SCUDDER
INVESTMENTS (SM)
[LOGO]
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EQUITY/DOMESTIC
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Scudder Select Funds
Scudder Select 500 Fund
Fund #310
Scudder Select 1000 Growth Fund
Fund #311
Annual Report
February 29, 2000
Scudder Select 500 Fund seeks to provide long-term growth and income through
investment in selected stocks of companies in the S&P 500(R) Index.
Scudder Select 1000 Growth Fund seeks to provide long-term growth of capital
through investment in selected stocks of companies in the Russell 1000(R) Growth
Index.
Two no-load funds with no commissions to buy, sell or exchange shares.
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Contents
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4 Letter from the Funds' President
6 Portfolio Management Discussion
13 Glossary of Investment Terms
Select 500 Fund
14 Performance Update
16 Portfolio Summary
18 Investment Portfolio
Select 1000 Growth Fund
26 Performance Update
28 Portfolio Summary
30 Investment Portfolio
38 Financial Statements
42 Financial Highlights
44 Notes to Financial Statements
48 Report of Independent Accountants
49 Tax Information
50 Officers and Trustees
51 Investment Products and Services
53 Scudder Solutions
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Scudder Select Funds
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Scudder Select 500 Fund ticker symbol SSFFX fund number 310
Scudder Select 1000 Growth Fund ticker symbol STHGX fund number 311
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Date of Funds' o Scudder Select Funds yielded strong results for the
Inception: abbreviated annual report period from May 17, 1999 to
5/17/99 February 29, 2000.
Total Net o The funds' discipline of excluding the least attractive
Assets as stocks in their respective investment universes
of 2/29/00 -- resulted in a total return of 5.95% for Scudder Select
500 Fund and a total return of 26.19% for Scudder
Select 500: Select 1000 Growth Fund.
$33 million
Select 1000 o With performance becoming increasingly concentrated in
Growth: a few stocks over the period and disappointing company
$29 million announcements resulting in sharp price declines for
some stocks, the funds' stock selection discipline
helped the funds avoid many of the weakest performing
stocks.
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Letter from the Funds' President
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Dear Shareholders,
We are pleased to present the first annual report for the Scudder Select Funds
for the abbreviated annual report period that ended February 29, 2000. Over the
period, both funds provided solid performance, laying important groundwork for
building long-term track records. The funds' unique design, which focuses on
avoiding the least attractive stocks in each fund's respective investment
universe, had many successes. In an environment where only a few growth stocks
have been driving the market averages, we have been pleasantly surprised by the
funds' ability to keep pace with their respective benchmarks.
Each fund's approach, which excludes the least attractive 20% of stocks in the
S&P 500 or Russell 1000 Growth indices, is unique among retail mutual funds. We
think that this strategy -- primarily available to institutional investors --
should appeal to individuals seeking to outperform these benchmarks while
reducing the risk associated with not holding all of the securities in the
particular index.
While domestic equities have generally risen with time, some stocks have not.
Despite this trend, Wall Street analysts historically have assigned more buy
ratings to stocks than sell ratings, resulting in an unequal bias for purchasing
securities. Over the last few years it has become apparent that selling
potential laggards is of equal or greater importance to portfolio performance.
This fund attempts to do just that -- eliminate the
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weakest stocks and minimize the systematic tracking error versus an index using
the remaining stocks. A detailed discussion of fund performance and the market
environment for the 9-month-plus period begins on page 6.
For current information on your fund and your account, visit our Internet Web
site at www.scudder.com. There you'll find a wealth of information, including
current fund performance, the latest news on Scudder products and services, and
the opportunity to perform account transactions. You can also call our
representatives at 1-800-SCUDDER (1-800-728-3337).
Sincerely,
/s/Linda C. Coughlin
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Linda C. Coughlin
President,
Scudder Select Funds
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Portfolio Management Discussion
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February 29, 2000
In the following interview, portfolio managers Robert D. Tymoczko and Philip S.
Fortuna discuss the market environment and their approach to managing the funds.
Q: How did the funds perform over the abbreviated fiscal period?
A: Although the funds have only been in existence for a little more than nine
months, they have performed well versus their respective benchmarks. For this
9-month-plus period, Scudder Select 500 Fund's 5.95% return essentially matched
the 5.94% return of the unmanaged Standard & Poor's 500 Index, and Scudder
Select 1000 Growth Fund's 26.19% return slightly trailed the 28.95% return of
the unmanaged Russell 1000 Growth Index. These returns exceeded our
expectations, given the concentration of performance among a few stocks.
Q: How did the funds' diversified approach fare in the narrow market
environment?
A: We were pleased with these results given the "narrowness" of the market. As
you may know, the domestic equity markets have been propelled upward over the
last two years by a small number of growth -- especially technology -- stocks.
Many of these stocks reported sizeable earnings gains or, in the case of
Internet stocks, have been the subject of tremendous investor enthusiasm. This
kind of concentrated market performance generally does not favor diversified
approaches such as the one we use in managing the Select funds. We were glad to
see that the funds' discipline of identifying disappointing stocks continued to
help us avoid many names, even in the currently unusual market environment.
Q: What kinds of stocks performed well?
A: Typically, stocks with little or no earnings and high valuations, i.e., high
price/earnings ratios, delivered spectacular performance. This phenomenon is
particularly distinct when you look at the return of companies based on their
earnings in 1999: Stocks with no earnings provided a median return 50% higher
than the median
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return of stocks with positive earnings. Many of the companies in the "no
earnings" category are in the technology sector, which has been providing strong
growth due primarily to the development of the Internet.
This has created one of the more difficult environments for broadly diversified
funds. When a few stocks lead performance, diversified portfolios tend to trail
the market averages. Yet, the funds have performed relatively well. We attribute
part of this good performance to the portfolios' neutral approach to weighting
industry sectors and fundamental factors. This strategy eliminates the risk of
attempting to make the right sector call by over- or underweighting a sector or
factor. As a result, both funds participate directly in the performance of each
sector in proportion to their benchmark index, and typically are not left behind
if one area is performing especially well. If and when the market returns to its
traditional focus on fundamentals, we expect the funds will benefit even more
than in the current environment.
Q: Your investment process is different from other mutual funds. How is it
unique?
A: Our approach differs from other mutual funds in that we attempt to isolate
and eliminate those stocks that we expect to underperform the market. Most
mutual fund managers and analysts focus exclusively on which securities to
purchase. This focus on the "buy" side of portfolio management is evident in the
fact that the vast majority of analysts' recommendations are buy recommendations
while very few are sell recommendations. We believe it is much easier to
identify securities that will underperform than those that will outperform. The
funds take advantage of this asymmetry by concentrating on the stocks to avoid.
Q: What is your investment discipline for managing the funds?
A: Our goal is to outperform the benchmark index for each fund -- the S&P 500
Index for the Select 500 Fund and the Russell 1000 Growth Index for the Select
1000
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Growth Fund. We attempt to accomplish this by eliminating the 20% of assets that
we believe have the lowest expected return while replicating the fundamental
characteristics of the index by selecting stocks from the remaining 80%. In
short, we attempt to add value in both funds by "subtracting" stocks that are
expected to underperform and investing among the rest. For most investors, the
stocks that will cause the greatest future underperformance are ones that are
already owned. That is why we primarily concentrate on identifying stocks to
avoid.
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Stock Selection Process:
Addition by Subtraction
The funds' managers use a proprietary computer model to systematically evaluate
stocks in the benchmarks. This analysis is based on a multifactor model that
evaluates each stock's growth prospects, relative valuation, and price momentum.
In each fund, stocks are assigned a ranking by quintile. Quintile 1 consists of
the highest rated stocks and quintile 5 consists of the lowest rated stocks.
Stocks ranked in the bottom, or fifth, quintile are excluded from a fund's
investment universe. From among the remaining stocks (quintiles 1-4) an
optimization is performed to create a portfolio with systematic risk
characteristics that closely match the fund's benchmark. Examples of risk
characteristics include exposure to specific industries, price/ earnings ratios,
debt/equity ratios, price volatility, and market capitalization. If the
fundamental factor model calls for it, the characteristics of an excluded stock
can be replicated by increasing the weighting of stocks in the portfolio that
have the same fundamentals as that of the excluded stock. This results in a
portfolio with fundamental characteristics nearly identical to the benchmark.
Over time, each fund is rebalanced periodically as the rankings change.
This investment process is intended to create funds with relatively low
"tracking error," or return deviation, compared to their respective index.
Although we believe the tracking errors will be low relative to typical U.S.
stock funds, the investment approach is expected to help the funds to outperform
their benchmarks over an extended period.
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Select 500 Fund Quintile 5 Stocks
(Stocks eliminated or avoided)
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Total returns 5/17/99-2/29/00 9 months +
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Service Corporation International -80%
Rite Aid -75%
J.C. Penney -64%
HealthSouth -63%
Xerox -62%
Reebok International -61%
Goodyear Tire & Rubber -61%
Progressive -58%
Lockheed Martin -57%
Bank One -56%
McKesson HBOC -48%
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Q: What are the characteristics of stocks that are eliminated?
A: In selecting stocks to eliminate from the investment universe, we attempt to
identify those that have unattractive valuations, deteriorating fundamentals,
and a history of disappointing shareholders. We use four types of factors to
evaluate a security: 1) valuation factors, such as price/forward earnings and
price/cash flow ratios, to identify those assets with unattractive valuations;
2) earnings momentum factors, such as short- and long-term momentum, to
determine those securities that have deteriorating fundamentals and a history of
disappointing shareholders; 3) expectational factors, such as earnings
revisions, to identify the markets' recognition of a deterioration in stock
fundamentals; and 4) risk adversity factors, such as beta or dividend yield, to
isolate those stocks that have higher expected downside risk.
Q: What stocks did your model identify to avoid or eliminate?
A: We excluded a number of stocks in both portfolios over the 9-month-plus
period. For Scudder Select 500 Fund, our quintile 5 stocks included: Service
Corporation International, a provider of death care services in over 20
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countries; retailers Rite Aid and J.C. Penney; HealthSouth, a provider of
outpatient surgery and rehabilitative health care services; and Xerox, among
others.
In the Scudder Select 1000 Growth Fund, our quintile 5 stocks included: Stewart
Enterprises, the third largest provider of funeral and cemetery products and
services in North America; Rite Aid, which falls into the investment universes
for both funds; Allied Waste Industries, a nonhazardous solid waste management
company; and Warnaco Group, a leading marketer of underwear to U.S. department
and specialty stores. (See table below.)
All of these stocks were rated a "5" by our model in each respective investment
universe and were eliminated or not purchased by the funds.
Q: Were there any stocks that were eliminated due to a ranking deterioration?
A: We should first point out that we do not automatically sell a security at the
moment that it falls into the fifth quintile of our model. If we did, the model
could generate excessive trading and capital gains for shareholders. Since some
stocks can move between quintiles frequently -- especially those that are on the
cusp of the fourth or fifth quintile -- we look for longer-term trends with the
stock before casting it out or adding it into our investible universe.
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Select 1000 Growth Fund Quintile 5 Stocks
(Stocks eliminated or avoided)
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Total returns 5/17/99-2/29/00 9 months +
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Stewart Enterprises -77%
Rite Aid -75%
Allied Waste Industries -70%
Warnaco Group -62%
Office Depot -40%
Sara Lee -38%
Gillette -30%
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During the period we had two significant positions in the portfolios that were
eliminated because they dropped to quintile five: Lucent Technologies and
American Home Products. Lucent, which was held in both funds, announced an
unexpected earnings shortfall for the fourth quarter of 1999, causing the stock
to decline sharply. Prior to the decline, our model indicated an underweight
position in Lucent, which helped performance on a relative basis.
American Home Products, which also was held in both funds, was another
downgrade. Nearly all drug stocks have struggled this year. With the industry
relatively concentrated among a few large-cap stocks, a single weak performer
can bring down the whole industry sector. Our model has effectively been betting
against this sector due to the low ratings assigned to the few dominant drug
stocks. This factor bet (an underweighting of drug stocks) helped the funds'
performance given the weak returns of the sector. With drug stocks beaten down
and fundamentals improving for some, we've actually begun to buy back shares of
a few drug companies.
Q: What is your outlook?
A: We do not make portfolio allocations based on our view of the markets or the
economy. Instead, we have designed our model to focus on individual security
selection using our ranking system within each investment universe. However, we
believe the most recent period of dominance by a handful of growth stocks is
unusual and unsustainable over the long term. As a result, we expect market
leadership may broaden at some point to include more stocks -- a condition we
think will add to the performance of both funds over time.
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Scudder Select Funds:
A Team Approach to Investing
Scudder Select Funds, which includes Scudder Select 500 Fund and Scudder Select
1000 Growth Fund, are managed by a team of Scudder Kemper Investments, Inc. (the
"Adviser") professionals, each of whom plays an important role in the funds'
management process. Team members work together to develop investment strategies
and select securities for the funds' portfolios. 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 Robert D. Tymoczko joined the Adviser in 1997 as a
quantitative research analyst. Since 1998 Mr. Tymoczko has been working as a
portfolio manager for the Adviser. From 1994 to 1995, Mr. Tymoczko worked as an
economic consultant. From 1995 until he joined the Adviser, Mr. Tymoczko worked
toward an M.B.A. degree with a concentration in finance and econometrics. He
began his investment career in 1992.
Portfolio manager Philip S. Fortuna joined the Adviser in 1986. Since 1998 Mr.
Fortuna has been director of the Adviser's quantitative group, responsible for
quantitative research and all quantitative products.
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Glossary of Investment Terms
Growth Stock Stock of a company that has displayed above-average
earnings growth and is expected to continue to increase
profits rapidly going forward.
Liquidity A characteristic of an investment or an asset referring to
the ease of convertibility into cash within a reasonably
short period of time.
Market The value of a company's outstanding shares of common
Capitalization stock, determined by multiplying the number of shares
outstanding by the share price (shares x price = market
capitalization). The universe of publicly traded companies
is frequently divided into large-, mid-, and
small-capitalizations.
Over/Under Refers to the allocation of assets -- usually by sector,
Weighting industry, or country -- within a portfolio relative to a
benchmark index (e.g., the S&P 500 Index), or an
investment universe.
Price/Earnings Price of a stock divided by its earnings per share. A
Ratio (P/E) widely used gauge of a stock's valuation that indicates
(also Earnings what investors are paying for a company's earnings on a
Multiple) per share basis. A higher earnings multiple indicates
a higher investor expectation or growth rate and the
potential for greater price fluctuations.
Standard A statistical measure of the degree to which an
Deviation investment's return tends to vary from the mean return.
Frequently used in portfolio management to measure the
variability of past returns and to gauge the likely range
of possible future returns.
Value Stock A company whose stock price does not fully reflect its
intrinsic value, as indicated by price/earnings ratio,
price/book value ratio, dividend yield, or some other
valuation measure, relative to its industry or the market
overall. Value stocks tend to display less price
volatility and may carry higher dividend yields.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
An expanded list of terms is located at our Web site, www.scudder.com.
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Performance Update
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February 29, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Scudder Select 500 Fund S&P 500 Index*
5/99** 10000 10000
6/99 10531 10556
7/99 10274 10226
8/99 10205 10175
9/99 10017 9897
10/99 10541 10523
11/99 10782 10739
12/99 11565 11369
1/00 10997 10799
2/00 10876 10594
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Fund Index Comparison
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Total Return
Growth of
Period ended 2/29/2000 $10,000 Cumulative
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Scudder Select 500 Fund
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Life of Fund** $ 10,595 5.95%
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S&P 500 Index*
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Life of Fund** $ 10,594 5.94%
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* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on May 17, 1999. Index comparisons begin May
31, 1999.
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Returns and Per Share Information
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
Period ended February 29
S&P 500 Index* Scudder Select 500 Fund
2000** 5.95% 5.94%
2000**
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Fund Total 5.95
Return (%)
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Index Total 5.94
Return (%)
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Net Asset 12.63
Value ($)
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Income .08
Dividends ($)
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Capital Gains --
Distributions ($)
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* The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on May 17, 1999. Index comparisons begin May
31, 1999.
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than when purchased. If the Adviser had not maintained the Fund's expenses,
the total return for the life of Fund period would have been lower.
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Portfolio Summary
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February 29, 2000
Scudder Select 500 Fund
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Asset Allocation
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Common Stocks 100%
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100%
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The fund pursues a fully invested approach.
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Sector Diversification
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Technology 30%
Financial 13%
Communications 10%
Manufacturing 9%
Health 8%
Consumer Staples 7%
Energy 7%
Consumer Discretionary 6%
Media 3%
Other 7%
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100%
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The fund's investment approach typically results in sector weightings that are
essentially similar to the sector weightings of the S&P 500 Index.
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Ten Largest Equity Holdings
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(31% of Portfolio)
The fund's top holdings are the result of excluding the 20% of assets with the
lowest expected return while replicating the fundamental characteristics of the
S&P 500 Index by selecting stocks from among the remaining 80%.
1. Cisco Systems, Inc.
Manufacturer of computer network products
2. Microsoft Corp.
Developer of computer software
3. General Electric Co.
Producer of electrical equipment
4. Intel Corp.
Producer of semiconductor memory circuits
5. Bristol-Myers Squibb Co.
Diversified pharmaceutical and consumer products company
6. Citigroup, Inc.
Diversified financial services company
7. Exxon Mobil Corp.
International oil company
8. AT&T Corp.
Provider of telecommunication services
9. Wal-Mart Stores, Inc.
Operator of discount stores
10. Procter & Gamble Co.
Diversified manufacturer of consumer products
For more complete details about the Fund's investment portfolio, see page 18. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
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Investment Portfolio as of February 29, 2000
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Shares Value ($)
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Scudder Select 500 Fund
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Common Stocks 100.0%
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Consumer Discretionary 5.7%
Apparel & Shoes 0.3%
Nike, Inc. "B" ................................... 2,500 71,094
Russell Corp. .................................... 1,900 26,244
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97,338
Department & Chain Stores 5.0% ----------
Best Buy Co., Inc.* .............................. 500 27,188
Federated Department Stores, Inc.* ............... 1,000 36,688
Home Depot, Inc. ................................. 9,750 563,672
Kmart Corp.* ..................................... 3,200 28,200
Kohl's Corp.* .................................... 500 37,906
Lowe's Companies, Inc. ........................... 1,100 52,388
Target Corp. ..................................... 2,000 118,000
The Limited, Inc. ................................ 1,000 34,000
Wal-Mart Stores, Inc. ............................ 15,600 759,525
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1,657,567
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Hotels & Casinos 0.2%
Marriott International, Inc. "A" ................. 1,800 49,613
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Specialty Retail 0.2%
Circuit City Stores, Inc. ........................ 800 32,300
Tandy Corp. ...................................... 700 26,644
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58,944
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Consumer Staples 6.9%
Alcohol & Tobacco 1.7%
Anheuser-Busch Companies, Inc. ................... 2,500 160,313
Brown-Forman Corp. "B" ........................... 3,300 157,163
Philip Morris Companies, Inc. .................... 8,800 176,550
Seagram Co., Ltd. ................................ 1,000 58,750
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552,776
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Consumer Electronic & Photographic 0.4%
Eastman Kodak Co. ................................ 2,300 131,819
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Consumer Specialties 0.1%
American Greeting Corp., "A" ..................... 1,700 29,325
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The accompanying notes are an integral part of the financial statements.
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Shares Value ($)
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Food & Beverage 1.6%
Albertson's, Inc. ............................ 2,245 55,003
General Mills, Inc. .......................... 2,200 72,463
Nabisco Group Holdings ....................... 2,700 23,288
Quaker Oats Co. .............................. 2,800 151,025
Ralston Purina Group ......................... 7,300 206,681
Winn-Dixie Stores, Inc. ...................... 2,300 37,088
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545,548
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Package Goods/Cosmetics 3.1%
Colgate-Palmolive Co. ........................ 500 26,094
Kimberly-Clark Corp. ......................... 2,900 149,894
Procter & Gamble Co. ......................... 7,700 677,600
Unilever NV (New York Shares) ................ 3,500 159,250
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1,012,838
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Health 8.0%
Biotechnology 1.8%
Amgen, Inc.* ................................. 4,900 334,119
Biogen, Inc.* ................................ 400 43,175
PE Corp-PE Biosystems Group .................. 2,000 211,000
----------
588,294
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Health Industry Services 0.5%
Cardinal Health, Inc. ........................ 1,200 49,500
United Healthcare Corp. ...................... 1,100 56,238
Wellpoint Health Networks, Inc.* ............. 800 54,000
----------
159,738
----------
Hospital Management 0.2%
Columbia/HCA Healthcare Corp. ................ 3,500 67,594
----------
Medical Supply & Specialty 0.7%
Baxter International, Inc. ................... 3,900 212,550
----------
Pharmaceuticals 4.8%
Abbott Laboratories .......................... 1,900 62,225
Allergan, Inc. ............................... 1,600 80,500
Bristol-Myers Squibb Co. ..................... 16,100 914,681
Merck & Co., Inc. ............................ 600 36,938
Pharmacia & Upjohn, Inc. ..................... 2,200 104,775
Warner-Lambert Co. ........................... 2,700 231,019
Watson Pharmaceuticals, Inc.* ................ 4,100 164,000
----------
1,594,138
----------
The accompanying notes are an integral part of the financial statements.
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Shares Value ($)
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Communications 9.6%
Cellular Telephone 1.2%
Nextel Communications, Inc. "A"* ............... 1,100 149,944
Sprint Corp. (PCS Group)* ...................... 1,900 98,325
Vodafone Group PLC (ADR) ....................... 2,750 158,641
----------
406,910
----------
Telephone/Communications 8.4%
ADC Telecommunications, Inc.* .................. 2,600 116,675
AT&T Corp. ..................................... 16,200 800,888
Alltel Corp. ................................... 500 29,000
Bell Atlantic Corp. ............................ 7,400 362,138
BellSouth Corp. ................................ 8,100 330,075
GTE Corp. ...................................... 3,600 212,400
Nortel Networks Corp. .......................... 4,300 479,450
Sprint Corp. ................................... 2,900 176,900
US West, Inc. .................................. 3,700 268,713
----------
2,776,239
----------
Financial 13.1%
Banks 3.2%
Chase Manhattan Corp. .......................... 3,500 278,688
FleetBoston Financial Corp. .................... 2,013 54,854
Golden West Financial Corp. .................... 5,400 153,900
J.P. Morgan & Co., Inc. ........................ 1,300 144,300
PNC Bank Corp. ................................. 6,700 259,206
Regions Financial Corp. ........................ 4,000 81,000
SouthTrust Corp. ............................... 3,200 73,400
----------
1,045,348
----------
Insurance 2.7%
Aetna, Inc. .................................... 900 37,013
American General Corp. ......................... 1,000 52,188
American International Group, Inc. ............. 5,125 453,242
Aon Corp. ...................................... 2,000 41,875
Chubb Corp. .................................... 1,400 68,863
Cigna Corp. .................................... 1,000 73,813
Lincoln National Corp. ......................... 2,200 61,188
MGIC Investment Corp. .......................... 1,300 48,588
Torchmark Corp. ................................ 2,600 51,513
----------
888,283
----------
Consumer Finance 3.6%
American Express Co. ........................... 1,000 134,188
The accompanying notes are an integral part of the financial statements.
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Shares Value ($)
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Citigroup, Inc. ................................ 17,650 912,284
Mellon Financial Corp. ......................... 5,300 159,663
----------
1,206,135
----------
Other Financial Companies 3.6%
Federal National Mortgage Association .......... 6,900 365,700
Lehman Brothers Holdings, Inc. ................. 1,500 108,750
Marsh & McLennan Companies, Inc. ............... 1,700 131,538
Morgan Stanley Dean Witter & Co. ............... 8,200 577,588
----------
1,183,576
----------
Media 3.3%
Advertising 0.2%
Omnicom Group, Inc. ............................ 600 56,513
Broadcasting & Entertainment 1.2%
Clear Channel Communications, Inc.* ............ 500 33,313
Walt Disney Co. ................................ 10,800 361,800
----------
395,113
Cable Television 1.5% ----------
Comcast Corp. "A" .............................. 3,200 136,000
Media One Group, Inc.* ......................... 4,600 361,100
----------
497,100
----------
Print Media 0.4%
Gannett Co., Inc. .............................. 1,500 97,781
Harcourt General, Inc. ......................... 800 27,550
----------
125,331
----------
Service Industries 2.2%
EDP Services 1.0%
Automatic Data Processing, Inc. ................ 2,600 113,263
Electronic Data Systems Corp. .................. 2,000 129,500
First Data Corp. ............................... 2,100 94,500
----------
337,263
----------
Investment 0.1%
Merrill Lynch & Co., Inc. ...................... 300 30,750
----------
Miscellaneous Consumer Services 0.8%
Yahoo!, Inc.* .................................. 1,600 255,500
----------
Printing/Publishing 0.3%
Dow Jones & Co., Inc. .......................... 1,600 99,800
----------
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Durables 2.2%
Aerospace 1.1%
Boeing Co. ..................................... 4,700 173,313
Northrop Grumman Corp. ......................... 900 40,894
Rockwell International Corp. ................... 1,600 72,400
United Technologies Corp. ...................... 1,700 86,594
----------
373,201
----------
Automobiles 1.1%
Ford Motor Co. ................................. 3,800 158,175
General Motors Corp. ........................... 2,700 205,369
----------
363,544
----------
Manufacturing 9.2%
Chemicals 0.7%
E.I. du Pont de Nemours & Co. .................. 3,000 151,500
Praxair, Inc. .................................. 1,000 33,750
Sigma-Aldrich Corp. ............................ 1,500 35,625
----------
220,875
----------
Containers & Paper 0.5%
Champion International Corp. ................... 1,100 56,925
International Paper Co. ........................ 1,800 66,263
Sealed Air Corp. ............................... 1,100 54,656
----------
177,844
----------
Diversified Manufacturing 6.0%
Fortune Brands, Inc. ........................... 1,900 41,563
General Electric Co. ........................... 9,900 1,308,656
Honeywell International, Inc. .................. 3,412 164,203
Minnesota Mining & Manufacturing Co. ........... 3,000 264,375
Tyco International Ltd. (New) .................. 4,800 182,100
----------
1,960,897
----------
Electrical Products 0.3%
Emerson Electric Co. ........................... 2,300 104,794
----------
Industrial Specialty 1.6%
Corning, Inc. .................................. 700 131,600
PPG Industries, Inc. ........................... 1,600 79,000
QUALCOMM Inc.* ................................. 1,800 256,388
Sherwin-Williams Co. ........................... 2,700 51,638
----------
518,626
----------
Office Equipment/Supplies 0.1%
Lexmark International Group, Inc. "A"* ......... 300 35,775
----------
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Technology 30.0%
Computer Software 8.5%
America Online, Inc.* ............................ 6,300 371,700
BMC Software, Inc.* .............................. 1,900 87,400
Citrix Systems, Inc.* ............................ 600 63,263
Computer Associates International, Inc. .......... 2,100 135,056
Compuware Corp.* ................................. 2,600 57,525
Comverse Technologies, Inc.* ..................... 300 59,063
Microsoft Corp.* ................................. 15,500 1,385,313
Oracle Corp.* .................................... 8,500 631,125
----------
2,790,445
----------
Diverse Electronic Products 2.5%
Applied Materials, Inc.* ......................... 1,700 310,994
KLA Tencor Corp.* ................................ 1,500 116,906
Motorola, Inc. ................................... 2,345 399,823
----------
827,723
----------
EDP Peripherals 1.8%
EMC Corp.* ....................................... 4,300 511,700
Network Appliance, Inc.* ......................... 400 75,500
----------
587,200
----------
Electronic Components/Distributors 4.8%
Analog Devices, Inc.* ............................ 400 62,800
Cisco Systems, Inc.* ............................. 10,700 1,414,380
Gateway, Inc.* ................................... 1,700 116,875
----------
1,594,055
----------
Electronic Data Processing 5.1%
Apple Computer, Inc.* ............................ 1,400 160,475
Hewlett-Packard Co. .............................. 4,400 591,800
International Business Machines Corp. ............ 1,300 132,600
Seagate Technology, Inc.* ........................ 4,200 209,475
Sun Microsystems, Inc.* .......................... 5,200 495,300
Unisys Corp.* .................................... 3,000 89,813
----------
1,679,463
----------
Office/Plant Automation 1.1%
3Com Corp.* ...................................... 2,400 235,200
Cabletron Systems, Inc.* ......................... 2,300 112,700
----------
347,900
----------
Semiconductors 6.2%
Advanced Micro Devices, Inc.* .................... 1,100 43,038
Conexant Systems, Inc.* .......................... 200 19,650
Intel Corp. ...................................... 11,000 1,243,000
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
LSI Logic Corp.* ................................... 300 19,219
Micron Technology, Inc.* ........................... 1,600 156,900
National Semiconductor Corp.* ...................... 900 67,613
Texas Instruments, Inc. ............................ 2,600 432,900
Xilinx, Inc.* ...................................... 800 63,800
----------
2,046,120
----------
Energy 6.5%
Engineering 0.1%
Fluor Corp. ........................................ 1,600 45,500
----------
Oil & Gas Production 1.8%
Apache Corp. ....................................... 1,400 51,100
Kerr-McGee Corp. ................................... 1,000 44,750
Royal Dutch Petroleum Co. (New York shares) ........ 9,000 472,500
Union Pacific Resources Group ...................... 3,200 28,600
----------
596,950
----------
Oil Companies 3.9%
Atlantic Richfield Co. ............................. 1,100 78,100
Chevron Corp. ...................................... 3,100 231,531
Exxon Mobil Corp. .................................. 11,904 896,520
Texaco, Inc. ....................................... 1,000 47,438
USX Marathon Group ................................. 1,600 34,600
----------
1,288,189
----------
Oil/Gas Transmission 0.6%
Enron Corp. ........................................ 2,600 179,400
----------
Oilfield Services/Equipment 0.1%
Rowan Companies, Inc. .............................. 100 2,513
Schlumberger Ltd. .................................. 400 29,550
----------
32,063
----------
Metals & Minerals 0.5%
Precious Metals 0.2%
Barrick Gold Corp. ................................. 4,400 71,775
----------
Steel & Metals 0.3%
Alcoa, Inc. ........................................ 1,400 95,900
----------
Construction 0.3%
Building Products 0.1%
Georgia-Pacific Group .............................. 1,200 41,625
----------
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Forest Products 0.2%
Weyerhaeuser Co. ............................. 1,400 71,838
----------
Transportation 0.7%
Air Freight 0.1%
FedEx Corp. .................................. 1,000 34,938
----------
Airlines 0.4%
Delta Air Lines, Inc. ........................ 2,900 132,313
----------
Railroads 0.2%
Union Pacific Corp. .......................... 1,800 68,400
----------
Utilities 1.8%
Electric Utilities
AES Corp.* ................................... 1,100 92,194
American Electric Power Co. .................. 900 25,313
Consolidated Edison, Inc. .................... 2,100 57,881
Duke Energy Corp. ............................ 5,000 242,500
FPL Group, Inc. .............................. 1,500 57,938
New Century Energies, Inc. ................... 500 13,531
Peco Energy Co. .............................. 1,300 48,506
Southern Co. ................................. 2,900 64,344
----------
602,207
----------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $29,764,321) 32,951,503
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $29,764,321) (a) 32,951,503
- --------------------------------------------------------------------------------
* Non-income producing security
(a) The cost for federal income tax purposes was $29,853,338. At February 29,
2000, net unrealized appreciation based on tax cost was $3,098,165. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $6,128,629 and
gross unrealized depreciation for all investment securities in which there
was an excess of tax cost over market value of $3,030,464.
During the period May 17, 1999 (commencement of operations) to February 29,
2000, purchases and sales of investment securities (excluding short-term
investments) aggregated $45,570,092 and $14,655,246, respectively.
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
February 29, 2000
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Scudder Select 1000
Growth Fund Russell 1000 Growth Index*
5/99** 10000 10000
6/99 10765 10700
7/99 10473 10360
8/99 10576 10529
9/99 10396 10308
10/99 11101 11086
11/99 11660 11683
12/99 13003 12898
1/00 12374 12293
2/00 13020 12895
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of
Period ended 2/29/2000 $10,000 Cumulative
- --------------------------------------------------------------------------------
Scudder Select 1000 Growth Fund
- --------------------------------------------------------------------------------
Life of Fund** $ 12,619 26.19%
- --------------------------------------------------------------------------------
Russell 1000 Growth Index*
- --------------------------------------------------------------------------------
Life of Fund** $ 12,895 28.95%
- --------------------------------------------------------------------------------
* The Russell 1000 Growth Index is an unmanaged capitalization-weighted price
index of the 1000 largest U.S. growth companies traded on the NYSE, AMEX,
and Nasdaq. Index returns assume reinvestment of dividends and, unlike Fund
returns, do not reflect any fees or expenses.
** The Fund commenced operations on May 17, 1999. Index comparisons begin May
31, 1999.
26
<PAGE>
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
Period ended February 29
Scudder Select 1000 Russell 1000
Growth Fund Growth Index*
2000** 26.19% 28.95%
2000**
- --------------------------------------------------------------------------------
Fund Total 26.19
Return (%)
- --------------------------------------------------------------------------------
Index Total 28.95
Return (%)
- --------------------------------------------------------------------------------
Net Asset 15.12
Value ($)
- --------------------------------------------------------------------------------
Income .02
Dividends ($)
- --------------------------------------------------------------------------------
Capital Gains --
Distributions ($)
- --------------------------------------------------------------------------------
* The Russell 1000 Growth Index is an unmanaged capitalization-weighted price
index of the 1000 largest U.S. growth companies traded on the NYSE, AMEX,
and Nasdaq. Index returns assume reinvestment of dividends and, unlike Fund
returns, do not reflect any fees or expenses.
** The Fund commenced operations on May 17, 1999. Index comparisons begin May
31, 1999.
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total return for the life of Fund
period would have been lower.
27
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
February 29, 2000
Scudder Select 1000 Growth Fund
- --------------------------------------------------------------------------------
Asset Allocation
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Common Stocks 99%
Cash Equivalents 1%
- --------------------------------
100%
- --------------------------------
The fund pursues a fully invested approach.
- --------------------------------------------------------------------------------
Sector Diversification
- --------------------------------------------------------------------------------
(Excludes 1% Cash Equivalents)
Technology 46%
Health 13%
Manufacturing 10%
Consumer Discretionary 7%
Consumer Staples 7%
Media 4%
Service Industries 4%
Communications 4%
Financial 3%
Other 2%
- --------------------------------
100%
- --------------------------------
The fund's investment approach typically results in sector weightings that are
essentially similar to the sector weightings of the Russell 1000 Growth Index.
28
<PAGE>
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------------
(35% of Portfolio)
The fund's top holdings are the result of excluding the 20% of assets with the
lowest expected return while replicating the fundamental characteristics of the
Russell 1000 Growth Index by selecting stocks from among the remaining 80%.
1. Cisco Systems, Inc.
Manufacturer of computer network products
2. General Electric Co.
Producer of electrical equipment
3. Intel Corp.
Producer of semiconductor memory circuits
4. Microsoft Corp.
Developer of computer software
5. Oracle Corp.
Database management software
6. Sun Microsystems, Inc.
Manufacturer of high-performance workstations, servers and software
7. International Business Machines Corp.
Manufacturer of computers and servicer of information processing units
8. Procter & Gamble Co.
Diversified manufacturer of consumer products
9. Wal-Mart Stores, Inc.
Operator of discount stores
10. Bristol-Myers Squibb Co.
Diversified pharmaceutical and consumer products company
For more complete details about the Fund's investment portfolio, see page 30. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
29
<PAGE>
Investment Portfolio as of February 29, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------
Scudder Select 1000 Growth Fund
- ---------------------------------------------------------------------------------------
Repurchase Agreements 1.2%
- ---------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 5.74%,
to be repurchased at $349,056 on 3/1/2000** (Cost $349,000) . 349,000
Shares Value ($)
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Common Stocks 98.8%
- ---------------------------------------------------------------------------------------
Consumer Discretionary 6.8%
Apparel & Shoes 0.2%
Jones Apparel Group, Inc.* ..................................... 1,000 22,625
Nike, Inc. "B" ................................................. 1,500 42,656
----------
65,281
----------
Department & Chain Stores 5.7%
CVS Corp. ...................................................... 1,500 52,500
Costco Wholesale Corp.* ........................................ 2,000 99,250
Gap, Inc. ...................................................... 2,800 135,275
Home Depot, Inc. ............................................... 10,050 581,016
Lowe's Companies, Inc. ......................................... 1,800 85,725
Target Corp. ................................................... 1,800 106,200
Wal-Mart Stores, Inc. .......................................... 12,700 618,331
----------
1,678,297
----------
Recreational Products 0.2%
Harley-Davidson, Inc. .......................................... 700 47,688
----------
Restaurants 0.2%
McDonald's Corp. ............................................... 2,100 66,281
----------
Specialty Retail 0.5%
Circuit City Stores, Inc. ...................................... 800 32,300
Herman Miller, Inc. ............................................ 1,200 24,600
Tandy Corp. .................................................... 1,000 38,063
Tiffany & Co. .................................................. 500 32,094
----------
127,057
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
Shares Value ($)
- -----------------------------------------------------
Consumer Staples 6.5%
Alcohol & Tobacco 1.5%
Anheuser-Busch Companies, Inc. . 4,600 294,975
Philip Morris Companies, Inc. .. 7,200 144,450
---------
439,425
---------
Food & Beverage 1.9%
Albertson's, Inc. .............. 1,600 39,200
Bestfoods ...................... 1,900 79,681
Coca-Cola Enterprises .......... 1,500 35,063
ConAgra, Inc. .................. 1,400 22,925
PepsiCo, Inc. .................. 8,500 274,125
Ralston Purina Group ........... 4,300 121,744
---------
572,738
---------
Package Goods/Cosmetics 3.1%
Avon Products, Inc. ............ 1,300 35,181
Clorox Co. ..................... 1,300 52,569
Colgate-Palmolive Co. .......... 1,500 78,281
Kimberly-Clark Corp. ........... 1,600 82,700
Nu Skin Asia Pacific Inc.* ..... 3,000 26,813
Procter & Gamble Co. ........... 7,100 624,800
---------
900,344
---------
Health 13.4%
Biotechnology 3.3%
Amgen, Inc.* ................... 5,400 368,213
Biogen, Inc.* .................. 1,200 129,525
Chiron Corp.* .................. 1,500 75,000
Genzyne Surgical Products* ..... 214 2,702
Immunex Corp.* ................. 300 59,231
MedImmune, Inc.* ............... 700 138,950
PE Corp-PE Biosystems Group .... 1,200 126,600
Waters Corp.* .................. 700 68,644
---------
968,865
---------
Health Industry Services 0.5%
Cardinal Health, Inc. .......... 1,200 49,500
Pacificare Health Systems, Inc.* 800 36,350
United Healthcare Corp. ........ 1,200 61,350
---------
147,200
---------
Medical Supply & Specialty 0.3%
Biomet, Inc. ................... 900 29,700
DENTSPLY International Inc. .... 1,100 28,188
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
Shares Value ($)
- ---------------------------------------------------------
Lincare Holdings Inc.* .......... 1,400 32,813
----------
90,701
----------
Pharmaceuticals 9.3%
Abbott Laboratories ............. 8,600 281,650
Allergan, Inc. .................. 1,200 60,375
American Home Products Corp. .... 2,500 108,750
Bristol-Myers Squibb Co. ........ 10,300 585,169
Eli Lilly & Co. ................. 2,400 142,650
IVAX Corp.* ..................... 3,750 85,313
Johnson & Johnson, Inc. ......... 4,019 288,363
Merck & Co., Inc. ............... 9,400 578,688
Pfizer, Inc. .................... 6,000 192,750
Warner-Lambert Co. .............. 4,600 393,588
----------
2,717,296
----------
Communications 4.5%
Cellular Telephone 0.8%
Nextel Communications, Inc. "A"* 1,100 149,944
Vodafone Group PLC (ADR) ........ 1,650 95,184
----------
245,128
----------
Telephone/Communications 3.7%
ADC Telecommunications, Inc.* ... 2,600 116,675
AT&T Corp. ...................... 1,100 54,381
Allegiance Telecom, Inc.* ....... 600 59,325
Bell Atlantic Corp. ............. 600 29,363
BroadWing, Inc.* ................ 1,200 35,625
Cox Communications, Inc. Class A* 1,100 49,981
GTE Corp. ....................... 800 47,200
JDS Uniphase Corp.* ............. 1,000 263,625
McLeodUSA Inc. "A"* ............. 700 61,600
NTL Inc.* ....................... 1,125 102,938
SBC Communications, Inc. ........ 2,200 83,600
US West, Inc. ................... 1,200 87,150
WinStar Communications, Inc.* ... 900 69,638
----------
1,061,101
----------
Financial 2.8%
Banks 0.6%
MBNA Corp. ...................... 2,200 50,050
Northern Trust Corp. ............ 800 45,200
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
Shares Value ($)
- ----------------------------------------------------------
State Street Corp. .................. 600 43,725
Wells Fargo Co. ..................... 1,300 42,981
--------
181,956
--------
Business Finance 0.2%
USWeb Corp.* ........................ 1,400 54,425
--------
Consumer Finance 1.4%
American Express Co. ................ 1,600 214,700
Citigroup, Inc. ..................... 3,150 162,816
Household International, Inc. ....... 800 25,550
--------
403,066
--------
Other Financial Companies 0.6%
Federal Home Loan Mortgage Corp. .... 1,900 79,325
Federal National Mortgage Association 1,700 90,100
--------
169,425
--------
Media 3.9%
Advertising 0.5%
Interpublic Group of Companies, Inc. 1,400 56,263
Omnicom Group, Inc. ................. 900 84,769
--------
141,032
--------
Broadcasting & Entertainment 1.8%
CBS Corp.* .......................... 1,500 89,344
Hispanic Broadcasting Corp.* ........ 700 65,406
Infinity Broadcasting Corp.* ........ 1,600 51,100
Time Warner, Inc. ................... 3,800 324,900
--------
530,750
--------
Cable Television 1.4%
AT&T Corp-- Liberty Media Group* .... 1,300 67,925
Comcast Corp. "A" ................... 3,800 161,500
Media One Group, Inc.* .............. 2,300 180,550
--------
409,975
--------
Print Media 0.2%
Gannett Co., Inc. ................... 800 52,150
--------
Service Industries 4.0%
EDP Services 1.0%
Automatic Data Processing, Inc. ..... 1,600 69,700
CSG Systems International, Inc.* .... 1,200 61,650
Electronic Data Systems Corp. ....... 700 45,325
First Data Corp. .................... 1,600 72,000
VeriSign, Inc.* ..................... 100 25,300
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
Shares Value ($)
- -------------------------------------------------------------
Verio Inc.* .......................... 300 22,519
---------
296,494
---------
Investment 0.8%
Franklin Resources, Inc. ............. 1,400 38,063
Goldman Sachs Group, Inc. ............ 1,600 148,000
T. Rowe Price & Associates, Inc. ..... 1,900 62,581
---------
248,644
---------
Miscellaneous Commercial Services 1.1%
CMG Information Services, Inc.* ...... 900 116,606
Siebel Systems, Inc.* ................ 1,000 138,688
Sysco Corp. .......................... 2,000 65,625
---------
320,919
---------
Miscellaneous Consumer Services 1.0%
Cendant Corp.* ....................... 1,900 33,844
Infospace.com, Inc.* ................. 200 43,400
Yahoo!, Inc.* ........................ 1,300 207,594
---------
284,838
---------
Miscellaneous 0.1%
Metris Companies Inc.* ............... 800 20,700
---------
Durables 1.1%
Aerospace 0.8%
B.F. Goodrich Co. .................... 1,900 45,481
Boeing Co. ........................... 3,100 114,313
United Technologies Corp. ............ 1,623 82,672
---------
242,466
---------
Telecommunications Equipment 0.3%
Tellabs, Inc.* ....................... 1,600 76,800
---------
Manufacturing 10.3%
Chemicals 0.1%
E.I. du Pont de Nemours & Co. ........ 800 40,400
---------
Diversified Manufacturing 6.7%
General Electric Co. ................. 13,500 1,784,531
Hillenbrand Industries, Inc. ......... 1,300 39,488
Honeywell International, Inc. ........ 800 38,500
Minnesota Mining & Manufacturing Co. . 600 52,875
Tyco International Ltd. .............. 740 28,074
---------
1,943,468
---------
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
Shares Value ($)
- --------------------------------------------------------------
Hand Tools 0.1%
Black & Decker Corp. .................. 700 23,056
----------
Industrial Specialty 2.6%
Avery Dennison Corp. .................. 700 42,481
Corning, Inc. ......................... 1,100 206,800
Novellus Systems* ..................... 2,300 136,419
QUALCOMM Inc.* ........................ 2,700 384,581
----------
770,281
----------
Machinery/Components/Controls 0.2%
Illinois Tool Works, Inc. ............. 900 46,519
----------
Office Equipment/Supplies 0.6%
Lexmark International Group, Inc. "A"* 700 83,475
Xerox Corp. ........................... 4,200 91,088
----------
174,563
----------
Technology 44.6%
Computer Software 12.6%
Adobe Systems, Inc. ................... 1,400 142,800
America Online, Inc.* ................. 8,300 489,700
BMC Software, Inc.* ................... 1,600 73,600
Citrix Systems, Inc.* ................. 1,600 168,700
Computer Associates International, Inc. 2,000 128,625
Compuware Corp.* ...................... 4,300 95,138
Comverse Technologies, Inc.* .......... 500 98,438
Intuit, Inc.* ......................... 900 47,250
J.D. Edwards & Co.* ................... 2,600 105,625
Lycos, Inc.* .......................... 500 29,813
Microsoft Corp.* ...................... 15,100 1,349,563
Oracle Corp.* ......................... 9,600 712,800
Rational Software Corp.* .............. 800 56,900
RealNetworks, Inc.* ................... 400 28,125
Synopsys Ltd.* ........................ 900 35,944
Vignette Corp.* ....................... 600 138,300
----------
3,701,321
----------
Diverse Electronic Products 2.6%
Applied Materials, Inc.* .............. 2,000 365,875
Motorola, Inc. ........................ 1,575 268,538
Solectron Corp.* ...................... 600 39,300
Teradyne, Inc.* ....................... 1,000 87,000
----------
760,713
----------
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
Shares Value ($)
- --------------------------------------------------------------
EDP Peripherals 3.4%
EMC Corp.* ............................ 4,800 571,200
Network Appliance, Inc.* .............. 500 94,375
Symbol Technologies, Inc. ............. 500 47,563
VERITAS Software Corp.* ............... 1,400 277,025
----------
990,163
----------
Electronic Components/Distributors 7.8%
Adaptec, Inc.* ........................ 1,200 49,200
Altera Corp.* ......................... 1,100 87,725
Analog Devices, Inc.* ................. 700 109,900
Applied Micro Circuits Corp* .......... 200 55,013
Broadcom Corp.* ....................... 600 118,425
Cisco Systems, Inc.* .................. 13,800 1,824,172
Gateway, Inc.* ........................ 500 34,375
----------
2,278,810
----------
Electronic Data Processing 6.6%
Apple Computer, Inc.* ................. 700 80,238
Hewlett-Packard Co. ................... 3,500 470,750
International Business Machines Corp. . 6,200 632,400
Sun Microsystems, Inc.* ............... 6,800 647,700
Unisys Corp.* ......................... 3,400 101,788
----------
1,932,876
----------
Military Electronics 0.1%
L-3 Communications Holdings, Inc.* .... 800 34,050
----------
Office/Plant Automation 0.5%
3Com Corp.* ........................... 1,500 147,000
----------
Semiconductors 10.5%
Conexant Systems, Inc.* ............... 500 49,125
Intel Corp. ........................... 14,100 1,593,300
KLA Tencor Corp.* ..................... 1,500 116,906
LSI Logic Corp.* ...................... 1,400 89,688
Linear Technology Corp. ............... 1,100 115,431
Maxim Integrated Products Inc.* ....... 1,200 80,175
Microchip Technology Inc.* ............ 2,100 131,119
Micron Technology, Inc.* .............. 700 68,644
QLogic Corp.* ......................... 500 78,000
Sanmina Corp.* ........................ 400 46,825
Texas Instruments, Inc. ............... 3,400 566,100
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Xilinx, Inc.* ........................................... 1,600 127,600
----------
3,062,913
----------
Miscellaneous 0.5%
PMC-Sierra, Inc.* ....................................... 600 115,838
Safeguard Scientifics, Inc.* ............................ 200 34,988
----------
150,826
----------
Energy 0.4%
Oil & Gas Production
Anadarko Petroleum Corp. ................................ 1,900 58,425
Kerr-McGee Corp. ........................................ 800 35,800
Nabors Industries, Inc.* ................................ 1,000 35,875
----------
130,100
----------
Construction 0.1%
Building Products
American Standard Companies, Inc.* ...................... 800 27,900
----------
Transportation 0.1%
Railroads
Kansas City Southern Industries, Inc. ................... 500 39,375
----------
Utilities 0.3%
Electric Utilities
AES Corp.* .............................................. 1,200 100,575
----------
- ------------------------------------------------------------------------------------
Total Common Stocks (Cost $23,084,685) 28,915,951
- ------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $23,433,685) (a) 29,264,951
- ------------------------------------------------------------------------------------
</TABLE>
* 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 $23,442,643. At February 29,
2000, net unrealized appreciation based on tax cost was $5,822,308. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $7,752,853 and
gross unrealized depreciation for all investment securities in which there
was an excess of tax cost over market value of $1,930,545.
During the period May 17, 1999 (commencement of operations) to February 29,
2000, purchases and sales of investment securities (excluding short-term
investments) aggregated $30,624,797 and $7,349,870, respectively.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities as of February 29, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder
Scudder Select 1000
Assets Select 500 Fund Growth Fund
- ------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities at value (for cost, see
accompanying investment portfolios) ........... $ 32,951,503 $ 29,264,951
Cash ............................................. -- 565
Receivable for investments sold .................. 730,692 669,874
Dividends receivable ............................. 38,966 11,115
Receivable for Fund shares sold .................. 321,102 76,315
--------------- ---------------
Total assets ..................................... 34,042,263 30,022,820
Liabilities
- ---------------------------------------------------------------------------------
Due to custodian bank ............................ 3,699 --
Payable for investments purchased ................ 164,833 871,764
Notes payable .................................... 400,000 --
Payable for Fund shares redeemed ................. 407,752 182,805
Other accrued expenses and payables .............. 97,800 41,195
--------------- ---------------
Total liabilities ................................ 1,074,084 1,095,764
- ---------------------------------------------------------------------------------
Net assets, at value $ 32,968,179 $ 28,927,056
- ---------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on
investments ................................... 3,187,182 5,831,266
Accumulated net realized gain (loss) ............. (1,134,145) (190,242)
Paid-in capital .................................. 30,915,142 23,286,032
- ---------------------------------------------------------------------------------
Net assets, at value $ 32,968,179 $ 28,927,056
- ---------------------------------------------------------------------------------
Net Asset Value
- ---------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per $ 12.63 $ 15.12
share (outstanding shares of beneficial ------------ ------------
interest, $.01 par value, unlimited number of
shares authorized) ............................ 2,611,328 1,913,407
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
- --------------------------------------------------------------------------------
Statements of Operations for the period May 17, 1999 (commencement of
operations) to February 29, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder
Scudder Select 1000
Investment Income Select 500 Fund Growth Fund
- ------------------------------------------------------------------------------------
<S> <C> <C>
Dividends (net of foreign taxes withheld $1,586
and $21, respectively) ........................ $ 307,713 $ 132,117
Interest ......................................... 25,586 22,957
------------ ------------
Total income ..................................... 333,299 155,074
Expenses:
Management fee ................................... 183,253 126,070
Services to shareholders ......................... 163,551 125,682
Custodian and accounting fees .................... 41,341 37,728
Auditing ......................................... 21,250 23,429
Legal ............................................ 12,785 10,451
Trustees' fees and expenses ...................... 47,706 48,362
Reports to shareholders .......................... 8,879 9,597
Registration fees ................................ 38,882 46,404
Interest expense ................................. 662 1,681
Other ............................................ 3,278 352
------------ ------------
Total expenses, before expense reductions ........ 521,587 429,756
Expense reductions ............................... (324,842) (292,464)
------------ ------------
Total expenses, after expense reductions ......... 196,745 137,292
Net investment income (loss) ..................... 136,554 17,782
Realized and unrealized gain (loss) on investments
- -------------------------------------------------------------------------------
Net realized gain (loss) from investments ........ (1,134,145) (190,242)
------------ ------------
Net unrealized appreciation (depreciation) during
the period on investments ..................... 3,187,182 5,831,266
- --------------------------------------------------------------------------------
Net gain (loss) on investment transactions 2,053,037 5,641,024
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 2,189,591 $ 5,658,806
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets -- Scudder Select 500 Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
May, 17, 1999
(commencement of
operations) to
Increase (Decrease) in Net Assets February 29, 2000
- -------------------------------------------------------------------------------------
<S> <C>
Operations:
Net investment income (loss) ....................................... $ 136,554
Net realized gain (loss) on investment transactions ................ (1,134,145)
Net unrealized appreciation (depreciation) on investment
transactions during the period .................................. 3,187,182
--------------
Net increase (decrease) in net assets resulting from operations .... 2,189,591
--------------
Distributions to shareholders from:
Net investment income .............................................. (178,394)
Tax return of capital .............................................. (40,055)
--------------
Total distributions ................................................ (218,449)
--------------
Fund share transactions:
Proceeds from shares sold .......................................... 47,406,748
Reinvestment of distributions ...................................... 210,986
Cost of shares redeemed ............................................ (16,621,897)
--------------
Net increase (decrease) in net assets from Fund share transactions . 30,995,837
--------------
Increase (decrease) in net assets .................................. 32,966,979
Net assets at beginning of period .................................. 1,200
--------------
Net assets at end of period ........................................ $ 32,968,179
--------------
Other Information
- -----------------------------------------------------------------------------------
Shares outstanding at beginning of period .......................... 100
--------------
Shares sold ........................................................ 3,922,610
Shares issued to shareholders in reinvestment of distributions ..... 17,573
Shares redeemed .................................................... (1,328,955)
--------------
Net increase (decrease) in Fund shares ............................. 2,611,228
Shares outstanding at end of period ................................ 2,611,328
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets -- Scudder Select 1000 Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period May
17, 1999
(commencement of
operations) to
Increase (Decrease) in Net Assets February 29, 2000
- -------------------------------------------------------------------------------------
Operations:
<S> <C>
Net investment income (loss) ...................................... $ 17,782
Net realized gain (loss) from investment transactions ............. (190,242)
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................. 5,831,266
-------------
Net increase (decrease) in net assets resulting from operations ... 5,658,806
Distributions to shareholders from:
Net investment income ............................................. (42,087)
-------------
Fund share transactions:
Proceeds from shares sold ......................................... 31,911,408
Reinvestment of distributions ..................................... 40,564
Cost of shares redeemed ........................................... (8,642,835)
-------------
Net increase (decrease) in net assets from Fund share transactions 23,309,137
-------------
Increase (decrease) in net assets ................................. 28,925,856
Net assets at beginning of period ................................. 1,200
Net assets at end of period (including undistributed net investment -------------
income of $7,363) .............................................. $ 28,927,056
-------------
Other Information
- ----------------------------------------------------------------------------------
Shares outstanding at beginning of period ......................... 100
-------------
Shares sold ....................................................... 2,534,289
Shares issued to shareholders in reinvestment of distributions .... 2,710
Shares redeemed ................................................... (623,692)
-------------
Net increase (decrease) in Fund shares ............................ 1,913,307
-------------
Shares outstanding at end of period ............................... 1,913,407
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
Scudder Select 500 Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Period Ended February 29, 2000(b)
- ------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $12.00
---------
- ------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ------------------------------------------------------------------------------------
Net investment income (loss) (a) .07
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .64
---------
- ------------------------------------------------------------------------------------
Total from investment operations .71 Less distributions from:
- ------------------------------------------------------------------------------------
Net investment income (.06)
- ------------------------------------------------------------------------------------
Tax return of capital (.02)
---------
- ------------------------------------------------------------------------------------
Total distributions (.08)
- ------------------------------------------------------------------------------------
Net asset value, end of period $12.63
---------
- ------------------------------------------------------------------------------------
Total Return (%) (c) 5.95**
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 33
- ------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.99*
- ------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .75*
- ------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .52*
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 53*
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period May 17, 1999 (commencement of operations) to February 29,
2000.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
42
<PAGE>
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
Scudder Select 1000 Growth Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Period Ended February 29, 2000(b)
- ------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $12.00
---------
- ------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ------------------------------------------------------------------------------------
Net investment income (loss) (a) .01
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 3.13
---------
- ------------------------------------------------------------------------------------
Total from investment operations 3.14 Less distributions from:
- ------------------------------------------------------------------------------------
Net investment income (.02)
---------
- ------------------------------------------------------------------------------------
Total distributions (.02)
- ------------------------------------------------------------------------------------
Net asset value, end of period $15.12
---------
- ------------------------------------------------------------------------------------
Total Return (%) (c) 26.19**
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 29
- ------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.37*
- ------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .76(d)*
- ------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .10*
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 39*
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period May 17, 1999 (commencement of operations) to February 29,
2000.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Ratio of operating expenses, excluding interest, to average net assets
would have been 0.75%.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder Select 500 Fund and Scudder Select 1000 Growth Fund (the "Funds") are
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 Funds' financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed by the Funds in the preparation of
their 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.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Repurchase Agreements. The Funds may enter into repurchase agreements with
certain banks and broker/dealers whereby each Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. Each 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
44
<PAGE>
shareholders. Accordingly, neither Fund paid any federal income taxes and no
federal income tax provisions were required.
At February 29, 2000 the Scudder Select 500 Fund had a net tax basis capital
loss carryforward of approximately $552,000 which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until February 29, 2008, the expiration date. In addition, from November 1,
1999 through February 29, 2000 Scudder Select 500 Fund incurred approximately
$493,000 of net realized capital losses. As permitted by tax regulations, the
Fund intends to elect to defer these losses and treat them as arising in the
fiscal year ended February 28, 2001.
At February 29, 2000 the Scudder Select 1000 Growth Fund had a net tax basis
capital loss carryforward of approximately $181,000 which may be applied against
any realized net taxable capital gains of each succeeding year until fully
utilized or until February 29, 2008, the expiration date.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made quarterly for the Scudder Select 500 Fund and annually for the
Scudder Select 1000 Growth Fund. Net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to each 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 generally accepted accounting principles. 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, each 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.
B. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. (the "Adviser") the Adviser directs the
45
<PAGE>
investments of the Funds in accordance with their 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 Funds. 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%
for Scudder Select 500 Fund and 0.70% for Scudder Select 1000 Growth Fund, of
each Fund's average daily net assets computed and accrued daily and payable
monthly. The Adviser and certain of its subsidiaries agreed to reimburse or not
impose, respectively, all or a portion of their fees payable by the Funds until
June 30, 2001 in order to maintain the annualized expenses of each Fund at not
more than 0.75% of average daily net assets. For the period ended February 29,
2000, the Adviser did not impose any of its management fee for Scudder Select
500 Fund and Scudder Select 1000 Growth Fund, amounting to $183,253 and
$126,070, respectively.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for each Fund. For the
period ended February 29, 2000, SSC imposed fees for Scudder Select 500 Fund and
Scudder Select 1000 Growth Fund amounting to $159,918 and $115,344,
respectively, of which all is unpaid. Further, SSC did not impose fees for
Scudder Select 500 Fund and Scudder Select 1000 Growth Fund amounting to $84,551
and $111,735, respectively.
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 each Fund. For the period ended
February 29, 2000, SFAC did not impose any of its fees for Scudder Select 500
Fund and Scudder Select 1000 Growth Fund amounting to $35,182 and $32,799,
respectively.
The Funds pay each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the period
ended February 29, 2000, Trustees' fees and expenses imposed for Scudder Select
500 Fund and Scudder Select 1000 Growth Fund aggregated $26,706 and $27,362,
respectively. Further, the Funds' not imposed fees for Scudder Select 500 Fund
and Scudder Select 1000 Fund aggregated $21,000 and $21,000, respectively.
46
<PAGE>
C. Lines of Credit
The Funds and several other Scudder Funds (the "Participants") share in a $1
billion revolving credit facility 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 among each of the Participants. Interest is
calculated based on the market rates at the time of borrowing. Each Fund may
borrow up to a maximum of 33 percent of their net assets under the agreement.
During the period May 17, 1999 (commencement of operations) to February 29,
2000, Scudder Select 500 Fund's weighted average outstanding daily balance of
bank loans (based on the average number of days the loans were outstanding) was
approximately $197 thousand, with a weighted average interest rate of 6.2%.
Interest expense for the period ended February 29, 2000 was $662.
D. Expense Off-Set Arrangements
Each 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 period May 17, 1999
(commencement of operations) to February 29, 2000, the Scudder Select 500 Fund's
and Scudder Select 1000 Growth Fund's custodian and transfer agent fees were
reduced by $177 and $679, and $225 and $635, respectively, under these
arrangements.
47
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
February 29, 2000
To the Trustees and the Shareholders of Scudder Select 500 Fund and Scudder
Select 1000 Growth Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Select 500 Fund and Scudder
Select 1000 Growth Fund (the "Funds") at February 29, 2000, the results of their
operations, the changes in their net assets and their financial highlights for
the period from May 17, 1999 (commencement of operations) to February 29, 2000,
in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Funds' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts PricewaterhouseCoopers LLP
March 24, 2000
48
<PAGE>
Tax Information
- --------------------------------------------------------------------------------
For corporate shareholders, 100% of the income dividends paid during the Funds'
fiscal year ended February 29, 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.
49
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Linda C. Coughlin* Ann M. McCreary*
o President o Vice President
Sheryle J. Bolton Kathleen T. Millard*
o Trustee; Chief Executive Officer, o Vice President
Scientific Learning Corporation
Lois Roman*
William T. Burgin o Vice President
o Trustee; General Partner, Bessemer
Venture Partners Robert D. Tymoczko*
o Vice President
Keith R. Fox
o Trustee; General Partner, John Millette*
The Exeter Group of Funds o Vice President and Secretary
William H. Luers John R. Hebble*
o Trustee; Chairman and President, o Treasurer
U.N. Association of America
Caroline Pearson*
Kathryn L. Quirk* o Assistant Secretary
o Trustee, Vice President and
Assistant Secretary *Scudder Kemper Investments, Inc.
Joan E. Spero
o Trustee; President, Doris Duke
Charitable Foundation
Paul Bancroft III
o Honorary Trustee; Venture
Capitalist and Consultant
Thomas J. Devine
o Honorary Trustee; Consultant
Wilson Nolen
o Honorary Trustee; Consultant
Robert G. Stone, Jr.
o Honorary Trustee; Chairman
Emeritus and Director, Kirby
Corporation
50
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
51
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
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>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ Funds within categories are listed in order from expected least
risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family
of Funds.
++ Only the International Shares of the fund are part of the Scudder
Family of Funds.
+++ +++ A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold by Scudder's insurance agencies, 1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on
various other stock exchanges.
52
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.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 your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
53
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal 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 Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
54
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Notes
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<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.
