SCUDDER
INVESTMENTS (SM)
[LOGO]
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EQUITY/VALUE
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Scudder Value Fund
Annual Report
September 30, 2000
The fund seeks long-term growth of capital through investment in undervalued
equity securities.
Scudder Value Fund is properly known as Value Fund.
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
17 Glossary of Investment Terms
18 Investment Portfolio
22 Financial Statements
25 Financial Highlights
26 Notes to Financial Statements
34 Report of Independent Accountants
35 Tax Information
36 Shareholder Meeting Results
37 Officers and Trustees
38 Investment Products and Services
40 Account Management Resources
2
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Scudder Value Fund
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ticker symbol SCVAX fund number 075
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Date of Inception: o During the twelve months ended September 30, 2000,
12/31/92 the Value Fund -- Scudder Shares returned 17.63%,
beating the 8.92% return of its unmanaged benchmark,
the Russell 1000 Value Index. In addition, Lipper,
Inc. ranks the Scudder Shares in the top quarter of
Total Net Assets of multi-cap value funds over the one- and three-year
Scudder Shares as of periods, and in the top 14% over the trailing
9/30/00: five-year
$331.1 million period.^1
o We believe that the fund's strong showing can be
attributed to our adherence to a strict three-step
investment process as discussed in the Portfolio
Management Discussion. We stayed true to our focus on
value even when the asset class was underperforming
early in the calendar year, and this discipline
helped the fund outperform when value ultimately came
back into favor.
o Performance was helped by the fund's positions in the
technology, consumer discretionary, and financial
sectors.
^1 Source: Lipper, Inc., an independent analyst of investment performance.
Performance includes reinvestment of dividends and capital gains. For the
period ended September 30, 2000, Value Fund -- Scudder Shares' Lipper ranking
was 115 out of 475 funds for the one-year period, 79 out of 336 funds for the
three-year period, and 29 out of 209 funds for the five-year period. Past
performance is no guarantee of future results.
3
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Letter from the Fund's President
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Dear Shareholders,
During the latter part of the 1990s, value stocks generally produced a
lackluster performance as investors turned their attention to the exciting
stories and stellar earnings growth of stocks in the "new economy." In a
momentum-driven environment where valuations no longer seemed to matter, growth
stocks made headlines with enormous gains. At the same time, many value stocks
languished despite being attractive on the basis of traditional measures such as
price-to-earnings and price-to-cash flow ratios.
As the current year has progressed, however, we have witnessed a distinct shift
in the investment climate. Technology stocks suffered a meltdown in the second
quarter, with the more speculative issues generally suffering the worst
declines. As the high-flying growth sectors have come back to earth, investors
have instead turned their attention to stocks with more reasonable valuations.
Such issues are viewed to have lower downside risk, and are therefore more
attractive in a negative market environment. As a result, the Russell 1000 Value
Index is showing a year-to-date gain of 3.30% through September 30, versus a
loss of -1.37% for the Russell 1000 Growth Index. In just the final three months
of the period, the Value Index rose 7.86% at the same time that the Growth Index
fell 5.38%. This divergence underscores our view that investors should ensure
that they have adequate exposure to
4
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both groups, since it is difficult to tell which will be in favor during any
given period.
Value Fund -- Scudder Shares has produced stellar performance in this
environment. During the 12-month period ended September 30, 2000, the fund's
17.63% return far outpaced the 8.92% of its unmanaged benchmark, the Russell
1000 Value Index. The fund also has performed well against its peers, finishing
in the top quarter of mid-cap value funds over the one- and three-year periods
and in the top 14% over the trailing five-year period, according to Lipper, Inc.
In the Portfolio Management Discussion that begins on page 10, lead portfolio
manager Lois Roman talks about the investment process she has used to generate
results.
Thank you for your continued investment in Value Fund -- Scudder Shares. For
current information on the fund or your account, visit our Web site at
www.scudder.com. There you'll find a wealth of information, including fund
performance, the most recent news on Scudder products and services, and the
opportunity to perform account transactions. You can also speak with one of our
representatives by calling 1-800-SCUDDER (1-800-728-3337).
Sincerely,
/s/Lin C. Coughlin
Linda C. Coughlin
President
Value Fund
5
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Performance Update
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September 30, 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:
Value Fund --
Scudder Shares Russell 1000 Value Index*
12/92** 10000 10000
'93 11150 11845
'94 11360 11763
'95 14043 15019
'96 16456 17714
'97 23993 25208
'98 23495 26119
'99 26554 31010
'00 31237 33775
Yearly periods ended September 30
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 9/30/2000 $10,000 Cumulative Annual
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Value Fund -- Scudder Shares
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1 year $ 11,763 17.63% 17.63%
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5 year $ 22,244 122.44% 17.34%
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Life of Class** $ 31,237 212.37% 15.84%
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Russell 1000 Value Index*
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1 year $ 10,892 8.92% 8.92%
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5 year $ 22,489 124.89% 17.58%
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Life of Class** $ 33,775 237.75% 17.00%
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* The Russell 1000 Value Index consists of securities with less than average
growth orientation. Index returns assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on December 31, 1992.
6
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Returns and Per Share Information
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Yearly periods ended September 30
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE VALUE FUND --
SCUDDER SHARES TOTAL RETURN (%) AND RUSSELL 1000 VALUE INDEX* TOTAL RETURN (%)
BAR CHART DATA:
1993** 1994 1995 1996 1997 1998 1999 2000
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Class Total
Return (%) 11.50 1.88 23.62 17.18 45.80 -2.08 13.02 17.63
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Index Total
Return (%) 18.45 -.69 27.68 17.94 42.31 3.49 18.72 8.92
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Net Asset Value ($) 13.38 13.08 15.87 17.52 23.53 21.20 22.88 25.78
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Income
Dividends ($) -- .11 .12 .04 .07 .24 .19 .16
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Capital Gains
Distributions ($) -- .43 .13 .92 1.48 1.65 .90 .85
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* The Russell 1000 Value Index consists of securities with less than average
growth orientation. Index returns assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on December 31, 1992.
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 5 year and Life of Class periods would have been lower.
7
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Portfolio Summary
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September 30, 2000
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Asset Allocation
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Management seeks to
remain as close to fully
invested in equities
as possible.
A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW.
Equity Securities 99%
Cash Equivalents 1%
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100%
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Sectors
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(Excludes 1% Cash Equivalents) Strong stockpicking
within the financial
sector, as well as our
decision to overweight
insurance stocks and
underweight banks,
proved beneficial to
fund performance.
A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW.
Financial 28%
Energy 16%
Health 9%
Communications 9%
Durables 9%
Consumer Staples 8%
Utilities 7%
Manufacturing 5%
Technology 4%
Other 5%
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100%
------------------------------------
8
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Ten Largest Equity Holdings
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(33% of Portfolio) Management chooses fund
holdings by using a
strict three-step
investment process. This
disciplined approach
allowed the fund to
benefit when value
stocks came back into
favor during the second
half of the reporting
period.
1. Exxon Mobil Corp.
Provider of oil internationally
2. Citigroup, Inc.
Provider of diversified financial services
3. Cigna Corp.
Provider of insurance, health care benefits, pension
management and related financial services
4. Lockheed Martin Corp.
Manufacturer of aircraft, missiles and space equipment
5. Verizon Communications
Provider of wireline voice and data services
6. SBC Communications, Inc.
Provider of telecommunication services
7. PepsiCo, Inc.
Provider of soft drinks, snack foods and food services
8. Boeing Co.
Manufacturer of jet airplanes
9. American Home Products Corp.
Producer of diversified pharmaceuticals
10. AFLAC, Inc.
Provider of supplemental insurance
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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September 30, 2000
In the following interview, lead portfolio manager Lois Roman discusses the
strategy of Value Fund -- Scudder Shares and the market environment during the
twelve-month period ended September 30, 2000.
Q: How did Value Fund perform during the fiscal period?
A: We're extremely happy to report that despite an extremely volatile market
environment, the fund significantly outperformed its value benchmark for the
twelve-month period. The Scudder Shares gained 17.63%, while the Russell 1000
Value Index gained 8.92%.
We attribute the Scudder Shares' outperformance primarily to our adherence to a
strict three-step investment process. We're a core large-cap value fund and we
won't sway from that charter -- even when value is underperforming as it was
early in the year. Our strict discipline helped the fund outperform as value
came back into favor.
Several factors boosted performance. First, the fund's technology holdings
performed extremely well. We reduced this position prior to the technology
decline last spring, realizing solid profits for the fund. Second, the fund's
consumer discretionary stocks produced strong performance early in the fiscal
year. At the start of 2000, we reduced our position in these companies,
particularly those in the retail sector that helped relative performance, as
retail stocks underperformed for the remainder of the period. Finally, the
fund's underweight position in banks and overweight position in insurance stocks
were significant positives.
Q: Can you discuss the market's volatility and its impact on the fund.
A: We've witnessed a dramatic shift in the market over the twelve-month period.
Through early March, technology, media, and telecommunications (TMT) stocks
soared while most other stocks -- especially those considered to be in the value
category -- were all but forgotten by investors. As the spring progressed,
investors
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became skittish about the huge disparity in valuations between the market
leaders and the broader market. They began selling their highly valued TMT
stocks en masse, causing deep declines in the once seemingly invincible market
leaders. At the same time, investors began to return to companies with strong
long-term earnings track records and more reasonable valuations -- the types of
companies in which this fund is invested.
Growth and value stocks jockeyed for market leadership throughout the remainder
of the period, leading to high volatility in the overall market. In this phase,
the market continued to broaden and value-style stocks gained considerable
ground. The improved performance of stocks outside of the technology sector was
extremely helpful to the fund's performance.
Q: You mentioned that technology stocks were one of the most important
contributors during the period. Could you discuss their role in the portfolio?
A: Although our technology holdings are more staid than many of the highest
flyers that were grabbing headlines early this year, they performed extremely
well. The fund's strongest performers were Motorola, Corning, and Micron, which
were long-time fund holdings originally purchased at trough valuations. By early
2000, their strong market performance pushed them up to valuations that we
believed were too expensive for the fund to continue to hold. We therefore cut
our position in the stocks and took solid profits for the fund. This was an
especially timely move, as it occurred before the technology sector corrected in
March. Our technology position is now at about 4% of the portfolio, down from
12% at the start of the year. We continue to look for quality technology stocks
that fit within our investment discipline.
Q: What does a stock need to meet your investment criteria?
A: As value investors, we search the marketplace for undervalued stocks and we
won't pay a premium for any
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stock in the pursuit of short-term gains. Our investment process can be broken
down into three steps:
First, we rely heavily on a proprietary quantitative model developed at Scudder
Kemper. We define our investment universe as the 1,000 securities in the Russell
1000 Value Index, a group of 1,000 large-cap stocks. Our model looks at five
measures of a stock's value and ranks the stocks in the Russell 1000 based on
these criteria. Each stock is then placed in one of 10 groups (deciles). The
cheapest 40% of those stocks -- the four most attractive deciles -- are issues
we may consider adding to our portfolio. The most expensive 20% are those we
would consider selling. Everything else is typically held if it is already in
the portfolio and the positive investment thesis remains intact.
Next, our internal research analysts provide us with qualitative assessments of
the 400+ stocks that generally pass the screen. We discuss each company's
management strategy with our analysts, who provide their outlook for the
internal business model of the companies. Our analysts sift through those names
to figure out which ones are likely to offer the strongest upside potential and
which ones we should avoid because they may simply get cheaper over time.
Last, we try to assess the risk factors associated with the companies we
consider to be candidates for purchase. Questions we may ask at this stage
include: will the direction of interest rates affect a company's performance?
How may a stock perform if there is a downturn or an uptick in the economy? Does
it complement the other holdings in the portfolio? Would its addition tilt the
portfolio in an area that might increase overall portfolio risk? Our
consideration of these factors helps reduce the overall risk profile of the
fund.
Q: Please provide an example of how the portfolio benefited by relying on its
three-step investment process.
A: Motorola is an excellent example. We bought this stock many years ago when it
was trading at trough valuations and trough fundamentals. At the time, the stock
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had been beaten up by the market, which viewed Motorola strictly as a cellular
phone company, and one that was falling behind in market share.
Believing that there was more to the story, we added Motorola to the fund for
two distinct reasons. First, it met all of our valuation criteria. Second, we
saw a huge semiconductor cycle coming and believed the company could capitalize
on it. Motorola was also launching some new competitive products in which we had
faith. So we bought the stock and held it, and over the past several years it
has been a strong contributor.
This year, when Motorola reached its highs, we liquidated our position. The
stock had appreciated to the sell zone of our model; our internal analyst saw
signs of deteriorating fundamentals; and we felt all of the good news was now
out of the stock. Not long after our liquidation of the position, Motorola
suffered deep price declines.
Q: Were there any specific holdings that detracted from the fund's performance?
A: Dow Chemical, which is also a long-time holding, was a drag on performance.
Over the course of the fiscal year, the stock slowly eroded in value and
investor enthusiasm waned. In 1999, Dow announced a merger with Union Carbide.
This was originally viewed positively by the market, but the deal languished and
to date still has not closed. Additionally, rising energy prices caused the cost
of their raw materials to increase, hurting Dow and many other manufacturers.
The company has been unable to pass these high costs along to consumers, causing
a strain on its bottom line. We reduced our position in Dow, but still maintain
an investment because we believe in the company and its longer-term growth
prospects.
Q: Have rising energy prices helped the fund's energy holdings?
A: We've seen mixed performance from our energy stocks, an area in which we are
overweight relative to our benchmark. Oil service companies like Schlumberger
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benefited most quickly from rising oil prices, while the performance of the
larger integrated oil companies like Exxon Mobil and Texaco was somewhat flat.
We still have confidence in this sector and believe we will see improved
performance in the coming months, and we are therefore maintaining our energy
position.
Q: Would you discuss the fund's financial stocks and their contributions to
performance?
A: We focused our financial holdings in insurance stocks rather than banks, and
that allocation added a great deal to performance relative to our benchmark.
Insurance stocks made hearty gains during the year, while most banks struggled.
Some of the strongest performance came from insurers Cigna, Hartford, and St.
Paul. We chose to underweight banks because we were uncomfortable with the
consolidation taking place in the sector and believed that rising interest rates
would continue to dampen performance. Exceptions included Citigroup and Chase
Manhattan, which were bright spots that added to performance. By the end of the
reporting period, it seemed as if some of the newly consolidated banks were
beginning to reap some efficiencies not seen earlier. We are now cautiously
optimistic that bank stocks may begin to turn around, and we have begun
selectively adding to some of our existing holdings.
Q: Have interest rates also dampened the performance of retail stocks?
A: Retail stocks have slowed dramatically as interest rates have risen and the
economy has begun to show signs of slowing. After benefiting early in the fiscal
year from stocks such as Federated Department Stores and Target Stores, we
decided to decrease the fund's position in retail stocks. We significantly
underweighted retail stocks relative to our Russell 1000 Value benchmark, and
that helped performance as retailers struggled through the remainder of the
year. This is an area that we're still interested in, but at this point earnings
estimates are still
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falling and fundamentals are deteriorating. As a result, we are generally
staying away from stocks in this sector.
Q: What's your outlook for the fund and value investing?
A: We're thrilled to see the recent resurgence in value stocks. We believe the
gap between growth and value is closing quite rapidly and beginning to invert.
We believe there is still a lot more upside for value stocks, which would of
course be very positive for the fund. We'll continue to stick to our knitting of
being a true large-cap value fund, just as we always have. We believe our strong
performance this period illustrates the benefits that our investment process can
produce.
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Scudder Value Fund:
A Team Approach to Investing
Scudder Value 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 Lois R. Roman joined the Adviser in 1994 as an equity
analyst. Ms. Roman joined the fund team in 1995 and has 12 years of investment
industry experience.
Portfolio manager Jonathan Lee joined the Adviser and the fund team in 1999. Mr.
Lee has 10 years of investment industry experience.
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Glossary of Investment Terms
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Fundamental Analysis of companies based on the projected impact of
Research management, products, sales, and earnings on their balance
sheets and income statements. Distinct from technical
analysis, which evaluates the attractiveness of a stock
based on historical price and trading volume movements,
rather than the financial results of the underlying
company.
Momentum The practice of investing in the market's top performing
Investing stocks in order to capture additional upward movements in
their prices.
Trough A stock's future performance can be estimated by considering
Fundamentals a company's fundamentals -- its assets, earnings, sales,
products, and management team. When some or all of these
fundamentals are less than favorable but appear to be on
the verge of improving, they are considered to be trough
fundamentals. Like stock prices, a company's fundamental
qualities typically travel through cycles.
Trough Most securities go through cycles in which their prices
Valuation rise, fall, and then rise again. A trough valuation is at
the low point of that cycle, after which the stock's price
is expected to begin rising again.
Weighting Refers to the allocation of assets -- usually in terms of
(over/under) sectors, industries, or countries -- within a portfolio
relative to the portfolio's benchmark index or investment
universe.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
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Investment Portfolio as of September 30, 2000
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Principal
Amount ($) Value ($)
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Repurchase Agreements 1.5%
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State Street Bank and Trust Company, 6.48%, to
be repurchased at $6,087,285 on -----------
10/2/2000** (Cost $6,084,000) .............. 6,084,000 6,084,000
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Shares
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Common Stocks 98.5%
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Consumer Discretionary 0.8%
Department & Chain Stores
Target Corp. .................................. 130,000 3,331,250
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Consumer Staples 8.0%
Alcohol & Tobacco 1.4%
Anheuser-Busch Companies, Inc. ................ 133,200 5,636,025
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Food & Beverage 5.4%
H.J. Heinz Co. ................................ 204,200 7,568,163
Hershey Foods Corp. ........................... 61,600 3,334,100
PepsiCo, Inc. ................................. 246,500 11,339,000
22,241,263
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Package Goods/Cosmetics 1.2%
Gillette Co. .................................. 160,100 4,943,088
-----------
Health 9.1%
Biotechnology 2.0%
Pharmacia Corp. ............................... 134,351 8,086,251
-----------
Medical Supply & Specialty 1.0%
Becton, Dickinson & Co. ....................... 161,900 4,280,231
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Pharmaceuticals 6.1%
American Home Products Corp. .................. 189,900 10,741,219
Bristol-Myers Squibb Co. ...................... 133,200 7,609,050
Eli Lilly & Co. ............................... 80,500 6,530,563
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24,880,832
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The accompanying notes are an integral part of the financial statements.
18
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Shares Value ($)
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Communications 9.0%
Telephone/Communications
AT&T Corp. ........................... 166,550 4,892,406
BellSouth Corp. ...................... 207,800 8,363,950
SBC Communications, Inc. ............. 234,000 11,700,000
Verizon Communications ............... 247,300 11,978,594
----------
36,934,950
----------
Financial 27.3%
Banks 14.0%
Bank One Corp. ....................... 156,600 6,048,675
Bank of America Corp. ................ 133,352 6,984,311
Chase Manhattan Corp. ................ 95,950 4,431,691
Citigroup, Inc. ...................... 320,400 17,321,625
FleetBoston Financial Corp. .......... 168,600 6,575,400
J.P. Morgan & Co., Inc. .............. 25,500 4,166,063
PNC Bank Corp. ....................... 117,900 7,663,500
Wells Fargo & Co. .................... 71,400 3,279,938
Zions Bancorp ........................ 20,400 1,043,269
----------
57,514,472
----------
Insurance 11.3%
AFLAC, Inc. .......................... 135,900 8,706,094
Allstate Corp. ....................... 211,100 7,335,725
Cigna Corp. .......................... 149,700 15,628,680
Hartford Financial Services Group, Inc. 83,200 6,068,400
MetLife, Inc. ........................ 119,700 3,134,644
St. Paul Companies, Inc. ............. 110,100 5,429,306
----------
46,302,849
----------
Other Financial Companies 1.3%
Federal National Mortgage Association 77,900 5,569,850
----------
Real Estate 0.7%
Post Properties, Inc. (REIT) ......... 64,900 2,827,206
----------
Media 1.9%
Broadcasting & Entertainment
Walt Disney Co. ...................... 201,000 7,688,250
----------
The accompanying notes are an integral part of the financial statements.
19
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Shares Value ($)
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Service Industries 1.2%
Investment
Merrill Lynch & Co., Inc. ............. 72,600 4,791,600
----------
Durables 8.7%
Aerospace 7.5%
Boeing Co. ............................ 171,400 10,798,200
Lockheed Martin Corp. ................. 386,264 12,731,261
United Technologies Corp. ............. 101,800 7,049,650
----------
30,579,111
----------
Construction/Agricultural Equipment 1.2%
Deere & Co. ........................... 153,300 5,097,225
----------
Manufacturing 4.7%
Chemicals 2.5%
Dow Chemical Co. ...................... 154,500 3,852,844
E.I. du Pont de Nemours & Co. ......... 148,700 6,161,756
10,014,600
----------
Industrial Specialty 1.5%
PPG Industries, Inc. .................. 92,100 3,655,219
Sherwin-Williams Co. .................. 117,700 2,515,838
6,171,057
----------
Machinery/Components/Controls 0.7%
Parker-Hannifin Corp. ................. 90,450 3,052,688
----------
Technology 4.4%
Computer Software 1.5%
Intuit, Inc.* ......................... 112,000 6,384,000
----------
Diverse Electronic Products 0.5%
Diebold, Inc. ......................... 76,000 2,018,750
----------
Electronic Data Processing 2.4%
Hewlett-Packard Co. ................... 41,500 4,025,500
International Business Machines Corp. . 50,200 5,647,500
----------
9,673,000
----------
Energy 15.4%
Oil & Gas Production 11.0%
Conoco, Inc. "A" ...................... 152,600 3,986,675
Exxon Mobil Corp. ..................... 264,992 23,617,411
Montana Power Co. ..................... 125,300 4,181,888
The accompanying notes are an integral part of the financial statements.
20
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Shares Value ($)
--------------------------------------------------------------------------------
Royal Dutch Petroleum Co. (New York shares) 124,900 7,486,194
Texaco, Inc. ............................. 111,900 5,874,750
----------
45,146,918
----------
Oil Companies 1.8%
Chevron Corp. ............................ 87,200 7,433,800
----------
Oilfield Services/Equipment 2.6%
Baker Hughes, Inc. ....................... 134,700 5,000,738
Schlumberger Ltd. ........................ 69,800 5,745,413
----------
10,746,151
----------
Transportation 1.3%
Railroads
Burlington Northern Santa Fe Corp. ....... 248,000 5,347,500
----------
Utilities 6.7%
Electric Utilities
Allegheny Energy, Inc. ................... 142,100 5,426,444
Duke Energy Corp. ........................ 72,500 6,216,875
FPL Group, Inc. .......................... 87,300 5,739,975
Peco Energy Co. .......................... 34,900 2,113,631
Southern Energy, Inc.* ................... 17,000 533,375
Unicom Corp. ............................. 134,100 7,534,744
----------
27,565,044
----------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $344,256,381) 404,257,961
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $350,340,381) (a) 410,341,961
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* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $350,556,580. At September 30,
2000, net unrealized appreciation for all securities based on tax cost was
$59,785,381. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$73,344,654 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $13,559,273.
The accompanying notes are an integral part of the financial statements.
21
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Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of September 30, 2000
--------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------
Investments in securities, at value (cost $350,340,381) . $410,341,961
Cash .................................................... 138
Receivable for investments sold ......................... 11,858,138
Dividends receivable .................................... 560,597
Interest receivable ..................................... 2,190
Receivable for Fund shares sold ......................... 369,705
Due from Adviser ........................................ 29,206
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Total assets ............................................ 423,161,935
Liabilities
--------------------------------------------------------------------------------
Payable for investments purchased ....................... 1,377,209
Payable for Fund shares redeemed ........................ 740,380
Accrued management fee .................................. 286,494
Accrued Trustees' fees and expenses ..................... 58,827
Other accrued expenses and payables ..................... 836,337
-------------
Total liabilities ....................................... 3,299,247
--------------------------------------------------------------------------------
Net assets, at value $419,862,688
--------------------------------------------------------------------------------
Net Assets
--------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ..................... 1,995,574
Net unrealized appreciation (depreciation) on investments 60,001,580
Accumulated net realized gain (loss) .................... 42,663,242
Paid-in capital ......................................... 315,202,292
--------------------------------------------------------------------------------
Net assets, at value $419,862,688
--------------------------------------------------------------------------------
Net Asset Value
--------------------------------------------------------------------------------
Scudder Shares
Net asset value, offering and redemption price
per share ($331,123,448 / 12,846,172 outstanding
shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) ............... $ 25.78
-------------
Class A
Net asset value and redemption price
per share ($50,693,642 / 1,968,732 outstanding
shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) ............... $ 25.75
-------------
Maximum offering price per share -------------
(100 / 94.25 of $25.75) .............................. $ 27.32
-------------
Class B
Net asset value and redemption price (subject
to contingent deferred sales charge) per share
($30,573,600 / 1,195,742 outstanding shares of
beneficial interest, $.01 par value, unlimited -------------
number of shares authorized) ......................... $ 25.57
-------------
Class C
Net asset value and redemption price (subject
to contingent deferred sales charge) per share
($7,471,998 / 292,512 outstanding shares of beneficial
interest, $.01 par value, unlimited number -------------
of shares authorized) ................................ $ 25.54
-------------
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the year ended September 30, 2000
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $38,383) ......... $ 8,226,085
Interest ..................................................... 468,074
------------
Total Income ................................................. 8,694,159
------------
Expenses:
Management fee ............................................... 3,001,573
Services to shareholders ..................................... 2,697,473
Custodian and accounting fees ................................ 160,298
Distribution services fees ................................... 264,645
Administrative services fees ................................. 195,540
Auditing ..................................................... 62,148
Legal ........................................................ 13,403
Trustees' fees and expenses .................................. 88,236
Reports to shareholders ...................................... 151,036
Registration fees ............................................ 68,229
Other ........................................................ 52,852
------------
Total expenses, before expense reductions .................... 6,755,433
Expenses reductions .......................................... (72,465)
------------
Total expenses, after expense reductions ..................... 6,682,968
--------------------------------------------------------------------------------
Net investment income (loss) 2,011,191
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ................................................ 52,726,552
Foreign currency related transactions ...................... (109)
------------
52,726,443
------------
Net unrealized appreciation (depreciation) during the
period on investments ..................................... 13,596,001
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions 66,322,444
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 68,333,635
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-------------------------------------------------------------------------------------
Years Ended September 30,
Increase (Decrease) in Net Assets 2000 1999
-------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ...................... $ 2,011,191 $ 3,111,169
Net realized gain (loss) on investment transactions 52,726,443 6,166,998
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... 13,596,001 62,680,573
------------- -------------
Net increase (decrease) in net assets resulting
from operations ................................ 68,333,635 71,958,740
------------- -------------
Distributions to shareholders from:
Net investment income -- Scudder Shares ........... (2,663,044) (4,164,869)
Net investment income -- Class A .................. (267,406) (237,416)
Net investment income -- Class B .................. (817) (48,553)
Net investment income -- Class C .................. (501) (11,523)
Net realized gain -- Scudder Shares ............... (13,800,495) (19,711,211)
Net realized gain -- Class A ...................... (1,426,862) (1,241,379)
Net realized gain -- Class B ...................... (1,060,430) (1,035,831)
Net realized gain -- Class C ...................... (209,392) (226,181)
------------- -------------
Fund share transactions:
Proceeds from shares sold ......................... 116,433,046 321,600,172
Reinvestment of distributions ..................... 18,829,221 25,914,793
Cost of shares redeemed ........................... (248,063,960) (426,810,318)
------------- -------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (112,801,693) (79,295,353)
------------- -------------
Increase (decrease) in net assets ................. (63,897,005) (34,013,576)
Net assets at beginning of period ................. 483,759,693 517,773,269
Net assets at end of period (including
undistributed net investment income of ------------- -------------
$1,995,574 and $2,922,969, respectively) ....... $ 419,862,688 $ 483,759,693
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<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.
Scudder Shares (a)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Years Ended September 30, 2000(b) 1999(b) 1998(b) 1997(b) 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $22.88 $21.20 $23.53 $17.52 $15.87
----------------------------------------------
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------
Net investment income (loss) .13 .15 .28 .34 .21
-------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions 3.78 2.62 (.72) 7.22 2.40
----------------------------------------------
-------------------------------------------------------------------------------------
Total from investment operations 3.91 2.77 (.44) 7.56 2.61
-------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------
Net investment income (.16) (.19) (.24) (.07) (.04)
-------------------------------------------------------------------------------------
Net realized gains on investment
transactions (.85) (.90) (1.65) (1.48) (.92)
----------------------------------------------
-------------------------------------------------------------------------------------
Total distributions (1.01) (1.09) (1.89) (1.55) (.96)
-------------------------------------------------------------------------------------
Net asset value, end of period $25.78 $22.88 $21.20 $23.53 $17.52
----------------------------------------------
-------------------------------------------------------------------------------------
Total Return (%) 17.63 13.02 (2.08) 45.80(c) 17.18(c)
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 331 407 468 298 89
------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 1.48(d) 1.39 1.23 1.28 1.31
------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.47(d) 1.39 1.23 1.24 1.25
------------------------------------------------------------------------------------
Ratio of net investment income
(loss) (%) .56 .61 1.19 1.67 1.34
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 51 91 47 47 91
------------------------------------------------------------------------------------
</TABLE>
(a) On April 16, 1998, existing shares of the Fund were designated as Scudder
Shares and are generally not available to new investors.
(b) Based on monthly average shares outstanding during the period.
(c) Total return would have been lower had certain expenses not been reduced.
(d) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.47% and
1.46%, respectively (see Notes to Financial Statements).
25
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Value Fund (the "Fund") is a diversified series of Value Equity 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.
The Fund offers multiple classes of shares. Class A shares are offered to
investors subject to an initial sales charge. Class B shares are offered without
an initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one year of purchase. Class C
shares do not convert into another class. Scudder Shares, generally not
available to new investors, are not subject to initial or contingent deferred
sales charges. Certain detailed financial information for the Class A, B and C
shares is provided separately and is available upon request.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears certain expenses unique to that class such as distribution
services, shareholder services, administrative services and certain other class
specific expenses. Differences in class expenses may result in payment of
different per share dividends by class. All shares of the Fund have equal rights
with respect to voting subject to class specific arrangements.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America which require the
use of management estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated 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
26
<PAGE>
sales, are valued at the most recent sale price reported. If there are no such
sales, the value is the most recent bid quotation. Securities which are not
quoted on Nasdaq but are traded in another over-the-counter market are valued at
the most recent sale price, or if no sale occurred, at the calculated mean
between the most recent bid and asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Trust, whose
quotations reflect broker supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Money market instruments purchased with an original maturity of sixty days or
less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
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.
27
<PAGE>
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of a financial
instrument at a specified price on a specific date (settlement date).
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund dependent upon
the daily fluctuations in the value of the underlying security and are recorded
for financial reporting purposes as unrealized gains or losses by the Fund. When
entering into a closing transaction, the Fund will realize a gain or loss equal
to the difference between the value of the futures contract to sell and the
futures contract to buy. Futures contracts are valued at the most recent
settlement price.
Certain risks may arise upon entering into futures contracts, including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with the changes in the value of
the securities or currencies hedged. When utilizing futures contracts to hedge,
the Fund gives up the opportunity to profit from favorable price movements in
the hedged positions during the term of the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from accounting principles generally accepted in the United
States of America. As a result, net investment income (loss) and net realized
gain (loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, the
28
<PAGE>
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.
B. Purchases and Sales of Securities
During the year ended September 30, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $207,001,899 and
$343,131,095, 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 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 year ended September 30, 2000, the
fee pursuant to the Agreement amounted to $3,001,573, of which $286,494 is
unpaid at September 30, 2000.
Distribution Service Agreement. In accordance with Rule 12b-1 under the
Investment Company Act of 1940, Kemper Distributors, Inc. ("KDI"), a subsidiary
of the Adviser, receives a fee of 0.75% of average daily net assets of Classes B
and C. Pursuant to the agreement, KDI enters into related selling group
agreements with various firms at various rates for sales of Class B and C
29
<PAGE>
shares. For the year ended September 30, 2000, the Distribution Fee was as
follows:
Unpaid at
Total September 30,
Distribution Fee Aggregated 2000
------------------------------------------- --------------- ---------------
Class B .................................. $ 216,319 $ 116,771
Class C .................................. 48,326 --
$ 264,645 $ 116,771
Underwriting Agreement and Contingent Deferred Sales Charge. KDI is the
principal underwriter for Classes A, B and C. Underwriting commissions paid in
connection with the distribution of Class A shares for the year ended September
30, 2000 aggregated $77,770, of which $61,164 was paid to other firms.
In addition, KDI receives any contingent deferred sales charge (CDSC) from Class
B share redemptions occurring within six years of purchase and Class C share
redemptions occurring within one year of purchase. There is no such charge upon
redemption of any share appreciation or reinvested dividends. Contingent
deferred sales charges are based on declining rates ranging from 4% to 1% for
Class B and 1% for Class C, of the value of the shares redeemed. For the year
ended September 30, 2000, the CDSC for Classes B and C aggregated $111,774 and
$457, respectively.
Administrative Service Fees. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to 0.25% of
average daily net assets for each such class. KDI in turn has various agreements
with financial services firms that provide these services and pays these firms
based upon the assets of shareholder accounts the firms service. For the year
ended September 30, 2000, the Administrative Service Fee was as follows:
Unpaid at
Total September 30,
Administrative Service Fees Aggregated 2000
------------------------------------------- --------------- ---------------
Class A .................................. $ 107,492 $ 19,808
Class B .................................. 72,106 63,026
Class C .................................. 15,942 13,835
$ 195,540 $ 96,669
Shareholder Services Fees. Kemper Service Company ("KSC"), an affiliate of the
Adviser, is the transfer, dividend-paying and shareholder service agent for
30
<PAGE>
the Fund's Classes A, B and C shares. For the year ended September 30, 2000, the
amount charged to Classes A, B and C by KSC aggregated $190,006, $104,636 and
$37,646, respectively, of which $65,713, $34,995 and $24,533, respectively, is
unpaid at September 30, 2000. Scudder Service Corporation ("SSC"), a subsidiary
of the Adviser, is the transfer, dividend-paying and shareholder service agent
for the Scudder Shares. For the year ended September 30, 2000, the amount
charged to the Scudder Shares by SSC for shareholder services aggregated
$667,626, of which $149,396 is unpaid at September 30, 2000.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Scudder Shares of the Fund. For the year
ended September 30, 2000, the amount charged to the Scudder Shares by STC
aggregated $1,308,124, of which $105,393 is unpaid at September 30, 2000.
Fund Accounting Fees. Scudder Fund Accounting Corporation ("SFAC"), a subsidiary
of the Adviser, is responsible for determining the daily net asset value per
share and maintaining the portfolio and general accounting records of the Fund.
For the year ended September 30, 2000, the amount charged to the Fund by SFAC
aggregated $127,491, of which $31,069 is unpaid at September 30, 2000.
Trustees' Fees. The Fund pays each of its Trustees not affiliated with the
Adviser an annual retainer plus specified amounts for attended board and
committee meetings. For the year ended September 30, 2000, the Trustees' fees
and expenses aggregated $29,824. In addition, a one-time fee of $58,412 was
accrued for payment to those Trustees not affiliated with the Adviser who did
not stand 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 $29,206 of such costs.
31
<PAGE>
D. Capital Share Transactions
The following table summarizes shares of beneficial interest and dollar activity
in the Fund:
<TABLE>
<CAPTION>
Years Ended September 30,
2000 1999
--------------------------------------------------------------------
Shares Dollars Shares Dollars
Shares sold
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Shares 2,600,720 $ 61,546,888 5,568,655 $ 131,356,073
Class A ........... 1,600,121 38,085,807 4,906,004 115,981,063
Class B ........... 482,385 11,364,506 901,601 21,274,145
Class C ........... 231,828 5,435,845 2,262,454 52,988,891
4,915,054 116,433,046 13,638,714 321,600,172
Shares issued to shareholders in reinvestment of distributions
-------------------------------------------------------------------------------------
Scudder Shares 702,015 $ 16,027,031 1,010,122 $ 23,313,600
Class A ........... 71,116 1,625,719 59,448 1,372,649
Class B ........... 43,356 988,505 43,529 1,004,640
Class C ........... 8,230 187,966 9,689 223,904
824,717 18,829,221 1,122,788 25,914,793
Shares redeemed
-------------------------------------------------------------------------------------
Scudder Shares (8,248,865) $(193,178,099) (10,886,073) $(258,426,354)
Class A ........... (1,547,831) (36,365,690) (4,451,976) (104,695,242)
Class B ........... (616,825) (14,373,603) (518,518) (12,396,396)
Class C ........... (176,775) (4,146,568) (2,181,822) (51,292,326)
(10,590,296) (248,063,960) (18,038,389) (426,810,318)
Net increase (decrease)
-------------------------------------------------------------------------------------
Scudder Shares (4,946,130) $(115,604,180) (4,307,296) $(103,756,681)
Class A ........... 123,406 3,345,836 513,476 12,658,470
Class B ........... (91,084) (2,020,592) 426,612 9,882,389
Class C ........... 63,283 1,477,243 90,321 1,920,469
(4,850,525) $(112,801,693) (3,276,887) $ (79,295,353)
</TABLE>
E. 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 September 30,
32
<PAGE>
2000, the Fund's custodian and transfer agent fees were reduced by $29,795 and
$13,464, respectively, under these arrangements.
F. Line of Credit
The Fund and several other Scudder Funds (the "Participants") share in a $1
billion revolving credit facility with Chase Manhattan Bank for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Participants are
charged an annual commitment fee which is allocated, pro rata based upon net
assets, among each of the Participants. Interest is calculated based on the
market rates at the time of the borrowing. Each Fund may borrow up to a maximum
of 33 percent of its net assets under the agreement.
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.
33
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of Value Equity Trust and the Scudder Shares Shareholders of
Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Scudder Shares financial highlights present
fairly, in all material respects, the financial position of Value Fund (the
"Fund") at September 30, 2000, the results of its operations, the changes in its
net assets and the Scudder Shares financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and Scudder Shares
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 2000 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
Boston, Massachusetts PricewaterhouseCoopers LLP
November 17, 2000
34
<PAGE>
Tax Information (Unaudited)
--------------------------------------------------------------------------------
The Fund paid distributions of $0.85 per share from net long-term capital gains
during its year ended September 30, 2000, of which 100% represents 20% rate
gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$45,340,000 as capital gain dividends for its year ended September 30, 2000, of
which 100% represents 20% rate gains.
For corporate shareholders, 100% of the income dividends paid during the Fund's
fiscal year ended September 30, 2000 qualified for the dividends received
deduction.
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.
35
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Value Fund (the "fund"), a
series of Value Equity Trust, was held on July 13, 2000, at the office of
Scudder Kemper Investments, Inc., Two International Place, Boston, Massachusetts
02110. At the Meeting the following matters were voted upon by the shareholders
(the resulting votes for each matter are presented below).
1. To elect Trustees of Value Equity Trust.
Number of Votes:
Trustee For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 6,851,897 198,743
Linda C. Coughlin 6,852,624 198,017
Dawn-Marie Driscoll 6,850,239 200,401
Edgar R. Fiedler 6,843,035 207,605
Keith R. Fox 6,857,306 193,335
Joan E. Spero 6,847,112 203,529
Jean Gleason Stromberg 6,849,198 201,442
Jean C. Tempel 6,853,156 197,485
Steven Zaleznick 6,849,242 201,398
--------------------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the fiscal year ending September 30, 2000.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------------------------------------------------------------------------------
6,878,225 70,638 101,777 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.
36
<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
William F. Glavin*
o Vice President
James E. Masur*
o Vice President
Ann M. McCreary*
o Vice President
Lois R. Roman*
o Vice President
Howard S. Schneider*
o Vice President
Robert D. Tymoczko*
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.
37
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Scudder Funds
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund
Prime Reserve Shares Scudder Small Company Value Fund
Premium Shares
Managed Shares Growth
Scudder Tax Free Money Fund Scudder Classic Growth Fund
Scudder Capital Growth Fund
Tax Free Scudder Large Company Growth Fund
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund Scudder Small Company Stock Fund
Scudder California Tax Free Fund Scudder 21st Century Growth Fund
Scudder Massachusetts Tax Free Fund
Scudder New York Tax Free Fund Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund
Scudder GNMA Fund Scudder Global Discovery Fund
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio Scudder Health Care Fund
Scudder Pathway Growth Portfolio Scudder Technology Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
38
<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.
39
<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.
40
<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
41
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<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 SEPTEMBER 30, 2000
Seeks long-term growth of capital by investing primarily in
large-capitalization stocks in undervalued sectors of the
market. Kemper Value Fund is properly known as Value Fund.
KEMPER VALUE FUND
"... We attribute the fund's outperformance primarily to our adherence to a
strict investment process. ..."
[KEMPER FUNDS LOGO]
<PAGE>
CONTENTS
3
ECONOMIC OVERVIEW
7
PERFORMANCE UPDATE
12
INDUSTRY SECTORS
13
LARGEST HOLDINGS
14
PORTFOLIO OF
INVESTMENTS
18
FINANCIAL STATEMENTS
21
FINANCIAL HIGHLIGHTS
24
NOTES TO
FINANCIAL STATEMENTS
30
REPORT OF
INDEPENDENT ACCOUNTANTS
31
TAX INFORMATION
AT A GLANCE
KEMPER VALUE FUND TOTAL RETURNS*
FOR THE YEAR ENDED SEPTEMBER 30, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER VALUE FUND CLASS KEMPER VALUE FUND CLASS LIPPER MULTI-CAP VALUE
KEMPER VALUE FUND CLASS A B C FUND CATEGORY AVERAGE
------------------------- ----------------------- ----------------------- ----------------------
<S> <C> <C> <C>
17.42 16.69 16.44 11.94
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH CHANGING MARKET
CONDITIONS, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
*TOTAL RETURN MEASURES NET INVESTMENT INCOME AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS, ASSUMING REINVESTMENT OF ALL DIVIDENDS. DURING THE PERIOD
NOTED, SECURITIES PRICES FLUCTUATED. FOR ADDITIONAL INFORMATION SEE THE
PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND FINANCIAL HIGHLIGHTS AT THE
END OF THIS REPORT.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
9/30/00 9/30/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER VALUE FUND CLASS A $25.75 $22.89
.........................................................
KEMPER VALUE FUND CLASS B $25.57 $22.72
.........................................................
KEMPER VALUE FUND CLASS C $25.54 $22.75
.........................................................
</TABLE>
KEMPER VALUE FUND RANKINGS
AS OF SEPTEMBER 30, 2000
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER LARGE-CAP VALUE FUNDS CATEGORY+
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #118 of 475 funds #133 of 475 funds #138 of 475 funds
..........................................................................................
</TABLE>
+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 MAY HAVE BEEN LESS FAVORABLE.
DIVIDEND REVIEW
DURING THE YEAR ENDED SEPTEMBER 30, 2000, KEMPER VALUE FUND PAID THE FOLLOWING
DIVIDENDS:
<TABLE>
<CAPTION>
KEMPER KEMPER KEMPER
VALUE FUND VALUE FUND VALUE FUND
CLASS A CLASS B CLASS C
...........................................................
<S> <C> <C> <C> <C> <C>
INCOME
DIVIDEND $0.16 n/a n/a
...........................................................
LONG-TERM
CAPITAL GAIN
DISTRIBUTION $0.85 $0.85 $0.85
...........................................................
</TABLE>
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE SOURCE: Morningstar, Inc., Chicago, IL. (312)
BOX] 696-6000. The Morningstar Equity 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.
THE STYLE BOX REPRESENTS A SNAPSHOT OF A FUND'S
PORTFOLIO ON A SINGLE DAY. IT IS NOT AN EXACT
ASSESSMENT OF RISK AND DOES NOT REPRESENT FUTURE
PERFORMANCE. THE BOX REPRESENTS A FUND'S PORTFOLIO
CHANGES FROM DAY TO DAY. A LONGER-TERM VIEW IS
REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY,
WHICH IS BASED ON ITS ACTUAL INVESTMENT STYLE AS
MEASURED BY ITS UNDERLYING PORTFOLIO HOLDINGS OVER
THE PAST THREE YEARS. CATEGORY PLACEMENT OF NEW
FUNDS ARE ESTIMATED. PLEASE CONSULT THE PROSPECTUS
FOR A DESCRIPTION OF INVESTMENT POLICIES.
</TABLE>
<PAGE>
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Times have been good. During the first half of 2000, the global economy grew
faster than it has in over a decade. All regions participated. The United
States, of course, was still powering ahead. The growth rate in Europe was
nearly 4 percent. Asia fed off an electronics boom and a revitalized China.
South America got a boost from an improved credit rating. New money pumped up
energy producers from Mexico to the Middle East.
Now for the bad news, which is that the best news is probably behind us.
Global growth peaked in the spring, and in the United States, at least, the
slowdown was abrupt. After 6 percent growth in the year ending June 30, the
economy grew at a rate of just 2.7 percent during the summer. It seems that
expensive energy, currency volatility and more widespread profit problems, are
bringing the exuberant global economy, including the United States, to heel.
Let's explore these factors in more detail.
OIL, OIL, TOIL AND TROUBLE
Although oil prices have receded somewhat, everyone's still jittery, and with
good reason: Of the seven recessions since World War II, six were preceded by a
spike in crude oil prices.
Oil prices have already been strong enough for long enough to crimp growth,
and they're biting the rest of the world even harder than the United States. But
there are two factors working to our advantage. First, oil prices are still
historically low. Oil is slightly more than $30 per barrel today, but it peaked
at over $75 per barrel back in 1980 (stated in today's dollars). Second, our
dependence on oil has decreased: The United States uses only roughly half as
much oil to produce a unit of GDP as it did thirty years ago. This gives us hope
that the economy can escape recession this time around.
What would make us worry more? Outright energy shortages or a political
crisis. If either happens, the odds of a recession occurring would rise steeply.
People panic or become excessively cautious when they have to fret. Can I fill
up my oil tank? Will there be a war? Their loss of confidence can be much more
devastating than price increases alone.
CURRENCY CONCERNS
Currency turmoil is a second danger to the economy. Central bankers have
intervened to halt the euro's decline, and they're right that the euro is
fundamentally undervalued. But intervention is a hazardous game. Let's hope they
don't convince the markets that the euro should rise a lot very quickly. A
suddenly weak dollar might make Europeans think about selling all those American
stocks and bonds they've been buying, and would greatly complicate the Fed's
inflation fight.
BUSINESS: BIG PLANS BUT PROFIT DISAPPOINTMENTS
Profit warnings escalated late this summer, and we believe there's fire amid
that smoke.
Sure, businesses have had a voracious appetite for money -- and until very
recently, corporate treasurers were finding it easily: Banks increased business
lending by 10.8 percent in the past year. Bond markets have suddenly become a
lot more picky, especially for low-quality credits, but money is still available
for investment grade borrowers. Capital goods orders reflect executives'
enthusiasm -- they've been accelerating since early in the year, and in
September were up more than 20 percent compared to a year ago.
Still, we expect total capital spending to slow, from this year's estimated 14
percent to 12.5 percent in 2001. The reason? A profit squeeze is about to take
some of the edge off executives' animal spirits.
We've always been more cautious than Wall Street about 2001 profits, and our
forecast hasn't changed. Profits are likely to be flat to down next year for
several reasons. First, the growth slowdown will make it harder to keep up the
productivity gains that have kept labor costs under control. Second, interest
expense will surge thanks to higher rates and all that new debt. Third,
depreciation costs are escalating. And finally, the excessively weak euro and
higher oil costs will sap earnings.
3
<PAGE>
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (10/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.70 6.00 6.10 4.50
Prime rate (2) 9.50 9.00 8.25 8.25
Inflation rate (3)* 3.50 3.80 2.60 1.40
The U.S. dollar (4) 11.30 1.10 -0.90 1.10
Capital goods orders (5)* 22.70 13.30 4.70 8.60
Industrial production (5)* 5.70 5.40 3.50 3.70
Employment growth (6) 1.80 2.50 2.30 2.50
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 9/30/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
SAVING GRACES: FISCAL POLICY AND CONSUMER SPENDING
While growth has peaked and is now slowing, we can be thankful that growth
probably won't slow too much, thanks in part to a more stimulative fiscal policy
and consumer spending.
Fiscal policy is likely to be more stimulative. Of course, most economists
agree that the last thing this pumped-up economy needs is another shot of
stimulants -- too much stimulus, after all, is widely believed to cause
inflation. But economists weren't running for office; politicians were. And
inflation risk was about the last thing on the mind of either candidate in the
heat of election campaigning. They wanted to win votes, and the time-tested way
to do so was to make promises. Although we didn't have the name of the winner as
of press time, neither candidate seems to be planning a lot of fiscal
restraint -- but the good news is that neither candidate's plan is likely to be
enacted until 2002 at the earliest.
Second, consumers continue to spend, spend, spend. The personal savings rate
keeps falling, from an already low 2.2 percent last year to a nearly invisible
0.1 percent this year. Critics of this admittedly squishy statistic claim it
doesn't adequately capture households' growing wealth. As it turns out, however,
the average American not only doesn't save much, but he's not getting wealthier
in leaps and bounds, either.
Net worth for the median family where the head of the household is over 45
(and where thoughts are presumably beginning to turn to retirement), rose less
than $13,000 between 1995 and 1998. That's less than a 12 percent gain during
the same three years the stock market nearly doubled and the market value of
owner-occupied homes jumped 21 percent. Why didn't the average family get richer
in that time? Because they were borrowing and spending like crazy. House values
were up 21 percent -- but mortgage debt rose even faster, by 25 percent!
Consumers' profligacy worries many financial professionals. Some people aren't
saving enough for retirement because they have inflated expectations of future
investment returns. Other people aren't saving enough for retirement because
they don't realize just how much money they'll need. Either way, people aren't
saving.
Still, no one wants consumers to change their profligate ways too fast. After
all, hearty consumer spending is a prime reason America's growth has stayed on a
fast track so far. Most economists would like to see shoppers be a bit more
moderate -- but only a bit. If Americans suddenly turned thrifty, the economy
would lurch into reverse.
4
<PAGE>
ECONOMIC OVERVIEW
Luckily, there's little chance of that happening, unless lenders get cold
feet. So far, they're hot to trot. In the past year, mortgage lending by banks
rocketed nearly 17 percent while loans to consumers jumped 10 percent. Brokers
are selling the loans banks don't want on their balance sheets to mortgage pools
and the asset-backed securities market, where eager non-bank lenders are
snapping them up. In the past year, these markets provided $625 billion of new
credit, a leap of more than 12 percent.
With so much money at their disposal, consumers didn't stay out of the
shopping centers and restaurants for long. Consumer spending growth jumped up to
4.5 percent in the summer, and we expect it to stay well above 3 percent through
2001.
OMINOUS SIGNS?
Decelerations are always tricky, to be sure. But barring some unexpected
shock, overall economic growth should to pop back into the 3.5 percent to 4
percent range in 2001. Why? Borrowing costs a little more than it did last year,
but money is still freely available for most borrowers. Capital goods orders are
strong, so there's a lot of life left in business spending. Shoppers are a
little pickier, but they're still more interested in visiting the mall than in
filling their piggy banks. And after the election, no matter who wins, fiscal
policy is likely to be more stimulative than it has been for years. The price to
pay will likely be a rise in core inflation (inflation excluding food and
energy). We expect it to hit 3 percent next year, up from its recent rate of 2.5
percent. We believe we'll make it safely through 2001, but investors should keep
their hands on the wheel and their eyes peeled.
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 NOVEMBER 8, 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.
5
<PAGE>
ECONOMIC OVERVIEW
[INTENTIONALLY LEFT BLANK]
6
<PAGE>
PERFORMANCE UPDATE
[LOIS R. ROMAN PHOTO]
LOIS R. ROMAN, LEAD PORTFOLIO MANAGER, JOINED SCUDDER KEMPER INVESTMENTS, INC.
IN 1994. SHE HAS MORE THAN 10 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE. SHE IS
ASSISTED BY JONATHAN LEE, WHO JOINED THE ORGANIZATION IN 1999. HE HAS MORE THAN
10 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE. THEY ARE SUPPORTED BY INVESTMENT
PROFESSIONALS INCLUDING ECONOMISTS, RESEARCH ANALYSTS, TRADERS AND OTHER
SPECIALISTS THROUGHOUT THE UNITED STATES AND ABROAD.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS, AND SHOULD NOT BE CONSIDERED AS A RECOMMENDATION OF ANY SPECIFIC
SECURITY.
INCREASED VOLATILITY SPURRED BY A TECHNOLOGY
CORRECTION CHARACTERIZED KEMPER VALUE FUND'S ANNUAL
PERIOD -- OCTOBER 1, 1999, THROUGH SEPTEMBER 30,
2000. LEAD PORTFOLIO MANAGER LOIS ROMAN DISCUSSES
WHAT WAS BEHIND THE FUND'S STRONG GAINS IN THE
MIDST OF SUCH A TURBULENT ENVIRONMENT.
Q HOW DID KEMPER VALUE FUND PERFORM DURING THE FISCAL PERIOD?
A We're happy to report that, despite a volatile market environment, the
fund significantly outperformed its value benchmark for the 12-month period. The
fund gained 17.42 percent (Class A shares, unadjusted for a sales charge), while
the Russell 1000 Value index gained 8.92 percent.
We attribute the fund's outperformance primarily to our adherence to a strict
investment process. We're a core large value fund, and we won't sway from that
charter -- even when value is underperforming as it was early in the year. Our
strict discipline helped the fund outperform as value came back into favor.
Several factors boosted performance. First, the fund's technology holdings
performed extremely well. We reduced this position prior to the technology
decline last spring, realizing solid profits for the fund. Second, the fund's
consumer discretionary stocks produced strong performance early in the fiscal
year. At the start of 2000, we reduced our position in these companies,
particularly those in the retail sector. That helped relative performance, as
retail stocks underperformed for the remainder of the period. Finally, the
fund's underweight position in banks and overweight position in insurance stocks
were a significant positive.
Q WILL YOU DISCUSS THE MARKET'S VOLATILITY AND ITS IMPACT ON THE FUND?
A We've witnessed a dramatic shift in the market over the 12-month period.
Through early March, technology, media and telecommunications (TMT) stocks
soared while most other stocks -- especially those considered to be in the value
category -- were all but forgotten by investors. As the spring progressed,
investors became skittish about the huge disparity in valuations between the
market leaders and the broader market. They began selling their highly valued
TMT stocks en masse, causing deep declines in the once seemingly invincible
market leaders. At the same time, investors began to return to companies with
strong long-term earnings track records and more reasonable valuations -- the
types of companies in which this fund is invested.
Growth and value stocks jockeyed for market leadership throughout the
remainder of the period, leading to high volatility in the overall market. In
this phase, the market continued to broaden and value-style stocks gained
considerable ground. The improved performance of stocks outside of the
technology sector boosted the fund's returns.
7
<PAGE>
PERFORMANCE UPDATE
Q YOU MENTIONED THAT TECHNOLOGY STOCKS WERE ONE OF THE MOST IMPORTANT
CONTRIBUTORS DURING THE PERIOD. WILL YOU DISCUSS THEIR ROLE IN THE PORTFOLIO?
A Although our technology holdings are more staid than many of the highest
flyers that were grabbing headlines early this year, they performed remarkably
well. The fund's strongest performers were Motorola, Corning and Micron, which
were longtime fund holdings originally purchased at trough valuations. By early
2000, their strong market performance pushed them up to valuations that we
believed were too expensive for the fund to continue to hold. We therefore cut
our position in the stocks and took solid profits for the fund. This was an
especially timely move, as it occurred before the technology sector corrected in
March. Our technology position is now at about 4 percent of the portfolio, down
from 12 percent at the start of the year. We continue to look for quality
technology stocks that fit within our investment discipline.
Q WHAT DOES A STOCK NEED TO MEET YOUR INVESTMENT CRITERIA?
A As value investors, we search the marketplace for undervalued stocks, and
we won't pay a premium for any stock in the pursuit of short-term gains. Our
investment process can be broken down into three steps:
First, we rely heavily on a proprietary quantitative model developed at
Scudder Kemper. We define our investment universe as the 1,000 securities in the
Russell 1000 index -- a group of 1,000 large-cap stocks that is not available
for direct investment. Our model looks at five measures of a stock's value and
ranks the stocks in the Russell 1000 based on these criteria. Each stock is then
placed in one of 10 groups (deciles). The cheapest 40 percent of those
stocks -- the four most attractive deciles -- are issues we may consider adding
to our portfolio. The most expensive 20 percent are those we would consider
selling. Everything else is typically held if it is already in the portfolio and
the positive investment thesis remains intact.
Next, our internal research analysts provide us with qualitative assessments
of the 400+ stocks that generally pass the screen. We discuss each company's
management strategy with our analysts, who provide their outlook for the
internal business model of the companies. Our analysts sift through those names
to figure out which ones are likely to offer the strongest upside potential and
which ones we should avoid because they may simply get cheaper over time.
Last, we try to assess the risk factors associated with the companies we
consider to be candidates for purchase. Questions we may ask at this stage
include: Will the direction of interest rates affect a company's performance?
How may a stock perform if there is a downturn or an uptick in the economy? Does
it complement the other holdings in the portfolio? Would its addition tilt the
portfolio in an area that might increase overall portfolio risk? Our
consideration of these factors helps reduce the overall risk profile of the
fund.
Q PLEASE PROVIDE AN EXAMPLE OF HOW THE PORTFOLIO BENEFITED BY RELYING ON ITS
THREE-STEP INVESTMENT PROCESS.
A Motorola is an excellent example. We bought this stock many years ago when
it was trading at trough valuations and trough fundamentals. At the time, the
stock had been beaten up by the market, which viewed Motorola strictly as a
cellular phone company, and one that was falling behind in market share.
Believing that there was more to the story, we added Motorola to the fund for
two distinct reasons. First, it met all of our valuation criteria. Second, we
saw a huge semiconductor cycle coming and believed the company could capitalize
on it. Motorola was also launching some new competitive products in which we had
faith. So, we bought the stock and held it, and over the past several years it
has been a strong contributor.
This year, when Motorola reached its highs, we liquidated our position. The
stock had appreciated to the sell zone of our model, our internal analyst saw
signs of deteriorating fundamentals, and we felt that all of the good news was
now out of the stock. Not long after our liquidating the position, Motorola
suffered deep price declines. In this example the timing of this sale clearly
illustrates the benefits of our investment process and why we use three steps.
8
<PAGE>
PERFORMANCE UPDATE
Q WERE THERE ANY SPECIFIC HOLDINGS THAT DETRACTED FROM KEMPER VALUE FUND'S
PERFORMANCE?
A Dow Chemical, which is also a longtime holding, was a drag on performance.
Over the course of the fiscal year, the stock slowly eroded in value, and
investor enthusiasm waned. In 1999, Dow announced a merger with Union Carbide.
This was originally viewed positively by the market, but the deal languished and
to date still has not closed. Additionally, rising energy prices caused the cost
of their raw materials to increase, hurting Dow and many other manufacturers.
The company has been unable to pass these high costs along to consumers, causing
a strain on its bottom line. We reduced our position in Dow, but we still
maintain an investment because we believe in the company and its longer-term
growth prospects.
Q HAVE RISING ENERGY PRICES HELPED THE FUND'S ENERGY HOLDINGS?
A We've seen mixed performance from our energy stocks, an area in which we
are overweight relative to our benchmark. Oil service companies such as
Schlumberger benefited most quickly from rising oil prices, while the
performance of the larger integrated oil companies such as Exxon Mobil and
Texaco was somewhat flat. We still have confidence in this sector and expect
improved performance in the coming months, and we are therefore maintaining our
energy position.
Q WILL YOU DISCUSS THE FUND'S FINANCIAL STOCKS AND THEIR CONTRIBUTIONS TO
PERFORMANCE?
A We focused our financial holdings in insurance stocks rather than banks,
and that allocation added a great deal to performance relative to our benchmark.
Insurance stocks made hearty gains during the year, while most banks struggled.
Some of the strongest performance came from insurers Cigna, Hartford and St.
Paul. We chose to underweight banks because we were uncomfortable with the
consolidations taking place in the sector and believed that rising interest
rates would continue to dampen performance. Exceptions included Citigroup and
Chase Manhattan, which were bright spots that added to performance. By the end
of the reporting period, it seemed as if some of the newly consolidated banks
were beginning to reap some efficiencies not seen earlier. We are now cautiously
optimistic that bank stocks may begin to turn around, and we have begun
selectively adding to some of our existing holdings.
Q HAVE INTEREST RATES ALSO DAMPENED THE PERFORMANCE OF RETAIL STOCKS?
A Retail stocks have slowed dramatically as interest rates have risen and
the economy has begun to show signs of slowing. After benefiting early in the
fiscal year from stocks such as Federated Department Stores and Target Stores,
we decided to decrease the fund's position in retail stocks. We significantly
underweighted retail stocks relative to our Russell 1000 Value benchmark, and
that helped performance as retailers struggled through the remainder of the
year. This is an area in which we're still interested, but at this point, we
believe earnings estimates are still falling and fundamentals are deteriorating.
As a result, we are staying away from stocks in this sector.
Q WHAT'S YOUR OUTLOOK FOR THE FUND AND VALUE INVESTING?
A We're thrilled to see the recent resurgence in value stocks. The gap
between growth and value is closing rapidly and beginning to invert. However, we
believe there is still a lot more upside for value stocks, which would of course
be very positive for the fund. We'll continue to stick to our knitting of being
a true large-cap value fund, just as we always have. We believe that our strong
performance this period illustrates the benefits of our investment process.
9
<PAGE>
TERMS TO KNOW
FUNDAMENTAL RESEARCH Analysis of companies based on the projected impact of
management, products, sales and earnings on their balance sheets and income
statements. Distinct from technical analysis, which evaluates the attractiveness
of a stock based on historical price and trading volume movements, rather than
the financial results of the underlying company.
MOMENTUM INVESTING The practice of investing in the market's top-performing
stocks in order to capture additional upward movements in their prices.
TROUGH FUNDAMENTALS A stock's future performance can be estimated by considering
a company's fundamentals -- its assets, earnings, sales, products and management
team. When some or all of these fundamentals are less than favorable but appear
to be on the verge of improving, they are considered to be trough fundamentals.
As with stock prices, a company's fundamental qualities typically travel through
cycles.
TROUGH VALUATION Most securities go through cycles in which their prices rise,
fall and then rise again. A trough valuation is at the low point of that cycle,
after which the stock's price is expected to begin rising again.
WEIGHTING (OVER/UNDER) The allocation of assets -- usually in terms of sectors,
industries or countries -- within a portfolio relative to the portfolio's
benchmark index or investment universe.
10
<PAGE>
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
For periods ended September 30, 2000 (adjusted for the maximum sales charge)
<TABLE>
<CAPTION>
1-YEAR 3-YEAR 5-YEAR LIFE OF CLASS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER VALUE FUND CLASS A 10.65% 6.97% 15.90% 14.92% (since 12/31/92)
.........................................................................................................
KEMPER VALUE FUND CLASS B 13.69% n/a n/a 2.22 (since 4/16/98)
.........................................................................................................
KEMPER VALUE FUND CLASS C 16.44% n/a n/a 3.36 (since 4/16/98)
.........................................................................................................
</TABLE>
KEMPER VALUE FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 12/31/92 to 9/30/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER VALUE FUND CLASS A(1) RUSSELL 1000 VALUE INDEX(++)
---------------------------- ----------------------------
<S> <C> <C>
12/31/92 9427.00 10000.00
10520.00 11812.00
12/31/94 10693.00 11577.00
13919.00 16017.00
17119.00 19483.00
12/31/97 23172.00 26341.00
25920.00 30458.00
26973.00 32698.00
9/30/00 29382.00 33783.00
</TABLE>
KEMPER VALUE FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 4/30/98 to 9/30/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER VALUE FUND CLASS B(1) RUSSELL 1000 VALUE INDEX(++)
---------------------------- ----------------------------
<S> <C> <C>
4/30/98 10000.00 10000.00
9988.00 9978.00
8441.00 8822.00
12/31/98 9863.00 10287.00
9700.00 10435.00
10579.00 11611.00
9455.00 10474.00
12/31/99 10170.00 11044.00
10386.00 11096.00
10058.00 10576.00
9/30/00 10742.00 11410.00
</TABLE>
KEMPER VALUE FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 4/30/98 to 9/30/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER VALUE FUND CLASS C(1) RUSSELL 1000 VALUE INDEX(++)
---------------------------- ----------------------------
<S> <C> <C>
4/30/98 10000.00 10000.00
9992.00 9978.00
8445.00 8822.00
12/31/98 9872.00 10287.00
9709.00 10435.00
10587.00 11611.00
9464.00 10474.00
12/31/99 10183.00 11044.00
10399.00 11096.00
10071.00 10576.00
9/30/00 11020.00 11410.00
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES
REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE WITH CHANGING
MARKET CONDITIONS, SO THAT WHEN
REDEEMED, SHARES MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
* FOR CLASS A SHARES, ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5.75%, FOR
CLASS B SHARES, ADJUSTMENT FOR THE
APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) OF 3% AND FOR CLASS C
SHARES, NO ADJUSTMENT FOR SALES
CHARGE. THE MAXIMUM CDSC FOR CLASS B
SHARES IS 4%. FOR CLASS C SHARES,
THERE IS A 1% CDSC ON CERTAIN
REDEMPTIONS WITHIN THE FIRST YEAR OF
PURCHASE.
(1)CLASS A SHARE PERFORMANCE PRIOR TO
APRIL 16, 1998, IS DERIVED FROM THE
SCUDDER "S" SHARE INCEPTION DATE AND
HAS BEEN ADJUSTED TO REFLECT THE
CURRENT MAXIMUM INITIAL SALES CHARGE
OF 5.75%. CLASS S SHARES ARE SUBJECT
TO CERTAIN OTHER, OR DIFFERENT
LEVELS OF, EXPENSES. THE EXPENSES
APPLICABLE TO CLASS S SHARES HAVE
BEEN REFLECTED IN THE PERFORMANCE
PRESENTED FOR CLASS A. THE
DIFFERENCE IN EXPENSES WILL AFFECT
PERFORMANCE. THE FUND'S SHARES WERE
OFFERED WITHOUT A SALES CHARGE UNTIL
APRIL 15, 1998. CLASS A, B AND C
SHARES WERE INITIALLY OFFERED ON
APRIL 16, 1998. CLASS B SHARE
PERFORMANCE IS ADJUSTED FOR THE CDSC
IN EFFECT AT THE END OF THE PERIOD.
WHEN COMPARING KEMPER VALUE FUND
WITH THE INDICES, YOU SHOULD NOTE
THAT THE FUND'S PERFORMANCE REFLECTS
THE MAXIMUM SALES CHARGE, WHILE NO
SUCH CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDICES. FOR
ADDITIONAL INFORMATION, SEE THE
PROSPECTUS, STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS
REPORT.
(++)THE RUSSELL 1000 VALUE INDEX MEASURES
THE PERFORMANCE OF THOSE RUSSELL 1000
COMPANIES WITH LOWER PRICE-TO-BOOK
RATIOS AND LOWER FORECASTED GROWTH
VALUES. THESE STOCKS ARE SELECTED FROM
THE 1,000 LARGEST COMPANIES IN THE
RUSSELL 3000 INDEX, WHICH REPRESENTS
APPROXIMATELY 90% OF THE TOTAL MARKET
CAPITALIZATION OF THE RUSSELL 3000
INDEX. THE STOCKS REPRESENTED BY THIS
INDEX INVOLVE INVESTMENT RISKS, WHICH
MAY INCLUDE THE LOSS OF PRINCIPAL
INVESTED. SOURCE IS WIESENBERGER(R).
11
<PAGE>
INDUSTRY SECTORS
SECTOR COMPOSITION OF VALUE FUND*
Data shows the percentage of the common stocks in the portfolio that each sector
of Kemper Value Fund represented on September 30, 2000 and September 30, 1999.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER VALUE FUND AS OF KEMPER VALUE FUND AS OF
9/30/00 9/30/99
----------------------- -----------------------
<S> <C> <C>
Finance 27.80 19.10
Energy 15.70 12.60
Capital goods 13.60 19.40
Communication services 11.00 15.80
Consumer non-durables 10.10 9.00
Health 9.20 4.30
Utilities 6.80 4.10
Technology 4.50 11.70
Transportation 1.30 4.00
</TABLE>
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
A COMPARISON WITH THE RUSSELL 1000 VALUE INDEX
Data shows the percentage of the common stocks in the portfolio that each sector
of Kemper Value Fund represented on September 30, 2000, compared with the
industry sectors that make up the fund's benchmark, the Russell 1000 Value
index.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER VALUE FUND AS OF RUSSELL 1000 VALUE INDEX AS OF
9/30/00 9/30/00
----------------------- ------------------------------
<S> <C> <C>
Finance 27.80 30.60
Energy 15.70 8.30
Capital goods 13.60 6.50
Communication services 11.00 9.70
Consumer non-durables 10.10 19.80
Health 9.20 7.70
Utilities 6.80 5.90
Technology 4.50 6.80
Transportation 1.30 1.20
Basic materials 0.00 3.50
</TABLE>
12
<PAGE>
LARGEST HOLDINGS
KEMPER VALUE FUND'S 10 LARGEST HOLDINGS*
Representing 32.8 percent of the fund's portfolio on September 30, 2000.
<TABLE>
<CAPTION>
HOLDINGS DESCRIPTION PERCENT
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
1. EXXON MOBIL Engaged in the exploration, 5.8%
production, manufacture,
transportation and sale of crude
oil, natural gas and petroleum
products.
--------------------------------------------------------------------------------------
2. CITIGROUP Diversified holding company whose 4.2%
businesses provide a range of
financial services, including
banking, insurance and investment
services, to consumer and corporate
customers around the world.
--------------------------------------------------------------------------------------
3. CIGNA A multiline insurance and financial 3.8%
services company whose primary
segment is health care. Cigna also
sells group life, accident and
disability coverage;
property/casualty insurance; and
retirement plans.
--------------------------------------------------------------------------------------
4. LOCKHEED MARTIN Designs, develops, manufactures and 3.1%
integrates advanced technology
systems and services. Products
range from aircraft, spacecraft and
launch vehicles to missiles,
electronics, information systems,
telecommunications and energy
management.
--------------------------------------------------------------------------------------
5. VERIZON COMMUNICATIONS Formerly known as Bell Atlantic 2.9%
Corporation, Verizon is an
international telecommunications
company that operates in four
segments. Domestic telecom segment
services include local telephone
services, voice and data transport,
network access, directory
assistance, data solutions and
systems integration, billing and
collections, and Internet access
services.
--------------------------------------------------------------------------------------
6. SBC COMMUNICATIONS Provides telecommunication services 2.9%
in the United States and worldwide.
The company operates in four
segments: wireline, wireless,
information and entertainment.
--------------------------------------------------------------------------------------
7. PEPSICO Operates under three business 2.8%
segments: snack foods, beverages
and juice. The company markets its
products under a wide variety of
brand names.
--------------------------------------------------------------------------------------
8. BOEING Develops and produces jet 2.6%
transports, military aircraft, and
space and missile systems through
two industry segments: commercial
aircraft and defense and space.
--------------------------------------------------------------------------------------
9. AMERICAN HOME PRODUCTS Manufactures and markets health 2.6%
care products, including
pharmaceuticals, consumer health
care products and medical supplies.
--------------------------------------------------------------------------------------
10. AFLAC A general business holding company, 2.1%
whose primary business is
supplemental health and life
insurance which is conducted
through its subsidiary, American
Family Life Assurance Company of
Columbus.
--------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
13
<PAGE>
PORTFOLIO OF INVESTMENTS
[INTENTIONALLY LEFT BLANK]
14
<PAGE>
PORTFOLIO OF INVESTMENTS
KEMPER VALUE FUND
Portfolio of Investments as of September 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENTS--1.5% AMOUNT ($) VALUE ($)
<S> <C> <C> <C> <C> <C>
State Street Bank and Trust Company, 6.48%,
to be repurchased at $6,087,285 on
10/2/2000**
(Cost $6,084,000) 6,084,000 $ 6,084,000
--------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--98.5% SHARES
<S> <C> <C> <C> <C> <C>
CONSUMER DISCRETIONARY--0.8%
DEPARTMENT & CHAIN STORES
Target Corp. 130,000 3,331,250
--------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--8.0%
ALCOHOL & TOBACCO--1.4%
Anheuser-Busch Companies, Inc. 133,200 5,636,025
--------------------------------------------------------------------------
FOOD & BEVERAGE--5.4%
H.J. Heinz Co. 204,200 7,568,163
Hershey Foods Corp. 61,600 3,334,100
PepsiCo, Inc. 246,500 11,339,000
--------------------------------------------------------------------------
22,241,263
PACKAGE GOODS/ COSMETICS--1.2%
Gillette Co. 160,100 4,943,088
--------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
HEALTH--9.1%
BIOTECHNOLOGY--2.0%
Pharmacia Corp. 134,351 8,086,251
--------------------------------------------------------------------------
MEDICAL SUPPLY &
SPECIALTY--1.0%
Becton, Dickinson & Co. 161,900 4,280,231
--------------------------------------------------------------------------
PHARMACEUTICALS--6.1%
American Home Products Corp. 189,900 10,741,219
Bristol-Myers Squibb Co. 133,200 7,609,050
Eli Lilly & Co. 80,500 6,530,563
--------------------------------------------------------------------------
24,880,832
-----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--9.0%
TELEPHONE/COMMUNICATIONS
AT&T Corp. 166,550 4,892,406
BellSouth Corp. 207,800 8,363,950
SBC Communications, Inc. 234,000 11,700,000
Verizon Communications 247,300 11,978,594
--------------------------------------------------------------------------
36,934,950
-----------------------------------------------------------------------------------------------------------------------
FINANCIAL--27.3%
BANKS--14.0%
Bank One Corp. 156,600 6,048,675
Bank of America Corp. 133,352 6,984,311
Chase Manhattan Corp. 95,950 4,431,691
Citigroup, Inc. 320,400 17,321,625
FleetBoston Financial Corp. 168,600 6,575,400
J.P. Morgan & Co., Inc. 25,500 4,166,063
PNC Bank Corp. 117,900 7,663,500
Wells Fargo & Co. 71,400 3,279,938
Zions Bancorp 20,400 1,043,269
--------------------------------------------------------------------------
57,514,472
INSURANCE--11.3%
AFLAC, Inc. 135,900 8,706,094
Allstate Corp. 211,100 7,335,725
Cigna Corp. 149,700 15,628,680
Hartford Financial Services Group, Inc. 83,200 6,068,400
MetLife, Inc. 119,700 3,134,644
St. Paul Companies, Inc. 110,100 5,429,306
--------------------------------------------------------------------------
46,302,849
</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>
OTHER FINANCIAL COMPANIES--1.3%
Federal National Mortgage Association 77,900 5,569,850
--------------------------------------------------------------------------
REAL ESTATE--0.7%
Post Properties, Inc. (REIT) 64,900 2,827,206
--------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
MEDIA--1.9%
BROADCASTING & ENTERTAINMENT
Walt Disney Co. 201,000 7,688,250
--------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--1.2%
INVESTMENT
Merrill Lynch & Co., Inc. 72,600 4,791,600
--------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
DURABLES--8.7%
AEROSPACE--7.5%
Boeing Co. 171,400 10,798,200
Lockheed Martin Corp. 386,264 12,731,261
United Technologies Corp. 101,800 7,049,650
--------------------------------------------------------------------------
30,579,111
CONSTRUCTION/AGRICULTURAL
EQUIPMENT--1.2%
Deere & Co. 153,300 5,097,225
--------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
MANUFACTURING--4.7%
CHEMICALS--2.5%
Dow Chemical Co. 154,500 3,852,844
E.I. du Pont de Nemours & Co. 148,700 6,161,756
--------------------------------------------------------------------------
10,014,600
INDUSTRIAL SPECIALTY--1.5%
PPG Industries, Inc. 92,100 3,655,219
Sherwin-Williams Co. 117,700 2,515,838
--------------------------------------------------------------------------
6,171,057
MACHINERY/COMPONENTS/ CONTROLS--0.7%
Parker-Hannifin Corp. 90,450 3,052,688
--------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--4.4%
COMPUTER SOFTWARE--1.5%
Intuit, Inc.* 112,000 6,384,000
--------------------------------------------------------------------------
DIVERSE ELECTRONIC PRODUCTS--0.5%
Diebold, Inc. 76,000 2,018,750
--------------------------------------------------------------------------
ELECTRONIC DATA PROCESSING--2.4%
Hewlett-Packard Co. 41,500 4,025,500
International Business Machines Corp. 50,200 5,647,500
--------------------------------------------------------------------------
9,673,000
-----------------------------------------------------------------------------------------------------------------------
ENERGY--15.4%
OIL & GAS PRODUCTION--11.0%
Conoco, Inc. "A" 152,600 3,986,675
Exxon Mobil Corp. 264,992 23,617,411
Montana Power Co. 125,300 4,181,888
Royal Dutch Petroleum Co. (New York shares) 124,900 7,486,194
Texaco, Inc. 111,900 5,874,750
--------------------------------------------------------------------------
45,146,918
OIL COMPANIES--1.8%
Chevron Corp. 87,200 7,433,800
--------------------------------------------------------------------------
OILFIELD SERVICES/ EQUIPMENT--2.6%
Baker Hughes, Inc. 134,700 5,000,738
Schlumberger Ltd. 69,800 5,745,413
--------------------------------------------------------------------------
10,746,151
-----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.3%
RAILROADS
Burlington Northern Santa Fe Corp. 248,000 5,347,500
--------------------------------------------------------------------------
</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>
UTILITIES--6.7%
ELECTRIC UTILITIES
Allegheny Energy, Inc. 142,100 5,426,444
Duke Energy Corp. 72,500 6,216,875
FPL Group, Inc. 87,300 5,739,975
Peco Energy Co. 34,900 2,113,631
Southern Energy, Inc.* 17,000 533,375
Unicom Corp. 134,100 7,534,744
--------------------------------------------------------------------------
27,565,044
--------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $344,256,381) 404,257,961
--------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $350,340,381)(a) 410,341,961
--------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $350,556,580. At September 30,
2000, net unrealized appreciation for all securities based on tax cost was
$59,785,381. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$73,344,654 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $13,559,273.
The accompanying notes are an integral part of the financial statements. 17
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
As of September 30, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $350,340,381) $410,341,961
----------------------------------------------------------------------------
Cash 138
----------------------------------------------------------------------------
Receivable for investments sold 11,858,138
----------------------------------------------------------------------------
Dividends receivable 560,597
----------------------------------------------------------------------------
Interest receivable 2,190
----------------------------------------------------------------------------
Receivable for Fund shares sold 369,705
----------------------------------------------------------------------------
Due from Adviser 29,206
----------------------------------------------------------------------------
TOTAL ASSETS 423,161,935
----------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 1,377,209
----------------------------------------------------------------------------
Payable for Fund shares redeemed 740,380
----------------------------------------------------------------------------
Accrued management fee 286,494
----------------------------------------------------------------------------
Accrued Trustees' fees and expenses 58,827
----------------------------------------------------------------------------
Other accrued expenses and payables 836,337
----------------------------------------------------------------------------
TOTAL LIABILITIES 3,299,247
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $419,862,688
----------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income 1,995,574
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments 60,001,580
----------------------------------------------------------------------------
Accumulated net realized gain (loss) 42,663,242
----------------------------------------------------------------------------
Paid-in capital 315,202,292
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $419,862,688
----------------------------------------------------------------------------
NET ASSET VALUE
SCUDDER SHARES
Net asset value, offering and redemption price per share
($331,123,448 / 12,846,172 outstanding shares of
beneficial interest, $.01 par value, unlimited number of
shares authorized) $25.78
----------------------------------------------------------------------------
CLASS A
Net asset value and redemption price per share
($50,693,642 / 1,968,732 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $25.75
----------------------------------------------------------------------------
Maximum offering price per share (100 / 94.25 of $25.75) $27.32
----------------------------------------------------------------------------
CLASS B
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($30,573,600 /
1,195,742 outstanding shares of beneficial interest, $.01
par value, unlimited number of shares authorized) $25.57
----------------------------------------------------------------------------
CLASS C
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($7,471,998 /
292,512 outstanding shares of beneficial interest, $.01
par value, unlimited number of shares authorized) $25.54
----------------------------------------------------------------------------
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended September 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $38,383) $ 8,226,085
---------------------------------------------------------------------------
Interest 468,074
---------------------------------------------------------------------------
Total income 8,694,159
---------------------------------------------------------------------------
Expenses:
Management fee 3,001,573
---------------------------------------------------------------------------
Services to shareholders 2,697,473
---------------------------------------------------------------------------
Custodian and accounting fees 160,298
---------------------------------------------------------------------------
Distribution services fees 264,645
---------------------------------------------------------------------------
Administrative services fees 195,540
---------------------------------------------------------------------------
Auditing 62,148
---------------------------------------------------------------------------
Legal 13,403
---------------------------------------------------------------------------
Trustees' fees and expenses 88,236
---------------------------------------------------------------------------
Reports to shareholders 151,036
---------------------------------------------------------------------------
Registration fees 68,229
---------------------------------------------------------------------------
Other 52,852
---------------------------------------------------------------------------
Total expenses, before expense reductions 6,755,433
---------------------------------------------------------------------------
Expenses reductions (72,465)
---------------------------------------------------------------------------
Total expenses, after expense reductions 6,682,968
---------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 2,011,191
---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 52,726,552
---------------------------------------------------------------------------
Foreign currency related transactions (109)
---------------------------------------------------------------------------
52,726,443
---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 13,596,001
---------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENT TRANSACTIONS 66,322,444
---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $68,333,635
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 19
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 2,011,191 $ 3,111,169
----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 52,726,443 6,166,998
----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period 13,596,001 62,680,573
----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 68,333,635 71,958,740
----------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income -- Scudder Shares (2,663,044) (4,164,869)
----------------------------------------------------------------------------------------------------
Net investment income -- Class A (267,406) (237,416)
----------------------------------------------------------------------------------------------------
Net investment income -- Class B (817) (48,553)
----------------------------------------------------------------------------------------------------
Net investment income -- Class C (501) (11,523)
----------------------------------------------------------------------------------------------------
Net realized gain -- Scudder Shares (13,800,495) (19,711,211)
----------------------------------------------------------------------------------------------------
Net realized gain -- Class A (1,426,862) (1,241,379)
----------------------------------------------------------------------------------------------------
Net realized gain -- Class B (1,060,430) (1,035,831)
----------------------------------------------------------------------------------------------------
Net realized gain -- Class C (209,392) (226,181)
----------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 116,433,046 321,600,172
----------------------------------------------------------------------------------------------------
Reinvestment of distributions 18,829,221 25,914,793
----------------------------------------------------------------------------------------------------
Cost of shares redeemed (248,063,960) (426,810,318)
----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS (112,801,693) (79,295,353)
----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (63,897,005) (34,013,576)
----------------------------------------------------------------------------------------------------
Net assets at beginning of period 483,759,693 517,773,269
----------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $1,995,574 and $2,922,969,
respectively) $419,862,688 $483,759,693
----------------------------------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS A
YEARS ENDED SEPTEMBER 30,
------------------------------------------
2000 1999 1998(B)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $22.89 $21.19 $25.42
----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .09 .15 .07
----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 3.78 2.62 (4.30)
----------------------------------------------------------------------------------------------------------
Total from investment operations 3.87 2.77 (4.23)
----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.16) (.17) --
----------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.85) (.90) --
----------------------------------------------------------------------------------------------------------
Total distributions (1.01) (1.07) --
----------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.75 $22.89 $21.19
----------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) 17.42 13.04(D) (16.64)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 51 42 28
----------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions (%) 1.70(e) 1.57 1.34
----------------------------------------------------------------------------------------------------------
Ratio of operating expenses after expense reductions (%) 1.68(e) 1.41 1.34*
----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .36 .61 .86*
----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 51 91 47
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period April 16, 1998 (commencement of sale of Class A shares) to
September 30, 1998.
(c) Total return does not reflect the effect of any sales charges.
(d) Total return would have been lower had certain expenses not been reduced.
(e) The ratios of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions were 1.69% and 1.68%,
respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
21
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS B
YEARS ENDED SEPTEMBER 30,
------------------------------------------
2000 1999 1998(B)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $22.72 $21.11 $25.42
----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.06) (.07) --
----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 3.76 2.62 (4.31)
----------------------------------------------------------------------------------------------------------
Total from investment operations 3.70 2.55 (4.31)
----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- (.04) --
----------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.85) (.90) --
----------------------------------------------------------------------------------------------------------
Total distributions (.85) (.94) --
----------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.57 $22.72 $21.11
----------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) 16.69 12.02(D) (16.96)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 31 29 18
----------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions (%) 2.30(e) 2.34 2.12
----------------------------------------------------------------------------------------------------------
Ratio of operating expenses after expense reductions (%) 2.29(e) 2.29 2.12*
----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.25) (.27) .03*
----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 51 91 47
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period April 16, 1998 (commencement of sale of Class B shares) to
September 30, 1998.
(c) Total return does not reflect the effect of any sales charges.
(d) Total return would have been lower had certain expenses not been reduced.
(e) The ratios of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions were 2.29% and 2.28%,
respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
22
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
CLASS C
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
2000 1999 1998(B)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $22.75 $21.13 $25.42
------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.11) (.05) .01
------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 3.75 2.61 (4.30)
------------------------------------------------------------------------------------------------------------
Total from investment operations 3.64 2.56 (4.29)
------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- (.04) --
------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.85) (.90) --
------------------------------------------------------------------------------------------------------------
Total distributions (.85) (.94) --
------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.54 $22.75 $21.13
------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (C) 16.44 12.06(D) (16.88)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 7 5 3
------------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions (%) 2.56(e) 2.34 2.11
------------------------------------------------------------------------------------------------------------
Ratio of operating expenses after expense reductions (%) 2.54(e) 2.26 2.11*
------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.48) (.22) .08*
------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 51 91 47
------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period April 16, 1998 (commencement of sale of Class C shares) to
September 30, 1998.
(c) Total return does not reflect the effect of any sales charges.
(d) Total return would have been lower had certain expenses not been reduced.
(e) The ratios of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions were 2.55% and 2.54%,
respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Value Fund (the "Fund") is a diversified series of
Value Equity 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.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Scudder Shares, generally not
available to new investors, are not subject to
initial or contingent deferred sales charges.
Certain detailed financial information for the
Class A, B and C shares is provided separately and
is available upon request.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with accounting principles generally
accepted in the United States of America which
require the use of management estimates. The
policies described below are followed consistently
by the Fund in the preparation of its financial
statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the Trust, whose quotations reflect broker
supplied valuations and electronic data processing
techniques. If the pricing agents are unable to
provide such quotations, the most recent bid
quotation supplied by a bona fide market maker
shall be used.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
FUTURES CONTRACTS. A futures contract is an
agreement between a buyer or seller and an
established futures exchange or its clearinghouse
in which the buyer or seller agrees to take or make
a delivery of a specific amount of a financial
instrument at a specified price on a specific date
(settlement date).
Upon entering into a futures contract, the Fund is
required to deposit with a financial intermediary
an amount ("initial margin") equal to a certain
percentage of the face value indicated in the
futures contract. Subsequent payments ("variation
margin") are made or received by the Fund dependent
upon the daily fluctuations in the value of the
underlying security and are recorded for financial
reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction,
the Fund will realize a gain or loss equal to the
difference between the value of the futures
contract to sell and the futures contract to buy.
Futures contracts are valued at the most recent
settlement price.
Certain risks may arise upon entering into futures
contracts, including the risk that an illiquid
secondary market will limit the Fund's ability to
close out a futures contract prior to the
settlement date and that a change in the value of a
futures contract may not correlate exactly with the
changes in the value of the securities or
currencies hedged. When utilizing futures contracts
to hedge, the Fund gives up the opportunity to
profit from favorable price movements in the hedged
positions during the term of the contract.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
investment companies and to distribute all of its
taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no
federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from accounting principles
generally accepted in the United States of America.
As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for
a reporting period may differ significantly from
distributions during such period. Accordingly, the
Fund may periodically make reclassifications among
certain of its capital accounts without impacting
the net asset value of the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis.
All discounts are accreted for both tax and
financial reporting purposes.
--------------------------------------------------------------------------------
2 PURCHASES AND SALES
OF SECURITIES During the year ended September 30, 2000, purchases
and sales of investment securities (excluding
short-term investments) aggregated $207,001,899 and
$343,131,095, 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
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 year
ended September 30, 2000, the fee pursuant to the
Agreement amounted to $3,001,573, of which $286,494
is unpaid at September 30, 2000.
DISTRIBUTION SERVICE AGREEMENT. In accordance with
Rule 12b-1 under the Investment Company Act of
1940, Kemper Distributors, Inc. ("KDI"), a
subsidiary of the Adviser, receives a fee of 0.75%
of average daily net assets of Classes B and C.
Pursuant to the agreement, KDI enters into related
selling group agreements with various firms at
various rates for sales of Class B and C
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
shares. For the year ended September 30, 2000, the
Distribution Fee was as follows:
<TABLE>
<CAPTION>
UNPAID AT
TOTAL SEPTEMBER 30,
DISTRIBUTION FEE AGGREGATED 2000
-------------------------------------------------------------------------------
<S> <C> <C>
Class B $216,319 $116,771
Class C 48,326 --
-------- --------
$264,645 $116,771
======== ========
</TABLE>
UNDERWRITING AGREEMENT AND CONTINGENT DEFERRED
SALES CHARGE. KDI is the principal underwriter for
Classes A, B and C. Underwriting commissions paid
in connection with the distribution of Class A
shares for the year ended September 30, 2000
aggregated $77,770, of which $61,164 was paid to
other firms.
In addition, KDI receives any contingent deferred
sales charge (CDSC) from Class B share redemptions
occurring within six years of purchase and Class C
share redemptions occurring within one year of
purchase. There is no such charge upon redemption
of any share appreciation or reinvested dividends.
Contingent deferred sales charges are based on
declining rates ranging from 4% to 1% for Class B
and 1% for Class C, of the value of the shares
redeemed. For the year ended September 30, 2000,
the CDSC for Classes B and C aggregated $111,774
and $457, respectively.
ADMINISTRATIVE SERVICE FEES. KDI provides
information and administrative services to Classes
A, B and C shareholders at an annual rate of up to
0.25% of average daily net assets for each such
class. KDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based upon the assets
of shareholder accounts the firms service. For the
year ended September 30, 2000, the Administrative
Service Fee was as follows:
<TABLE>
<CAPTION>
UNPAID AT
TOTAL SEPTEMBER 30,
ADMINISTRATIVE SERVICE FEES AGGREGATED 2000
-----------------------------------------------------------------------------
<S> <C> <C>
Class A $107,492 $19,808
Class B 72,106 63,026
Class C 15,942 13,835
-------- -------
$195,540 $96,669
======== =======
</TABLE>
SHAREHOLDER SERVICES FEES. Kemper Service Company
("KSC"), an affiliate of the Adviser, is the
transfer, dividend-paying and shareholder service
agent for the Fund's Classes A, B and C shares. For
the year ended September 30, 2000, the amount
charged to Classes A, B and C by KSC aggregated
$190,006, $104,636 and $37,646, respectively, of
which $65,713, $34,995 and $24,533, respectively,
is unpaid at September 30, 2000. Scudder Service
Corporation ("SSC"), a subsidiary of the Adviser,
is the transfer, dividend-paying and shareholder
service agent for the Scudder Shares. For the year
ended September 30, 2000, the amount charged to the
Scudder Shares by SSC for shareholder services
aggregated $667,626, of which $149,396 is unpaid at
September 30, 2000.
Scudder Trust Company ("STC"), a subsidiary of the
Adviser, provides recordkeeping and other services
in connection with certain retirement and employee
benefit plans invested in the Scudder Shares of the
Fund. For the year ended September 30, 2000, the
amount charged to the Scudder Shares by STC
aggregated $1,308,124, of which $105,393 is unpaid
at September 30, 2000.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 September 30, 2000, the amount charged
to the Fund by SFAC aggregated $127,491, of which
$31,069 is unpaid at September 30, 2000.
TRUSTEES' FEES. The Fund pays each of its Trustees
not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and
committee meetings. For the year ended September
30, 2000, the Trustees' fees and expenses
aggregated $29,824. In addition, a one-time fee of
$58,412 was accrued for payment to those Trustees
not affiliated with the Adviser who did not stand
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
$29,206 of such costs.
--------------------------------------------------------------------------------
4
CAPITAL SHARE
TRANSACTIONS The following table summarizes shares of beneficial
interest and dollar activity in the Fund:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
2000 1999
---------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
SHARES SOLD
Scudder Shares 2,600,720 $ 61,546,888 5,568,655 $ 131,356,073
-------------------------------------------------------------------------------------
Class A 1,600,121 38,085,807 4,906,004 115,981,063
-------------------------------------------------------------------------------------
Class B 482,385 11,364,506 901,601 21,274,145
-------------------------------------------------------------------------------------
Class C 231,828 5,435,845 2,262,454 52,988,891
-------------------------------------------------------------------------------------
4,915,054 116,433,046 13,638,714 321,600,172
-------------------------------------------------------------------------------------
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
Scudder Shares 702,015 $ 16,027,031 1,010,122 $ 23,313,600
-------------------------------------------------------------------------------------
Class A 71,116 1,625,719 59,448 1,372,649
-------------------------------------------------------------------------------------
Class B 43,356 988,505 43,529 1,004,640
-------------------------------------------------------------------------------------
Class C 8,230 187,966 9,689 223,904
-------------------------------------------------------------------------------------
824,717 18,829,221 1,122,788 25,914,793
-------------------------------------------------------------------------------------
SHARES REDEEMED
Scudder Shares (8,248,865) $(193,178,099) (10,886,073) $(258,426,354)
-------------------------------------------------------------------------------------
Class A (1,547,831) (36,365,690) (4,451,976) (104,695,242)
-------------------------------------------------------------------------------------
Class B (616,825) (14,373,603) (518,518) (12,396,396)
-------------------------------------------------------------------------------------
Class C (176,775) (4,146,568) (2,181,822) (51,292,326)
-------------------------------------------------------------------------------------
(10,590,296) (248,063,960) (18,038,389) (426,810,318)
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
Scudder Shares (4,946,130) $(115,604,180) (4,307,296) $(103,756,681)
-------------------------------------------------------------------------------------
Class A 123,406 3,345,836 513,476 12,658,470
-------------------------------------------------------------------------------------
Class B (91,084) (2,020,592) 426,612 9,882,389
-------------------------------------------------------------------------------------
Class C 63,283 1,477,243 90,321 1,920,469
-------------------------------------------------------------------------------------
(4,850,525) $(112,801,693) (3,276,887) $ (79,295,353)
-------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
5 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of the Fund's
expenses. During the year ended September 30, 2000,
the Fund's custodian and transfer agent fees were
reduced by $29,795 and $13,464, respectively, under
these arrangements.
--------------------------------------------------------------------------------
6 LINE OF CREDIT The Fund and several other Scudder Funds (the
"Participants") share in a $1 billion revolving
credit facility with Chase Manhattan Bank for
temporary or emergency purposes, including the
meeting of redemption requests that otherwise might
require the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated, pro rata based upon net assets,
among each of the Participants. Interest is
calculated based on the market rates at the time of
the borrowing. Each Fund may borrow up to a maximum
of 33 percent of its net assets under the
agreement.
--------------------------------------------------------------------------------
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.
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF VALUE EQUITY TRUST AND THE
CLASS A, CLASS B AND CLASS C SHAREHOLDERS OF VALUE 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 Value Fund (the "Fund") at September 30, 2000, the results of its
operations, the changes in its net assets and the financial highlights for the
Class A, Class B, and Class C Shares for each of the periods indicated therein,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights for the Class A,
Class B, and Class C Shares (hereafter referred to as "financial statements")
are the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at September 30, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
November 17, 2000
30
<PAGE>
TAX INFORMATION
TAX INFORMATION
The Fund paid distributions of $0.85 per share from net long-term capital gains
during its year ended September 30, 2000, of which 100% represents 20% rate
gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$45,340,000 as capital gain dividends for its year ended September 30, 2000, of
which 100% represents 20% rate gains.
For corporate shareholders, 100% of the income dividends paid during the Fund's
fiscal year ended September 30, 2000 qualified for the dividends received
deduction.
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.
SHAREHOLDER MEETING RESULTS
SHAREHOLDER MEETING RESULTS (UNAUDITED)
A Special Meeting of Shareholders (the "Meeting") of Value Fund (the "fund"), a
series of Value Equity Trust, was held on July 13, 2000, at the office of
Scudder Kemper Investments, Inc., Two International Place, Boston, Massachusetts
02110. At the Meeting the following matters were voted upon by the shareholders
(the resulting votes for each matter are presented below).
1) To elect Trustees of Value Equity Trust.
<TABLE>
<CAPTION>
Number of Votes:
Trustee For Withheld
<S> <C> <C>
Henry P. Becton, Jr. 6,851,897 198,743
Linda C. Coughlin 6,852,624 198,017
Dawn-Marie Driscoll 6,850,239 200,401
Edgar R. Fiedler 6,843,035 207,605
Keith R. Fox 6,857,306 193,335
Joan E. Spero 6,847,112 203,529
Jean Gleason Stromberg 6,849,198 201,442
Jean C. Tempel 6,853,156 197,485
Steven Zaleznick 6,849,242 201,398
</TABLE>
2) To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the fiscal year ending September 30, 2000.
<TABLE>
<CAPTION>
Number of Votes:
Broker
For Against Abstain Non-Votes*
<S> <C> <C> <C>
6,878,225 70,638 101,777 0
</TABLE>
*BROKER NON-VOTES ARE PROXIES RECEIVED BY THE FUND FROM BROKERS OR NOMINEES WHEN
THE BROKER OR NOMINEE NEITHER HAS RECEIVED INSTRUCTIONS FROM THE BENEFICIAL
OWNER OR OTHER PERSONS ENTITLED TO VOTE NOR HAS DISCRETIONARY POWER TO VOTE ON
A PARTICULAR MATTER.
31
<PAGE>
TRUSTEES & OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
LINDA C. COUGHLIN KATHRYN L. QUIRK ANN M. MCCREARY
President Trustee, Vice President Vice President
and Secretary
PAUL BANCROFT III KATHLEEN T. MILLARD
Honorary Trustee JOAN E. SPERO Vice President
Trustee
SHERYLE J. BOLTON JOHN MILLETTE
Trustee ROBERT G. STONE JR. Vice President
Honorary Trustee and Secretary
WILLIAM T. BURGIN
Trustee JOHN R. HEBBLE
Treasurer
THOMAS J. DEVINE
Honorary Trustee CAROLINE PEARSON
Assistant Secretary
KEITH R. FOX
Trustee LOIS R. ROMAN
Vice President
WILLIAM H. LUERS
Trustee ROBERT TYMOCZKO
Vice President
WILSON NOLEN
Honorary 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 INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
INDEPENDENT ACCOUNTANTS PRICEWATERHOUSECOOPERS LLP
160 Federal Street
Boston, MA 02110
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
</TABLE>
[KEMPER FUNDS LOGO] Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Value Fund prospectus.
KVF - 2 (11/25/00) 1124190
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
