SCUDDER
INVESTMENTS(SM)
[LOGO]
----------------------
EQUITY/VALUE
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Scudder Value Fund
Fund #075
Semiannual Report
March 31, 2000
The fund seeks long-term growth of capital through investment in undervalued
equity securities.
Scudder Value Fund is properly known as Value Fund.
<PAGE>
Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
14 Glossary of Investment Terms
15 Investment Portfolio
19 Financial Statements
22 Financial Highlights
23 Notes to Financial Statements
31 Officers and Trustees
32 Investment Products and Services
34 Scudder Solutions
2
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ticker symbol SCVAX fund number 075
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Date of Inception: o Value stocks produced poor returns through the first
12/31/92 five months of the period, but staged a strong rebound
in March.
o The Value Fund -- Scudder Shares' 10.10% return for the
Total Net Assets six months ended March 31, 2000 beat the 5.94% return
of Scudder Shares of its unmanaged benchmark, the Russell 1000 Value
as of 3/31/00: Index. According to Lipper Analytical Services, the
$340.3 million Scudder Shares of the fund have beaten the average
return of its peer group over the three- and five-year
periods.^1
o The fund benefited from its holdings in the technology
and media areas, as well as strong stockpicking within
the financial sector.
^1 Lipper Analytical Services, Inc. is an independent analyst of
investment performance. Performance includes reinvestment of dividends
and capital gains. As of March 31, 2000, Value Fund -- Scudder Shares'
Lipper ranking was 205 out of 480 funds for the one-year period, 95 out
of 318 funds for the three-year period, and 33 out of 204 for the
five-year period. Past performance is no guarantee of future results.
3
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Letter from the Fund's President
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Dear Shareholders,
The equity markets produced strong performance in the six months ended March 31,
2000, led by stocks in the technology and communications sectors. Although the
major market averages posted gains for much of the period -- with the Nasdaq
leading the way -- most of the stocks in the broader market actually fell during
this interval. Value stocks, in particular, produced poor performance in
relation to the indices. While ordinarily stocks with attractive valuation
characteristics tend to outperform, this trait proved to be a negative in recent
months as many investors poured money into the stocks with the most attractive
growth characteristics regardless of their valuations.
In this environment, the generous returns of growth stocks made other sectors
seem less important, causing many investors to underweight value stocks in their
portfolios. It can be tempting to try to chase "hot" sectors, but, as we saw
when tech stocks slumped in the final three weeks of March, this approach can
leave your portfolio exposed to rapid swings in market sentiment. At the same
time, trimming your position in a sector that has underperformed for a long
period means that you may be unable to participate when the sector ultimately
turns around. While the move in value stocks in the latter half of March may not
signal a sustainable change in market leadership, it does demonstrate that
4
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sentiment shifts can happen quickly and without warning. We therefore urge
investors to remain focused on the continued importance of portfolio
diversification and a long-term investment horizon.
Thank you for your continued investment in Value Fund -- Scudder Shares. For
current information on the fund or your account, visit our Internet Web site at
www.scudder.com. There you'll find a wealth of information, including the most
recent fund performance, news on Scudder products and services, and the
opportunity to perform account transactions. You can also speak with the one of
our representatives by calling 1-800-SCUDDER (1-800-728-3337).
Sincerely,
/s/Linda C. Coughlin
Linda C. Coughlin
President,
Value Fund
5
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Performance Update
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March 31, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Value Fund -- Russell 1000
Scudder Shares S&P 500 Index* Value Index*
12/92 10000 10000 10000
'93 10933 10437 10966
'94 10830 10590 11400
'95 12070 12237 12676
'96 15470 16165 16923
'97 19007 19369 19980
'98 27740 28670 29407
'99 27112 33962 30894
'00 29237 40060 32853
Yearly periods ended March 31
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 3/31/2000 $10,000 Cumulative Annual
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Value Fund -- Scudder Shares
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1 year $ 10,784 7.84% 7.84%
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5 year $ 24,224 142.24% 19.36%
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Life of Class** $ 29,237 192.37% 15.94%
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Russell 1000 Value Index*
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1 year $ 10,634 6.34% 6.34%
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5 year $ 25,918 159.18% 20.96%
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Life of Class** $ 32,853 228.53% 17.82%
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S&P 500 Index*
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1 year $ 11,796 17.96% 17.96%
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5 year $ 32,736 227.36% 26.73%
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Life of Class** $ 40,060 300.60% 21.09%
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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. The Russell 1000 Value Index
consists of securities with less than average growth orientation. Index
returns assume reinvestment of dividends and, unlike Fund returns, do
not reflect any fees or expenses.
** The Fund commenced operations on December 31, 1992.
As of 9/30/99, the Fund has adopted the Russell 1000 Value Index for
its primary securities market index over the S&P 500 Index, as the
Russell 1000 Value Index better represents the securities and markets
in which the Fund typically invests.
6
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE VALUE FUND -- SCUDDER SHARES TOTAL RETURN (%) AND
RUSSELL 1000 VALUE INDEX* TOTAL RETURN (%)
Yearly periods ended March 31
1993** 1994 1995 1996 1997 1998 1999 2000
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Class Total
Return (%) 9.33 -.94 11.44 28.18 22.86 45.94 -2.26 7.84
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Index Total
Return (%) 9.66 3.95 11.19 33.51 18.06 47.18 5.05 6.34
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Net Asset
Value ($) 13.12 12.47 13.64 16.48 18.64 25.03 23.36 24.12
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Income
Dividends
($) -- .11 .12 .04 .07 .24 .19 .16
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Capital
Gains
Distributions
($) -- .43 .13 .92 1.48 1.65 .90 .85
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* The Russell 1000 Value Index consists of securities with less than
average growth orientation. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or
expenses.
Effective April 16, 1998, the Fund changed its name from Scudder Value
Fund to Value Fund and an additional three classes of shares were
offered. Existing shares of Value Fund outstanding on that date were
redesignated Scudder Shares of the Fund. The total return information
provided is for the Fund's Scudder Share Class. Performance is
historical, assumes reinvestment of all dividends and capital gains,
and is not indicative of future results. Total return and principal
value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Adviser had not
maintained expenses, the total returns for the 5 year and Life of Class
periods would have been lower.
7
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Portfolio Summary
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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.
Equity Securities 99% The fund stays as close
Cash Equivalents 1% to 100% invested in
------------------------------------ equities as possible.
100%
------------------------------------
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Sectors
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
(Excludes 1% Cash Equivalents) Over the past six
Financial 25% months, the fund's
Energy 16% holdings in financials,
Communications 13% energy, and
Technology 8% communications have
Manufacturing 8% increased.
Durables 8%
Health 6%
Consumer Staples 5%
Media 5%
Other 6%
------------------------------------
100%
------------------------------------
8
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Ten Largest Equity Holdings
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(35% of Portfolio) Management strives to
hold long-term positions
1. Exxon Mobil Corp. in well-established
International oil company companies with
attractive valuations
2. Bell Atlantic Corp. and catalysts for
Provider of telecommunication services stronger earnings.
3. Citigroup Inc.
Diversified financial services company
4. Dow Chemical Co.
Chemical producer
5. AT&T Corp.
Provider of telecommunication services
6. Cigna Corp.
Provider of insurance, health care benefits, pension
management and related financial services
7. Boeing Co.
Manufacturer of jet airplanes
8. Chase Manhattan Corp.
Commercial bank
9. American Home Products Corp.
Diversified pharmaceutical company
10. International Business Machines Corp.
Manufacturer of computers and servicer of information
processing units
For more complete details about the Fund's investment portfolio, see page 15. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
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Portfolio Management Discussion
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In the following interview, lead portfolio manager Lois Roman discusses the
strategy of Value Fund -- Scudder Shares and the market environment during the
six-month period ending March 31, 2000.
Q: Please describe the environment for value stocks during the past six months?
A: Through most of the period, value stocks produced poor performance. In an
environment where investors were looking for stocks with the strongest potential
for rapid earnings growth, technology, communications, and biotech stocks
attracted enormous inflows of cash. Many stocks in the sectors posted
triple-digit returns despite having no earnings whatsoever, demonstrating that
momentum, not fundamentals, was generally the most important driver of
performance. As a result, value stocks were deeply out of favor with the market.
Through February 29, 2000, the one-year return on the Russell 1000 Value Index
was -3.26%, compared to 31.74% for the Russell 1000 Growth Index. In March,
however, this trend showed signs of a reversal. Many growth stocks lost
significant ground, while long-dormant segments of the value group staged a
sharp rally. All of the sectors that had lagged for several quarters -- such as
manufacturing stocks, financials, and producers of consumer staples -- began to
show signs of life. As a result of the March rally, value stocks were able to
produce positive returns for the six-month period despite their protracted
downturn.
Q: How has the sector's slump affected fund performance?
A: For the six months ended March 31, 2000, the Scudder Shares of the Value Fund
posted a total return of 10.10%, compared to a return of 5.94% for its unmanaged
benchmark, the Russell 1000 Value Index. The bulk of the positive performance
came in March, during which Scudder Shares gained 11.31%. In our view, this
rally demonstrates the importance of patience and the use of a strict investment
discipline, since value stocks can
10
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move extremely quickly when market sentiment changes. According to Lipper
Analytical Services, Scudder Shares have finished in the top half of funds in
its category over the one-, three-, and five-year periods.
Q: What sectors helped performance during the period?
A: The fund's position in technology stocks was a significant contributor to its
outperformance. Although our value style prevents us from holding many of the
sector's most expensive names, we have benefited from holding on to our
technology positions, many of which were initiated years ago, when the stocks
were much cheaper. These names include IBM, Hewlett Packard, and Corning.
Corning has been an outstanding performer over the holding period, but the
valuation has risen to a point where it has become too expensive for the
portfolio. We will look to redeploy these assets into cheaper stocks. In the
media sector, we own Disney and AT&T Corp.--Liberty Media, two stocks that
performed well for us during the period. The fund purchased Disney in the summer
of 1999 when the stock fell below $25. After in-depth fundamental research --
which included a meeting with CEO Michael Eisner -- we were convinced that
Disney had a great brand franchise, severable business units, and the potential
to unlock returns for investors. The stock has performed well for the fund since
we began to establish a position, and we remain optimistic on its prospects
going forward.
Fund performance has also been helped by our holdings in the financial sector,
and our underweighting in the sector in relation to the benchmark. Although the
group as a whole underperformed for much of the period, we were well positioned
through our holdings in Citigroup and Chase Manhattan Bank. Both are large,
liquid companies with strong strategic positioning, and both outperformed their
peer group by a wide margin.
11
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Q: What holdings have hurt performance?
A: The fund has been hurt by its position in the energy sector. We built the
position through 1999 to take advantage of the group's improving fundamentals,
but energy stocks have so far been unable to mount a sustained rally. We believe
that the current valuations of major oil companies do not reflect the high price
of the commodity. Even though oil prices have fallen from their highs, most
earnings estimates for companies in the sector incorporate a lower price for oil
than has existed for the past several months. In our view, this has increased
the potential for upside earnings surprises in the group.
Q: How do you find quality value stocks in such a growth-oriented market
environment?
A: By sticking to our discipline. We continue to utilize the same fundamental
strategy because we believe in the long-term potential of value stocks. The fund
uses a disciplined, three-step investment process that employs a quantitative
screen, fundamental equity research, and risk management. The quantitative
screen helps us find stocks in the Russell 1000 Index -- a broad,
large-capitalization universe -- which are selling at the most attractive
valuations. Companies that are ranked in the top four deciles (the cheapest 40%)
are our potential buy candidates, while those that fall into the 9th and 10th
deciles (the most expensive 20%) are our potential sell candidates. Not all
cheap stocks have value, however. The use of our internal team of equity
analysts helps us to understand the fundamental dynamics of a company. This is a
crucial step in the process, and it helps prevent us from investing in stocks
where the fundamentals have not yet hit bottom. Lastly, our use of quantitative
and qualitative risk analysis allows us to factor in, and attempt to control for
macroeconomic factors.
12
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Q: Have you changed your investment process because of the market's volatility?
A: No -- our goals and process remain the same. But we do make minor adjustments
in terms of what aspects of our strategy that we emphasize at a given time. On
the margin, we recently have been putting a heavier emphasis on fundamental
analysis than on our quantitative screen. The divergence in the returns of
high-valuation growth stocks and cheap value stocks has caused our model to
underperform, which can happen in the short run. We have therefore been more
willing to add names into the portfolio that are in the "hold" zone if they are
highly recommended by our analysts. This is particularly true in sectors that
are relatively expensive, such as technology or health care. In addition, we
have been slower to sell our winners. For example, if a stock has grown more
expensive while maintaining strong fundamentals, we may continue to hold the
stock in the portfolio for a longer period of time. Of course, if the investment
thesis has been violated or if we have a better idea, we will exit the stock.
Q: What is your outlook for value stocks in general?
A: While we are encouraged by the March rally in value stocks, it is still too
early to say whether the move is the start of a long-term trend, or simply a
case of investors seeking temporary shelter from the turbulence in growth
stocks. Our primary focus is not on predicting the direction of the markets, but
on finding the best value stocks available. If anything, we view downdrafts in
the market as an opportunity to purchase our favorite stocks at more attractive
prices. We remain committed to our discipline, and want shareholders to know
that the fund will not stray from its value orientation regardless of events in
the broader market. We believe that this approach will help shelter the fund
from an adverse investment backdrop -- as it has over the most recent six months
-- and position it to prosper when value stocks ultimately regain their footing.
13
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Glossary of Investment Terms
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Consumer Products purchased by consumers on a regular basis, such as
Staples food, beverages, alcohol, and tobacco. In the aggregate,
sales of consumer staples tend to be steady and less
sensitive to economic fluctuations.
Fundamental Analysis of companies based on the projected impact of
Research management, products, sales, and earnings on their balance
sheets and income statements. Distinct from technical
analysis, which evaluates the attractiveness of a stock
based on historical price and trading volume movements,
rather than the financial results of the underlying company.
Growth Stock Stock of a company that has displayed above average earnings
growth and is expected to continue to increase profits
faster than the overall market. Stocks of such companies
usually trade at higher valuations and experience more price
volatility than the market as a whole. Distinct from value
stock.
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. Distinct from growth
stock.
Weighting Refers to the allocation of assets -- usually in terms of
(over/under) sectors, industries, or countries -- within a portfolio
relative to the portfolio's benchmark index or investment
universe.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
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Investment Portfolio as of March 31, 2000 (Unaudited)
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Principal
Amount ($) Value ($)
---------------------------------------------------------------------------
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Repurchase Agreements 0.9%
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State Street Bank and Trust Company, 6.05%, to be
repurchased at $3,646,838 on 4/3/2000**
(Cost $3,645,000) ............................ 3,645,000 3,645,000
Shares
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Common Stocks 99.1%
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Consumer Discretionary 2.9%
Department & Chain Stores
Federated Department Stores, Inc. ............... 171,800 7,172,650
Target Corp. .................................... 65,000 4,858,750
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12,031,400
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Consumer Staples 4.7%
Alcohol & Tobacco 1.0%
Anheuser-Busch Companies, Inc. .................. 66,600 4,145,850
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Food & Beverage 3.7%
Hershey Foods Corp. ............................. 140,700 6,859,125
PepsiCo, Inc. ................................... 246,500 8,519,656
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15,378,781
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Health 5.8%
Medical Supply & Specialty 0.9%
Becton, Dickinson & Co. ......................... 148,200 3,899,513
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Pharmaceuticals 4.9%
American Home Products Corp. .................... 189,900 10,183,388
Bristol-Myers Squibb Co. ........................ 57,900 3,343,725
Pharmacia & Upjohn, Inc. ........................ 112,900 6,689,325
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20,216,438
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Communications 12.6%
Telephone/Communications
AT&T Corp. ...................................... 310,550 17,468,438
Bell Atlantic Corp. ............................. 334,300 20,434,088
BellSouth Corp. ................................. 121,900 5,729,300
SBC Communications, Inc. ........................ 211,000 8,862,000
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52,493,826
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The accompanying notes are an integral part of the financial statements.
15
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Shares Value ($)
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Financial 24.7%
Banks 8.7%
Bank One Corp. ........................ 62,800 2,158,750
Bank of America Corp. ................. 125,052 6,557,414
Chase Manhattan Corp. ................. 122,900 10,715,344
First Union Corp. ..................... 137,200 5,110,700
FleetBoston Financial Corp. ........... 111,600 4,073,400
J.P. Morgan & Co., Inc. ............... 25,500 3,359,625
PNC Bank Corp. ........................ 98,500 4,438,656
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36,413,889
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Insurance 9.7%
AFLAC, Inc. ........................... 135,900 6,191,944
Allstate Corp. ........................ 182,500 4,345,781
Cigna Corp. ........................... 149,700 11,339,775
Hartford Financial Services Group, Inc. 101,700 5,364,675
St. Paul Companies, Inc. .............. 203,200 6,934,200
Travelers Property Casualty Corp. "A" . 145,700 6,010,125
------------
40,186,500
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Consumer Finance 4.7%
American Express Co. .................. 13,500 2,010,656
Citigroup, Inc. ....................... 296,100 17,562,431
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19,573,087
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Other Financial Companies 1.0%
Federal National Mortgage Association . 70,700 3,990,131
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Real Estate 0.6%
Post Properties Inc. (REIT) ........... 64,900 2,616,281
------------
Media 4.6%
Broadcasting & Entertainment 2.0%
Walt Disney Co. ....................... 201,000 8,316,375
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Cable Television 1.1%
AT&T Corp.-- Liberty Media Group "A" .. 78,768 4,667,004
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Print Media 1.5%
Knight-Ridder, Inc. ................... 120,700 6,148,156
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The accompanying notes are an integral part of the financial statements.
16
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Shares Value ($)
-------------------------------------------------------------
Service Industries 1.7%
Investment
Merrill Lynch & Co., Inc. ........... 69,100 7,255,500
------------
Durables 7.5%
Aerospace 6.5%
Boeing Co. .......................... 284,100 10,778,044
Lockheed Martin Corp. ............... 351,464 7,183,046
Rockwell International Corp. ........ 86,360 3,610,928
United Technologies Corp. ........... 84,700 5,351,981
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26,923,999
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Automobiles 1.0%
Ford Motor Co. ...................... 91,500 4,203,281
------------
Manufacturing 7.7%
Chemicals 4.7%
Dow Chemical Co. .................... 153,800 17,533,200
Sigma-Aldrich Corp. ................. 83,100 2,233,313
------------
19,766,513
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Diversified Manufacturing 1.0%
Textron, Inc. ....................... 66,000 4,017,750
------------
Industrial Specialty 0.8%
Corning, Inc. ....................... 17,100 3,317,400
------------
Machinery/Components/Controls 1.2%
Parker-Hannifin Corp. ............... 118,750 4,905,859
------------
Technology 8.0%
Diverse Electronic Products 2.0%
Motorola Inc. ....................... 57,500 8,186,563
------------
Electronic Data Processing 5.3%
Apple Computer, Inc. ................ 27,300 3,707,681
Compaq Computer Corp. ............... 138,700 3,692,888
Hewlett-Packard Co. ................. 41,500 5,501,344
International Business Machines Corp. 77,000 9,086,000
------------
21,987,913
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Semiconductors 0.7%
Micron Technology, Inc. ............. 25,900 3,263,400
------------
The accompanying notes are an integral part of the financial statements.
17
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<TABLE>
<CAPTION>
Shares Value ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
Energy 15.7%
Oil & Gas Production 11.5%
Coastal Corp. ............................................ 124,700 5,736,200
Conoco, Inc. "A" ......................................... 283,600 6,983,650
Exxon Mobil Corp. ........................................ 284,692 22,152,596
Royal Dutch Petroleum Co. (New York shares) .............. 124,900 7,189,556
Texaco, Inc. ............................................. 111,900 6,000,635
------------
48,062,637
------------
Oil Companies 1.9%
Chevron Corp. ............................................ 87,200 8,060,550
------------
Oilfield Services/Equipment 2.3%
Baker Hughes, Inc. ....................................... 134,700 4,074,675
Schlumberger Ltd. ........................................ 69,800 5,339,700
------------
9,414,375
------------
Transportation 0.5%
Railroads
Union Pacific Corp. ...................................... 52,800 2,065,800
------------
Utilities 2.7%
Electric Utilities
Allegheny Energy, Inc. ................................... 186,000 5,126,625
Peco Energy Co. .......................................... 34,900 1,286,938
Unicom Corp. ............................................. 134,100 4,894,650
------------
11,308,213
------------
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Total Common Stocks (Cost $378,862,130) 412,816,984
--------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $382,507,130) (a) 416,461,984
--------------------------------------------------------------------------------------
</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 $382,957,051. At March 31,
2000, net unrealized appreciation for all securities based on tax cost
was $33,504,933. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $55,881,172 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $22,376,239.
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of March 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $382,507,130) ...................... $416,461,984
Cash ......................................................................... 225,380
Dividends receivable ......................................................... 654,539
Interest receivable .......................................................... 1,929
Receivable for Fund shares sold .............................................. 1,215,751
Due from Adviser ............................................................. 92,464
---------------
Total assets ................................................................. 418,652,047
Liabilities
---------------------------------------------------------------------------------------------
Payable for Fund shares redeemed ............................................. 1,000,603
Accrued management fee ....................................................... 548,779
Other accrued expenses and paybles ........................................... 1,211,228
---------------
Total liabilities ............................................................ 2,760,610
---------------------------------------------------------------------------------------------
Net assets, at value $415,891,437
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .......................................... 345,058
Net unrealized appreciation (depreciation) on investments .................... 33,954,854
Accumulated net realized gain (loss) ......................................... 43,793,998
Paid-in capital .............................................................. 337,797,527
---------------------------------------------------------------------------------------------
Net assets, at value $415,891,437
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
Scudder Shares
Net asset value, offering and redemption price per share ($340,295,301 /
14,109,366 outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) .................................... $ 24.12
Class A Shares
Net asset value and redemption price per share ($40,594,752 / 1,678,321
outstanding shares of beneficial interest, $.01 par value, unlimited number
of shares authorized) ..................................................... $ 24.19
Maximum offering price per share (100 / 94.25 of $24.19) ..................... $ 25.67
Class B Shares
Netasset value and redemption price (subject to contingent deferred sales
charge) per share ($28,256,425 / 1,174,220 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares authorized) .......... $ 24.06
Class C Shares
Netasset value and redemption price (subject to contingent deferred sales
charge) per share ($6,744,959 / 279,849 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares authorized) .......... $ 24.10
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
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--------------------------------------------------------------------------------
Statement of Operations for the six months ended March 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $12,684) ........... $ 4,165,688
Interest ....................................................... 198,827
---------------
Total income ................................................... 4,364,515
---------------
Expenses:
Management fee ................................................. 1,574,757
Services to shareholders ....................................... 1,828,095
Custodian and accounting fees .................................. 99,926
Distribution services fees ..................................... 128,429
Administrative services fees ................................... 93,785
Auditing ....................................................... 20,496
Legal .......................................................... 4,392
Trustees' fees and expenses .................................... 26,169
Reports to shareholders ........................................ 227,835
Registration fees .............................................. 96,455
Other .......................................................... 11,400
---------------
Total expenses, before reductions .............................. 4,111,739
Expenses reductions ............................................ (99,534)
---------------
Total expenses, after reductions ............................... 4,012,205
--------------------------------------------------------------------------------
Net investment income (loss) 352,310
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 53,864,016
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (12,450,725)
-------------------------------------------------------------------------------
Net gain (loss) on investment transactions 41,413,291
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 41,765,601
-------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 2000 September 30,
(Unaudited) 1999
------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ...................... $ 352,310 $ 3,111,169
Net realized gain (loss) on investment transactions 53,864,016 6,166,998
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... (12,450,725) 62,680,573
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations ................................ 41,765,601 71,958,740
--------------- ---------------
Distributions to shareholders from:
Net investment income -- Scudder Shares ............ (2,662,961) (4,164,869)
Net investment income -- Class A ................... (267,260) (237,416)
Net investment income -- Class B ................... -- (48,553)
Net investment income -- Class C ................... -- (11,523)
Net realized gain -- Scudder Shares ................ (13,800,495) (19,711,211)
Net realized gain -- Class A ....................... (1,426,862) (1,241,379)
Net realized gain -- Class B ....................... (1,060,430) (1,035,831)
Net realized gain -- Class C ....................... (209,392) (226,181)
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ......................... 61,756,013 321,600,172
Reinvestment of distributions ..................... 18,828,251 25,914,793
Cost of shares redeemed ........................... (170,790,721) (426,810,318)
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (90,206,457) (79,295,353)
--------------- ---------------
Increase (decrease) in net assets ................. (67,868,256) (34,013,576)
Net assets at beginning of period ................. 483,759,693 517,773,269
Net assets at end of period (including
undistributed net investment income (loss) of
$345,058 and $2,922,969, respectively) ......... $ 415,891,437 $ 483,759,693
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
Scudder Shares (a)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Years Ended September 30, 2000(b)(d) 1999(b) 1998(b) 1997(b) 1996 1995
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $22.88 $21.20 $23.53 $17.52 $15.87 $13.08
--------------------------------------------------------
--------------------------------------------------------------------------------------
Income (loss) from investment operations:
--------------------------------------------------------------------------------------
Net investment income (loss) .02 .15 .28 .34 .21 .18
--------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions 2.23 2.62 (.72) 7.22 2.40 2.86
--------------------------------------------------------
--------------------------------------------------------------------------------------
Total from investment
operations 2.25 2.77 (.44) 7.56 2.61 3.04
--------------------------------------------------------------------------------------
Less distributions from:
--------------------------------------------------------------------------------------
Net investment income (.16) (.19) (.24) (.07) (.04) (.12)
--------------------------------------------------------------------------------------
Net realized gains on
investment transactions (.85) (.90) (1.65) (1.48) (.92) (.13)
--------------------------------------------------------
--------------------------------------------------------------------------------------
Total distributions (1.01) (1.09) (1.89) (1.55) (.96) (.25)
--------------------------------------------------------------------------------------
Net asset value, end of period $24.12 $22.88 $21.20 $23.53 $17.52 $15.87
--------------------------------------------------------
--------------------------------------------------------------------------------------
Total Return (%) 10.10** 13.02 (2.08) 45.80(c) 17.18(c) 23.62(c)
--------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 340 407 468 298 89 68
--------------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 1.78* 1.39 1.23 1.28 1.31 1.44
--------------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 1.78* 1.39 1.23 1.24 1.25 1.25
--------------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) .16* .61 1.19 1.67 1.34 1.57
--------------------------------------------------------------------------------------
Portfolio turnover rate (%) 51* 91 47 47 91 98
--------------------------------------------------------------------------------------
</TABLE>
(a) On April 16, 1998, existing shares of the Fund were designated as
Scudder Shares and are generally not available to new investors.
(b) Based on monthly average shares outstanding during the period.
(c) Total return would have been lower had certain expenses not been
reduced.
(d) For the six months ended March 31, 2000 (Unaudited).
* Annualized
** Not annualized
22
<PAGE>
Notes to Financial Statements (Unaudited)
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Value Fund (the "Fund") is a diversified series of Value Equity Trust (the
"Trust") which is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company organized
as a Massachusetts business trust.
The Fund offers multiple classes of shares. Class A shares are offered to
investors subject to an initial sales charge. Class B shares are offered without
an initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one year of purchase. Class C
shares do not convert into another class. Scudder Shares, generally not
available to new investors, are not subject to initial or contingent deferred
sales charges. Certain detailed financial information for the Class A, B, and C
shares is provided separately and is available upon request.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears certain expenses unique to that class such as distribution
services, shareholder services, administrative services and certain other class
specific expenses. Differences in class expenses may result in payment of
different per share dividends by class. All shares of the Fund have equal rights
with respect to voting subject to class specific arrangements.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. 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
23
<PAGE>
sales, are valued at the most recent sale price reported. If there are no such
sales, the value is the most recent bid quotation. Securities which are not
quoted on Nasdaq but are traded in another over-the-counter market are valued at
the most recent sale price, or if no sale occurred, at the calculated mean
between the most recent bid and asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Trust, whose
quotations reflect broker supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Money market instruments purchased with an original maturity of sixty days or
less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
24
<PAGE>
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of a financial
instrument at a specified price on a specific date (settlement date).
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund dependent upon
the daily fluctuations in the value of the underlying security and are recorded
for financial reporting purposes as unrealized gains or losses by the Fund. When
entering into a closing transaction, the Fund will realize a gain or loss equal
to the difference between the value of the futures contract to sell and the
futures contract to buy. Futures contracts are valued at the most recent
settlement price.
Certain risks may arise upon entering into futures contracts, including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with the changes in the value of
the securities or currencies hedged. When utilizing futures contracts to hedge,
the Fund gives up the opportunity to profit from favorable price movements in
the hedged positions during the term of the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from 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, the Fund may periodically make
25
<PAGE>
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
All discounts are accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
During the six months ended March 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $112,461,341 and
$215,122,361, respectively.
C. Transactions with Affiliates
Management Agreement. Under the Management Agreement (the "Agreement") with
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Adviser"), the
Adviser directs the investments of the Fund in accordance with its investment
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The management fee payable under the Agreement is equal to an annual
rate of 0.70% of the Fund's average daily net assets, computed and accrued daily
and payable monthly. For the six months ended March 31, 2000, the fee pursuant
to the Agreement amounted to $1,574,757, of which $548,779 is unpaid at March
31, 2000.
Distribution Service Agreement. In accordance with Rule 12b-1 under the
Investment Company Act of 1940, Kemper Distributors, Inc. ("KDI"), a subsidiary
of the Adviser, receives a fee of 0.75% of average daily net assets of Classes B
and C. Pursuant to the agreement, KDI enters into related selling group
agreements with various firms at various rates for sales of Class B and C
26
<PAGE>
shares.
For the six months ended March 31, 2000, the Distribution Fee was as follows:
Fees waived by Unpaid at
Distribution Fee Total Aggregated KDI March 31, 2000
-------------------------- ---------------- --------------- ---------------
Class B ................. $ 106,068 $ 7,228 $ 20,914
Class C ................. 22,361 1,863 8,454
$ 128,429 $ 9,091 $ 29,368
Underwriting Agreement and Contingent Deferred Sales Charge. KDI is the
principal underwriter for Classes A, B and C. Underwriting commissions paid in
connection with the distribution of Class A shares for the six months ended
March 31, 2000 aggregated $46,381, of which $37,039 was paid to other firms.
In addition, KDI receives any contingent deferred sales charge (CDSC) from Class
B share redemptions occurring within six years of purchase and Class C share
redemptions occurring within one year of purchase. There is no such charge upon
redemption of any share appreciation or reinvested dividends. Contingent
deferred sales charges are based on declining rates ranging from 4% to 1% for
Class B and 1% for Class C, of the value of the shares redeemed. For the six
months ended March 31, 2000, the CDSC for Classes B and C aggregated $69,102 and
$515, respectively.
Administrative Service Fees. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to 0.25% of
average daily net assets for each such class. KDI in turn has various agreements
with financial services firms that provide these services and pays these firms
based upon the assets of shareholder accounts the firms service. For the six
months ended March 31, 2000, the Administrative Service Fee was as follows:
Fees waived by Unpaid at
Administrative Service Fees Total Aggregated KDI March 31, 2000
---------------------------- --------------- --------------- ---------------
Class A ................... $ 50,300 $ 39,888 $ --
Class B ................... 36,031 36,031 --
Class C ................... 7,454 7,454 --
$ 93,785 $ 83,373 $ --
Shareholder Services Fees. Kemper Service Company ("KSC"), an affiliate of the
Adviser, is the transfer, dividend-paying and shareholder service agent for
27
<PAGE>
the Fund's Classes A, B and C Shares. For the six months ended March 31, 2000,
the amount charged to Classes A, B and C by KSC aggregated $94,491, $54,220, and
$18,718, respectively, of which $45,144, $26,070, and $18,063, respectively is
unpaid at March 31, 2000. Scudder Service Corporation ("SSC"), a subsidiary of
the Adviser, is the transfer, dividend-paying and shareholder service agent for
the Scudder Shares. For the six months ended March 31, 2000, the amount charged
to the Scudder Shares by SSC for shareholder services aggregated $377,836, of
which $80,302 is unpaid at March 31, 2000.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Scudder Shares of the Fund. For the six
months ended March 31, 2000, the amount charged to the Scudder Shares by STC
aggregated $669,904, of which $344,178 is unpaid at March 31, 2000.
Fund Accounting Fees. Scudder Fund Accounting Corporation ("SFAC"), a subsidiary
of the Adviser, is responsible for determining the daily net asset value per
share and maintaining the portfolio and general accounting records of the Fund.
For the six months ended March 31, 2000, the amount charged to the Fund by SFAC
aggregated $65,170, none of which is unpaid at March 31, 2000.
Trustees Fees. The Fund pays each of its Trustees not affiliated with the
Adviser an annual retainer plus specified amounts for attended board and
committee meetings. For the six months ended March 31, 2000, the Trustees fees
and expenses aggregated $26,169.
28
<PAGE>
D. Capital Share Transactions
The following table summarizes shares of beneficial interest and dollar activity
in the Fund:
<TABLE>
<CAPTION>
SIx Months Ended March 31, 2000 Year Ended September 30, 1999
----------------------------------------------------------------------
Shares Dollars Shares Dollars
Shares sold
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Shares 1,403,806 $ 32,400,366 5,568,655 $ 131,356,073
Class A ....... 815,105 18,956,357 4,906,004 115,981,063
Class B ....... 284,918 6,572,859 901,601 21,274,145
Class C ....... 165,606 3,826,431 2,262,454 52,988,891
------------ -------------- ------------ --------------
2,669,435 61,756,013 13,638,714 321,600,172
------------ -------------- ------------ --------------
Shares issued to shareholders in reinvestment of distributions
----------------------------------------------------------------------------------------
Scudder Shares 702,006 $ 16,026,800 1,010,122 $ 23,313,600
Class A ....... 71,089 1,625,091 59,448 1,372,649
Class B ....... 43,356 988,519 43,529 1,004,640
Class C ....... 8,224 187,841 9,689 223,904
------------ -------------- ------------ --------------
824,675 18,828,251 1,122,788 25,914,793
------------ -------------- ------------ --------------
Shares redeemed
----------------------------------------------------------------------------------------
Scudder Shares (5,788,748) $(133,469,221) (10,886,073) $(258,426,354)
Class A ....... (1,053,199) (24,378,793) (4,451,976) (104,695,242)
Class B ....... (440,880) (10,103,670) (518,518) (12,396,396)
Class C ....... (123,210) (2,839,037) (2,181,822) (51,292,326)
------------ -------------- ------------ --------------
(7,406,037) (170,790,721) (18,038,389) (426,810,318)
------------ -------------- ------------ --------------
Net increase (decrease)
----------------------------------------------------------------------------------------
Scudder Shares (3,682,936) $ (85,042,055) (4,307,296) $(103,756,681)
Class A ....... (167,005) (3,797,345) 513,476 12,658,470
Class B ....... (112,606) (2,542,292) 426,612 9,882,389
Class C ....... 50,620 1,175,235 90,321 1,920,469
------------ -------------- ------------ --------------
(3,911,927) $ (90,206,457) (3,276,887) $ (79,295,353)
------------ -------------- ------------ --------------
</TABLE>
E. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the six months ended
29
<PAGE>
March 31, 2000, the Fund's custodian and transfer agent fees were reduced by $8
and $7,062, respectively, under these new arrangements.
F. Line of Credit
The Fund and several 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 among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement.
30
<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 o Vice President
Officer, Scientific Learning
Corporation Lois F. Roman*
o Vice President
William T. Burgin
o Trustee; General Partner, Robert D. Tymoczko*
Bessemer Venture Partners o Vice President
Keith R. Fox John Millette*
o Trustee; General Partner, The o Vice President and Secretary
Exeter Group of Funds
John R. Hebble*
William H. Luers o Treasurer
o Trustee; Chairman and President
of the U.N. Association of Caroline Pearson*
America o Assistant Secretary
Kathryn L. Quirk* *Scudder Kemper Investments, Inc.
o Trustee, Vice President and
Assistant Secretary
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
31
<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 Health 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>
32
<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 IRA for Minors
Inherited 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.
33
<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.
34
<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
35
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
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.
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
