Scudder
Value
Fund
Semiannual Report
March 31, 1999
For investors seeking long-term growth of capital through investment in
undervalued equity securities.
Scudder Value Fund is properly known as Value Fund.
The Fund is a diversified series of Value Equity Trust.
SCUDDER
<PAGE>
Scudder Value Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Date of Inception: 12/31/92 Total Net Assets of Scudder Ticker Symbol: SCVAX
Shares as of 3/31/99: $464.0 million
- ------------------------------------------------------------------------------------------------
</TABLE>
o While U.S. equities rebounded strongly from the financial crisis of last
summer, value stocks generally underperformed growth stocks during the period.
o The Fund maintained a focus on companies with attractive relative valuations,
improving fundamentals, defensible competitive positions, and catalysts for
positive change. At the same time, the Fund employed a risk-control strategy
designed to limit exposure to stocks with deteriorating fundamentals.
o The Fund took advantage of attractive opportunities in the telecommunications
sector, particularly companies that are poised to benefit from the growth of the
Internet, but which lack the lofty valuations of stocks considered to be "pure
plays" on the sector.
Table of Contents
3 Letter from the Fund's President 18 Financial Highlights
4 Performance Update 22 Notes to Financial Statements
5 Portfolio Summary 27 Shareholder Meeting Results
6 Portfolio Management Discussion 28 Officers and Trustees
9 Investment Portfolio 29 Investment Products and Services
15 Financial Statements 30 Scudder Solutions
2 - Scudder Value Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
The past six months have proven difficult for value investors. While the
major domestic indices continue to reach new highs, many value stocks have been
flat or, in many cases, down during the period. Large-cap growth stocks, on the
other hand, have soared. The disparity between growth and value has been caused,
in part, by the global slowdown of corporate profits. In an environment where
growth has been harder to come by, investors have become increasingly willing to
pay high price-to-earnings multiples for companies whose earnings are perceived
to be the most reliable. Conversely, they have been avoiding companies that have
failed to demonstrate recent earnings momentum.
For people who are invested in a sector that has underperformed for an
extended period of time, it is natural to consider reallocating assets into the
areas that have been posting the strongest returns. However tempting such a
course of action may be, we feel that value stocks continue to be a necessary
element of a diversified portfolio. Historically, a strategy that emphasizes
reasonable valuations has been an effective way to achieve strong risk-adjusted
returns. Believing that money will ultimately flow back into value stocks, we
urge investors to remain focused on their objectives. For a long-term
perspective on the performance of value versus growth, please see the chart on
page 6.
For those of you who are interested in new Scudder products, we are pleased
to introduce Scudder Select 500 Fund and Scudder Select 1000 Growth Fund. Both
funds are managed with the goal of providing long-term outperformance compared
to their benchmark indices, the S&P 500 Index and the Russell 1000 Growth Index,
respectively. For more information on either Select fund, please call us at the
number below.
Thank you for your continued investment in Scudder Value Fund. If you have
any questions about your investment, please call Scudder Investor Information at
1-800-225-2470, or visit our Web site at www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Value Fund
3 - Scudder Value Fund
<PAGE>
Performance Update as of March 31, 1999
<TABLE>
<CAPTION>
- ------------------------
Fund Index Comparison
- ------------------------
Total Return
- -------------------------------------------------------------------------------------
Period Ended 3/31/99 Growth of $10,000 Cumulative Average Annual
- -------------------------------------------------------------------------------------
Value Fund - Scudder Shares
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $ 9,774 -2.26% -2.26%
5 Year $ 25,034 150.34% 20.14%
Life of Fund* $ 27,112 171.12% 17.30%
- -------------------------------------------------------------------------------------
S&P 500 Index
- -------------------------------------------------------------------------------------
1 Year $ 11,846 18.46% 18.46%
5 Year $ 32,071 220.71% 26.23%
Life of Fund* $ 33,962 239.62% 21.61%
- -------------------------------------------------------------------------------------
</TABLE>
* The Fund commenced operations on December 31, 1992.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART TITLE:
- ----------------------------------
Growth of a $10,000 Investment
- ----------------------------------
CHART DATA:
Yearly periods Value Fund -
ended March 31 S&P 500 Index Scudder Shares
-------------- ------------- --------------
12/92* 10000 10000
'93 10437 10933
'94 10590 10830
'95 12237 12070
'96 16165 15470
'97 19369 19007
'98 28670 27740
'99 33962 27112
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees or expenses.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
CHART TITLE:
- --------------------------------------
Returns and Per Share Information
- --------------------------------------
CHART DATA:
<TABLE>
<CAPTION>
1993* 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 13.12 $ 12.47 $ 13.64 $ 16.48 $ 18.64 $ 25.03 $ 23.36
- -----------------------------------------------------------------------------------------------------------------------------
Income Dividends $ -- $ .11 $ .12 $ .04 $ .07 $ .24 $ .19
- -----------------------------------------------------------------------------------------------------------------------------
Capital Gains Dividends $ -- $ .43 $ .13 $ .92 $ 1.48 $ 1.65 $ .90
- -----------------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) 9.33 -.94 11.44 28.18 22.86 45.94 -2.26
- -----------------------------------------------------------------------------------------------------------------------------
Index Total Return (%) 4.37 1.48 15.57 32.10 19.83 48.02 18.46
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective April 16, 1998, the Fund changed its name from Scudder Value Fund to
Value Fund and an additional three classes of shares were offered. Existing
shares of Value Fund outstanding on that date were redesignated Scudder Shares
of the Fund. The total return information provided is for the Fund's Scudder
Share Class. Performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Adviser had not maintained
expenses, the total returns for the five year and life of Fund periods would
have been lower.
4 - Scudder Value Fund
<PAGE>
Portfolio Summary as of March 31, 1999
THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
CHART TITLE:
- ---------------------
Asset Allocation
- ---------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Equity Securities 97%
Cash Equivalents 3%
------------------------------------
100%
------------------------------------
The Fund increased its weighting in equities during the reporting period.
THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
CHART TITLE:
- ---------------------------------
Sectors
(Excludes 3% Cash Equivalents)
- ---------------------------------
CHART DATA:
Financial 20%
Technology 12%
Communications 10%
Durables 9%
Health 8%
Energy 7%
Transportation 6%
Manufacturing 6%
Consumer Staples 6%
Other 16%
------------------------------------
100%
------------------------------------
Since we place a greater emphasis on competitive position, the Fund will tend to
hold fewer commodity companies than most value funds.
- ---------------------------------
Ten Largest Equity Holdings
(25% of Portfolio)
- ---------------------------------
1. WPP Group PLC
Advertising agency
2. Bell Atlantic Corp.
Provider of telecommunications services
3. American Home Products Corp.
Major diversified pharmaceutical company
4. BankAmerica Corp.
Commercial banking in California
5. Ford Motor Co.
Leading automobile manufacturer
6. Banc One Corp.
Consumer and commercial bank
7. Texaco Inc.
Major international oil company
8. Parker-Hannifin Corp.
Fluid control components
9. Bristol-Myers Squibb Co.
Diversified pharmaceutical and consumer
products company
10. Intel Corp.
Semiconductor memory circuits
Top holdings reflect our focus on growing, well-established companies with
conservative valuations.
For more complete details about the Fund's investment portfolio, see page 9. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Value Fund
<PAGE>
Portfolio Management Discussion
In the following interview, Portfolio Manager Donald Hall discusses Scudder
Value Fund's strategy and the market environment during the six-month period
ended March 31, 1999.
Q: Value stocks have underperformed the S&P 500 Index by a wide margin in recent
months. What is the cause of this divergence?
A: Investors have been placing less of an emphasis on traditional measures of
valuation, and instead have been buying growth at virtually any price. A small
group of large-cap growth stocks has dominated the market and pushed the indices
to record highs, even as the majority of listed equities have lagged far behind.
The focus on the big-name large-caps and Internet companies has been so intense
that investors have generally ignored entire sectors of the market, such as
small caps and value stocks, even when earnings growth was in line with
expectations. In the mid-cap sector, where 25% of Fund assets are invested, many
stocks with sound fundamentals have slid 10-20% despite the lack of
company-specific problems. The result of this dramatic shift in sentiment can be
seen in the accompanying chart, which shows that growth stocks outperformed
value stocks by a record margin in 1998.
Q: How did the Fund perform in this environment?
A: On an absolute basis, performance was strong: Value Fund posted a total
return of 15.39% for the six months ended March 31. However, compared to the
27.35% return for the unmanaged S&P 500 Index during the same period, the Fund
lagged by quite a bit. It is important to keep in mind that the
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
- --------------------------------------------------------------------------------
Market Environment
Russell 1000 Value vs. Russell 1000 Growth
- --------------------------------------------------------------------------------
BAR CHART DATA:
Value Growth
outperforms Growth outperforms Value
------------------ -----------------
1979 3.4%
1980 15.2%
1981 12.6%
1982 0.4%
1983 12.3%
1984 11.0%
1985 1.3%
1986 4.6%
1987 4.8%
1988 11.9%
1989 10.7%
1990 7.8%
1991 16.6%
1992 8.8%
1993 15.2%
1994 4.6%
1995 1.2%
1996 1.5%
1997 4.7%
1998 23.1%
The bars in this chart represent the difference between the return of the
Russell 1000 Growth Index and the return of the Russell 1000 Value Index for
each year.
6 - Scudder Value Fund
<PAGE>
Index's returns were driven largely by stocks that are far too pricey to fit
within our valuation model, such as America Online, Cisco Systems, and
Microsoft. Our price sensitive discipline meant that we missed out on many big
winners. In addition, some holdings reported disappointing earnings, such as
Lockheed Martin, Allstate, American Greetings, and Texaco. Although the
performance disparity between growth and value has been frustrating, we believe
that the slump in the value sector has provided an opportunity to purchase
excellent companies at very reasonable prices.
Q: What strategy do you employ to uncover low-priced quality?
A: Our approach remains essentially unchanged whether or not the market favors
our style. While we rely on a large and intensive research staff to keep us
informed and use computer models to help us organize data, the thrust of our
approach is basic common sense. We are looking for established companies that
have improving earnings prospects, defensible competitive positions, and
price-to-earnings ratios generally below that of the S&P 500. As of March 31,
94% of the stocks in the portfolio were selling below the market's P/E multiple
based on 1999 earnings estimates. We believe the relentless pursuit of value by
these criteria will provide superior returns over time.
Q: How is this approach different from that of other value funds?
A: Our calculation of an explicit intrinsic value is different from many
managers who focus on simple ratios. Since we place a greater emphasis on
competitive position, we will tend to own fewer pure commodity companies, such
as chemicals, metals, and forest products, than many value funds. We are not
interested in cyclical trades. Commodity stocks are only attractive to us if
there is industry change to support a sustained increase in the price of the
commodity. Also, the P/E is lower on this Fund than even the average value fund.
Q: What are some individual holdings that illustrate your strategy?
A: WPP Group, one of the top three publicly traded advertising companies in the
world, has benefited from the growing tendency of multinational firms to
outsource their advertising activities to single, global vendors, rather than
seeking boutique firms in several individual countries. A leader in this rapidly
growing industry, WPP has demonstrated steadily improving fundamentals and
strong revenue growth. In addition, high switching costs in the industry have
allowed the company to build a highly defensible position. Even after a strong
run-up, the stock remains attractively valued in relation to its peer group as
well as the market. We continue to believe that WPP serves as an excellent
example of an attractive value stock that offers investors more than just a low
P/E ratio.
Bausch & Lomb is a new holding in the Fund. The company has a defensible
competitive position in vision care with its well-established brand name. We
believe that Bausch and Lomb's new products, divestiture of its sunglasses
division, and entry into the very profitable refractive eye surgery market will
boost earnings growth to 16%, yet we were able to purchase the stock at a sharp
discount to the market's multiple.
7 - Scudder Value Fund
<PAGE>
Q: Internet stocks have dominated the news recently, but are in general are too
richly priced for Value Fund. Have you found ways to participate in the growth
of this sector?
A: Yes. While the big-name `Net stocks like Yahoo! and Amazon.com are off limits
to us, we have been able to take advantage of the powerful growth in this sector
by investing in companies that build the "backbone" of the Internet. For
example, Corning, a world leader in fiberoptics, is a stock that we first bought
at a price of only 13 times 1999 earnings estimates in the midst of last year's
emerging markets crisis. A provider of bandwidth for the `Net, Corning is
positioned to take advantage of the growth in fiber that we believe will be
taking place in the years ahead. The company is in an excellent competitive
position, and is benefiting from improving fundamentals following a difficult
first half of 1998.
Another way we have gained exposure to this sector is by investing in companies
whose Internet assets are not being afforded valuations similar to those the
market has bestowed upon recent IPO's. Frequent fliers may recognize the name
Travelocity.com, which is a Web site that allows travelers to purchase tickets
over the Internet. The service is wholly owned by Sabre, of which AMR (American
Airlines) holds an 82% interest. By buying shares of American we have gained a
position in the largest airline in the U.S. as well as Sabre and
Travelocity.com. We believe that if the market were to give American's Internet
business a similar value as it did Priceline.com, which also sells discounted
airline tickets on-line, the potential upside to American's share price would be
significant. Priceline.com, which went public at $16 and soon traded to $100,
reached a market value of $12 billion, which exceeded that of all of AMR.
Companies such as Corning and AMR, along with firms that are traditionally known
for other lines of business, such as IBM and Bell Atlantic, demonstrate that it
is not just growth investors who can benefit from the growth of the Internet.
Q: Value stocks have been performing poorly for some time now. What will be the
catalyst to get the sector going again?
A: We expect a favorable backdrop for stocks in the remainder of 1999, with
moderately higher profits and continued low inflation. Valuations, however, are
high. The S&P 500 is selling at 32 times this year's estimated earnings compared
to the Fund's multiple of only 18 times estimates. Either there is risk in the
market's relative valuation or significant opportunity in the stocks we hold in
the portfolio. We lean to the latter.
Regardless of what happens in the market this year, however, it is important for
investors to keep in mind that the market's preference between value and growth
tends to move in long cycles. An upturn in value stocks is inevitable, and
investors may be wise to consider gradually positioning themselves for a rebound
while the sector is still so far out of favor.
8 - Scudder Value Fund
<PAGE>
Investment Portfolio as of March 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 2.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Co. dated 3/31/1999 at 4.88%, to be
repurchased at $13,571,839 on 4/1/1999, collateralized by a $13,760,000 U.S. Treasury Note, ----------
3.875%, 1/15/2009 (Cost $13,570,000) ......................................................... 13,570,000 13,570,000
----------
Commercial Paper 0.4%
Communications
Telephone/Communications .............................................................................. ----------
Frontier Corp., 4.92%**, 4/5/1999 (Cost $2,321,730) ................................................... 2,323,000 2,321,445
----------
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stocks 97.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 4.5%
Department & Chain Stores 2.5%
Consolidated Stores Corp.* ............................................................................ 98,100 2,973,656
Federated Department Stores, Inc.* .................................................................... 130,100 5,220,262
Wal-Mart Stores, Inc. ................................................................................. 60,000 5,531,250
----------
13,725,168
----------
Hotels & Casinos 1.2%
Royal Caribbean Cruises Ltd. .......................................................................... 166,000 6,474,000
----------
Recreational Products 0.8%
Electronic Arts, Inc.* ................................................................................ 91,700 4,355,750
----------
Consumer Staples 5.6%
Alcohol & Tobacco 1.7%
Anheuser-Busch Companies, Inc. ........................................................................ 40,600 3,093,212
Philip Morris Companies, Inc. ......................................................................... 172,900 6,083,919
----------
9,177,131
----------
Food & Beverage 2.0%
ConAgra Inc. .......................................................................................... 245,100 6,265,369
H.J. Heinz Co. ........................................................................................ 48,100 2,278,737
Unilever NV (New York shares) ......................................................................... 37,700 2,504,694
----------
11,048,800
----------
Package Goods/Cosmetics 1.9%
Avon Products Inc. .................................................................................... 97,000 4,565,062
Colgate-Palmolive Co. ................................................................................. 63,000 5,796,000
----------
10,361,062
----------
The accompanying notes are an integral part of the financial statements.
9 - Scudder Value Fund
<PAGE>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Health 7.8%
Health Industry Services 0.6%
Humana Inc. ................................................................................ 196,300 3,386,175
----------------
Hospital Management 0.5%
Tenet Healthcare Corp.* .................................................................... 137,000 2,594,438
----------------
Medical Supply & Specialty 1.1%
Bausch & Lomb, Inc. 95,900 6,233,500
----------------
Pharmaceuticals 5.6%
American Home Products Corp. ............................................................... 236,900 15,457,725
Bristol-Myers Squibb Co. ................................................................... 174,200 11,203,237
Pharmacia & Upjohn, Inc. ................................................................... 44,900 2,800,638
Schering-Plough Corp. ...................................................................... 19,600 1,084,125
----------------
30,545,725
Communications 9.3% ----------------
Telephone/Communications
AT&T ....................................................................................... 79,900 6,377,019
Alltel Corp. ............................................................................... 115,700 7,216,787
Ameritech Corp. ............................................................................ 66,800 3,866,050
Bell Atlantic Corp. ........................................................................ 334,300 17,279,131
BellSouth Corp. ............................................................................ 91,300 3,657,706
SBC Communications, Inc. ................................................................... 163,300 7,695,513
Tele Danmark A/S (ADR) ..................................................................... 100,200 4,909,800
----------------
51,002,006
Financial 19.1% ----------------
Banks 8.7%
Banc One Corp. ............................................................................. 223,390 12,300,412
BankAmerica Corp. .......................................................................... 184,152 13,005,735
Chase Manhattan Corp. ...................................................................... 113,000 9,188,312
Compass Bancshares Inc. .................................................................... 63,800 2,201,100
First Union Corp. .......................................................................... 208,800 11,157,750
----------------
47,853,309
----------------
Insurance 6.2%
AFLAC, Inc. ................................................................................ 29,400 1,600,462
Allstate Corp. ............................................................................. 68,400 2,535,075
Cigna Corp. ................................................................................ 40,500 3,394,406
Fremont General Corp. ...................................................................... 288,400 5,497,625
The accompanying notes are an integral part of the financial statements.
10 - Scudder Value Fund
<PAGE>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
MBIA, Inc. ................................................................................ 110,800 6,426,400
PMI Group, Inc. ........................................................................... 66,700 3,093,212
PartnerRe Holdings Ltd. ................................................................... 121,600 4,924,800
Transamerica Corp. ........................................................................ 14,400 1,022,400
Travelers Property & Casualty Insurance Co. "A" ........................................... 145,700 5,208,775
----------------
33,703,155
----------------
Consumer Finance 1.0%
American Express Company .................................................................. 20,200 2,373,500
Citigroup Inc. ............................................................................ 45,400 2,899,925
----------------
5,273,425
----------------
Other Financial Companies 3.2%
Berkshire Hathaway Inc.,"B"* .............................................................. 2,215 5,207,465
Federal National Mortgage Association ..................................................... 109,400 7,575,950
Morgan Stanley, Dean Witter Discover Co. .................................................. 45,600 4,557,150
----------------
17,340,565
Media 5.4% ----------------
Advertising 4.0%
WPP Group PLC (ADR) ....................................................................... 253,200 21,901,800
----------------
Cable Television 0.9%
AT&T Corp-Liberty Media Group ............................................................. 94,134 4,953,802
----------------
Print Media 0.5%
Tribune Co. ............................................................................... 42,900 2,807,269
----------------
Service Industries 1.0%
Investment 0.6%
Merrill Lynch & Co., Inc. ................................................................. 36,000 3,183,750
----------------
Miscellaneous Commercial Services 0.4%
Modis Professional Services, Inc.* ........................................................ 266,000 2,410,625
----------------
Durables 8.8%
Aerospace 3.2%
Lockheed Martin Corp. ..................................................................... 109,364 4,121,656
Northrop Grumman Corp. .................................................................... 69,000 4,131,375
Rockwell International Corp. .............................................................. 126,100 5,351,369
United Technologies Corp. ................................................................. 28,500 3,859,969
----------------
17,464,369
----------------
The accompanying notes are an integral part of the financial statements.
11 - Scudder Value Fund
<PAGE>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Automobiles 3.5%
Coltec Industries, Inc.* ................................................................... 265,800 4,834,237
Ford Motor Co. ............................................................................. 225,300 12,785,775
Genuine Parts Co. .......................................................................... 12,900 371,681
Tower Automotive, Inc.* .................................................................... 68,800 1,281,400
----------------
19,273,093
----------------
Construction/Agricultural Equipment 0.7%
PACCAR, Inc. ............................................................................... 92,600 3,813,963
----------------
Leasing Companies 1.4%
Hertz Corp. ................................................................................ 3,200 171,200
Ryder System, Inc. ......................................................................... 270,900 7,483,613
----------------
7,654,813
Manufacturing 5.8% ----------------
Electrical Products 0.4%
Thomas & Betts Corp. ....................................................................... 60,400 2,268,775
----------------
Industrial Specialty 2.0%
Corning Inc. ............................................................................... 181,500 10,890,000
----------------
Machinery/Components/Controls 2.0%
Parker-Hannifin Group ...................................................................... 327,950 11,232,288
----------------
Office Equipment/Supplies 1.4%
Xerox Corp. ................................................................................ 141,200 7,536,550
----------------
Technology 11.8%
Computer Software 4.4%
Computer Associates International, Inc. .................................................... 153,600 5,462,400
Oracle Systems Corp.* ...................................................................... 193,950 5,115,431
Reynolds and Reynolds Company .............................................................. 192,000 3,648,000
Sterling Commerce, Inc.* ................................................................... 115,200 3,542,400
Sterling Software Inc.* .................................................................... 263,900 6,267,625
----------------
24,035,856
----------------
Diverse Electronic Products 0.9%
Applied Materials, Inc.* ................................................................... 80,900 4,990,519
----------------
Electronic Data Processing 3.5%
Compaq Computer Corp. ...................................................................... 169,000 5,355,187
Hewlett-Packard Co. ........................................................................ 56,900 3,858,531
International Business Machines Corp. ...................................................... 55,200 9,784,200
----------------
18,997,918
----------------
The accompanying notes are an integral part of the financial statements.
12 - Scudder Value Fund
<PAGE>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Military Electronics 0.5%
Raytheon Co. "A" ............................................................................ 48,902 2,824,091
Semiconductors 2.5% ----------------
Intel Corp. ................................................................................. 93,900 11,185,837
Texas Instruments Inc. ...................................................................... 27,500 2,729,375
----------------
13,915,212
Energy 6.7% ----------------
Oil & Gas Production 1.2%
Royal Dutch Petroleum Co. (New York shares) ................................................. 124,900 6,494,800
----------------
Oil Companies 4.3%
Exxon Corp. ................................................................................. 28,100 1,982,806
Repsol SA (ADR) ............................................................................. 117,900 6,042,375
Texaco Inc. ................................................................................. 205,700 11,673,475
YPF S.A. "D" (ADR) .......................................................................... 132,600 4,185,188
----------------
23,883,844
----------------
Miscellaneous 1.2%
USEC Inc. ................................................................................... 472,700 6,440,538
----------------
Construction 0.7%
Building Materials
Southdown, Inc. ............................................................................. 71,400 3,833,288
----------------
Transportation 6.0%
Air Freight 0.2%
Airborne Freight Corp. ...................................................................... 34,200 1,064,475
----------------
Airlines 2.1%
AMR Corp.* .................................................................................. 21,600 1,264,950
Delta Air Lines, Inc. ....................................................................... 111,800 7,770,100
US Airways Group, Inc.* ..................................................................... 46,800 2,284,425
----------------
11,319,475
----------------
Marine Transportation 1.3%
Knightsbridge Tankers Ltd. .................................................................. 86,100 1,485,225
NedLloyd Groep NV (ADR) ..................................................................... 464,000 5,336,000
----------------
6,821,225
----------------
Railroads 2.0%
CSX Corp. ................................................................................... 19,100 743,706
Canadian National Railway ................................................................... 178,900 9,970,504
----------------
10,714,210
----------------
The accompanying notes are an integral part of the financial statements.
13 - Scudder Value Fund
<PAGE>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Trucking 0.4%
CNF Transportation, Inc. .................................................................. 64,400 2,435,125
----------------
Utilities 4.6%
Electric Utilities
Allegheny Energy, Inc. .................................................................... 186,000 5,487,000
New England Electric System ............................................................... 221,900 10,762,150
Northern States Power Co. ................................................................. 131,700 3,053,794
TNP Enterprises, Inc. ..................................................................... 66,800 1,920,500
Unicom Corp. .............................................................................. 99,100 3,623,344
----------------
24,846,788
- ---------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $476,322,634) 531,082,670
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $492,214,364) (a) 546,974,115
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate. (Unaudited)
(a) The cost for federal income tax purposes was $492,214,364. At March 31,
1999, net unrealized appreciation for all securities based on tax cost was
$54,759,751. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $80,597,979 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$25,838,228.
The accompanying notes are an integral part of the financial statements.
14 - Scudder Value Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $492,214,364) .....................$ 546,974,115
Cash ...................................................................... 710
Receivable for Fund shares sold ........................................... 616,819
Receivable for investments sold ........................................... 4,315,354
Dividends and interest receivable ......................................... 686,766
Foreign taxes recoverable ................................................. 60,815
Other assets .............................................................. 5,420
----------------
Total assets 552,659,999
Liabilities
- -------------------------------------------------------------------------------------------------------------
Payable for investments purchased ......................................... 9,348,864
Payable for Fund shares redeemed .......................................... 4,181,325
Accrued management fee .................................................... 323,965
Other payables and accrued expenses ....................................... 655,460
----------------
Total liabilities ......................................................... 14,509,614
-------------------------------------------------------------------------------------------
Net assets, at market value $ 538,150,385
-------------------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ....................................... 1,526,945
Unrealized appreciation (depreciation) on investments ..................... 54,759,751
Accumulated net realized gain (loss) ...................................... 7,959,898
Paid-in capital ........................................................... 473,903,791
-------------------------------------------------------------------------------------------
Net assets, at market value $ 538,150,385
-------------------------------------------------------------------------------------------
Net Asset Value
- -------------------------------------------------------------------------------------------------------------
Scudder Shares
Net asset value, offering and redemption price per share
($464,044,948 / 19,868,641 out- standing shares of beneficial interest, ---------------
$.01 par value, unlimited number of shares authorized) .................... $23.36
---------------
Class A Shares
Net asset value and redemption price per share ($38,403,412 /
1,643,728 outstanding shares of beneficial interest, $.01 par value, ---------------
unlimited number of shares authorized) $23.36
---------------
---------------
Maximum offering price per share (100 / 94.25 of $23.36) .................. $24.79
---------------
Class B Shares
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($29,820,969 /
1,279,284 outstanding shares of beneficial interest, $.01 par ---------------
value, unlimited number of shares authorized) ............................. $23.31
---------------
Class C Shares
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($5,881,056 /
252,038 outstanding shares of beneficial interest, $.01 par ---------------
value, unlimited number of shares authorized) ............................. $23.33
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Value Fund
<PAGE>
Statement of Operations
six months ended March 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Investment Income
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Dividends (net of foreign taxes withheld of $31,998) ................ $ 4,216,155
Interest ............................................................ 1,402,761
----------------
5,618,916
Expenses:
Management fee ...................................................... 2,002,774
Services to shareholders ............................................ 1,395,684
Custodian and accounting fees ....................................... 114,581
Distribution service fees ........................................... 120,541
Administrative services fees ........................................ 80,936
Trustee's fees and expenses ......................................... 26,058
Auditing ............................................................ 20,360
Registration fees ................................................... 47,492
Reports to shareholders ............................................. 113,941
Legal ............................................................... 4,277
Other ............................................................... 10,557
----------------
3,937,201
-------------------------------------------------------------------------------------------
Net investment income 1,681,715
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ......................................................... 2,166,910
Futures ............................................................. 5,530,913
Foreign currency related transactions ............................... 762
----------------
7,698,585
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................... 70,542,431
Futures ............................................................. 492,314
----------------
71,034,745
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 78,733,330
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 80,415,045
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Value Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
March 31, 1999 September 30,
Increase (Decrease) in Net Assets (Unaudited) 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................ $ 1,681,715 $ 5,380,705
Net realized gain (loss) from investment transactions 7,698,585 29,361,650
Net unrealized appreciation (depreciation) on
investment transactions during the period ......... 71,034,745 (65,811,617)
---------------- ----------------
Net increase (decrease) in net assets resulting from . 80,415,045 (31,069,262)
operations
---------------- ----------------
Distributions to shareholders from:
Net investment income-- Scudder Shares ............... (4,164,872) (3,472,885)
---------------- ----------------
Net investment income-- Class A ...................... (237,364) --
---------------- ----------------
Net investment income-- Class B ...................... (47,930) --
---------------- ----------------
Net investment income-- Class C ...................... (11,523) --
---------------- ----------------
Net realized gains-- Scudder Shares .................. (19,711,212) (23,876,077)
---------------- ----------------
Net realized gains-- Class A ......................... (1,241,379) --
---------------- ----------------
Net realized gains-- Class B ......................... (1,035,831) --
---------------- ----------------
Net realized gains-- Class C ......................... (226,181) --
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ............................ 217,735,580 438,067,018
Net asset value of shares issued to shareholders in
reinvestment of distributions ..................... 25,914,123 26,526,859
Cost of shares redeemed .............................. (277,011,340) (186,382,163)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ......................................... (33,361,637) 278,211,714
---------------- ----------------
Increase (decrease) in net assets .................... 20,377,116 219,793,490
Net assets at beginning of period .................... 517,773,269 297,979,779
Net assets at end of period (including undistributed
net investment income of $1,526,945 and $4,306,919, ---------------- ----------------
respectively) ........................................ $ 538,150,385 $ 517,773,269
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Value Fund
<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.
<TABLE>
<CAPTION>
Scudder Shares (b)
Six Months
Ended
March 31,
1999 (a) Years Ended September 30,
(Unaudited) 1998(a) 1997(a) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------
Net asset value, beginning of period ............ $21.20 $ 23.53 $ 17.52 $ 15.87 $ 13.08 $ 13.38
-----------------------------------------------------------------------
Income from investment operations:
Net investment income ........................... .07 .28 .34 .21 .18 .13
Net realized and unrealized gain (loss) on ...... 3.18 (.72) 7.22 2.40 2.86 .11
investments
-----------------------------------------------------------------------
Total from investment operations ................ 3.25 (.44) 7.56 2.61 3.04 .24
-----------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (.19) (.24) (.07) (.04) (.12) (.11)
Net realized gains on investment transactions ... (.90) (1.65) (1.48) (.92) (.13) (.43)
-----------------------------------------------------------------------
Total distributions ............................. (1.09) (1.89) (1.55) (.96) (.25) (.54)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Net asset value, end of period .................. $23.36 $ 21.20 $ 23.53 $ 17.52 $ 15.87 $ 13.08
-----------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................................ 15.39** (2.08) 45.80(c) 17.18(c) 23.62(c) 1.88(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......... 464 468 298 89 68 35
Ratio of operating expenses, net to average ..... 1.32* 1.23 1.24 1.25 1.25 1.25
daily net assets (%)
Ratio of operating expenses before expense ...... 1.32* 1.23 1.28 1.31 1.44 1.61
reductions, to average daily net assets (%) ...
Ratio of net investment income to average daily .
net assets (%) .65* 1.19 1.67 1.34 1.57 1.16
Portfolio turnover rate (%) ..................... 79* 47 47 91 98 75
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On April 16, 1998, existing shares of the Fund were designated as
Scudder Shares and are generally not available to new investors.
(c) Total return would have been lower had certain expenses not been
reduced.
* Annualized
** Not annualized
18 - Scudder Value Fund
<PAGE>
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Class A
For the Period
April 16, 1998
Six Months (commencement of
Ended sale of Class A
March 31, 1999 shares) to
(Unaudited) September 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------
--------------------------------------
<S> <C> <C>
Net asset value, beginning of period ............................................ $21.19 $25.42
--------------------------------------
Income from investment operations:
Net investment income ........................................................... .06 .07
Net realized and unrealized gain (loss) on investments .......................... 3.18 (4.30)
--------------------------------------
Total from investment operations ................................................ 3.24 (4.23)
--------------------------------------
Less distributions from:
Net investment income ........................................................... (.17) --
Net realized gains on investment transactions ................................... (.90) --
--------------------------------------
Total distributions ............................................................. (1.07) --
--------------------------------------
--------------------------------------
Net asset value, end of period .................................................. $23.36 $21.19
--------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ............................................................ 15.36** (16.64)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......................................... 38 28
Ratio of operating expenses, net to average daily net assets (%) ................ 1.41* 1.34*
Ratio of net investment income to average daily net assets (%) .................. .56* .86*
Portfolio turnover rate (%) ..................................................... 79* 47
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
19 - Scudder Value Fund
<PAGE>
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Class B
For the Period
April 16, 1998
Six Months (commencement of
Ended sale of Class B
March 31, 1999 shares) to
(Unaudited) September 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------------------------------
Net asset value, beginning of period ........................................... $21.11 $25.42
-----------------------------------
Income from investment operations:
Net investment income .......................................................... (.02) .00
Net realized and unrealized gain (loss) on investments ......................... 3.16 (4.31)
-----------------------------------
Total from investment operations ............................................... 3.14 (4.31)
-----------------------------------
Less distributions from:
Net investment income .......................................................... (.04) --
Net realized gains on investment transactions .................................. (.90) --
-----------------------------------
Total distributions ............................................................ (.94) --
-----------------------------------
-----------------------------------
Net asset value, end of period ................................................. $23.31 $21.11
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ........................................................... 14.93** (16.96)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......................................... 30 18
Ratio of operating expenses, net to average daily net assets (%) ............... 2.15* 2.12*
Ratio of net investment income to average daily net assets (%) ................. (.18)* .03*
Portfolio turnover rate (%) .................................................... 79* 47
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
20 - Scudder Value Fund
<PAGE>
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
Class C
<TABLE>
<CAPTION>
For the Period
April 16, 1998
Six Months (commencement of
Ended sale of Class C
March 31, 1999 shares) to
(Unaudited) September 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------------------------------
Net asset value, beginning of period ........................................... $21.13 $25.42
-----------------------------------
Income from investment operations:
Net investment income .......................................................... (.01) .01
Net realized and unrealized gain (loss) on investments ......................... 3.15 (4.30)
-----------------------------------
Total from investment operations ............................................... 3.14 (4.29)
-----------------------------------
Less distributions from:
Net investment income .......................................................... (.04) --
Net realized gains on investment transactions .................................. (.90) --
-----------------------------------
Total distributions ............................................................ (.94) --
-----------------------------------
-----------------------------------
Net asset value, end of period ................................................. $23.33 $21.13
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ........................................................... 14.92** (16.88)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......................................... 6 3
Ratio of operating expenses, net to average daily net assets (%) ............... 2.12* 2.11*
Ratio of net investment income to average daily net assets (%) ................. (.11)* .08*
Portfolio turnover rate (%) .................................................... 79* 47
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
* Annualized
** Not annualized
21 - Scudder Value Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Value Fund (the "Fund") is a diversified series of Value Equity Trust (the
"Trust"). The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
Effective April 16, 1998, the Fund changed its name from Scudder Value Fund to
Value Fund and an additional three classes of shares were offered, namely
Classes A, B and C. Existing shares of Value Fund outstanding on that date were
redesignated Scudder Shares. Class A shares are sold to investors subject to an
initial sales charge. Class B shares are sold without an initial sales charge
but are subject to higher ongoing expenses than Class A and Scudder 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 sold without an initial sales charge but are subject to higher
ongoing expenses than Class A and Scudder Shares and a contingent deferred sales
charge payable upon certain redemptions within one year of purchase. Class C
shares do not convert into another class. Scudder Shares, generally not
available to new investors, are not subject to initial or contingent deferred
sales charges.
Investment income, realized and unrealized capital 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 expenses unique to that class. Each class of shares differs in
its respective distribution, shareholder services, administrative services and
certain other class-specific expenses and expense reductions. All shares of the
Fund have equal rights with respect to voting.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio 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, Inc.
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported on Nasdaq. 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 on
such market. 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 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. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange; and
22 - Scudder Value Fund
<PAGE>
(ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund purchased securities index futures as a temporary substitute for purchasing
selected investments.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
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 repurchase price.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, 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 are
made annually. During any particular year 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 annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income
23 - Scudder Value Fund
<PAGE>
(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.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are being
amortized on a straight-line basis over a five-year period.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on an accrual basis. Original
issue discounts are accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
During the six months ended March 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $216,118,367 and
$205,133,143, respectively.
The aggregate face value of futures contracts opened and closed during the six
months ended March 31, 1999 was $96,309,392 and $120,900,956, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement (the "Agreement") with
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Adviser"), the
Adviser directs the investments of the Fund in accordance with its investment
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The management fee payable under the Agreement is equal to an annual
rate of 0.70% of the Fund's average daily net assets, computed and accrued daily
and payable monthly. For the six months ended March 31, 1999, the fee pursuant
to the Agreement amounted to $2,002,774, of which $323,965 is unpaid at March
31, 1999.
Effective September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner
of the Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. In December 1998, the
Board of Trustees and the shareholders of the Fund approved a new investment
management agreement with Scudder Kemper, which is substantially identical to
the former Agreement, except for the dates of execution and termination.
Distribution Service Agreement. In accordance with Rule 12b-1 under the
Investment Company Act of 1940, Kemper Distributors, Inc. ("KDI"), a subsidiary
of the Adviser, receives a fee of .75% of average daily net assets of Classes B
and C.
24 - Scudder Value Fund
<PAGE>
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 six
months ended March 31, 1999, the Distribution Fee was as follows:
Unpaid at
Distribution Fee Total Aggregated March 31, 1999
- ------------------------------ ------------------ ---------------------
Class B ............................ $ 100,146 $ 36,118
Class C ............................ 20,395 6,782
------------ --------------
$ 120,541 $ 42,900
========= =========
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 six months ended
March 31, 1999 aggregated $296,404, of which $280,489 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 six
months ended March 31, 1999, the CDSC for Classes B and C aggregated $46,329 and
$2,166, respectively.
Administrative Service Fees. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to .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 six
months ended March 31, 1999, the Administrative Service Fee was as follows:
Unpaid at
Administrative Service Fees Total Aggregated March 31, 1999
- --------------------------------- ------------------- -------------------
Class A ............................ $ 40,756 $ 14,570
Class B ............................ 33,382 12,039
Class C ............................ 6,798 2,261
------------ --------------
$ 80,936 $ 28,870
========= =========
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 six months ended March 31, 1999, the
amount charged to Classes A, B and C by KSC aggregated $51,860, $41,025 and
$6,970, respectively, of which $29,174 is unpaid at March 31, 1999. Scudder
Service Corporation ("SSC"), a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Scudder Shares. For the
six months ended March 31, 1999, the amount charged to the Scudder Shares by SSC
for shareholder services aggregated $475,230, of which $75,185 is unpaid at
March 31, 1999.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Scudder Shares of the Fund. For the six
months ended March 31, 1999, the amount charged to the Scudder Shares by STC
aggregated $620,622, of which $111,408 is unpaid at March 31, 1999.
25 - Scudder Value Fund
<PAGE>
Fund Accounting Fees. Scudder Fund Accounting Corporation ("SFAC"), a subsidiary
of the Adviser, is responsible for determining the daily net asset value per
share and maintaining the portfolio and general accounting records of the Fund.
For the six months ended March 31, 1999, the amount charged to the Fund by SFAC
aggregated $102,300, of which $12,951 is unpaid at March 31, 1999.
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 six months ended March 31, 1999, the Trustees fees
and expenses aggregated $26,058.
D. Share Transactions
The following table summarizes shares of beneficial interest and dollar activity
in the Fund:
<TABLE>
<CAPTION>
Six months ended Period ended
March 31, 1999 September 30, 1998
---------------------------------- ----------------------------------
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
Shares sold
Scudder Shares ...................................... 3,776,102 $ 87,214,459 15,127,170 $ 358,943,904
Class A ............................................. 3,245,555 75,103,823 2,277,297 53,828,754
Class B ............................................. 597,185 13,776,187 924,056 21,926,576
Class C ............................................. 1,797,403 41,641,111 142,532 3,367,784
----------------- --------------- -------------- ---------------
9,416,245 217,735,580 18,471,055 438,067,018
----------------- --------------- -------------- ---------------
Shares issued to shareholders in reinvestment of
distributions
Scudder Shares ...................................... 1,010,122 $ 23,313,606 1,219,065 $ 26,526,859
Class A ............................................. 59,445 1,372,596 -- --
Class B ............................................. 43,502 1,004,017 -- --
Class C ............................................. 9,689 223,904 -- --
----------------- --------------- -------------- ---------------
1,122,758 25,914,123 1,219,065 26,526,859
----------------- --------------- -------------- ---------------
Shares redeemed
Scudder Shares ...................................... (7,017,182) $ (163,782,277) (6,911,251) $(162,049,236)
Class A ............................................. (2,993,122) (68,675,816) (945,447) (22,781,139)
Class B ............................................. (221,617) (5,174,758) (63,842) (1,468,241)
Class C ............................................. (1,693,962) (39,378,489) (3,624) (83,547)
----------------- --------------- -------------- ---------------
(11,925,883) (277,011,340) (7,924,164) (186,382,163)
----------------- --------------- -------------- ---------------
Net increase (decrease)
Scudder Shares ...................................... (2,230,958) $ (53,254,212) 9,434,984 $ 223,421,527
Class A ............................................. 311,878 7,800,603 1,331,850 31,047,615
Class B ............................................. 419,070 9,605,446 860,214 20,458,335
Class C ............................................. 113,130 2,486,526 138,908 3,284,237
----------------- --------------- -------------- ---------------
(1,386,880) $ (33,361,637) 11,765,956 $ 278,211,714
----------------- --------------- -------------- ---------------
</TABLE>
26 - Scudder Value Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Value Fund (the
"Fund") was held on December 17, 1998, 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 approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
14,163,107 330,254 536,564 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
10,540,571 479,989 660,978 3,348,387
- --------------------------------------------------------------------------------
* 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.
27 - Scudder Value Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and
Consultant
Sheryle J. Bolton
Trustee; Chief Executive Officer,
Scientific Learning Corporation
William T. Burgin
Trustee; General Partner,
Bessemer Venture Partners
Keith R. Fox
Trustee; Private Equity Investor
William H. Luers
Trustee; Chairman and President
of the U.N. Association of the
U.S.A.
Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary
Joan Spero
Trustee; President, Doris Duke
Charitable Foundation
Thomas J. Devine
Honorary Trustee; Consultant
Wilson Nolen
Honorary Trustee; Consultant
Robert G. Stone, Jr.
Honorary Trustee; Chairman
Emeritus and Director, Kirby
Corporation
Donald E. Hall*
Vice President
Ann M. McCreary*
Vice President
Thomas W. Joseph*
Vice President
Kathleen T. Millard*
Vice President
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
28 - Scudder Value Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. ***Only the Scudder Shares of
the Fund are part of the Scudder Family of Funds. ++Only the International
Shares of the Fund are part of the Scudder Family of Funds. +++ +++A no-load
variable annuity contract provided by Charter National Life Insurance Company
and its affiliate, offered by Scudder's insurance agencies, 1-800-225-2470. +++
+++ +++A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder Kemper
Investments, Inc., are traded on the New York Stock Exchange and, in some cases,
on various other stock exchanges.
29 - Scudder Value Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* 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-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. 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.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
30 - Scudder Value Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a transaction fee. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
31 - Scudder Value Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $280 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
