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.
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Investment Products and Services
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Scudder Funds
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<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
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Retirement Programs and Education Accounts
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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
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Closed-End Funds
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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
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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
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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
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Notes
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Notes
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Notes
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Notes
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Notes
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Notes
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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.
