autumn and winter.
In mid-March, however, the tide turned and prices of many small-cap stocks,
particularly those linked to the Internet, declined dramatically. As perceptions
about U.S. interest rates and inflation shifted, many investors turned away from
unprofitable technology firms with lofty goals but weak business plans. Some
consumer-oriented "dot-coms" either went out of business or were bought by other
companies.
Now, however, we believe there is renewed interest in small-cap investing on a
global basis as investors seek companies with real
4
<PAGE>
earnings and above-average growth potential. And although there is added risk in
small-company growth stocks, I believe the fund's recent performance illustrates
the enormous potential that can come from a diversified portfolio of
well-managed, fundamentally sound small growth companies.
If you have any questions regarding Scudder 21st Century Growth Fund or any
other Scudder fund, please call Investor Relations at 1-800-SCUDDER. Or visit
Scudder's Web site at www.scudder.com.
Sincerely,
/s/Linda C. Coughlin
Linda C. Coughlin
President
Scudder 21st Century Growth Fund
5
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Performance Update
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July 31, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder 21st Century Growth
Fund -- Class S shares Russell 2000 Growth Index*
9/96** 10000 10000
1/97 9413 10277
7/97 10214 11090
1/98 10063 11173
7/98 10508 10944
1/99 12087 11980
7/99 14675 12534
1/00 23239 16252
7/00 22235 15182
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 7/31/2000 $10,000 Cumulative Annual
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Scudder 21st Century Growth Fund -- Class S shares
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1 year $ 15,152 51.52% 51.52%
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Life of Fund** $ 23,347 133.47% 24.33%
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Russell 2000 Growth Index*
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1 year $ 12,113 21.13% 21.13%
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Life of Fund** $ 15,182 51.82% 11.50%
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* The Russell 2000 Growth Index is an unmanaged capitalization-weighted
measure of 2,000 of the smallest capitalized U.S. companies with a
greater-than-average growth orientation and whose common stocks trade on
the NYSE, AMEX, and Nasdaq. Index returns assume reinvestment of dividends
and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on September 9, 1996. Index comparisons begin
September 30, 1996.
6
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE SCUDDER 21ST
CENTURY GROWTH FUND -- CLASS S SHARES TOTAL RETURN (%) AND RUSSELL 2000 GROWTH
INDEX* TOTAL RETURN (%)
BAR CHART DATA:
Yearly periods ended July 31
1997** 1998 1999 2000
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Fund Total
Return (%) 7.25 2.87 39.65 51.52
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Index Total
Return (%) 10.90 -1.32 14.53 21.13
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Net Asset Value ($) 12.87 13.24 18.48 27.25
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Income
Dividends ($) -- -- -- --
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Capital Gains
Distributions ($) -- -- -- .82
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* The Russell 2000 Growth Index is an unmanaged capitalization-weighted
measure of 2,000 of the smallest capitalized U.S. companies with a
greater-than-average growth orientation and whose common stocks trade on
the NYSE, AMEX, and Nasdaq. Index returns assume reinvestment of dividends
and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on September 9, 1996. Index comparisons begin
September 30, 1996.
On May 1, 2000, existing shares of the Fund were redesignated as Class S
shares. The total return information provided is for the Fund's Class S
shares.
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than when purchased. If the Adviser had not
maintained the expenses, total returns for the Class would have been lower.
7
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Portfolio Summary
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July 31, 2000
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Asset Allocation
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The fund retained a
modest cash position
during the period.
A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW.
Common Stock 95%
Cash Equivalents 5%
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100%
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Sector Diversification
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(Excludes 5% Cash Equivalents)
While technology makes
up the largest
weighting, this widely
diversified fund has
holdings in 11 other
industry sectors.
A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW.
Technology 35%
Manufacturing 14%
Health 9%
Energy 9%
Service Industries 7%
Durables 7%
Communications 5%
Consumer Discretionary 5%
Construction 4%
Other 5%
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100%
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8
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Ten Largest Equity Holdings
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(23% of Portfolio)
The fund benefited from
weightings in technology
and energy that were
higher than its
benchmark, and from
strong performance by
portfolio holdings
within these sectors.
1. Power-One, Inc.
Manufacturer of power supplies for electronic
equipment manufacturers
2. Mercury Interactive Corp.
Producer of automated software testing tools
3. Silicon Storage Technology, Inc.
Designer of memory chips
4. Polycom, Inc.
Manufacturer of audio and data conferencing products
5. Trex Company, Inc.
Manufacturer of non-wood decking alternative products
6. Internet Security Systems, Inc.
Provider of security management solutions for the Internet
7. Antec Corp.
Developer and supplier of optical transmission
equipment for cable TV
8. Advent Software, Inc.
Provider of stand-alone and client/server software products
9. Cabot Microelectronics Corp.
Manufacturer of slurries used in chemical mechanical
planarization
10. National Computer Systems, Inc.
Provider of software, services and systems for the
collection, management and interpretation of data
For more complete details about the Fund's investment portfolio, see page 18. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
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Portfolio Management Discussion
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July 31, 2000
In the following interview, Peter Chin and Roy C. McKay, portfolio managers of
Scudder 21st Century Growth Fund, discuss the fund's market environment and
strategy for the 12-month period ended July 31, 2000, as well as their outlook
for the coming months.
Q: How did Scudder 21st Century Growth Fund perform as we entered the 21st
century?
A: We are pleased to report that the total return of the Class S shares of the
fund was more than double that of the Russell 2000 Growth Index for the past 12
months. Over the same period, the fund also outpaced the 47.50% total return of
the average fund in Lipper, Inc.'s small-cap growth fund investment category.
The fund benefited from weightings in technology and energy that were higher
than its benchmark, and from strong performance by portfolio holdings within
these sectors.
While the fund's absolute results for fiscal year 2000 were exceptional, it is
equally important to note that short-term market conditions changed dramatically
for small-cap stocks this past spring. The period from August 1, 1999 to March
15, 2000 was an ebullient time, marked by unusually high returns for small-cap
stocks, especially initial public offerings and technology stocks. Relative to
earnings, stock prices for some technology companies reached extreme levels this
past autumn and winter.
Beginning in mid-March, many small-cap technology stocks, particularly those
tied to the Internet, began to struggle. As perceptions about U.S. interest
rates and inflation shifted, unprofitable technology firms with lofty goals but
weak business plans lost support among investors. For some consumer-oriented
"dot-coms," their time upon the market stage was over.
10
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Q: Interest rates rose substantially over the past year. How has this affected
the portfolio?
A: Many stocks have been hurt by the Federal Reserve's efforts to raise interest
rates since last summer. Between June 1998 and August 2000, the cumulative
increase in short-term interest rates was 175 basis points. Small-company stocks
typically do better when rates are either stable or going down. It is a
particularly tough market when rates are on the rise.
Fortunately, we think we are close to or at the end of the cycle in terms of
domestic interest rate increases. In our view, the market is looking ahead and
sees potential stability in rates going forward. That creates a positive
framework for small-company growth stocks, especially as the U.S. economy's
expansion rate slows.
Q: Could you elaborate on the investment characteristics of the fund's holdings?
A: Typically our holdings, on a relative earnings basis, have performed better
than large companies because they're in niches that are not mature. Although we
sometimes pay a premium to buy the best, we believe this gives us a portfolio of
stocks with strong balance sheets. We have found that small companies in niche
markets, with solid franchises, predictable earnings, and strong balance sheets
should fare well, even if the American economy slows. One such company is Trex
Company, which makes plastic and wood composite boards for outdoor decks. One
might wonder, why hold shares of a construction materials firm at this point in
the economic cycle? From what we see, Trex has an innovative commercial-use
product (made from recycled plastic and wood) that lasts much longer than
pressure-treated lumber, has an effective management team, and has a demand that
we believe is likely to accelerate.
11
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Q: Among large-company stocks, energy is not regarded as a growth sector. What
makes the small-company energy sector different and how have you positioned the
fund to capitalize on trends in this area?
A: Since the end of 1998, natural gas prices have risen sharply. Our portfolio
positioning reflects a belief that this trend is likely to continue. The
increase in storage volume going into the fall 2000 heating season is now down
some 25 percent from year-ago levels. Last year was a fairly warm winter, so
that Americans didn't use a lot of natural gas compared to historical averages.
Consequently, we think the natural gas price increases we've seen are going to
stick for a couple of years. Wholesale natural gas prices have risen 30 percent
in Chicago in the past year and a half, and even more on the East Coast. In our
view, companies that are in exploration and production with a focus on gas are
going to do well on a global basis.
Q: Could you give an example of a current energy stock holding?
A: Swift Energy, a top fifteen holding, is a company that we think is poised to
benefit from higher prices and demand for gas. The company is primarily focused
on the exploration and production of natural gas. Not only has the company been
able to perform well in terms of finding oil and gas, and producing more every
year, but it has also made a discovery in New Zealand that could potentially
equal all of the company's current proven reserves.
Q: Can you talk more about the dynamics of technology investing over the past
year and the fund's technology holdings?
A: Last year, a lot of financing and advertising dollars were available for
business-to-consumer (B-to-C) technology companies. This past spring, that came
to a screeching halt as tech stocks plummeted and lenders tightened credit. We
have had no exposure to this subsector. Business-to-business (B-to-B) companies
typically have a much bigger market and have had much
12
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faster growth. However, the market is going through some growing pains and
investors are asking the following questions:
o Who's going to make it and who's not?
o Who's got the best software to serve whatever products and services are
required?
o How will the growing use of the Internet change the software and server
markets and how will profitability be affected for existing market leaders?
o Who's got the best financial backing?
o How will government antitrust actions and the political climate change
market conditions?
These are the kinds of questions that we ask as we select stocks for each
small-cap portfolio. We need to see at least some indication that cash flow is
going to be positive sooner rather than later. Also, we do things thematically
within technology. We look at our exposure to software versus hardware, or our
exposure to wireline communications infrastructure versus wireless. We also look
for companies that dominate their markets, such as Silicon Storage Technology, a
company that produces low-density flash memory semiconductor devices for a wide
range of markets. Flash memory does not lose data when the power source is
removed and is capable of electrically erasing selected blocks of data. Silicon
Storage rose 34% in the second quarter of 2000, and we think the prospects for
the company remain bright. The company appears to be growing at a robust rate,
with more and more network expansion.
Q: What's your outlook for the months ahead?
A: We think the Fed's decision not to raise interest rates in August has the
potential to be a catalyst to renew market enthusiasm for small-cap investing on
a global basis. Investors will be searching for above-average growth potential
as the U.S. economy heads toward a soft landing, and we think they'll find it in
companies that are nimble
13
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and innovative enough to navigate both the financial and competitive challenges
that may come.
We believe technology firms continue to offer the best growth prospects in both
the United States and overseas, but we also think investors need to be more
selective than ever. Over the last five years, 255 of the 685 technology stocks
in existence on June 30, 1995 -- about 37% -- had negative average annual
returns. Most of the ones that were down for the five-year period ended June 30,
2000 were small caps. We think that makes a powerful argument for active
management in this arena.
14
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Scudder 21st Century Growth Fund:
A Team Approach to Investing
Scudder 21st Century Growth Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays an important
role in the fund's management process. Team members work together to develop
investment strategies and select securities for the fund's portfolio. They are
supported by the Adviser's large staff of economists, research analysts,
traders, and other investment specialists who work in offices across the United
States and abroad. The Adviser believes that a team approach benefits fund
investors by bringing together many disciplines and leveraging the firm's
extensive resources.
Lead portfolio manager Peter Chin is responsible for the fund's day-to-day
management and investment strategies. Mr. Chin has 31 years of research and
portfolio management experience, primarily in small-company growth stocks.
Portfolio manager Roy C. McKay has 32 years of investment experience, with 22
years of experience specializing in small-company growth stocks.
15
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Glossary of Investment Terms
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Balance Sheet A condensed financial statement showing what a
company owns, what it owes and the ownership interest of
its stockholders in the company, at a certain time.
Initial Public An initial public offering occurs when the owners of a
Offering (IPO) private company decide to sell a portion of their interest
in the business to the general public. The owners must
register shares with securities regulators.
Liquidity The ease with which a stock can be bought or sold. Due to
higher recognition and a greater quantity of shares,
large-cap stocks are typically more liquid than small-cap
stocks. Reduced liquidity offers the potential for greater
risk and return: Investors who wish to sell a less liquid
stock may find it difficult to find a buyer, but they may
also be able to dictate a higher price if the stock is in
demand.
Market The market value of a company's outstanding shares of
Capitalization common stock, determined by multiplying the number of
shares outstanding by the share price (shares x price =
market capitalization). The universe of publicly traded
companies is frequently divided into large-, mid-, and
small-capitalization. "Large-cap" stocks tend to be more
liquid.
Monetary Policy The decision of a central bank to control the level
of economic activity by either supplying credit through
lower interest rates or open market purchases, or by
restricting credit through higher rates or open market
sales. Looser credit tends to stimulate the economy, while
tighter credit tends to calm inflationary forces.
16
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Total Return The most common yardstick to measure the performance of a
fund. Total return -- annualized or compounded -- is based
on a combination of share price changes plus income and
capital gain distributions, if any, expressed as a
percentage gain or loss in value
Volatility Characteristic of a security, commodity, or market to rise
or fall sharply in price within a short period of time. A
stock may be volatile due to uncertainty in a company,
industry, market, or economy. Compared with many other
types of stocks, technology stocks are subject to a higher
degree of volatility.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
17
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<TABLE>
<CAPTION>
Investment Portfolio as of July 31, 2000
------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Short-Term Investments 4.6%
------------------------------------------------------------------------------------
<S> <C> <C>
Student Loan Marketing Association Discount Note, -----------
8/1/2000 (Cost $16,609,000) ............................ 16,609,000 16,609,000
-----------
Shares
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Common Stocks 95.4%
------------------------------------------------------------------------------------
Consumer Discretionary 4.5%
Department & Chain Stores 1.6%
Pacific Sunwear of California, Inc.* (Operator of a
nationwide mall-based specialty retail chain of stores) 78,200 1,182,775
Rent-A-Center, Inc.* (Owner and operator of rent-to-own
stores and franchises) ................................. 169,200 4,653,000
-----------
5,835,775
-----------
Restaurants 0.3%
The Cheesecake Factory, Inc.* (Operator of casual
dining restaurants) .................................... 31,150 944,234
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Specialty Retail 2.6%
Cost Plus, Inc.* (Retailer of casual home living and
entertainment products in the U.S.) .................... 142,300 4,740,369
Gildan Activewear, Inc.* (Manufacturer and marketer
of branded basic activewear) ........................... 126,800 4,707,450
-----------
9,447,819
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Consumer Staples 1.9%
Food & Beverage
Wild Oats Markets, Inc.* (Operates a natural food
supermarket chain) ..................................... 293,900 2,975,738
Hain Celestial Group, Inc.* (Distributes and sells natural,
organic and specialty food products) ................... 142,064 3,782,454
-----------
6,758,192
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Health 8.9%
Biotechnology 4.0%
Alexion Pharmaceuticals, Inc.* (Developer of
immunoregulatory compounds) ............................ 75,400 4,863,300
Arena Pharmaceuticals, Inc.* (Developer of receptor-based
screening assay using their own CART technology) ....... 21,500 510,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
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<TABLE>
<CAPTION>
Shares Value ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CryoLife, Inc.* (Provider of cryopreservation of viable
human tissue for transplants) .............................................. 176,600 3,940,388
QLT, Inc.* (Developer of pharmaceutical products) ............................. 75,100 4,948,763
-----------
14,263,076
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Medical Supply & Specialty 1.0%
Aclara Biosciences, Inc.* (Developer of microfluidic
technology) ................................................................ 29,000 1,218,000
Cytyc Corp.* (Manufacturer of medical equipment) .............................. 18,500 888,000
Fusion Medical Technologies, Inc.* (Develops surgical
sealants for the treatment of surgical wounds) ............................. 135,100 1,511,431
-----------
3,617,431
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Pharmaceuticals 3.9%
Biovail Corp.* (Pharmaceutical company) ....................................... 82,700 4,796,600
Cell Pathways, Inc.* (Developer and commercializer of
products to prevent and treat cancer) ...................................... 155,400 4,040,400
Charles River Laboratories International, Inc.* (Provider of research tools and
support services that enable drug discovery and development) ............... 94,500 2,852,719
NPS Pharmaceuticals, Inc.* (Developer of small molecule drugs) ................ 85,500 2,415,375
-----------
14,105,094
-----------
Communications 4.9%
Cellular Telephone 1.2%
Research in Motion Ltd.* (Manufacturer and marketer of
radio modem technology for a wide variety of access
devices in the wireless communications services) ........................... 75,400 4,081,294
Triton Network Systems, Inc.* (Provider of broadband
wireless equipment) ........................................................ 5,600 154,700
-----------
4,235,994
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Telephone/Communications 2.6%
Lightbridge, Inc.* (Provider of telecommunications
services) .................................................................. 206,600 4,545,200
Proxim, Inc.* (Manufacturer of wireless local area
networking products) ....................................................... 13,800 1,049,663
SBA Communications Corp.* (Provider of wireless
communications) ............................................................ 85,300 3,849,163
Sunrise Telecom, Inc.* (Manufacturer and marketer of
service verification equipment to pre-qualify, verify and
diagnose telecommunications and Internet networks) ......................... 1,900 88,350
-----------
9,532,376
-----------
Miscellaneous 1.1%
Netopia, Inc.* (Provider of high-speed, multi-user,
plug-and-play Internet connectivity products) .............................. 70,900 3,828,600
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
------------------------------------------------------------------------------------
<S> <C> <C>
Financial 1.3%
Banks
Hudson United Bancorp (Bank) ............................. 200,500 4,786,938
-----------
Media 1.8%
Broadcasting & Entertainment 0.9%
Cumulus Media, Inc. "A"* (Radio broadcasting company) .... 332,900 3,245,775
-----------
Cable Television 0.9%
Insight Communications Co., Inc.* (Operator of cable
television systems) ................................... 248,300 3,041,675
-----------
Service Industries 7.1%
EDP Services 2.0%
Micromuse, Inc.* (Developer of software solutions to
manage information technology infrastructure) ......... 42,900 5,565,605
Ultimate Software Group, Inc.* (Developer of personnel
and payroll management software solutions) ............ 156,100 1,429,291
-----------
6,994,896
-----------
Investment 0.6%
Multex.com, Inc.* (Provider of online investment research
and information services) ............................. 92,400 2,229,150
-----------
Miscellaneous Commercial Services 4.5%
AnswerThink Consulting Group, Inc.* (Provider of
consulting and technology-enabled solutions focused
on the Internet and Web-enabled commerce) ............. 133,000 2,236,063
Copart, Inc.* (Auctioneer of damaged vehicles for
insurance companies) .................................. 392,000 5,194,000
Korn/Ferry International* (A global executive search firm) 156,800 5,272,400
Newgen Results Corp.* (Provider of customized
database management and related services for
automobile dealerships and manufacturers) ............. 86,900 1,075,388
Vicinity Corp.* (Provider of Internet-based marketing
infrastructure services) .............................. 110,900 2,204,138
-----------
15,981,989
-----------
Miscellaneous Consumer Services 0.0%
Steiner Leisure Ltd.* (Provider of spa services, skin and
hair products on cruise ships) ........................ 7,400 143,375
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
------------------------------------------------------------------------------------
<S> <C> <C>
Durables 6.3%
Aerospace 0.3%
REMEC, Inc.* (Designer and manufacturer of microwave
multi-function modules) .............................. 43,000 1,100,531
-----------
Telecommunications Equipment 6.0%
Antec Corp.* (Developer and supplier of optical
transmission equipment for cable TV) ................. 193,700 7,324,281
Com21, Inc.* (Designer, developer and retailer of
value-added, high-speed communications solutions) .... 104,000 1,820,000
Polycom, Inc.* (Manufacturer of audio and data
conferencing products) ............................... 88,500 8,395,055
Spectrasite Holdings, Inc.* (Developer of tower networks
for the wireless communications industry) ............ 176,300 3,746,375
-----------
21,285,711
-----------
Manufacturing 12.9%
Chemicals 2.9%
Albany Molecular Research, Inc.* (An integrated chemistry
outsourcing company) ................................. 80,800 4,474,300
Cabot Microelectronics Corp.* (Manufacturer of slurries
used in chemical mechanical planarization) ........... 122,600 5,762,200
-----------
10,236,500
-----------
Electrical Products 5.1%
ATMI, Inc.* (Supplier of electrical items) .............. 104,500 2,690,875
Power-One, Inc.* (Manufacturer of power supplies for
electronic equipment manufacturers) .................. 133,350 15,743,622
-----------
18,434,497
-----------
Industrial Specialty 1.8%
American Superconductor Corp.* (Developer, manufacturer
and marketer of products utilizing superconducting
materials for electric power applications) ........... 68,600 2,538,200
Artesyn Technologies, Inc.* (Manufacturer of electronic
products and systems for the communications industry) 110,600 3,760,400
-----------
6,298,600
-----------
Machinery/Components/Controls 2.3%
Brooks Automation, Inc.* (Developer and manufacturer
of robots and handling systems) ...................... 66,200 3,285,175
RadiSys Corp.* (Designer and manufacturer of embedded
computer solutions) .................................. 81,900 5,036,850
-----------
8,322,025
-----------
Miscellaneous 0.8%
Jakks Pacific, Inc.* (Manufacturer and developer of toys
and related products for children) ................... 180,550 2,979,075
-----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
------------------------------------------------------------------------------------
<S> <C> <C>
Technology 33.4%
Computer Software 13.0%
Advent Software, Inc.* (Provider of stand-alone and
client/server software products) ...................... 121,200 6,847,815
BSQUARE Corp.* (Software developer) ...................... 218,300 3,874,825
Braun Consulting, Inc.* (Provider of Internet-related
software applications) ................................ 136,500 2,951,813
Broadbase Software, Inc.* (Provider of database software) 123,300 2,905,256
Cobalt Networks, Inc.* (Provider of server appliances that
enable organizations to establish an online presence) . 104,500 4,767,813
Digital Courier Technologies, Inc.* (Developer of Internet
software and services) ................................ 312,800 1,348,950
ITXC Corp.* (Provider of Internet-based voice and
fax services) ......................................... 20,500 371,563
Information Architects Corp.* (Provider of Web-based
digital content and information management solutions) . 216,900 1,382,738
Manugistics Group, Inc.* (Provider of solutions for
enterprises and evolving e-business trading networks) . 16,500 915,750
Mercator Software, Inc.* (Provider of e-business software) 146,100 2,995,050
Numerical Technologies, Inc.* (Designer of computer-aided
design software) ...................................... 17,300 806,613
Packeteer, Inc.* (Provider of application-adaptive
bandwidth management solutions) ....................... 113,000 4,350,500
Precise Software Solutions, Ltd.* (Provider of information
technology infrastructure performance management
software ) ............................................ 38,100 800,100
Quintus Corp.* (Provider of Internet commerce software) .. 142,000 1,686,250
RSA Security, Inc.* (Provider of Internet security
solutions for electronic business worldwide) .......... 25,500 1,616,063
Viador, Inc.* (Provider of Internet software) ............ 215,400 2,288,625
VocalTec, Ltd.* (Producer of software for audio
communications on the Internet) ....................... 113,800 2,098,188
WatchGuard Technologies, Inc.* (Provider of Internet
security products) .................................... 91,100 4,469,594
-----------
46,477,506
-----------
EDP Peripherals 2.6%
Mercury Interactive Corp.* (Producer of automated
software testing tools) ............................... 95,100 9,440,161
-----------
Electronic Data Processing 2.2%
Internet Security Systems, Inc.* (Provider of security
management solutions for the Internet) ................ 105,900 7,823,363
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
------------------------------------------------------------------------------------
<S> <C> <C>
Office/Plant Automation 3.2%
Mercury Computer Systems, Inc.* (Manufacturer of digital
signal processing computer systems) .................... 87,200 2,343,500
National Computer Systems, Inc. (Provider of software,
services and systems for the collection, management
and interpretation of data) ............................ 79,000 5,678,125
Pinnacle Systems, Inc.* (Manufacturer of video
post-production workstations) .......................... 423,700 3,243,953
-----------
11,265,578
-----------
Precision Instruments 1.3%
Molecular Devices Corp.* (Developer of bioanalytical
measurement systems) ................................... 60,400 4,741,400
-----------
Semiconductors 9.3%
Alpha Industries, Inc.* (Designer and manufacturer of a
variety of integrated circuits) ........................ 99,800 3,399,438
Axcelis Technologies, Inc.* (Producer of ion implantation
equipment used in the fabrication of semiconductors) ... 187,900 3,476,150
Oak Technology, Inc.* (Manufacturer of multimedia
semiconductors and related software) ................... 117,000 2,691,000
Pixelworks, Inc.* (Designer of semiconductor related
systems) ............................................... 14,900 570,856
Silicon Image, Inc.* (Developer of semiconductors) ........ 72,100 3,821,300
Silicon Storage Technology, Inc.* (Designer of
memory chips) .......................................... 135,000 8,530,313
SpeedFam-IPEC, Inc.* (Developer of semiconductor
devices) ............................................... 170,900 3,385,956
Therma-Wave, Inc.* (Developer of process control systems
for use in the manufacturing of semiconductors) ........ 99,800 2,233,025
Transwitch Corp.* (Developer, marketer and supporter of
integrated digital and mixed-signal semiconductors for
telecommunication markets) ............................. 63,850 5,100,019
-----------
33,208,057
-----------
Miscellaneous 1.8%
National Information Consortium, Inc.* (Provider of
Internet-based electronic government solutions) ........ 386,800 2,997,700
Network Engines, Inc.* (Provider of integrated and scalable
server appliances that deliver Internet application
functionality) ......................................... 5,600 154,700
SonoSite, Inc.* (Developer of miniaturized digital
ultrasound imaging devices) ............................ 113,800 3,414,000
-----------
6,566,400
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Energy 8.5%
Oil & Gas Production 3.5%
3TEC Energy Corp.* (Oil and gas exploration and
production) ................................................... 118,700 1,439,238
Barrett Resources Corp.* (Oil and gas exploration
and production) ............................................... 108,700 3,023,219
Key Production Co., Inc.* (Oil and gas production) ............... 204,600 2,902,763
Swift Energy Co.* (Oil and gas exploration and
production) ................................................... 238,200 5,225,513
-----------
12,590,733
-----------
Oil Companies 1.4%
Stone Energy Corp.* (Oil and gas company) ........................ 101,000 4,848,000
-----------
Oilfield Services/Equipment 3.6%
National-Oilwell, Inc.* (Manufacturer of oil and gas
drilling equipment) ........................................... 143,800 4,745,400
Precision Drilling Corp.* (Provider of contract well
drilling and other services to the oil and gas industry) 105,700 3,607,013
Universal Compression Holdings, Inc.* (Natural gas
compression services company) ................................. 158,300 4,729,213
-----------
13,081,626
-----------
Construction 3.9%
Building Materials 0.5%
Simpson Manufacturing Co., Inc.* (Manufacturer of
wood-to-wood, wood-to-concrete and wood-to-masonry connectors) .. 33,400 1,636,600
-----------
Building Products 3.4%
CoStar Group, Inc.* (Provider of building plan information) ...... 118,100 4,332,794
Trex Company, Inc.* (Manufacturer of non-wood decking
alternative products) ......................................... 149,000 7,990,125
-----------
12,322,919
-----------
-----------------------------------------------------------------------------------------------
Total Common Stocks (Cost $336,134,477) 341,651,671
-----------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $352,743,477) (a) 358,260,671
-----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $353,528,739. At July 31, 2000,
net unrealized appreciation for all securities based on tax cost was $4,731,932.
This consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of value over tax cost of $67,512,644 and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value of $62,780,712.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of July 31, 2000
---------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $352,743,477) ...................... $358,260,671
Cash ......................................................................... 3,109
Receivable for investments sold .............................................. 1,490,737
Receivable for Fund shares sold .............................................. 1,561,552
Due from Adviser ............................................................. 283,561
Deferred organization expense ................................................ 4,826
Other assets ................................................................. 968
------------
Total assets ................................................................. 361,605,424
Liabilities
---------------------------------------------------------------------------------------------
Payable for investments purchased ............................................ 4,803,181
Payable for Fund shares redeemed ............................................. 816,420
Accrued management fee ....................................................... 198,551
Accrued reorganization costs ................................................. 36,859
Accrued Trustees' fees and expenses .......................................... 72,127
Other accrued expenses and payables .......................................... 121,579
------------
Total liabilities ............................................................ 6,048,717
---------------------------------------------------------------------------------------------
Net assets, at value $355,556,707
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .................... 5,517,194
Accumulated net realized gain (loss) ......................................... 16,906,266
Paid-in capital .............................................................. 333,133,247
---------------------------------------------------------------------------------------------
Net assets, at value $355,556,707
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Class S shares
Net Asset Value, offering and redemption price per share ($352,430,736 /
12,930,981 outstanding shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) .................................... $ 27.25
-------------
Class A shares
Net Asset Value and redemption price per share ($2,094,990 / 76,911 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares -------------
authorized) ............................................................... $ 27.24
-------------
-------------
Maximum offering price per share (100 / 94.25 of $27.24) ..................... $ 28.90
-------------
Class B shares
Net Asset Value, offering and redemption price (subject to contingent deferred
sales charge) per share ($693,927 / 25,523 outstanding shares of beneficial -------------
interest, $.01 par value, unlimited number of shares authorized) .......... $ 27.19
-------------
Class C shares
Net Asset Value, offering and redemption price (subject to contingent deferred
sales charge) per share ($337,054 / 12,396 outstanding shares of beneficial -------------
interest, $.01 par value, unlimited number of shares authorized) .......... $ 27.19
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the year ended July 31, 2000
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Dividends ..................................................... $ 80,649
Interest ...................................................... 928,169
------------
Total Income .................................................. 1,008,818
------------
Expenses:
Management fee ................................................ 2,251,586
Services to shareholders ...................................... 1,165,193
Custodian and accounting fees ................................. 107,636
Distribution services fees .................................... 782
Administrative services fees .................................. 691
Auditing ...................................................... 21,701
Legal ......................................................... 16,319
Trustees' fees and expenses ................................... 113,824
Reports to shareholders ....................................... 34,386
Registration fees ............................................. 149,495
Amortization of organization expense .......................... 4,359
Reorganization ................................................ 47,267
Other ......................................................... 9,300
------------
Total expenses, before expense reductions ..................... 3,922,539
Expense reductions ............................................ (443,325)
------------
Total expenses, after expense reductions ...................... 3,479,214
--------------------------------------------------------------------------------
Net investment income (loss) (2,470,396)
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................... 20,122,611
Foreign currency related transactions ......................... (151)
------------
20,122,460
------------
Net unrealized appreciation (depreciation) during the period on
investments ................................................ (9,950,758)
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions 10,171,702
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 7,701,306
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Statements of Changes in Net Assets
------------------------------------------------------------------------------------
Eleven Months
Year Ended July Ended July 31, Year Ended
Increase (Decrease) in Net Assets 31, 2000 1999 August 31, 1998
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) .... $ (2,470,396) $ (589,976) $ (448,014)
Net realized gain (loss) on
investment transactions ...... 20,122,460 6,048,657 (75,261)
Net unrealized appreciation
(depreciation) on investment
transactions during
the period ................... (9,950,758) 19,613,097 (8,260,290)
------------- ------------- --------------
Net increase (decrease) in net
assets resulting from
operations ................... 7,701,306 25,071,778 (8,783,565)
Distributions to shareholders
from:
Net realized gains -- Class S .... (4,563,214) -- --
------------- ------------- --------------
Fund share transactions:
Proceeds from shares sold ....... 387,301,874 34,857,980 21,758,221
Reinvestment of distributions ... 4,511,310 -- --
Cost of shares redeemed ......... (111,213,058) (15,346,773) (9,368,423)
Redemption fees ................. 266,762 43,738 22,595
------------- ------------- --------------
Net increase (decrease) in net
assets from Fund share
transactions ................. 280,866,888 19,554,945 12,412,393
------------- ------------- --------------
Increase (decrease) in net
assets ....................... 284,004,980 44,626,723 3,628,828
Net assets at beginning of
period ....................... 71,551,727 26,925,004 23,296,176
------------- ------------- --------------
Net assets at end of period ..... $ 355,556,707 $ 71,551,727 $ 26,925,004
------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
Class S shares (a)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
2000(b) 1999(c) 1998(d) 1997(e)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $18.48 $10.15 $13.11 $12.00
-----------------------------------------
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------
Net investment income (loss) (f) (.31) (.19) (.19) (.15)
-------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions 9.87 8.51 (2.78) 1.25
-----------------------------------------
-------------------------------------------------------------------------------------
Total from investment operations 9.56 8.32 (2.97) 1.10
-------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------
Net realized gains on investment
transactions (.82) -- -- --
-------------------------------------------------------------------------------------
Redemption fees .03 .01 .01 .01
-------------------------------------------------------------------------------------
Net asset value, end of period $27.25 $18.48 $10.15 $13.11
-----------------------------------------
-------------------------------------------------------------------------------------
Total Return (%) (g) 51.52 82.07(h)** (22.58) 9.25(h)**
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 352 72 27 23
-------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 1.74(i) 2.22* 2.17 3.52*
-------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions(%) 1.55(i) 1.75* 1.75 1.75*
-------------------------------------------------------------------------------------
Ratio of net investment income
(loss) (%) (1.10) (1.42)* (1.38) (1.27)*
-------------------------------------------------------------------------------------
Portfolio turnover rate (%) 135 148* 120 92*
-------------------------------------------------------------------------------------
</TABLE>
(a) On May 1, 2000, existing shares of the Fund were redesignated as Class S
shares.
(b) For the year ended July 31, 2000.
(c) For the eleven months ended July 31, 1999. On September 16, 1998, the
Trustees of the Fund changed the fiscal year end to July 31 from August 31.
(d) For the year ended August 31, 1998.
(e) For the period September 9, 1996 (commencement of operations) to August 31,
1997.
(f) Based on monthly average shares outstanding during the period.
(g) Total returns would have been lower had certain expenses not been reduced.
(h) Total returns do not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
(i) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.69% and
1.51%, respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
28
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder 21st Century Growth Fund (the "Fund") is a diversified series of Scudder
Securities Trust (the "Trust") which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust.
On September 16, 1998, the Fund changed its fiscal year end for financial
reporting and federal income tax purposes to July 31 from August 31.
Beginning May 1, 2000, the Fund offers multiple classes of shares. Class S
shares are not subject to initial or contingent deferred sales charges. 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. Certain
detailed financial information for the Class A, B and C shares is provided
separately and is available upon request.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears certain expenses unique to that class such as distribution
services, shareholder services, administrative services and certain other class
specific expenses. Differences in class expenses may result in payment of
different per share dividends by class. All shares of the Fund have equal rights
with respect to voting subject to class specific arrangements.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the use of
management estimates. The policies described below are followed consistently by
the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such
29
<PAGE>
bid and asked quotations, the most recent bid quotation is used. Securities
quoted on the Nasdaq Stock Market ("Nasdaq"), for which there have been sales,
are valued at the most recent sale price reported. If there are no such sales,
the value is the most recent bid quotation. Securities which are not quoted on
Nasdaq but are traded in another over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the calculated mean between the
most recent bid and asked quotations on such market. If there are no such bid
and asked quotations, the most recent bid quotation shall be used. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
30
<PAGE>
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from accounting principles generally accepted in the United
States. These differences primarily relate to net investment losses incurred by
the Fund and 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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
All discounts are accreted for both tax and financial reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Redemption Fees. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by Class S
shareholders for less than one year, a fee of 1% of the current net asset value
of the shares will be assessed and retained by the Fund for the benefit of the
remaining Class S shareholders. The redemption fee is accounted for as an
addition to paid-in capital.
B. Purchases and Sales of Securities
During the year ended July 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $546,015,329 and
$282,437,736, respectively.
C. Transactions with Affiliates
Management Agreement. Under the Investment Management Agreement (the
"Agreement") with Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), the Adviser directs the investments of the Fund in accordance
31
<PAGE>
with its investment objective, policies and restrictions. The Adviser determines
the securities, instruments and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Agreement. The management fee payable under the Agreement is equal to
an annual rate of 1.00% of the Fund's average daily net assets, computed and
accrued daily and payable monthly. The Adviser and certain subsidiaries have
agreed to maintain the annualized expenses of the classes of the Fund until
October 1, 2000 as follows: Class A shares 1.45%, Class B shares 2.20%, Class C
shares 2.20%, and until May 1, 2000, Class S shares 1.75%. In addition, the
Adviser and certain subsidiaries have voluntarily agreed to maintain expenses at
not more than 1.20% of average daily net assets for Class S shares from May 1,
2000 through October 1, 2000. Certain expenses such as reorganization, taxes,
brokerage and interest are excluded from the expense limitation. For the year
ended July 31, 2000, the Adviser did not impose a portion of its management fee
amounting to $6,495 and the amount imposed amounted to $2,245,091, which was
equivalent to an annual effective rate of 1.00%. In addition, for the year ended
July 31, 2000, the Adviser and certain subsidiaries have agreed to not impose
certain class specific expenses in the amounts as follows: Class A shares $481,
Class B shares $432, Class C shares $432, and Class S shares $37,351.
Distribution Service Agreement. In accordance with Rule 12b-1 under the 1940
Act, Kemper Distributors, Inc. ("KDI"), a subsidiary of the Adviser, receives a
fee of 0.75% of average daily net assets of Classes B and C. Pursuant to the
agreement, KDI enters into related selling group agreements with various firms
at various rates for sales of Class B and C shares. For the period May 1, 2000
through July 31, 2000, the Distribution Fee was as follows:
<TABLE>
<CAPTION>
Total Unpaid at
Distribution Fee Aggregated July 31, 2000
--------------------------------------------------- --------------- ---------------
<S> <C> <C>
Class B .......................................... $ 512 $ 370
Class C .......................................... 270 192
-------------- --------------
$ 782 $ 562
--------------- ---------------
</TABLE>
Underwriting Agreement and Contingent Deferred Sales Charge. KDI is the
principal underwriter for Classes A, B and C. Underwriting commissions paid in
connection with the distribution of Class A shares for the period May 1, 2000
through July 31, 2000 aggregated $2,032, of which none was paid to other firms.
In addition, KDI receives any contingent deferred sales charge (CDSC) from Class
B share redemptions occurring within six years of purchase and Class C
32
<PAGE>
share redemptions occurring within one year of purchase. There is no such charge
upon redemption of any share appreciation or reinvested dividends. Contingent
deferred sales charges are based on declining rates, ranging from 4% to 1% for
Class B and 1% for Class C, of the value of the shares redeemed. For the period
May 1, 2000 through July 31, 2000, the CDSC for Class B aggregated $53 and there
was no CDSC for Class C.
Administrative Services Fees. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to 0.25% of
average daily net assets for each such class. KDI in turn has various agreements
with financial services firms that provide these services and pays these firms
based upon the assets of shareholder accounts the firms service. For the period
May 1, 2000 through July 31, 2000, the Administrative Services Fee was as
follows:
<TABLE>
<CAPTION>
Total Fees Waived by Unpaid at
Administrative Services Fee Aggregated KDI July 31, 2000
---------------------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
Class A ........................ $ 431 $ -- $ 348
Class B ........................ 171 -- 144
Class C ........................ 89 -- 72
--------------- --------------- ---------------
$ 691 $ -- $ 564
--------------- --------------- ---------------
</TABLE>
Shareholder Services Fees. Kemper Service Company ("KSC"), an affiliate of the
Adviser, is the transfer, dividend-paying and shareholder service agent for the
Fund's Classes A, B and C shares. For the period May 1, 2000 through July 31,
2000, the amount charged to Classes A, B and C by KSC aggregated $621, $241 and
$90, respectively, all of which is not imposed at July 31, 2000. Scudder Service
Corporation ("SSC"), a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Class S shares of the
Fund. For the year ended July 31, 2000, SSC did not impose a portion of its
shareholder services fees for Class S shares of the Fund amounting to $178,539
and the amount imposed amounted to $403,593.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Class S shares of the Fund. For the year
ended July 31, 2000, STC did not impose a portion of its fees for Class S shares
of the Fund amounting to $173,297 and the amount imposed amounted to $162,519.
Fund Accounting Fees. Scudder Fund Accounting Corporation ("SFAC"), a subsidiary
of the Adviser, is responsible for determining the daily net asset value per
share and maintaining the portfolio and general accounting records
33
<PAGE>
of the Fund. For the year ended July 31, 2000, the amount charged to the Fund by
SFAC aggregated $86,751, of which $11,510 is unpaid at July 31, 2000.
The Class S shares of the Fund are one of several Scudder Funds (the "Underlying
Funds") in which the Scudder Pathway Series Portfolios (the "Portfolios")
invest. In accordance with the Special Servicing Agreement entered into by the
Adviser, the Portfolios, the Underlying Funds, SSC, SFAC, STC and Scudder
Investor Services, Inc., expenses from the operation of the Portfolios are borne
by the Underlying Funds based on each Underlying Fund's proportionate share of
assets owned by the Portfolios. No Underlying Fund will be charged expenses that
exceed the estimated savings to each respective Underlying Fund. These estimated
savings result from the elimination of separate shareholder accounts which
either currently are or have potential to be invested in the Underlying Funds.
For the year ended July 31, 2000, the Special Servicing Agreement expense
charged to the Class S shares of the Fund amounted to $115,159.
Trustees' Fees. The Fund pays each of its Trustees not affiliated with the
Adviser an annual retainer plus specified amounts for attended board and
committee meetings. For the year ended July 31, 2000, the Trustees' fees and
expenses aggregated $46,749. In addition, a one-time fee of $67,075 was accrued
for payment to those Trustees not affiliated with the Adviser who are not
standing for re-election, under the reorganization discussed in Note G. Inasmuch
as the Adviser will also benefit from administrative efficiencies of a
consolidated Board, the Adviser has agreed to bear $33,537 of such costs.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the year ended July 31, 2000,
the Fund's custodian and transfer agent fees were reduced by $4,403 and $7,406,
respectively, under these arrangements.
34
<PAGE>
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility with Chase Manhattan Bank for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Participants are charged an
annual commitment fee which is allocated, pro rata based upon net assets, among
each of the Participants. Interest is calculated based on the market rates at
the time of the borrowing. The Fund may borrow up to a maximum of 33 percent of
its net assets under the agreement.
35
<PAGE>
F. Share Transactions
The following tables summarize share and dollar activity in the Fund:
<TABLE>
<CAPTION>
Year Ended Eleven Months Ended
July 31, 2000 July 31, 1999
-----------------------------------------------------------------
Shares Dollars Shares Dollars
Shares sold
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class S ...... 12,844,240 $ 383,733,292 2,232,047 $ 34,857,980
Class A* ..... 83,549 2,407,999 -- --
Class B* ..... 25,568 741,845 -- --
Class C* ..... 14,613 418,738 -- --
--------------- --------------- --------------- ---------------
12,967,970 $ 387,301,874 2,232,047 $ 34,857,980
--------------- --------------- --------------- ---------------
Shares issued to shareholders in reinvestment of distributions
------------------------------------------------------------------------------------
Class S ...... 155,668 $ 4,511,310 -- $ --
Class A* ..... -- -- -- --
Class B* ..... -- -- -- --
Class C* ..... -- -- -- --
--------------- --------------- --------------- ---------------
155,668 $ 4,511,310 -- $ --
--------------- --------------- --------------- ---------------
Shares redeemed
------------------------------------------------------------------------------------
Class S ...... (3,939,805) $(110,953,781) (1,014,251) $ (15,346,773)
Class A* ..... (6,638) (191,187) -- --
Class B* ..... (45) (1,567) -- --
Class C* ..... (2,217) (66,523) -- --
--------------- --------------- --------------- ---------------
(3,948,705) $(111,213,058) (1,014,251) $ (15,346,773)
--------------- --------------- --------------- ---------------
Redemption fees
------------------------------------------------------------------------------------
Class S ...... -- $ 266,762 -- $ 43,738
Class A* ..... -- -- -- --
Class B* ..... -- -- -- --
Class C* ..... -- -- -- --
--------------- --------------- --------------- ---------------
-- $ 266,762 -- $ 43,738
--------------- --------------- --------------- ---------------
Net increase (decrease)
------------------------------------------------------------------------------------
Class S ...... 9,060,103 $ 277,557,583 1,217,796 $ 19,554,945
Class A* ..... 76,911 2,216,812 -- --
Class B* ..... 25,523 740,278 -- --
Class C* ..... 12,396 352,215 -- --
--------------- --------------- --------------- ---------------
9,174,933 $ 280,866,888 1,217,796 $ 19,554,945
--------------- --------------- --------------- ---------------
</TABLE>
* For the period May 1, 2000 (commencement of sales of Class A, B and C
shares) to July 31, 2000.
36
<PAGE>
<TABLE>
<CAPTION>
Year Ended
August 31, 1998
--------------------------------
Shares Dollars
Shares sold
------------------------------------------------------------------------------------
<S> <C> <C>
Class S .......................................... 1,580,844 $ 21,758,221
Shares redeemed
------------------------------------------------------------------------------------
Class S .......................................... (704,109) $ (9,368,423)
Redemption fees
------------------------------------------------------------------------------------
Class S .......................................... -- $ 22,595
Net increase (decrease)
------------------------------------------------------------------------------------
Class S .......................................... 876,735 $ 12,412,393
</TABLE>
G. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds. These costs, including printing, shareholder meeting
expenses and professional fees, are presented as reorganization expenses in the
Statement of Operations of the Fund.
37
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of Scudder Securities Trust and the Class S Shareholders of
Scudder 21st Century Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Class S shares' financial highlights present
fairly, in all material respects, the financial position of Scudder 21st Century
Growth Fund (the "Fund") at July 31, 2000, the results of its operations, the
changes in its net assets, and the Class S shares' financial highlights for the
periods indicated therein, in conformity with accounting principles generally
accepted in the United States. These financial statements and Class S shares'
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at July 31,
2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
September 19, 2000
38
<PAGE>
Tax Information
--------------------------------------------------------------------------------
The Fund paid distributions of $0.40 per share from net long-term capital gains
during its year ended July 31, 2000, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$15,000,000 as capital gains dividends for its year ended July 31, 2000, of
which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
39
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder 21st Century Growth
Fund (the "fund") was held on July 13, 2000, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To elect Trustees of the fund.
Number of Votes:
Trustee For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 5,073,414 96,756
Linda C. Coughlin 5,074,292 95,877
Dawn-Marie Driscoll 5,073,451 96,719
Edgar R. Fiedler 5,072,258 97,912
Keith R. Fox 5,074,795 95,375
Joan E. Spero 5,067,664 102,506
Jean Gleason Stromberg 5,073,651 96,518
Jean C. Tempel 5,074,498 95,672
Steven Zaleznick 5,075,112 95,058
--------------------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the current fiscal year.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------------------------------------------------------------------------------
5,068,087 54,529 47,553 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* Broker non-votes are proxies received by the fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
40
<PAGE>
Officers and Trustees
--------------------------------------------------------------------------------
Linda C. Coughlin*
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President, WGBH
Educational Foundation
Dawn-Marie Driscoll
o Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics, Bentley
College
Edgar R. Fiedler
o Trustee; Senior Fellow and
Economic Counsellor, The
Conference Board, Inc.
Keith R. Fox
o Trustee; General Partner,
The Exeter Group of Funds
Joan E. Spero
o Trustee; President, The Doris
Duke Charitable Foundation
Jean Gleason Stromberg
o Trustee; Consultant
Jean C. Tempel
o Trustee; Managing Director,
First Light Capital, LLC
Steven Zaleznick
o Trustee; President and
Chief Executive Officer,
AARP Services, Inc.
Thomas V. Bruns*
o Vice President
Peter Chin*
o Vice President
J. Brooks Dougherty*
o Vice President
James M. Eysenbach*
o Vice President
James E. Fenger*
o Vice President
William F. Glavin*
o Vice President
Sewall F. Hodges*
o Vice President
James E. Masur*
o Vice President
Ann M. McCreary*
o Vice President
Howard S. Schneider*
o Vice President
John Millette*
o Vice President and Secretary
Kathryn L. Quirk*
o Vice President and Assistant Secretary
John R. Hebble*
o Treasurer
Brenda Lyons*
o Assistant Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
41
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Scudder Funds
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series-- Scudder Value Fund
Prime Reserve Shares Scudder Small Company Value Fund
Premium Shares
Managed Shares Growth
Scudder Tax Free Money Fund Scudder Classic Growth Fund
Scudder Capital Growth Fund
Tax Free Scudder Large Company Growth Fund
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund Scudder Small Company Stock Fund
Scudder California Tax Free Fund Scudder 21st Century Growth Fund
Scudder Massachusetts Tax Free Fund
Scudder New York Tax Free Fund Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund
Scudder GNMA Fund Scudder Global Discovery Fund
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio Industry Sector Funds
Scudder Pathway Growth Portfolio Choice Series
Scudder Health Care Fund
U.S. Growth and Income Scudder Technology Fund
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
42
<PAGE>
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
--------------------------------------------------------------------------------
Closed-End Funds
--------------------------------------------------------------------------------
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
Scudder funds are offered by prospectus only. For more complete information on
any fund or variable annuity registered in your state, including information
about a fund's objectives, strategies, risks, advisory fees, distribution
charges, and other expenses, please order a free prospectus. Read the prospectus
before investing in any fund to ensure the fund is appropriate for your goals
and risk tolerance. There is no assurance that the objective of any fund will be
achieved, and fund returns and net asset values fluctuate. Shares are redeemable
at current net asset value, which may be more or less than their original cost.
A money market mutual fund investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although a
money market mutual fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in such a fund.
The services and products described should not be considered a solicitation to
buy or an offer to sell a security to any person in any jurisdiction where such
offer, solicitation, purchase, or sale would be unlawful under the securities
laws of such jurisdiction.
Scudder Investor Services, Inc.
43
<PAGE>
Account Management Resources
--------------------------------------------------------------------------------
For shareholders of Scudder funds including those in the AARP Investment Program
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly
to regularly purchase fund shares and "dollar cost
average" -- buy more shares when the fund's price is
lower and fewer when it's higher, which can reduce
your average purchase price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to
purchase shares -- use distributions from one Scudder
fund to purchase shares in another, automatically
(accounts with identical registrations or the same
social security or tax identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of
your transactions is electronically debited from a
previously designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government
checks -- invested in up to four Scudder funds at one
time.
* Dollar cost averaging involves continuous
investment in securities regardless of price
fluctuations and does not assure a profit or
protect against loss in declining markets.
Investors should consider their ability to
continue such a plan through periods of low
price levels.
Around-the- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to
exchange or redeem shares, and information on other
Scudder funds and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.scudder.com
Personal Investment Organizer: Offering account
information and transactions, interactive worksheets,
prospectuses and applications for all Scudder funds,
plus your current asset allocation, whenever you need
them. Scudder's site also provides news about Scudder
funds, retirement planning information, and more.
44
<PAGE>
--------------------------------------------------------------------------------
Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the
proceeds for schedule (as frequently as once a month) and amount
living expenses of the redemptions, and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into
automated the bank account you designate within three business
withdrawal days after each distribution is paid.
programs
QuickSell
Provides speedy access to your money by
electronically crediting your redemption proceeds to
the bank account you previously designated.
For more Scudder Class S Shareholders:
information
about these Call a Scudder representative at
services 1-800-SCUDDER
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 2291
Boston, Massachusetts
02107-2291
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 2540
Boston, Massachusetts
02208-2540
45
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
SCUDDER
INVESTMENTS (SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current
prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
<PAGE>
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED JULY 31, 2000
SCUDDER 21ST CENTURY
GROWTH FUND
"... As market volatility increased, we focused on well-run companies with
well-defined business plans, organizations that we believe can generate
significant earnings. ..."
[SCUDDER INVESTMENTS LOGO]
<PAGE>
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
TERMS TO KNOW
YOUR FUND'S STYLE
10
INDUSTRY SECTORS
11
LARGEST HOLDINGS
12
PORTFOLIO OF
INVESTMENTS
19
FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
23
NOTES TO
FINANCIAL STATEMENTS
30
REPORT OF
INDEPENDENT AUDITORS
31
TAX INFORMATION
SHAREHOLDER
MEETING RESULTS
AT A GLANCE
ABOUT YOUR REPORT
SCUDDER 21ST CENTURY GROWTH FUND COMMENCED OFFERING CLASS A, B AND C SHARES (THE
ADVISOR CLASSES) AS OF MAY 1, 2000. SHARES OF THE FUND OUTSTANDING AS OF MAY 1,
2000, WERE REDESIGNATED AS CLASS S SHARES. THE INCEPTION DATE OF CLASS S SHARES
IS SEPTEMBER 9, 1996. ALL SHARE CLASSES INVEST IN THE SAME UNDERLYING PORTFOLIOS
OF SECURITIES AND HAVE THE SAME MANAGEMENT TEAM. BECAUSE OF DIFFERENT FEES AND
EXPENSES, PERFORMANCE OF SHARE CLASSES WILL DIFFER.
SCUDDER 21ST CENTURY GROWTH FUND TOTAL RETURNS*
FOR THE YEAR ENDED JULY 31, 2000
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER SMALL-CAP GROWTH
SCUDDER 21ST CENTURY SCUDDER 21ST CENTURY FUNDS CATEGORY
SCUDDER 21ST CENTURY GROWTH FUND CLASS A GROWTH FUND CLASS B GROWTH FUND CLASS C AVERAGE**
---------------------------------------- -------------------- -------------------- -----------------------
<S> <C> <C> <C>
51.16 50.04 50.04 47.50
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*TOTAL RETURNS ARE DERIVED FROM HISTORICAL PERFORMANCE OF CLASS S SHARES.
SCUDDER 21ST CENTURY GROWTH FUND CLASS A, B AND C SHARES WERE INITIALLY OFFERED
MAY 1, 2000. FROM INCEPTION TO JULY 31, 2000, THE TOTAL RETURN (UNADJUSTED FOR
SALES CHARGE) FOR CLASS A SHARES WAS -6.30%, FOR CLASS B SHARES WAS -6.47% AND
FOR CLASS C SHARES WAS -6.47%. THE LIPPER SMALL-CAP GROWTH FUND CATEGORY AVERAGE
FOR CLASS A, B AND C SHARES FROM MAY 1, 2000, THROUGH JULY 31, 2000, WAS 0.06%.
CLASS S SHARES ARE ADJUSTED TO REFLECT HIGHER OPERATING EXPENSES. CLASS S SHARES
BEGAN OPERATIONS ON 9/9/96.
**LIPPER, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN NET ASSET VALUE
WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES CHARGES; IF
SALES CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS FAVORABLE. THE
FUND IS COMPARED WITH THE LIPPER SMALL-CAP GROWTH FUNDS CATEGORY. LIPPER
RANKINGS ARE FOR CLASS S SHARE PERFORMANCE AND DO NOT REFLECT ADJUSTMENTS FOR
SALES CHARGES AND EXPENSES.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
7/31/00 5/1/00
.........................................................
<S> <C> <C> <C> <C>
SCUDDER 21ST CENTURY GROWTH
FUND CLASS A $27.24 $29.07
.........................................................
SCUDDER 21ST CENTURY GROWTH
FUND CLASS B $27.19 $29.07
.........................................................
SCUDDER 21ST CENTURY GROWTH
FUND CLASS C $27.19 $29.07
.........................................................
</TABLE>
SCUDDER 21ST CENTURY GROWTH FUND
RANKINGS AS OF 7/31/00
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER SMALL-CAP GROWTH FUNDS CATEGORY**
<TABLE>
<CAPTION>
CLASS S
...................................................................
<S> <C> <C> <C>
1-YEAR #88 of 238 funds
...................................................................
3-YEAR #30 of 155 funds
...................................................................
</TABLE>
MORNINGSTAR EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL. (312)
BOX] 696-6000. The Morningstar Style Box placement is
based on two variables: a fund's market
capitalization relative to the movements of the
market and a fund's valuation, which is
calculated by comparing the stocks in the fund's
portfolio with the most relevant of the three
market-cap groups.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN
EXACT ASSESSMENT OF RISK AND DO NOT REPRESENT
FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES
FROM DAY TO DAY. A LONGER-TERM VIEW IS
REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY,
WHICH IS BASED ON ITS ACTUAL INVESTMENT STYLE AS
MEASURED BY ITS UNDERLYING PORTFOLIO HOLDINGS
OVER THE PAST THREE YEARS. MORNINGSTAR HAS PLACED
SCUDDER 21ST CENTURY GROWTH FUND IN THE SMALL-CAP
GROWTH CATEGORY. PLEASE CONSULT THE PROSPECTUS
FOR A DESCRIPTION OF INVESTMENT POLICIES.
</TABLE>
<PAGE>
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED JULY 31, 2000
SCUDDER 21ST CENTURY
GROWTH FUND
"... As market volatility increased, we focused on well-run companies with
well-defined business plans, organizations that we believe can generate
significant earnings. ..."
[SCUDDER INVESTMENTS LOGO]
<PAGE>
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
TERMS TO KNOW
YOUR FUND'S STYLE
10
INDUSTRY SECTORS
11
LARGEST HOLDINGS
12
PORTFOLIO OF
INVESTMENTS
19
FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
23
NOTES TO
FINANCIAL STATEMENTS
30
REPORT OF
INDEPENDENT AUDITORS
31
TAX INFORMATION
SHAREHOLDER
MEETING RESULTS
AT A GLANCE
ABOUT YOUR REPORT
SCUDDER 21ST CENTURY GROWTH FUND COMMENCED OFFERING CLASS A, B AND C SHARES (THE
ADVISOR CLASSES) AS OF MAY 1, 2000. SHARES OF THE FUND OUTSTANDING AS OF MAY 1,
2000, WERE REDESIGNATED AS CLASS S SHARES. THE INCEPTION DATE OF CLASS S SHARES
IS SEPTEMBER 9, 1996. ALL SHARE CLASSES INVEST IN THE SAME UNDERLYING PORTFOLIOS
OF SECURITIES AND HAVE THE SAME MANAGEMENT TEAM. BECAUSE OF DIFFERENT FEES AND
EXPENSES, PERFORMANCE OF SHARE CLASSES WILL DIFFER.
SCUDDER 21ST CENTURY GROWTH FUND TOTAL RETURNS*
FOR THE YEAR ENDED JULY 31, 2000
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER SMALL-CAP GROWTH
SCUDDER 21ST CENTURY SCUDDER 21ST CENTURY FUNDS CATEGORY
SCUDDER 21ST CENTURY GROWTH FUND CLASS A GROWTH FUND CLASS B GROWTH FUND CLASS C AVERAGE**
---------------------------------------- -------------------- -------------------- -----------------------
<S> <C> <C> <C>
51.16 50.04 50.04 47.50
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*TOTAL RETURNS ARE DERIVED FROM HISTORICAL PERFORMANCE OF CLASS S SHARES.
SCUDDER 21ST CENTURY GROWTH FUND CLASS A, B AND C SHARES WERE INITIALLY OFFERED
MAY 1, 2000. FROM INCEPTION TO JULY 31, 2000, THE TOTAL RETURN (UNADJUSTED FOR
SALES CHARGE) FOR CLASS A SHARES WAS -6.30%, FOR CLASS B SHARES WAS -6.47% AND
FOR CLASS C SHARES WAS -6.47%. THE LIPPER SMALL-CAP GROWTH FUND CATEGORY AVERAGE
FOR CLASS A, B AND C SHARES FROM MAY 1, 2000, THROUGH JULY 31, 2000, WAS 0.06%.
CLASS S SHARES ARE ADJUSTED TO REFLECT HIGHER OPERATING EXPENSES. CLASS S SHARES
BEGAN OPERATIONS ON 9/9/96.
**LIPPER, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN NET ASSET VALUE
WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES CHARGES; IF
SALES CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS FAVORABLE. THE
FUND IS COMPARED WITH THE LIPPER SMALL-CAP GROWTH FUNDS CATEGORY. LIPPER
RANKINGS ARE FOR CLASS S SHARE PERFORMANCE AND DO NOT REFLECT ADJUSTMENTS FOR
SALES CHARGES AND EXPENSES.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
7/31/00 5/1/00
.........................................................
<S> <C> <C> <C> <C>
SCUDDER 21ST CENTURY GROWTH
FUND CLASS A $27.24 $29.07
.........................................................
SCUDDER 21ST CENTURY GROWTH
FUND CLASS B $27.19 $29.07
.........................................................
SCUDDER 21ST CENTURY GROWTH
FUND CLASS C $27.19 $29.07
.........................................................
</TABLE>
SCUDDER 21ST CENTURY GROWTH FUND
RANKINGS AS OF 7/31/00
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER SMALL-CAP GROWTH FUNDS CATEGORY**
<TABLE>
<CAPTION>
CLASS S
...................................................................
<S> <C> <C> <C>
1-YEAR #88 of 238 funds
...................................................................
3-YEAR #30 of 155 funds
...................................................................
</TABLE>
MORNINGSTAR EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL. (312)
BOX] 696-6000. The Morningstar Style Box placement is
based on two variables: a fund's market
capitalization relative to the movements of the
market and a fund's valuation, which is
calculated by comparing the stocks in the fund's
portfolio with the most relevant of the three
market-cap groups.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN
EXACT ASSESSMENT OF RISK AND DO NOT REPRESENT
FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES
FROM DAY TO DAY. A LONGER-TERM VIEW IS
REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY,
WHICH IS BASED ON ITS ACTUAL INVESTMENT STYLE AS
MEASURED BY ITS UNDERLYING PORTFOLIO HOLDINGS
OVER THE PAST THREE YEARS. MORNINGSTAR HAS PLACED
SCUDDER 21ST CENTURY GROWTH FUND IN THE SMALL-CAP
GROWTH CATEGORY. PLEASE CONSULT THE PROSPECTUS
FOR A DESCRIPTION OF INVESTMENT POLICIES.
</TABLE>
<PAGE>
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
ECONOMIC OVERVIEW
DEAR SHAREHOLDER,
When an irresistible force such as the ebullient U.S. economy meets an immovable
object, such as a determined Federal Reserve Board, the old song is right:
Something's gotta give. One possibility -- the economy could slow down as the
Fed has ordered. Or, if market volatility becomes truly distressful, the Fed
could back off, as it has in the past. A third possibility is that neither the
Fed nor the economy will give way until it's too late, which could lead to a
recession. Recent evidence suggests, however, that the economy probably will
slow down as ordered. The Fed decided to leave rates unchanged at both its June
and August meetings, and in his testimony before Congress in late July, Fed
Chairman Alan Greenspan said he believes a slowdown has indeed arrived.
Before explaining why we agree with the Fed that a slowdown is a good bet,
let's review how monetary policy works. Central bankers often sound like witch
doctors reading animal entrails, so it's understandable that many people are
confused about monetary policy. But monetary policy still works in the same way
it always has. First, it changes the price and availability of money. More
subtly, it alters people's perceptions about and confidence in the future,
thereby adjusting their willingness to take risks.
The Fed only started raising interest rates a little over year ago, and it
takes at least that long for higher rates to impact borrowers. There are two
reasons. First, interest rates on many existing loans are fixed. And, a family
who has just selected a dream house isn't going walk away if mortgage rates rise
a notch. Similarly, a company that has just approved an expansion program won't
stop cold because the prime rate is higher. So it's foolish to think that
America's economy has become less interest-sensitive because the economy roared
through the first several months of this year. Americans are more in hock than
ever, so higher interest rates will hurt more than ever. The sharp drop in
housing starts and auto sales from their February peak is probably the first
sign that higher rates are biting. They will bite harder in coming months. We
look for both housing starts and vehicle sales to continue to drop and to be
lower in 2001 than in 2000.
Confidence is harder to measure, but there are some early flutters of
weakness. It's true that consumers remain cheerily upbeat. But corporate bond
markets, the most sensitive barometer of business confidence and a vital source
of corporate funds, have been nervous. Investors are demanding a big premium
before they'll buy lower quality bonds, which means there's less new money for
companies to spend.
So far, companies have been able to get around the bond market stinginess by
turning to their bankers. Banks lent businesses 9 percent more from January
through July of this year than they did during the first seven months of 1999.
But some banks are beginning to worry, too. Bank examiners have been questioning
the quality of loans and the level of reserves. In response, more bankers are
tightening lending standards and raising rates. This is a textbook case of how
tighter monetary policy eventually slows an economy.
Aren't bond market and banker concerns overdone? As long as the economy keeps
growing at 3 percent or so, won't that guarantee such good profits that paying
the bills will be a cinch? Not necessarily. Profits are far more cyclical than
economic growth. Earnings actually fell during 1998, even though the economy
continued to roll. That was a global crisis, when foreign earnings fell sharply.
But take a look at the last "soft landing" during 1995. Revenue growth dipped
and pricing power fell, squeezing profits. The same thing is likely to happen
again in the coming slowdown -- and this time, tight labor markets could make it
even tougher for companies to control costs quickly. Assuming growth is between
2.5 percent and 3 percent by the end of 2001, we believe year-over-year profit
comparisons will have turned slightly negative.
A profit slowdown when new lines of credit are hard to come by will take its
toll on capital spending. We expect growth in business outlays for buildings and
equipment to slip from over 12 percent this year to around 8 percent in 2001.
That's still quite robust, and the "high-tech imperative" is the reason why.
Executives believe that they have no option but to keep up with the
technological revolution that is transforming the world. The fact that high-tech
gear keeps getting cheaper year after year and also helps save on expensive
labor makes the decision to buy it easy. Indeed, unit sales of computers and
peripherals to businesses have sustained growth rates in excess of 40 percent
since 1995. And the rush is on to lay down the infrastructure for the next
generation of wireless communications. We estimate that the telecommunications
sector will see unit growth of more than 30 percent this year, double the
average growth of the past six years. It's hard even for
3
<PAGE>
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (8/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.8 6.5 5.9 5.3
Prime rate (2) 9.5 8.75 8.25 8.5
Inflation rate (3)* 3.6 2.7 2.1 1.7
The U.S. dollar (4) 5.1 2.3 -5.7 8
Capital goods orders (5)* 13.2 11.4 8.4 6.4
Industrial production (5)* 5.8 5.2 4.6 3.2
Employment growth (6) 1.9 2 2.2 2.7
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 7/31/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
superstars to sustain these stratospheric compound growth rates forever, and we
do expect some moderation next year. However, high-tech orders continue to
ratchet upwards, and the shortage in semiconductors and other components has
persisted long enough to cause major players to announce huge capacity
additions.
Another battle the Fed must win before it succeeds in slowing the economy is
bringing consumers to heel. Most families still feel better off than they were
last year and much richer than they were five years ago. That's a powerful
incentive to spend and enjoy. Indeed, total real consumption has been galloping
at a 5 percent rate or better since early 1998. But consumers are so important
to the economy that if they don't start spending less freely, there won't be a
slowdown. However, there is some evidence of moderation. Retailers have been
reporting sluggish summer sales, and the back-to-school season is getting off to
a slow start. This is music to the Fed's ears, because the policymakers would
like nothing better than to sit on the sidelines until well after the
Presidential election.
So what will the slowdown look like? It will be concentrated in retail sales,
housing starts and job creation slowed (at least that's where it has surfaced so
far). However, strength in high tech orders and capital equipment production
probably will help keep the slowdown from becoming too abrupt. We expect about
3.5 percent growth in the second half. That would still produce a hearty 5
percent growth for full year 2000. During 2001, the full impact of the Fed's
earlier tightening will probably rein growth in to just 3 percent.
Sincerely,
Kemper Distributors, Inc.
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF SEPTEMBER 5, 2000, AND MAY NOT ACTUALLY COME TO PASS.
THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS
AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE>
[CHIN PHOTO]
PETER CHIN IS LEAD PORTFOLIO MANAGER OF SCUDDER 21ST CENTURY GROWTH FUND AND
INSTITUTIONAL SMALL-COMPANY PORTFOLIOS. HE JOINED THE FIRM IN 1973 AND HOLDS AN
MBA FROM COLUMBIA UNIVERSITY'S GRADUATE SCHOOL OF BUSINESS.
[MCKAY PHOTO]
ROY MCKAY IS A PORTFOLIO MANAGER OF SCUDDER 21ST CENTURY GROWTH FUND. HE JOINED
THE FIRM IN 1988 AND HOLDS AN MBA IN INVESTMENTS FROM THE UNIVERSITY OF
PENNSYLVANIA'S WHARTON GRADUATE SCHOOL.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS
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.
PERFORMANCE UPDATE
IN FISCAL YEAR 2000, SMALL-CAP STOCK PERFORMANCE
VARIED WIDELY ACROSS AND WITHIN INDUSTRY GROUPS,
ESPECIALLY AMONG TECHNOLOGY STOCKS. IT'S BEEN A
PERIOD WHEN CAREFUL STOCK SELECTION HAS BEEN AS
IMPORTANT AS SECTOR WEIGHTINGS. A STRONG COMMITMENT
TO FUNDAMENTAL RESEARCH HAS BEEN ESSENTIAL FOR
INVESTMENT SUCCESS. HIGH LEVELS OF SHORT-TERM
VOLATILITY HAVE ALSO DEMANDED FORTITUDE AND
PATIENCE.
Q HOW DID SCUDDER 21ST CENTURY GROWTH FUND PERFORM AS WE ENTERED THE 21ST
CENTURY?
A We are pleased to report that Scudder 21st Century Growth Fund's (Class S
shares) total return was more than double the return of the Russell 2000(R)
Growth index for the 12-month period ended July 31, 2000. Over the same period,
the fund's results (at net asset value) also outpaced the 47.50 percent total
return of the average fund in Lipper, Inc. small-cap growth fund investment
category.
While the fund's absolute results for fiscal year 2000 were exceptional, it is
equally important to note that short-term market conditions changed dramatically
for small-cap stocks this past spring. The period from August 1, 1999, to March
15, 2000, was an ebullient time, marked by unusually high returns for small-cap
stocks, especially initial public offerings and technology stocks. Relative to
earnings, stock prices for some technology companies reached extreme levels this
past autumn and winter.
Beginning in mid-March, many small-cap technology stocks, particularly those
tied to the Internet, began to struggle. As perceptions about U.S. interest
rates and
SCUDDER 21ST CENTURY GROWTH FUND CLASS S SHARE PERFORMANCE VS. ITS BENCHMARK BY
SECTOR
JULY 31, 1999 TO JULY 31, 2000
[BAR GRAPH]
<TABLE>
<CAPTION>
SCUDDER 21ST CENTURY GROWTH FUND
CLASS S SHARE RUSSELL 2000 GROWTH INDEX
-------------------------------- -------------------------
<S> <C> <C>
Capital Goods 159.60 21.49
Technology 79.99 45.99
Basic Materials 76.47 -12.92
Energy 45.68 17.39
Health Care 26.47 65.05
Utilities 0.00 6.32
Consumer Cyclicals -20.74 -15.96
Consumer Staples -31.23 -5.36
Transportation -41.27 13.96
Financials -58.28 1.24
Communication Services -81.87 0.16
</TABLE>
SOURCE: SCUDDER KEMPER INVESTMENTS, INC.
5
<PAGE>
PERFORMANCE UPDATE
inflation shifted, unprofitable technology firms with lofty ideas but weak
business plans lost support among investors. For some consumer-oriented
"dot.coms," their time upon the market stage was over. As market volatility
increased, we focused on well-run companies with well-defined business plans,
organizations that we believe can generate significant earnings.
Q INTEREST RATES ROSE SUBSTANTIALLY OVER THE PAST YEAR. HOW HAS THIS
AFFECTED THE PORTFOLIO?
A Many stocks have been hurt by the Federal Reserve Board's efforts to raise
interest rates since last summer. Between June 1999 and August 2000, the
cumulative increase in short-term interest rates was 175 basis points. Small-
company stocks typically do better when rates are either stable or going down.
It is a particularly tough market when rates are on the rise.
Fortunately, we think we are close to or at an end of the cycle for domestic
interest-rate increases. In our view, the market is looking ahead and sees
potential stability in rates. That creates a positive framework for small
company growth stocks, especially as the U.S. economy's expansion rate slows.
Q PLEASE ELABORATE ON THE INVESTMENT CHARACTERISTICS OF SCUDDER 21ST CENTURY
GROWTH FUND'S HOLDINGS.
A Typically our holdings, on a relative earnings basis, do better than large
companies because they're in niches that are not mature. Although we sometimes
pay a premium to buy the best, we then have a portfolio of stocks with strong
balance sheets. We believe small companies in niche markets, with solid
franchises, predictable earnings and strong balance sheets should fare well,
even if the American economy slows.
One such company is Trex (2.2 percent of net assets). Trex makes plastic and
non-wood composite boards for outdoor decks. One might wonder, Why hold shares
of a construction materials firm at this point in the economic cycle? From what
we see, Trex has an innovative commercial-use product (made from recycled
plastic bags and wood) that lasts much longer than pressure-treated lumber, an
effective management team and demand that's likely to accelerate. What's more,
we think the company's deck market penetration is less than 5 percent.
Q FOR MOST OF THE 1990S, ENERGY WAS NOT REGARDED AS A GROWTH SECTOR. HAS
THIS CHANGED AND HOW HAVE YOU POSITIONED THE FUND TO CAPITALIZE ON TRENDS IN
THIS AREA?
A Since the end of 1998, natural gas prices have risen sharply. Our
portfolio positioning reflects a belief that this trend is likely to continue.
Storage volume going into the fall 2000 heating season is now down substantially
from year-ago levels. Last year was a fairly warm winter, so Americans didn't
use a lot of natural gas compared with historical averages. Consequently, we
think the natural gas price increases we've seen are going to stick for a couple
of years. Wholesale natural gas prices have risen 30 percent in Chicago in the
past year and a half. In our view, companies that are in exploration and
production with a focus on gas are going to do well on a global basis.
Q CAN YOU GIVE AN EXAMPLE OF A CURRENT ENERGY STOCK HOLDING?
A Swift Energy, a top 15 holding, is a company that we think is poised to
benefit from higher prices and demand for gas. Swift is primarily an exploration
and production (E&P) company focused on natural gas. Not only has the company
been able to execute well in terms of finding oil and gas, and producing more
every year, but it also has a discovery in Australia that could potentially
equal all of the company's current proven reserves. This initial find has been
very positive. The initial results from a second exploratory well have also been
good.
U.S. NATURAL GAS PRICES -- DECEMBER 1998 TO JUNE 2000
U.S. Natural Gas Prices (measured in $mm/BTUs)
[GRAPH]
<TABLE>
<S> <C>
12/98 1.86
1.80
1.71
1.83
2.08
2.10
6/99 2.19
2.53
2.92
2.58
2.78
2.19
12/99 2.30
2.51
2.57
2.91
3.09
4.26
6/00 4.42
</TABLE>
SOURCE: BLOOMBERG BUSINESS NEWS
THE ABOVE CHART MEASURES THE AVERAGE SPOT PRICE OF NATURAL GAS ON U.S. PIPELINES
IN MILLIONS OF DOLLARS PER MILLION BRITISH THERMAL UNITS, A STANDARD MEASURE OF
HEAT.
6
<PAGE>
PERFORMANCE UPDATE
Q CAN YOU TALK MORE ABOUT THE DYNAMICS OF TECHNOLOGY INVESTING OVER THE PAST
YEAR AND THE FUND'S TECHNOLOGY HOLDINGS?
A Last year, a lot of financing and advertising dollars were available for
business-to-consumer (B-to-C) technology companies. This past spring, that came
to a screeching halt as tech stocks plummeted and lenders tightened credit.
Currently, B-to-C companies are dropping like flies. We had no exposure to this
subsector.
Business-to-business (B -to-B) companies typically have a much bigger market
and much faster growth. However, the market is going through some growing pains
and asking the following questions:
- Who's going to make it and who's not?
- Who has the best software to serve whatever products and services are
required?
- How will the growing use of the Internet change the software and server
markets, and how will profitability be affected for existing market leaders?
- Who has the best financial backing?
- How will government antitrust actions and the political climate change market
conditions?
All of the things that you ask yourself about the longevity of a given company
are the questions that we ask as we select stocks for each small-cap portfolio.
We need to see some indication that cash flow is going to be positive sooner
rather than later.
We do things thematically within technology. We look at our software exposure
versus hardware, our holdings in communications for infrastructure versus our
wireless holdings and infrastructure wire line holdings versus wireless
holdings. We also look for companies that dominate the market, such as Silicon
Storage Technology, a company that dominates low intensity flash memory (2.40
percent of net assets as of July 31, 2000). Low density flash memory is
something we've known is in short supply and we think prospects for the company
remain bright. The company appears to be growing at a robust rate and with more
network expansion, the end-point receiver is mobile devices. We continue to see
more power conversion devices, and Silicon Storage technology is by far the
leader in this field.
Q WHAT'S YOUR OUTLOOK FOR THE MONTHS AHEAD?
A We think the Fed's August monetary policy decision has the potential to
renew market enthusiasm for small-cap investing on a global basis. Investors
will be searching for above-average growth potential as the U.S. economy heads
toward a soft landing, and we think they'll find it in companies that are nimble
and innovative enough to navigate both the financial and market-share challenges
that may come as competition increases and credit markets tighten.
Technology firms continue to offer the best growth prospects both here and
overseas, but we think investors need to be more selective than ever. For the
five year period ended June 30, 2000, 238 of 629 technology stocks had negative
average annual returns. Most of the ones that were down for this period were
small caps. We think that makes a powerful argument for active management in
this arena.
The Rise and Fall of IPOs Since 1998
Bloomberg IPO Index June 30,
1998, to June 30, 2000
[GRAPH]
<TABLE>
<S> <C>
6/98 501.50
454.79
343.73
367.09
390.31
442.06
476.26
514.62
478.53
3/99 610.60
720.13
713.38
763.32
722.74
739.10
790.05
1044.14
1370.68
12/99 1696.24
1629.99
2034.46
1809.57
1366.98
1088.95
6/00 1410.13
</TABLE>
SOURCE: BLOOMBERG BUSINESS NEWS
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. THE BLOOMBERG IPO INDEX
IS A CAPITALIZATION-WEIGHTED INDEX THAT MEASURES THE PERFORMANCE OF STOCKS
DURING THEIR FIRST PUBLICLY TRADED YEAR. IT INCLUDES ALL COMPANIES WITH A MARKET
VALUE OF AT LEAST $50 MILLION AT THE INITIAL PUBLIC OFFERING. THE INDEX WAS
DEVELOPED WITH A BASE VALUE OF 100 AS OF 8/22/94. IT IS NOT INTENDED TO
REPRESENT THE PERFORMANCE OF ANY MUTUAL FUND OFFERED BY SCUDDER KEMPER
INVESTMENTS, INC.
7
<PAGE>
TERMS TO KNOW
BALANCE SHEET A condensed financial statement showing what a company owns, what
it owes and the ownership interest in the company of its stockholders, at a
certain time.
INITIAL PUBLIC OFFERING (IPO) An offer by owners of a private company to sell a
portion of their interest in the business to the general public. The owners must
register shares with securities regulators.
LIQUIDITY The ease with which a stock can be bought or sold. Due to higher
recognition and a greater quantity of shares, large-cap stocks are typically
more liquid than small-cap stocks. Reduced liquidity offers the potential of
greater risk and return: Investors who wish to sell a less liquid stock may find
it difficult to find a buyer, but they may also be able to dictate a higher
price if the stock is in demand.
MARKET CAPITALIZATION A measure of the size of a company that offers publicly
traded stock, as determined by multiplying the current share price by the number
of shares outstanding.
VOLATILITY The characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time. A stock may be volatile due to
uncertainty in a company, industry, market or economy. Compared with many other
types of stocks, technology stocks are subject to a higher degree of volatility.
8
<PAGE>
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED JULY 31, 2000
(ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
CLASS** 1-YEAR 3-YEAR LIFE OF FUND
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SCUDDER 21ST CENTURY GROWTH FUND
CLASS A -11.67% 42.47% 26.76% 22.01% (since 9/9/96)
...................................................................................................
SCUDDER 21ST CENTURY GROWTH FUND
CLASS B -10.21 45.60 27.51 22.36 (since 9/9/96)
...................................................................................................
SCUDDER 21ST CENTURY GROWTH FUND
CLASS C -7.40 50.04 28.35 22.98 (since 9/9/96)
...................................................................................................
</TABLE>
SCUDDER 21ST CENTURY GROWTH
Growth of an assumed $10,000 investment in Class S
shares from 09/30/96 to 07/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
SCUDDER 21ST CENTURY GROWTH(1) RUSSELL 2000 GROWTH INDEX(+)
------------------------------ ----------------------------
<S> <C> <C>
9/30/96 9424 10000
8833 10026
9267 10550
12/31/97 9693 11325
10883 11943
10037 11465
6/30/99 14181 12934
22577 16406
23592 16607
7/31/00 20955 15182
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT
GUARANTEE FUTURE PERFORMANCE. INVESTMENT
RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN ORIGINAL
COST.
* AVERAGE ANNUAL TOTAL RETURN MEASURES
NET INVESTMENT INCOME AND CAPITAL GAIN
OR LOSS FROM PORTFOLIO INVESTMENTS,
ASSUMING REINVESTMENT OF ALL
DIVIDENDS. TOTAL RETURNS ARE DERIVED
FROM HISTORICAL PERFORMANCE OF CLASS S
SHARES. CLASS S SHARES HAVE BEEN
ADJUSTED TO REFLECT HIGHER OPERATING
EXPENSES. CLASS S SHARES BEGAN
OPERATIONS ON SEPTEMBER 9, 1996. ON
MAY 1, 2000, THE FUND OFFERED AN
ADDITIONAL THREE CLASSES OF SHARES,
NAMELY CLASS A, B AND C SHARES
DESCRIBED HEREIN. RETURNS SHOWN FOR
CLASS A, B AND C SHARES FOR THE
PERIODS PRIOR TO THEIR INCEPTION ARE
DERIVED FROM THE HISTORICAL
PERFORMANCE OF CLASS S SHARES OF
SCUDDER 21ST CENTURY GROWTH FUND
DURING SUCH PERIODS AND HAVE BEEN
ADJUSTED TO REFLECT THE CURRENT
MAXIMUM 5.75% INITIAL SALES CHARGE FOR
CLASS A SHARES OR THE MAXIMUM
CONTINGENT DEFERRED SALES CHARGE
(CDSC). CLASS B SHARE PERFORMANCE IS
ADJUSTED FOR THE APPLICABLE CDSC,
WHICH IS 4% WITHIN THE FIRST YEAR
AFTER PURCHASE, DECLINING TO 0% AFTER
SIX YEARS. CLASS C SHARE PERFORMANCE
IS ADJUSTED FOR A CDSC, WHICH IS 1%
WITHIN THE FIRST YEAR AFTER PURCHASE.
RETURNS INCLUDE THE EFFECT OF A
TEMPORARY WAIVER OF MANAGEMENT FEES
AND/OR ABSORPTION OF CERTAIN OPERATING
EXPENSES BY THE INVESTMENT ADVISOR AND
CERTAIN SUBSIDIARIES. WITHOUT SUCH
WAIVER OR ABSORPTION, RETURNS WOULD
HAVE BEEN LOWER AND RATINGS OR
RANKINGS MAY HAVE BEEN LESS FAVORABLE.
DURING THE PERIODS NOTED, SECURITIES
PRICES FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS,
STATEMENT OF ADDITIONAL INFORMATION
AND THE FINANCIAL HIGHLIGHTS TABLE AT
THE END OF THIS REPORT.
**CLASS A, B AND C SHARES WERE INITIALLY
OFFERED ON MAY 1, 2000. RETURNS FOR
THIS PERIOD ARE TOTAL RETURNS AND NOT
AVERAGE ANNUAL TOTAL RETURNS.
(1)PERFORMANCE IS FOR CLASS S SHARES OF
SCUDDER 21ST CENTURY GROWTH FUND AND
HAS BEEN ADJUSTED TO REFLECT THE
CURRENT, MAXIMUM 5.75% INITIAL SALES
CHARGE APPLICABLE TO CLASS A SHARES
OF THE FUND. CLASS B AND C SHARES OF
THE FUND, THE PERFORMANCE OF WHICH
IS NOT INCLUDED IN THE GRAPH, ARE
EACH SUBJECT TO RULE 12B-1 FEES AND
A CDSC OF 4% WITHIN THE FIRST YEAR
AFTER PURCHASE, DECLINING TO 0%
AFTER SIX YEARS, FOR CLASS B SHARES
AND 1% WITHIN THE FIRST YEAR OF
PURCHASE FOR CLASS C SHARES, WHICH
WOULD AFFECT PERFORMANCE.
(+)THE RUSSELL 2000 GROWTH INDEX IS AN
UNMANAGED INDEX COMPRISED OF COMMON
STOCKS OF LARGER U.S. COMPANIES WITH
GREATER THAN AVERAGE GROWTH
ORIENTATION AND REPRESENTS THE
UNIVERSE OF STOCKS FROM WHICH
EARNINGS/GROWTH MONEY MANAGERS
TYPICALLY SELECT. SOURCE:
WIESENBERGER(R).
9
<PAGE>
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
Data shows the percentage of the common stocks in the portfolio that each sector
represented on July 31, 2000, and on July 31, 1999.
[BAR GRAPH]
<TABLE>
<CAPTION>
SCUDDER 21ST CENTURY GROWTH SCUDDER 21ST CENTURY GROWTH
FUND ON 7/31/00 FUND ON 7/31/99
--------------------------- ---------------------------
<S> <C> <C>
TECHNOLOGY 35 31.3
CAPITAL GOODS 20.1 5.8
CONSUMER NONDURABLES 14.2 29.8
HEALTH CARE 9.4 12.8
ENERGY 8.9 4.4
COMMUNICATION SERVICES 7 8
BASIC MATERIALS 4.1 5.6
OTHER 1.3 2.3
</TABLE>
A COMPARISON WITH THE RUSSELL 2000 GROWTH INDEX*
Data shows the percentage of the common stocks in the portfolio that each sector
of Scudder 21st Century Growth Fund represented on July 31, 2000, compared with
the industry sectors that make up the fund's benchmark, the Russell 2000 Growth
index.
[BAR GRAPH]
<TABLE>
<CAPTION>
SCUDDER 21ST CENTURY GROWTH RUSSELL 2000 GROWTH INDEX ON
FUND ON 7/31/00 7/31/00
--------------------------- ----------------------------
<S> <C> <C>
TECHNOLOGY 35.0 39.6
CAPITAL GOODS 20.1 8.9
CONSUMER NONDURABLES 14.2 20.2
HEALTH CARE 9.4 13.3
ENERGY 8.9 1.9
COMMUNICATION SERVICES 7.0 3.9
BASIC MATERIALS 4.1 2.6
OTHER 1.3 9.6
</TABLE>
*THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX COMPRISED OF COMMON STOCKS
OF LARGER U.S. COMPANIES WITH GREATER THAN AVERAGE GROWTH ORIENTATION AND
REPRESENTS THE UNIVERSE OF STOCKS FROM WHICH EARNINGS/GROWTH MONEY MANAGERS
TYPICALLY SELECT.
10
<PAGE>
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 23.3 percent of the fund's total net assets on July 31, 2000
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
1. POWER-ONE Power-One, Inc. designs and 4.4%
manufactures power supplies for
electronic equipment manufacturers
in the United States. The Company
sells its products to customers in
the communications, automatic test
equipment, medical equipment,
industrial, and other electronic
equipment industries.
--------------------------------------------------------------------------------------
2. MERCURY INTERACTIVE Mercury Interactive Corporation 2.6%
and its subsidiaries develop,
market, and support a suite of
automated software testing
solutions. The Company's products
provide functional testing, load
testing, and test process
management.
--------------------------------------------------------------------------------------
3. SILICON STORAGE Silicon Storage Technology, Inc. 2.4%
TECHNOLOGY designs, manufactures, and markets
nonvolatile memory solutions,
based on proprietary, patented
SuperFlash technology, for the
computer, communications, and
consumer markets. The Company's
product families include flash
memory components, CompactFlash
card mass storage products, and
eight-bit microcontrollers with
on-chip flash memory.
--------------------------------------------------------------------------------------
4. POLYCOM Polycom, Inc. develops, 2.4%
manufactures, and markets group
conferencing solutions. The
Company's product suites include
videoconferencing,
dataconferencing, and
audioconferencing solutions.
Polycom's products are sold under
the Sound-Station, SoundPoint,
ShowStation IP, and other names.
--------------------------------------------------------------------------------------
5. TREX COMPANY Trex Company, Inc. manufactures 2.2%
non-wood decking alternative
products. The Company markets its
products under the Trex brand
name. Trex's products are made
from waste wood fibers and
reclaimed polyethylene and are
used for residential and
commercial decking.
--------------------------------------------------------------------------------------
6. INTERNET SECURITY Internet Security Systems, Inc. 2.2%
SYSTEMS provides security management
solutions for the Internet. The
Company provides SAFEsuite
security software, remote managed
security services, and strategic
consulting and education
offerings.
--------------------------------------------------------------------------------------
7. ANTEC ANTEC Corporation develops and 2.0%
supplies optical transmission,
construction, and maintenance
equipment for the broadband
communications industry.
--------------------------------------------------------------------------------------
8. ADVENT SOFTWARE Advent Software, Inc. provides 1.9%
stand-alone and client/server
software products, data
interfaces, and related services
that automate and integrate
critical operations of investment
management organizations.
--------------------------------------------------------------------------------------
9. CABOT MICROELECTRONICS Cabot Microelectronics Corporation 1.6%
supplies slurries used in chemical
mechanical planarization, a
polishing process used in the
manufacture of integrated circuit
devices. The slurries are liquids
containing abrasives and chemicals
that enhance the polishing
process.
--------------------------------------------------------------------------------------
10. NATIONAL COMPUTER National Computer Systems, Inc. is 1.6%
SYSTEMS a global information services
company. The Company provides
software, services, and systems
for the collection, management,
and interpretation of data.
--------------------------------------------------------------------------------------
</TABLE>
*Portfolio holdings and composition are subject to change.
11
<PAGE>
PORTFOLIO OF INVESTMENTS
SCUDDER 21ST CENTURY GROWTH FUND
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
SHORT TERM INVESTMENTS--4.6% AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Student Loan Marketing Association Discount
Note, 8/1/2000 (Cost $16,609,000) $16,609,000 $ 16,609,000
---------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--95.4% SHARES
<S> <C> <C> <C> <C> <C>
CONSUMER DISCRETIONARY--4.5%
DEPARTMENT & CHAIN STORES--1.6%
Pacific Sunwear of California, Inc.*
(OPERATOR OF A NATIONWIDE MALL-BASED
SPECIALTY RETAIL CHAIN OF STORES) 78,200 1,182,775
Rent-A-Center, Inc.*
(OWNER AND OPERATOR OF RENT-TO-OWN STORES
AND FRANCHISES) 169,200 4,653,000
---------------------------------------------------------------------------
5,835,775
RESTAURANTS--0.3%
The Cheesecake Factory, Inc.*
(OPERATOR OF CASUAL DINING RESTAURANTS) 31,150 944,234
---------------------------------------------------------------------------
SPECIALTY RETAIL--2.6%
Cost Plus, Inc.*
(RETAILER OF CASUAL HOME LIVING AND
ENTERTAINMENT PRODUCTS IN THE U.S.) 142,300 4,740,369
Gildan Activewear, Inc.*
(MANUFACTURER AND MARKETER OF BRANDED
BASIC ACTIVEWEAR) 126,800 4,707,450
---------------------------------------------------------------------------
9,447,819
------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--1.9%
FOOD & BEVERAGE
Wild Oats Markets, Inc.*
(OPERATES A NATURAL FOOD SUPERMARKET
CHAIN) 293,900 2,975,738
Hain Celestial Group, Inc.*
(DISTRIBUTES AND SELLS NATURAL, ORGANIC
AND SPECIALTY FOOD PRODUCTS) 142,064 3,782,454
---------------------------------------------------------------------------
6,758,192
------------------------------------------------------------------------------------------------------------------------
HEALTH--8.9%
BIOTECHNOLOGY--4.0%
Alexion Pharmaceuticals, Inc.*
(DEVELOPER OF IMMUNOREGULATORY COMPOUNDS) 75,400 4,863,300
Arena Pharmaceuticals, Inc.*
(DEVELOPER OF RECEPTOR-BASED SCREENING
ASSAY USING THEIR OWN CART TECHNOLOGY) 21,500 510,625
CryoLife, Inc.*
(PROVIDER OF CRYOPRESERVATION OF VIABLE
HUMAN TISSUE FOR TRANSPLANTS) 176,600 3,940,388
QLT, Inc.*
(DEVELOPER OF PHARMACEUTICAL PRODUCTS) 75,100 4,948,763
---------------------------------------------------------------------------
14,263,076
MEDICAL SUPPLY & SPECIALTY--1.0%
Aclara Biosciences, Inc.*
(DEVELOPER OF MICROFLUIDIC TECHNOLOGY) 29,000 1,218,000
Cytyc Corp.*
(MANUFACTURER OF MEDICAL EQUIPMENT) 18,500 888,000
Fusion Medical Technologies, Inc.*
(DEVELOPS SURGICAL SEALANTS FOR THE
TREATMENT OF SURGICAL WOUNDS) 135,100 1,511,431
---------------------------------------------------------------------------
3,617,431
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
PHARMACEUTICALS--3.9%
Biovail Corp.*
(PHARMACEUTICAL COMPANY) 82,700 $ 4,796,600
Cell Pathways, Inc.*
(DEVELOPER AND COMMERCIALIZER OF PRODUCTS
TO PREVENT AND TREAT CANCER) 155,400 4,040,400
Charles River Laboratories International,
Inc.*
(PROVIDER OF RESEARCH TOOLS AND SUPPORT
SERVICES THAT ENABLE DRUG DISCOVERY AND
DEVELOPMENT) 94,500 2,852,719
NPS Pharmaceuticals, Inc.*
(DEVELOPER OF SMALL MOLECULE DRUGS) 85,500 2,415,375
---------------------------------------------------------------------------
14,105,094
------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--4.9%
CELLULAR TELEPHONE--1.2%
Research in Motion Ltd.*
(MANUFACTURER AND MARKETER OF RADIO MODEM
TECHNOLOGY FOR A WIDE VARIETY OF ACCESS
DEVICES IN THE WIRELESS COMMUNICATIONS
SERVICES) 75,400 4,081,294
Triton Network Systems, Inc.*
(PROVIDER OF BROADBAND WIRELESS
EQUIPMENT) 5,600 154,700
---------------------------------------------------------------------------
4,235,994
TELEPHONE/ COMMUNICATIONS--2.6%
Lightbridge, Inc.*
(PROVIDER OF TELECOMMUNICATIONS SERVICES) 206,600 4,545,200
Proxim, Inc.*
(MANUFACTURER OF WIRELESS LOCAL AREA
NETWORKING PRODUCTS) 13,800 1,049,663
SBA Communications Corp.*
(PROVIDER OF WIRELESS COMMUNICATIONS) 85,300 3,849,163
Sunrise Telecom, Inc.*
(MANUFACTURER AND MARKETER OF SERVICE
VERIFICATION EQUIPMENT TO PRE-QUALIFY,
VERIFY AND DIAGNOSE TELECOMMUNICATIONS
AND INTERNET NETWORKS) 1,900 88,350
---------------------------------------------------------------------------
9,532,376
MISCELLANEOUS--1.1%
Netopia, Inc.*
(PROVIDER OF HIGH-SPEED, MULTI-USER,
PLUG-AND-PLAY INTERNET CONNECTIVITY
PRODUCTS) 70,900 3,828,600
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
FINANCIAL--1.3%
BANKS
Hudson United Bancorp
(BANK) 200,500 4,786,938
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
MEDIA--1.8%
BROADCASTING & ENTERTAINMENT--0.9%
Cumulus Media, Inc. "A"*
(RADIO BROADCASTING COMPANY) 332,900 3,245,775
---------------------------------------------------------------------------
CABLE TELEVISION--0.9%
Insight Communications Co., Inc.*
(OPERATOR OF CABLE TELEVISION SYSTEMS) 248,300 3,041,675
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--7.1%
EDP SERVICES--2.0%
Micromuse, Inc.*
(DEVELOPER OF SOFTWARE SOLUTIONS TO
MANAGE INFORMATION TECHNOLOGY
INFRASTRUCTURE) 42,900 5,565,605
Ultimate Software Group, Inc.*
(DEVELOPER OF PERSONNEL AND PAYROLL
MANAGEMENT SOFTWARE SOLUTIONS) 156,100 1,429,291
---------------------------------------------------------------------------
6,994,896
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
INVESTMENT--0.6%
Multex.com, Inc.*
(PROVIDER OF ONLINE INVESTMENT RESEARCH
AND INFORMATION SERVICES) 92,400 $ 2,229,150
---------------------------------------------------------------------------
MISCELLANEOUS COMMERCIAL
SERVICES--4.5%
AnswerThink Consulting Group, Inc.*
(PROVIDER OF CONSULTING AND TECHNOLOGY-
ENABLED SOLUTIONS FOCUSED ON THE INTERNET
AND WEB-ENABLED COMMERCE) 133,000 2,236,063
Copart, Inc.*
(AUCTIONEER OF DAMAGED VEHICLES FOR
INSURANCE COMPANIES) 392,000 5,194,000
Korn/Ferry International*
(A GLOBAL EXECUTIVE SEARCH FIRM) 156,800 5,272,400
Newgen Results Corp.*
(PROVIDER OF CUSTOMIZED DATABASE
MANAGEMENT AND RELATED SERVICES FOR
AUTOMOBILE DEALERSHIPS AND MANUFACTURERS) 86,900 1,075,388
Vicinity Corp.*
(PROVIDER OF INTERNET-BASED MARKETING
INFRASTRUCTURE SERVICES) 110,900 2,204,138
---------------------------------------------------------------------------
15,981,989
MISCELLANEOUS CONSUMER SERVICES--0.0%
Steiner Leisure Ltd.*
(PROVIDER OF SPA SERVICES, SKIN AND HAIR
PRODUCTS ON CRUISE SHIPS) 7,400 143,375
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
DURABLES--6.3%
AEROSPACE--0.3%
REMEC, Inc.*
(DESIGNER AND MANUFACTURER OF MICROWAVE
MULTI-FUNCTION MODULES) 43,000 1,100,531
---------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--6.0%
Antec Corp.*
(DEVELOPER AND SUPPLIER OF OPTICAL
TRANSMISSION EQUIPMENT FOR CABLE TV) 193,700 7,324,281
Com21, Inc.*
(DESIGNER, DEVELOPER AND RETAILER OF
VALUE-ADDED, HIGH-SPEED COMMUNICATIONS
SOLUTIONS) 104,000 1,820,000
Polycom, Inc.*
(MANUFACTURER OF AUDIO AND DATA
CONFERENCING PRODUCTS) 88,500 8,395,055
Spectrasite Holdings, Inc.*
(DEVELOPER OF TOWER NETWORKS FOR THE
WIRELESS COMMUNICATIONS INDUSTRY) 176,300 3,746,375
---------------------------------------------------------------------------
21,285,711
------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--12.9%
CHEMICALS--2.9%
Albany Molecular Research, Inc.*
(AN INTEGRATED CHEMISTRY OUTSOURCING
COMPANY) 80,800 4,474,300
Cabot Microelectronics Corp.*
(MANUFACTURER OF SLURRIES USED IN
CHEMICAL MECHANICAL PLANARIZATION) 122,600 5,762,200
---------------------------------------------------------------------------
10,236,500
ELECTRICAL PRODUCTS--5.1%
ATMI, Inc.*
(SUPPLIER OF ELECTRICAL ITEMS) 104,500 2,690,875
Power-One, Inc.*
(MANUFACTURER OF POWER SUPPLIES FOR
ELECTRONIC EQUIPMENT MANUFACTURERS) 133,350 15,743,622
---------------------------------------------------------------------------
18,434,497
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
INDUSTRIAL SPECIALTY--1.8%
American Superconductor Corp.*
(DEVELOPER, MANUFACTURER AND MARKETER OF
PRODUCTS UTILIZING SUPERCONDUCTING
MATERIALS FOR ELECTRIC POWER
APPLICATIONS) 68,600 $ 2,538,200
Artesyn Technologies, Inc.*
(MANUFACTURER OF ELECTRONIC PRODUCTS AND
SYSTEMS FOR THE COMMUNICATIONS INDUSTRY) 110,600 3,760,400
---------------------------------------------------------------------------
6,298,600
MACHINERY/COMPONENTS/ CONTROLS--2.3%
Brooks Automation, Inc.*
(DEVELOPER AND MANUFACTURER OF ROBOTS AND
HANDLING SYSTEMS) 66,200 3,285,175
RadiSys Corp.*
(DESIGNER AND MANUFACTURER OF EMBEDDED
COMPUTER SOLUTIONS) 81,900 5,036,850
---------------------------------------------------------------------------
8,322,025
MISCELLANEOUS--0.8%
Jakks Pacific, Inc.*
(MANUFACTURER AND DEVELOPER OF TOYS AND
RELATED PRODUCTS FOR CHILDREN) 180,550 2,979,075
---------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--33.4%
COMPUTER SOFTWARE--13.0%
Advent Software, Inc.*
(PROVIDER OF STAND-ALONE AND
CLIENT/SERVER SOFTWARE PRODUCTS) 121,200 6,847,815
BSQUARE Corp.*
(SOFTWARE DEVELOPER) 218,300 3,874,825
Braun Consulting, Inc.*
(PROVIDER OF INTERNET-RELATED SOFTWARE
APPLICATIONS) 136,500 2,951,813
Broadbase Software, Inc.*
(PROVIDER OF DATABASE SOFTWARE) 123,300 2,905,256
Cobalt Networks, Inc.*
(PROVIDER OF SERVER APPLIANCES THAT
ENABLE ORGANIZATIONS TO ESTABLISH AN
ONLINE PRESENCE) 104,500 4,767,813
Digital Courier Technologies, Inc.*
(DEVELOPER OF INTERNET SOFTWARE AND
SERVICES) 312,800 1,348,950
ITXC Corp.*
(PROVIDER OF INTERNET-BASED VOICE AND FAX
SERVICES) 20,500 371,563
Information Architects Corp.*
(PROVIDER OF WEB-BASED DIGITAL CONTENT
AND INFORMATION MANAGEMENT SOLUTIONS) 216,900 1,382,738
Manugistics Group, Inc.*
(PROVIDER OF SOLUTIONS FOR ENTERPRISES
AND EVOLVING E-BUSINESS TRADING NETWORKS) 16,500 915,750
Mercator Software, Inc.*
(PROVIDER OF E-BUSINESS SOFTWARE) 146,100 2,995,050
Numerical Technologies, Inc.*
(DESIGNER OF COMPUTER-AIDED DESIGN
SOFTWARE) 17,300 806,613
Packeteer, Inc.*
(PROVIDER OF APPLICATION-ADAPTIVE
BANDWIDTH MANAGEMENT SOLUTIONS) 113,000 4,350,500
Precise Software Solutions, Ltd.*
(PROVIDER OF INFORMATION TECHNOLOGY
INFRASTRUCTURE PERFORMANCE MANAGEMENT
SOFTWARE) 38,100 800,100
Quintus Corp.*
(PROVIDER OF INTERNET COMMERCE SOFTWARE) 142,000 1,686,250
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
RSA Security, Inc.*
(PROVIDER OF INTERNET SECURITY SOLUTIONS
FOR ELECTRONIC BUSINESS WORLDWIDE) 25,500 $ 1,616,063
Viador, Inc.*
(PROVIDER OF INTERNET SOFTWARE) 215,400 2,288,625
VocalTec, Ltd.*
(PRODUCER OF SOFTWARE FOR AUDIO
COMMUNICATIONS ON THE INTERNET) 113,800 2,098,188
WatchGuard Technologies, Inc.*
(PROVIDER OF INTERNET SECURITY PRODUCTS) 91,100 4,469,594
---------------------------------------------------------------------------
46,477,506
EDP PERIPHERALS--2.6%
Mercury Interactive Corp.*
(PRODUCER OF AUTOMATED SOFTWARE TESTING
TOOLS) 95,100 9,440,161
---------------------------------------------------------------------------
ELECTRONIC DATA PROCESSING--2.2%
Internet Security Systems, Inc.*
(PROVIDER OF SECURITY MANAGEMENT
SOLUTIONS FOR THE INTERNET) 105,900 7,823,363
---------------------------------------------------------------------------
OFFICE/PLANT AUTOMATION--3.2%
Mercury Computer Systems, Inc.*
(MANUFACTURER OF DIGITAL SIGNAL
PROCESSING COMPUTER SYSTEMS) 87,200 2,343,500
National Computer Systems, Inc.
(PROVIDER OF SOFTWARE, SERVICES AND
SYSTEMS FOR THE COLLECTION, MANAGEMENT
AND INTERPRETATION OF DATA) 79,000 5,678,125
Pinnacle Systems, Inc.*
(MANUFACTURER OF VIDEO POST-PRODUCTION
WORKSTATIONS) 423,700 3,243,953
---------------------------------------------------------------------------
11,265,578
PRECISION INSTRUMENTS--1.3%
Molecular Devices Corp.*
(DEVELOPER OF BIOANALYTICAL MEASUREMENT
SYSTEMS) 60,400 4,741,400
---------------------------------------------------------------------------
SEMICONDUCTORS--9.3%
Alpha Industries, Inc.*
(DESIGNER AND MANUFACTURER OF A VARIETY
OF INTEGRATED CIRCUITS) 99,800 3,399,438
Axcelis Technologies, Inc.*
(PRODUCER OF ION IMPLANTATION EQUIPMENT
USED IN THE FABRICATION OF
SEMICONDUCTORS) 187,900 3,476,150
Oak Technology, Inc.*
(MANUFACTURER OF MULTIMEDIA
SEMICONDUCTORS AND RELATED SOFTWARE) 117,000 2,691,000
Pixelworks, Inc.*
(DESIGNER OF SEMICONDUCTOR RELATED
SYSTEMS) 14,900 570,856
Silicon Image, Inc.*
(DEVELOPER OF SEMICONDUCTORS) 72,100 3,821,300
Silicon Storage Technology, Inc.*
(DESIGNER OF MEMORY CHIPS) 135,000 8,530,313
SpeedFam-IPEC, Inc.*
(DEVELOPER OF SEMICONDUCTOR DEVICES) 170,900 3,385,956
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
Therma-Wave, Inc.*
(DEVELOPER OF PROCESS CONTROL SYSTEMS FOR
USE IN THE MANUFACTURING OF
SEMICONDUCTORS) 99,800 $ 2,233,025
Transwitch Corp.*
(DEVELOPER, MARKETER AND SUPPORTER OF
INTEGRATED DIGITAL AND MIXED-SIGNAL
SEMICONDUCTORS FOR TELECOMMUNICATION
MARKETS) 63,850 5,100,019
---------------------------------------------------------------------------
33,208,057
MISCELLANEOUS--1.8%
National Information Consortium, Inc.*
(PROVIDER OF INTERNET-BASED ELECTRONIC
GOVERNMENT SOLUTIONS) 386,800 2,997,700
Network Engines, Inc.*
(PROVIDER OF INTEGRATED AND SCALABLE
SERVER APPLIANCES THAT DELIVER INTERNET
APPLICATION FUNCTIONALITY) 5,600 154,700
SonoSite, Inc.*
(DEVELOPER OF MINIATURIZED DIGITAL
ULTRASOUND IMAGING DEVICES) 113,800 3,414,000
---------------------------------------------------------------------------
6,566,400
------------------------------------------------------------------------------------------------------------------------
ENERGY--8.5%
OIL & GAS PRODUCTION--3.5%
3TEC Energy Corp.*
(OIL AND GAS EXPLORATION AND PRODUCTION) 118,700 1,439,238
Barrett Resources Corp.*
(OIL AND GAS EXPLORATION AND PRODUCTION) 108,700 3,023,219
Key Production Co., Inc.*
(OIL AND GAS PRODUCTION) 204,600 2,902,763
Swift Energy Co.*
(OIL AND GAS EXPLORATION AND PRODUCTION) 238,200 5,225,513
---------------------------------------------------------------------------
12,590,733
OIL COMPANIES--1.4%
Stone Energy Corp.*
(OIL AND GAS COMPANY) 101,000 4,848,000
---------------------------------------------------------------------------
OILFIELD SERVICES/ EQUIPMENT--3.6%
National-Oilwell, Inc.*
(MANUFACTURER OF OIL AND GAS DRILLING
EQUIPMENT) 143,800 4,745,400
Precision Drilling Corp.*
(PROVIDER OF CONTRACT WELL DRILLING AND
OTHER SERVICES TO THE OIL AND GAS
INDUSTRY) 105,700 3,607,013
Universal Compression Holdings, Inc.*
(NATURAL GAS COMPRESSION SERVICES
COMPANY) 158,300 4,729,213
---------------------------------------------------------------------------
13,081,626
------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--3.9%
BUILDING MATERIALS--0.5%
Simpson Manufacturing Co., Inc.*
(MANUFACTURER OF WOOD-TO-WOOD, WOOD-TO-
CONCRETE AND WOOD-TO-MASONRY CONNECTORS) 33,400 1,636,600
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
BUILDING PRODUCTS--3.4%
CoStar Group, Inc.*
(PROVIDER OF BUILDING PLAN INFORMATION) 118,100 $ 4,332,794
Trex Company, Inc.*
(MANUFACTURER OF NON-WOOD DECKING
ALTERNATIVE PRODUCTS) 149,000 7,990,125
---------------------------------------------------------------------------
12,322,919
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $336,134,477) 341,651,671
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $352,743,477)(a) 358,260,671
---------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
(a) The cost for federal income tax purposes was $353,528,739. At July 31, 2000,
net unrealized appreciation for all securities based on tax cost was
$4,731,932. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$67,512,644 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $62,780,712.
18 The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of July 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $352,743,477) $358,260,671
----------------------------------------------------------------------------
Cash 3,109
----------------------------------------------------------------------------
Receivable for investments sold 1,490,737
----------------------------------------------------------------------------
Receivable for Fund shares sold 1,561,552
----------------------------------------------------------------------------
Due from Adviser 283,561
----------------------------------------------------------------------------
Deferred organization expense 4,826
----------------------------------------------------------------------------
Other assets 968
----------------------------------------------------------------------------
TOTAL ASSETS 361,605,424
----------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 4,803,181
----------------------------------------------------------------------------
Payable for Fund shares redeemed 816,420
----------------------------------------------------------------------------
Accrued management fee 198,551
----------------------------------------------------------------------------
Accrued reorganization costs 36,859
----------------------------------------------------------------------------
Accrued Trustees' fees and expenses 72,127
----------------------------------------------------------------------------
Other accrued expenses and payables 121,579
----------------------------------------------------------------------------
Total liabilities 6,048,717
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $355,556,707
----------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments 5,517,194
----------------------------------------------------------------------------
Accumulated net realized gain (loss) 16,906,266
----------------------------------------------------------------------------
Paid-in capital 333,133,247
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $355,556,707
----------------------------------------------------------------------------
NET ASSET VALUE
CLASS S SHARES
Net Asset Value, offering and redemption price per share
($352,430,736 / 12,930,981 outstanding shares of
beneficial interest, $.01 par value, unlimited number of
shares authorized) $27.25
----------------------------------------------------------------------------
CLASS A SHARES
Net Asset Value and redemption price per share ($2,094,990
/ 76,911 outstanding shares of beneficial interest, $.01
par value, unlimited number of shares authorized) $27.24
----------------------------------------------------------------------------
Maximum offering price per share (100 / 94.25 of $27.24) $28.90
----------------------------------------------------------------------------
CLASS B SHARES
Net Asset Value, offering and redemption price (subject to
contingent deferred sales charge) per share ($693,927 /
25,523 outstanding shares of beneficial interest, $.01 par
value, unlimited number of shares authorized) $27.19
----------------------------------------------------------------------------
CLASS C SHARES
Net Asset Value, offering and redemption price (subject to
contingent deferred sales charge) per share ($337,054 /
12,396 outstanding shares of beneficial interest, $.01 par
value, unlimited number of shares authorized) $27.19
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 19
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
For the year ended July 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends $ 80,649
---------------------------------------------------------------------------
Interest 928,169
---------------------------------------------------------------------------
Total Income 1,008,818
---------------------------------------------------------------------------
Expenses:
Management fee 2,251,586
---------------------------------------------------------------------------
Services to shareholders 1,165,193
---------------------------------------------------------------------------
Custodian and accounting fees 107,636
---------------------------------------------------------------------------
Distribution services fees 782
---------------------------------------------------------------------------
Administrative services fees 691
---------------------------------------------------------------------------
Auditing 21,701
---------------------------------------------------------------------------
Legal 16,319
---------------------------------------------------------------------------
Trustees' fees and expenses 113,824
---------------------------------------------------------------------------
Reports to shareholders 34,386
---------------------------------------------------------------------------
Registration fees 149,495
---------------------------------------------------------------------------
Amortization of organization expense 4,359
---------------------------------------------------------------------------
Reorganization 47,267
---------------------------------------------------------------------------
Other 9,300
---------------------------------------------------------------------------
Total expenses, before expense reductions 3,922,539
---------------------------------------------------------------------------
Expense reductions (443,325)
---------------------------------------------------------------------------
Total expenses, after expense reductions 3,479,214
---------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (2,470,396)
---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 20,122,611
---------------------------------------------------------------------------
Foreign currency related transactions (151)
---------------------------------------------------------------------------
20,122,460
---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments (9,950,758)
---------------------------------------------------------------------------
Net gain (loss) on investment transactions 10,171,702
---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 7,701,306
---------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED
JULY 31, JULY 31, AUGUST 31,
2000 1999 1998
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ (2,470,396) (589,976) (448,014)
----------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment
transactions 20,122,460 6,048,657 (75,261)
----------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
on investment transactions during the
period (9,950,758) 19,613,097 (8,260,290)
----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 7,701,306 25,071,778 (8,783,565)
----------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net realized gains -- Class S (4,563,214) -- --
----------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 387,301,874 34,857,980 21,758,221
----------------------------------------------------------------------------------------------------------
Reinvestment of distributions 4,511,310 -- --
----------------------------------------------------------------------------------------------------------
Cost of shares redeemed (111,213,058) (15,346,773) (9,368,423)
----------------------------------------------------------------------------------------------------------
Redemption fees 266,762 43,738 22,595
----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions 280,866,888 19,554,945 12,412,393
----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 284,004,980 44,626,723 3,628,828
----------------------------------------------------------------------------------------------------------
Net assets at beginning of period 71,551,727 26,925,004 23,296,176
----------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $ 355,556,707 71,551,727 26,925,004
----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 21
<PAGE>
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
THE PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CLASS A CLASS B CLASS C
<CAPTION>
2000(A) 2000(A) 2000(A)
<S> <C> <C> <C>
Net asset value, beginning of period $29.07 $29.07 $29.07
------------------------------------------------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)(b) (.06) (.12) (.12)
------------------------------------------------ ------ ------ ------
Net realized and unrealized gain (loss) on
investments transactions (1.77) (1.76) (1.76)
------------------------------------------------ ------ ------ ------
Total from investment operations (1.83) (1.88) (1.88)
------------------------------------------------ ------ ------ ------
Net asset value, end of period $27.24 27.19 27.19
------------------------------------------------ ------ ------ ------
TOTAL RETURN (%)(C)(D) (6.30)** (6.47)** (6.47)**
<CAPTION>
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
<S> <C> <C> <C>
Net assets, end of period ($ millions) 2 .69 .34
------------------------------------------------ ------ ------ ------
Ratio of expenses before expense reductions (%) 2.10* 3.19* 3.66*
------------------------------------------------ ------ ------ ------
Ratio of expenses after expense reductions (%) 1.45* 2.20* 2.20*
------------------------------------------------ ------ ------ ------
Ratio of net investment income (loss)(%) (.26)** (.45)** (.45)**
------------------------------------------------ ------ ------ ------
Portfolio turnover rate (%) 135 135 135
------------------------------------------------ ------ ------ ------
</TABLE>
NOTES:
(a) For the period May 1, 2000 (commencement of sales of Class A, Class B and C
shares) to July 31, 2000.
(b) Based on monthly average shares outstanding during the period.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1
SIGNIFICANT
ACCOUNTING POLICIES Scudder 21st Century Growth Fund (the "Fund") is a
diversified series of Scudder Securities Trust (the
"Trust") which is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"),
as an open-end management investment company
organized as a Massachusetts business trust.
On September 16, 1998, the Fund changed its fiscal
year end for financial reporting and federal income
tax purposes to July 31 from August 31.
Beginning May 1, 2000, the Fund offers multiple
classes of shares. Class S shares are not subject
to initial or contingent deferred sales charges.
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. Certain detailed financial
information for the Class A, B and C shares is
provided separately and is available upon request.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with accounting principles generally
accepted in the United States which require the use
of management estimates. The policies described
below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
FOREIGN CURRENCY TRANSLATIONS. The books and
records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
exchange rates at period end. Purchases and sales
of investment securities, income and expenses are
translated into U.S. dollars at the prevailing
exchange rates on the respective dates of the
transactions.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses between trade and settlement dates on
securities transactions, the disposition of forward
foreign currency exchange contracts and foreign
currencies, and the difference between the amount
of net investment income accrued and the U.S.
dollar amount actually received. That portion of
both realized and unrealized gains and losses on
investments that results from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with net realized and
unrealized gains and losses on investment
securities.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from accounting principles
generally accepted in the United States. These
differences primarily relate to net investment
losses incurred by the Fund and 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.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis. All discounts are accreted
for both tax and financial reporting purposes.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION COSTS. Costs incurred by the Fund in
connection with its organization have been deferred
and are being amortized on a straight-line basis
over a five-year period.
REDEMPTION FEES. In general, shares of the Fund may
be redeemed at net asset value. However, upon the
redemption or exchange of shares held by Class S
shareholders for less than one year, a fee of 1% of
the current net asset value of the shares will be
assessed and retained by the Fund for the benefit
of the remaining Class S shareholders. The
redemption fee is accounted for as an addition to
paid-in capital.
--------------------------------------------------------------------------------
2
PURCHASES AND SALES
OF SECURITIES During the year ended July 31, 2000, purchases and
sales of investment securities (excluding
short-term investments) aggregated $546,015,329 and
$282,437,736, respectively.
--------------------------------------------------------------------------------
3
TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. Under the Investment
Management Agreement (the "Agreement") with Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment
objective, policies and restrictions. The Adviser
determines the securities, instruments and other
contracts relating to investments to be purchased,
sold or entered into by the Fund. In addition to
portfolio management services, the Adviser provides
certain administrative services in accordance with
the Agreement. The management fee payable under the
Agreement is equal to an annual rate of 1.00% of
the Fund's average daily net assets, computed and
accrued daily and payable monthly. The Adviser and
certain subsidiaries have agreed to maintain the
annualized expenses of the classes of the Fund
until October 1, 2000 as follows: Class A shares
1.45%, Class B shares 2.20%, Class C shares 2.20%,
and until May 1, 2000, Class S shares 1.75%. In
addition, the Adviser and certain subsidiaries have
voluntarily agreed to maintain expenses at not more
than 1.20% of average daily net assets for Class S
shares from May 1, 2000 through October 1, 2000.
Certain expenses such as reorganization, taxes,
brokerage and interest are excluded from the
expense limitation. For the year ended July 31,
2000, the Adviser did not impose a portion of its
management fee amounting to $6,495 and the amount
imposed amounted to $2,245,091, which was
equivalent to an annual effective rate of 1.00%. In
addition, for the year ended July 31, 2000, the
Adviser and certain subsidiaries have agreed to not
impose certain class-specific expenses in the
amounts as follows: Class A shares $481, Class B
shares $432, Class C shares $432, and Class S
shares $37,351.
DISTRIBUTION SERVICE AGREEMENT. In accordance with
Rule 12b-1 under the 1940 Act, Kemper Distributors,
Inc. ("KDI"), a subsidiary of the Adviser, receives
a fee of 0.75% of average daily net assets of
Classes B and C. Pursuant to the agreement, KDI
enters into related selling group agreements with
various firms at various rates for sales of Class B
and C shares. For the period May 1, 2000 through
July 31, 2000, the Distribution Fee was as follows:
<TABLE>
<CAPTION>
UNPAID AT TOTAL
DISTRIBUTION FEE JULY 31, 2000 AGGREGATED
---------------------------------------------- ------------- ----------
<S> <C> <C>
Class B....................................... $512 $370
Class C....................................... 270 192
---- ----
$782 $562
==== ====
</TABLE>
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
UNDERWRITING AGREEMENT AND CONTINGENT DEFERRED
SALES CHARGE. KDI is the principal underwriter for
Classes A, B and C. Underwriting commissions paid
in connection with the distribution of Class A
shares for the period May 1, 2000 through July 31,
2000 aggregated $2,032, of which none was paid to
other firms.
In addition, KDI receives any contingent deferred
sales charge (CDSC) from Class B share redemptions
occurring within six years of purchase and Class C
share redemptions occurring within one year of
purchase. There is no such charge upon redemption
of any share appreciation or reinvested dividends.
Contingent deferred sales charges are based on
declining rates ranging from 4% to 1% for Class B
and 1% for Class C, of the value of the shares
redeemed. For the period May 1, 2000 through July
31, 2000, the CDSC for Class B aggregated $53 and
there was no CDSC for Class C.
ADMINISTRATIVE SERVICES FEES. KDI provides
information and administrative services to Classes
A, B and C shareholders at an annual rate of up to
0.25% of average daily net assets for each such
class. KDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based upon the assets
of shareholder accounts the firms service. For the
period May 1, 2000 through July 31, 2000, the
Administrative Services Fee was as follows:
<TABLE>
<CAPTION>
TOTAL FEES WAIVED UNPAID AT
ADMINISTRATIVE SERVICES FEE AGGREGATED BY KDI JULY 31, 2000
--------------------------- ---------- ----------- -------------
<S> <C> <C> <C>
Class A......................... $431 $-- $348
Class B......................... 171 -- 144
Class C......................... 89 -- 72
---- -- ----
$691 $-- $564
==== == ====
</TABLE>
SHAREHOLDER SERVICES FEES. Kemper Service Company
("KSC"), an affiliate of the Adviser, is the
transfer, dividend-paying and shareholder service
agent for the Fund's Classes A, B and C shares. For
the period May 1, 2000 through July 31, 2000, the
amount charged to Classes A, B and C by KSC
aggregated $621, $241 and $90, respectively, all of
which is not imposed at July 31, 2000. Scudder
Service Corporation ("SSC"), a subsidiary of the
Adviser, is the transfer, dividend-paying and
shareholder service agent for the Class S shares of
the Fund. For the year ended July 31, 2000, SSC did
not impose a portion of its shareholder services
fees for Class S shares of the Fund amounting to
$178,539 and the amount imposed amounted to
$403,593.
Scudder Trust Company ("STC"), a subsidiary of the
Adviser, provides recordkeeping and other services
in connection with certain retirement and employee
benefit plans invested in the Class S shares of the
Fund. For the year ended July 31, 2000, STC did not
impose a portion of its fees for Class S shares of
the Fund amounting to $173,297 and the amount
imposed amounted to $162,519.
FUND ACCOUNTING FEES. Scudder Fund Accounting
Corporation ("SFAC"), a subsidiary of the Adviser,
is responsible for determining the daily net asset
value per share and maintaining the portfolio and
general accounting records of the Fund. For the
year ended July 31, 2000, the amount charged to the
Fund by SFAC aggregated $86,751, of which $11,510
is unpaid at July 31, 2000.
The Class S shares of the Fund are one of several
Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the
"Portfolios")
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
invest. In accordance with the Special Servicing
Agreement entered into by the Adviser, the
Portfolios, the Underlying Funds, SSC, SFAC, STC
and Scudder Investor Services, Inc., expenses from
the operation of the Portfolios are borne by the
Underlying Funds based on each Underlying Fund's
proportionate share of assets owned by the
Portfolios. No Underlying Fund will be charged
expenses that exceed the estimated savings to each
respective Underlying Fund. These estimated savings
result from the elimination of separate shareholder
accounts which either currently are or have
potential to be invested in the Underlying Funds.
For the year ended July 31, 2000, the Special
Servicing Agreement expense charged to the Class S
shares of the Fund amounted to $115,159.
TRUSTEES' FEES. The Fund pays each of its Trustees
not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and
committee meetings. For the year ended July 31,
2000, the Trustees' fees and expenses aggregated
$46,749. In addition, a one-time fee of $67,075 was
accrued for payment to those Trustees not
affiliated with the Adviser who are not standing
for re-election, under the reorganization discussed
in Note G. Inasmuch as the Adviser will also
benefit from administrative efficiencies of a
consolidated Board, the Adviser has agreed to bear
$33,537 of such costs.
--------------------------------------------------------------------------------
4
EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of the Fund's
expenses. During the year ended July 31, 2000, the
Fund's custodian and transfer agent fees were
reduced by $4,403 and $7,406, respectively, under
these arrangements.
--------------------------------------------------------------------------------
5
LINE OF CREDIT The Fund and several Scudder Funds (the
"Participants") share in a $1 billion revolving
credit facility with Chase Manhattan Bank for
temporary or emergency purposes, including the
meeting of redemption requests that otherwise might
require the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated, pro rata based upon net assets,
among each of the Participants. Interest is
calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum
of 33 percent of its net assets under the
agreement.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
6
SHARE TRANSACTIONS The following tables summarize share and dollar
activity in the Fund:
<TABLE>
<CAPTION>
YEAR ENDED ELEVEN MONTHS ENDED
JULY 31, 2000 JULY 31, 1999
--------------------------- --------------------------
SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
SHARES SOLD
Class S 12,844,240 $ 383,733,292 2,232,047 $ 34,857,980
-----------------------------------------------------------------------------------
Class A* 83,549 2,407,999 -- --
-----------------------------------------------------------------------------------
Class B* 25,568 741,845 -- --
-----------------------------------------------------------------------------------
Class C* 14,613 418,738 -- --
-----------------------------------------------------------------------------------
12,967,970 $ 387,301,874 2,232,047 $ 34,857,980
-----------------------------------------------------------------------------------
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
Class S 155,668 $ 4,511,310 -- $ --
-----------------------------------------------------------------------------------
Class A* -- -- -- --
-----------------------------------------------------------------------------------
Class B* -- -- -- --
-----------------------------------------------------------------------------------
Class C* -- -- -- --
-----------------------------------------------------------------------------------
155,668 $ 4,511,310 -- $ --
-----------------------------------------------------------------------------------
SHARES REDEEMED
Class S (3,939,805) $(110,953,781) (1,014,251) $(15,346,773)
-----------------------------------------------------------------------------------
Class A* (6,638) (191,187) -- --
-----------------------------------------------------------------------------------
Class B* (45) (1,567) -- --
-----------------------------------------------------------------------------------
Class C* (2,217) (66,523) -- --
-----------------------------------------------------------------------------------
(3,948,705) $(111,213,058) (1,014,251) $(15,346,773)
-----------------------------------------------------------------------------------
REDEMPTION FEES
Class S -- $ 266,762 -- $ 43,738
-----------------------------------------------------------------------------------
Class A* -- -- -- --
-----------------------------------------------------------------------------------
Class B* -- -- -- --
-----------------------------------------------------------------------------------
Class C* -- -- -- --
-----------------------------------------------------------------------------------
-- $ 266,762 -- $ 43,738
-----------------------------------------------------------------------------------
NET INCREASE (DECREASE)
Class S 9,060,103 $ 277,557,583 1,217,796 $ 19,554,945
-----------------------------------------------------------------------------------
Class A* 76,911 2,216,812 -- --
-----------------------------------------------------------------------------------
Class B* 25,523 740,278 -- --
-----------------------------------------------------------------------------------
Class C* 12,396 352,215 -- --
-----------------------------------------------------------------------------------
9,174,933 $ 280,866,888 1,217,796 $ 19,554,945
-----------------------------------------------------------------------------------
</TABLE>
* For the period May 1, 2000 (commencement of sales
of Class A, B and C shares) to July 31, 2000.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, 1998
---------------------------
SHARES DOLLARS
<S> <C> <C>
SHARES SOLD
Class S 1,580,844 $21,758,221
---------------------------------------------------------------------------
SHARES REDEEMED
Class S (704,109) $(9,368,423)
---------------------------------------------------------------------------
REDEMPTION FEES
Class S -- $ 22,595
---------------------------------------------------------------------------
NET INCREASE (DECREASE)
Class S 876,735 $12,412,393
---------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
7
REORGANIZATION In early 2000, Scudder Kemper initiated a
restructuring program for most of its Scudder
no-load open-end funds in response to changing
industry conditions and investor needs. The program
proposes to streamline the management and
operations of most of the no-load open-end funds
Scudder Kemper advises principally through the
liquidation of several small funds, mergers of
certain funds with similar investment objectives,
the creation of one Board of Directors/Trustees and
the adoption of an administrative fee covering the
provision of most of the services currently paid
for by the affected funds. Costs incurred in
connection with this restructuring initiative are
being borne jointly by Scudder Kemper and certain
of the affected funds. These costs, including
printing, shareholder meeting expenses and
professional fees, are presented as reorganization
expenses in the Statement of Operations of the
Fund.
29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF SCUDDER SECURITIES TRUST AND TO THE CLASS A, CLASS B, AND
CLASS C SHAREHOLDERS OF SCUDDER 21ST CENTURY GROWTH FUND:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations and
of changes in net assets and the financial highlights for the Class A, Class B
and Class C shares present fairly, in all material respects, the financial
position of Scudder 21st Century Growth Fund (the "Fund") at July 31, 2000, the
results of its operations, the changes in its net assets, and the financial
highlights for the Class A, Class B and Class C shares for the periods indicated
therein, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights for the Class
A, Class B and Class C shares (hereafter referred to as "financial statements")
are the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at July
31, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
September 19, 2000
30
<PAGE>
TAX INFORMATION SHAREHOLDER MEETING RESULTS
TAX INFORMATION
The Fund paid distributions of $0.40 per share from net long-term capital gains
during its year ended July 31, 2000, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$15,000,000 as capital gains dividends for its year ended July 31, 2000, of
which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
SHAREHOLDERS' MEETING RESULTS
A Special Meeting of Shareholders (the "Meeting") of Scudder 21st Century Growth
Fund (the "fund") was held on July 13, 2000, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1) To elect Trustees of the fund.
<TABLE>
<CAPTION>
Number of Votes:
Trustee For Withheld
<S> <C> <C>
Henry P. Becton, Jr. 5,073,414 96,756
Linda C. Coughlin 5,074,292 95,877
Dawn-Marie Driscoll 5,073,451 96,719
Edgar R. Fiedler 5,072,258 97,912
Keith R. Fox 5,074,795 95,375
Joan E. Spero 5,067,664 102,506
Jean Gleason Stromberg 5,073,651 96,518
Jean C. Tempel 5,074,498 95,672
Steven Zaleznick 5,075,112 95,058
</TABLE>
2) To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the current fiscal year.
<TABLE>
<CAPTION>
Number of Votes:
Broker
For Against Abstain Non-Votes*
<S> <C> <C> <C>
5,068,087 54,529 47,853 0
</TABLE>
* BROKER NON-VOTES ARE PROXIES RECEIVED BY THE FUND FROM BROKERS OR NOMINEES
WHEN THE BROKER OR NOMINEE NEITHER HAS RECEIVED INSTRUCTIONS FROM THE
BENEFICIAL OWNER OR OTHER PERSON ENTITLED TO VOTE NOR HAS DISCRETIONARY POWER
TO VOTE ON A PARTICULAR MATTER.
31
<PAGE>
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
HENRY P. BECTON, JR. THOMAS V. BRUNS ANN M. MCCREARY
Trustee Vice President Vice President
LINDA C. COUGHLIN PETER CHIN JOHN MILLETTE
Chairperson & President Vice President Vice President & Secretary
DAWN-MARIE DRISCOLL J. BROOKS DOUGHERTY KATHRYN L. QUIRK
Trustee Vice President Vice President &
Assistant Secretary
EDGAR R. FIEDLER JAMES M. EYSENBACH
Trustee Vice President HOWARD SCHNEIDER
Vice President
KEITH FOX JAMES E. FENGER
Trustee Vice President JOHN R. HEBBLE
Treasurer
JOAN E. SPERO WILLIAM F. GLAVIN
Trustee Vice President BRENDA LYONS
Assistant Treasurer
JEAN GLEASON STROMBERG SEWELL HODGES
Trustee Vice President CAROLINE PEARSON
Assistant Secretary
JEAN C. TEMPEL JAMES E. MASUR
Trustee Vice President
STEVEN ZALEZNICK
Trustee
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL DECHERT
Ten Post Office Square South
Boston, MA 02109
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
.............................................................................................
TRANSFER AGENT KEMPER SERVICE COMPANY
P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
INDEPENDENT AUDITORS PRICEWATERHOUSECOOPERS LLP
160 Federal Street
Boston, MA 03110
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
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This report is not to be distributed
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Scudder 21st Century Growth Fund Prospectus.
S21CGF-2 (9/25/00) 1120270
