SCUDDER
INVESTMENTS(SM)
[LOGO]
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EQUITY/VALUE
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Scudder Large
Company Value Fund
Fund #049
Semiannual Report
January 31, 2000
A fund seeking maximum long-term capital
appreciation through a value-oriented
investment approach.
A no-load fund with no commissions to buy,
sell, or exchange shares.
2
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
15 Investment Portfolio
19 Financial Statements
22 Financial Highlights
23 Notes to Financial Statements
27 Officers and Trustees
28 Investment Products and Services
30 Scudder Solutions
<PAGE>
Scudder Large Company Value Fund
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ticker symbol SCDUX fund number 049
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Date of Inception: o Investors' preference for stocks with strong growth
11/21/66 characteristics over those with attractive valuations
has led to an extended period of sharp underperformance
for large company value stocks.
Total Net Assets as o Fund management has kept its fundamental investment
of 1/31/00: discipline intact, but it has enhanced its approach to
$2.2 billion better cope with the unfavorable market environment.
Specifically, management is holding on to its winners
longer and being more selective in purchasing stocks
that appear to be attractively valued.
3
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Letter from the Fund's President
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Dear Shareholders,
In the past year, we witnessed another period of strong performance for the
equity markets as large cap stocks, particularly those in the technology sector,
recorded impressive returns. Although it has been impossible to discern from the
powerful rally of the Nasdaq average, the majority of stocks in the broader
market have actually fallen over the past twelve months. Large company value
stocks, in particular, produced extremely poor performance in relation to the
indices. While ordinarily stocks with attractive valuation characteristics tend
to outperform, this trait has actually been a negative in recent months as
investors have poured money into the stocks with the most attractive growth
characteristics regardless of their valuations.
In this environment, the generous returns of growth stocks have the potential to
make other asset classes seem less important to an investor's overall portfolio.
Strong gains in certain sectors can also increase one's exposure to a particular
asset class or industry sector. Consequently, we encourage shareholders to
carefully review their holdings to ensure that their current allocations
continue to match their objectives and provide adequate exposure to several
asset classes. Even though value stocks have underperformed sharply in recent
months, we urge investors to maintain a position in this sector in preparation
for what we believe will be its inevitable turnaround. While the bounce in value
stocks may not happen right away, history has shown that
4
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the presence of both growth and value in your portfolio can augment your
risk-adjusted returns over time.
Thank you for your continued investment in Scudder Large Company Value Fund. 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, the most recent 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/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Large Company Value Fund
5
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Performance Update
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January 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:
Scudder Large Russell 1000
Company Value Fund Value Index*
'90 10000 10000
'91 10057 10243
'92 13290 12232
'93 14554 14302
'94 17016 17040
'95 15219 16585
'96 20982 22953
'97 25389 28390
'98 31662 36088
'99 35724 42670
'00 35583 43964
Yearly periods ended January 31
<TABLE>
<CAPTION>
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 1/31/2000 $10,000 Cumulative Annual
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Scudder Large Company Value Fund
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<S> <C> <C> <C>
1 year $ 9,960 -.40% -.40%
5 year $ 23,380 133.80% 18.51%
10 year $ 35,583 255.83% 13.53%
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Russell 1000 Value Index*
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1 year $ 10,303 3.03% 3.03%
5 year $ 26,508 165.08% 21.51%
10 year $ 43,964 339.64% 15.95%
</TABLE>
* The Russell 1000 Value Index is an unmanaged index that consists of those
stocks in the Russell 1000 Index with less than average growth orientation.
Index returns assume reinvestment of dividends and, unlike Fund returns, do
not reflect any fees or expenses.
6
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE SCUDDER LARGE COMPANY VALUE FUND TOTAL RETURN (%) AND
RUSSELL 1000 VALUE INDEX* TOTAL RETURN (%)
<TABLE>
<CAPTION>
Yearly periods ended January 31
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) .57 32.15 9.51 16.92 -10.56 37.87 21.00 24.71 12.83 -.40
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Index Total
Return (%) 2.43 19.42 16.92 19.14 -2.67 38.40 23.69 27.11 18.24 3.03
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Net Asset
Value ($) 16.03 19.87 20.37 21.18 18.22 21.40 23.17 26.79 27.93 26.02
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Income
Dividends
($) .37 .22 .10 -- -- .08 .16 .24 .18 .39
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Capital
Gains
Distributions
($) 1.35 .98 1.25 2.62 .73 3.50 2.48 1.86 2.10 1.45
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</TABLE>
* The Russell 1000 Value Index is an unmanaged index that consists of those
stocks in the Russell 1000 Index with less than average growth orientation.
Index returns assume reinvestment of dividends and, unlike Fund returns, do
not reflect any fees or expenses.
On February 1, 1997, the Fund adopted its current name. Prior to that date,
the Fund was known as the Scudder Capital Growth Fund. All performance is
historical, assumes reinvestment of all dividends and capital gains, and is
not indicative of future results. Investment return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased.
7
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Portfolio Summary
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January 31, 2000
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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.
Management seeks to
remain as close to fully
invested in equities as
Common Stocks 99% possible.
Cash Equivalents 1%
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100%
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Sectors
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(Excludes 1% Cash Equivalents)
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Performance was held
Financial 25% back by the poor
Energy 15% performance of
Communications 12% traditional value
Manufacturing 8% sectors such as energy
Durables 8% and financials.
Technology 6%
Consumer Discretionary 5%
Utilities 4%
Consumer Staples 3%
Other 14%
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100%
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8
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Ten Largest Equity Holdings
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(36% of Portfolio) Top holdings reflect
management's focus on
1. Exxon Mobil Corp. well-established
International oil company companies with
attractive valuations.
2. Citigroup, Inc.
Diversified financial services company
3. Chase Manhattan Corp.
Commercial bank
4. Dow Chemical Co.
Chemical producer
5. Bell Atlantic Corp.
Telecommunication services
6. AT&T Corp.
Telecommunication services
7. Motorola, Inc.
Manufacturer of telecommunication products and
semiconductors
8. Boeing Co.
Manufacturer of jet airplanes
9. Merrill Lynch & Co., Inc.
Investment, finance and insurance services
10. BellSouth Corp.
Telecommunication services
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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January 31, 2000
In the following interview, portfolio manager Lois Roman discusses Scudder Large
Company Value Fund's strategy and the market environment during the six-month
period ended January 31, 2000.
Q: The environment for value stocks has been extremely negative over the past
year. Please provide some background on the sector's underperformance.
A: The performance gap between growth stocks and value stocks has moved to
unprecedented levels during the last six months. During this time, the Russell
1000 Value Index returned just -5.21%, compared to 18.68% for the Russell 1000
Growth Index. By now, the story is well known: technology and communications
stocks have been driven ever higher by the stunning prospects for the long-term
growth of the Internet, and this dynamic has propelled the Nasdaq to incredible
gains. The S&P 500 Index has also been taken along for the ride, but the bulk of
its returns have been driven by the strong performance of a handful of its
largest stocks. At the same time, traditional value areas -- such as the
financials, energy, and manufacturing -- have languished, with some of the most
attractively valued stocks producing the most anemic returns. The resulting
underperformance of the value universe has created a very difficult environment
for value-oriented managers such as ourselves.
Q: How has this deteriorating environment impacted fund performance?
A: The fund returned -7.42% over the six-month period ended January 31, 2000,
which trailed the -5.21% return of the fund's unmanaged benchmark, the Russell
1000 Value Index. We attribute the fund's underperformance to our positions in
the consumer staples and defense sectors, which took a tumble late in 1999.
Q: Have you changed your investment process because of the market's current
volatility?
A: No -- our goals and process remain the same. The fund will continue to
provide exposure to large company value stocks, using a disciplined, three-step
investment
10
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Russell 1000 Growth versus Russell 1000 Value
1985-1999
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Russell 1000 Growth Russell 1000 Value
1985 2.87% 18.07%
1986 4.99% 13.58%
1987 41.27% 24.55%
1988 -0.26% -8.08%
1989 35.92% 25.19%
1990 11.27% 23.16%
1991 5.31% 0.50%
1992 15.36% 19.98%
1993 32.85% 31.52%
1994 -0.95% 10.10%
1995 15.98% 28.29%
1996 20.46% 20.04%
1997 -11.31% 1.26%
1998 39.57% 24.41%
1999 23.9% 20.55%
11
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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 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 control for
macroeconomic factors. Over the long-term, our investment model has added
significant value. Through the five years ended January 31, the fund's average
annual return was 18.51%.
On the margin, we have been putting a heavier emphasis on fundamental analysis
than on our quantitative screen. The recent divergence in the performance of
high-valuation growth stocks and cheap value stocks has caused extremely poor
results from our model, 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 on the stock has been violated or if we have a better idea, we
will exit the name.
Q: How is the fund positioned currently?
A: The portfolio is overweighted in energy, based on our belief that the current
valuations of the major oil companies do not reflect the high price of the
commodity. Since most earnings estimates for companies in this sector
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incorporate a lower oil price than has existed for the past several months, the
potential for upside earnings surprises is growing. In addition, the fund is
underweight in the rate-sensitive financials, and should remain so until we have
determined that the sector's fundamentals have bottomed. Lastly, we expect to
fund opportunities in the consumer staples and health care sectors as we move
through 2000. Many of the stocks in these groups have been falling rapidly
because their growth rates are much slower than those in the technology area.
Q: What are some positions that have performed well for the fund?
A: Motorola -- a manufacturer of components and cellular phones -- was one of
the largest holdings in the fund, and one of the largest contributors to
performance in the period. When we first took the position in the stock in 1998
in the mid-$40s, our thesis was that the company would benefit from the turn in
the semiconductor cycle, and that the cellular phone division would improve.
Fundamentals were at a trough, with current estimates at that time far below the
stock's normalized earnings. (Normalized earnings are the smoothed-out level of
earnings over an economic cycle, removing the peaks and troughs associated with
fluctuations in the economy.) To date, the position has appreciated three-fold
because the semiconductor cycle has turned, the cell phone business has
improved, and the company has been able to boost its margins and its
profitability. Even though it is no longer at a cheap valuation, we continue to
own the stock because fundamentals continue to improve, and the management team
is very strong. We will exit the position if the thesis is violated or if the
valuation becomes so extreme that all the good news is discounted in the stock
price.
Disney was also a top contributor in the period. The fund purchased Disney in
the summer of 1999 when it 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
13
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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.
Q: The fund holds a significant position in financials, a group that has been
under pressure for some time. What is your outlook for this group?
A: The financial sector -- which represents 30% of the fund's benchmark -- is
made up of a few large categories: insurance, money center banks, regional
banks, and "other" financials. Despite the significant weakness in this group,
we remain wary of its deteriorating fundamentals and are therefore underweighted
versus the benchmark. However, we continue to find opportunities in insurance
stocks, which are at all-time valuation troughs. We also hold significant
positions in large money center banks like Chase Manhattan and Citigroup, which
have offered relative safety within the group. The key question for value style
investors will be when to jump back into the financials. We are closely watching
some macroeconomic variables as well as some company-specific issues in order to
make this determination.
Q: What is your outlook for the value sector overall?
A: While we believe that the continued underperformance of value stocks has
opened up a wealth of investment opportunities in individual companies, it is
impossible to say when investors will recognize these values. However, we wish
to remind investors that over the long-term, growth and value have taken turns
leading the market. While the value discipline may not return to favor in 2000,
it is likely that our focus on stocks experiencing troughs in both their
fundamentals and their valuations will allow the fund to prosper when value
resumes a position of market leadership. Until that time, we urge shareholders
to remain focused on the importance of maintaining exposure to all sectors of
the stock market even when some are underperforming sharply, as value stocks
have been over the past year.
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Investment Portfolio as of January 31, 2000 (Unaudited)
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Principal
Amount ($) Value ($)
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Repurchase Agreements 1.1%
State Street Bank and Trust Company, 5.68%, to be
repurchased at $24,197,817 on 2/1/2000 -----------
(Cost $24,194,000) ** ........................ 24,194,000 24,194,000
-----------
Shares
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Common Stocks 98.9%
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Consumer Discretionary 5.1%
Department & Chain Stores
Federated Department Stores, Inc.* 1,087,500 45,267,188
May Department Stores ............ 685,300 21,329,963
Target Corp. ..................... 691,400 45,545,975
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112,143,126
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Consumer Staples 2.7%
Food & Beverage
PepsiCo, Inc. .................... 602,500 20,560,313
Unilever NV (New York Shares) .... 824,785 38,146,306
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58,706,619
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Health 3.4%
Pharmaceuticals
American Home Products Corp. ..... 1,037,900 48,846,169
Pharmacia & Upjohn, Inc. ......... 565,400 26,573,800
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75,419,969
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Communications 11.8%
Telephone/Communications
AT&T Corp. ....................... 1,470,150 77,550,412
Bell Atlantic Corp. .............. 1,278,200 79,168,513
BellSouth Corp. .................. 1,188,300 55,924,369
SBC Communications, Inc. ......... 1,078,100 46,493,063
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259,136,357
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Financial 25.0%
Banks 10.8%
Bank of America Corp. ............ 603,828 29,247,919
Chase Manhattan Corp. ............ 1,100,900 88,553,644
First Union Corp. ................ 718,100 24,101,231
FleetBoston Financial Corp. ...... 900,854 28,320,598
J.P. Morgan & Co., Inc. .......... 334,500 41,080,781
The accompanying notes are an integral part of the financial statements.
15
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Shares Value ($)
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PNC Bank Corp. ........................ 535,200 25,689,600
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236,993,773
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Insurance 7.1%
AFLAC, Inc. ........................... 591,300 25,684,593
Allstate Corp. ........................ 930,700 21,580,605
Cigna Corp. ........................... 702,100 50,375,674
Hartford Financial Services Group, Inc. 498,600 19,009,125
St. Paul Companies, Inc. .............. 1,259,800 38,030,213
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154,680,210
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Consumer Finance 5.5%
American Express Co. .................. 136,400 22,480,424
Citigroup, Inc. ....................... 1,711,148 98,284,063
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120,764,487
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Other Financial Companies 1.1%
Federal National Mortgage Association . 397,800 23,843,138
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Real Estate 0.5%
Post Properties Inc. (REIT) ........... 310,800 11,926,950
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Media 5.0%
Broadcasting & Entertainment 2.5%
Viacom, Inc. "B"* ..................... 353,900 19,597,213
Walt Disney Co. ....................... 972,100 35,299,381
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54,896,594
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Print Media 2.5%
Knight-Ridder, Inc. ................... 1,024,200 54,602,663
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Service Industries 2.6%
Investment
Merrill Lynch & Co., Inc. ............. 649,500 56,344,125
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Durables 7.5%
Aerospace 5.7%
Boeing Co. ............................ 1,341,670 59,452,752
Lockheed Martin Corp. ................. 1,170,100 21,939,375
United Technologies Corp. ............. 794,400 42,053,550
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123,445,677
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Automobiles 1.8%
Ford Motor Co. ........................ 803,600 39,979,100
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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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Manufacturing 7.8%
Chemicals 5.8%
Dow Chemical Co. .......................... 728,100 84,823,650
E.I. du Pont de Nemours & Co. ............. 466,700 27,535,300
Sigma-Aldrich Corp. ....................... 408,200 13,674,700
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126,033,650
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Diversified Manufacturing 1.0%
Textron, Inc. ............................. 381,200 22,752,875
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Specialty Chemicals 1.0%
Air Products & Chemicals, Inc. ............ 737,200 21,839,549
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Technology 5.5%
Diverse Electronic Products 3.5%
Motorola, Inc. ............................ 564,600 77,209,050
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Electronic Data Processing 2.0%
Hewlett-Packard Co. ....................... 212,400 22,992,300
International Business Machines Corp. ..... 192,600 21,607,313
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44,599,613
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Energy 14.6%
Oil & Gas Production 4.5%
Coastal Corp. ............................. 662,800 24,440,750
Conoco, Inc. "B" .......................... 885,800 20,871,663
Royal Dutch Petroleum Co. ................. 140,000 7,408,442
Royal Dutch Petroleum Co. (New York shares) 825,300 45,443,081
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98,163,936
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Oil Companies 8.9%
BP Amoco PLC .............................. 379,400 20,392,750
Chevron Corp. ............................. 297,200 24,834,775
Exxon Mobil Corp. ......................... 1,394,723 116,459,371
Texaco, Inc. .............................. 646,200 34,167,825
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195,854,721
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Oilfield Services/Equipment 1.2%
Schlumberger Ltd. ......................... 412,000 25,157,750
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Metals & Minerals 1.0%
Steel & Metals
Phelps Dodge Corp. ........................ 332,000 19,297,500
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The accompanying notes are an integral part of the financial statements.
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<TABLE>
<CAPTION>
Shares Value ($)
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<S> <C> <C>
Transportation 2.8%
Railroads
Burlington Northern Santa Fe Corp. .......................... 499,500 12,019,219
CSX Corp. ................................................... 562,700 16,458,974
Union Pacific Corp. ......................................... 827,800 33,112,000
------------
61,590,193
------------
Utilities 4.1%
Electric Utilities
Duke Energy Corp. ........................................... 492,000 28,413,000
FPL Group, Inc. ............................................. 474,800 20,030,625
Peco Energy Co. ............................................. 306,300 12,749,738
Unicom Corp. ................................................ 717,600 28,076,100
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89,269,463
------------
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Total Common Stocks (Cost $1,646,591,496) 2,164,651,088
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Total Investment Portfolio -- 100.0% (Cost $1,670,785,496) (a) 2,188,845,088
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</TABLE>
* Non-income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $1,672,161,381. At January
31, 2000, net unrealized appreciation for all securities based on tax
cost was $516,683,707. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $608,222,165 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value of $91,538,458.
The accompanying notes are an integral part of the financial statements.
18
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Financial Statements
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of January 31, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $1,670,785,496) ............... $2,188,845,088
Cash .................................................................... 1,056
Receivable for investments sold ......................................... 20,144,508
Dividends receivable .................................................... 2,448,879
Interest receivable ..................................................... 3,817
Receivable on Fund shares sold .......................................... 2,551,920
Other assets ............................................................ 6,146
---------------
Total assets ............................................................ 2,214,001,414
Liabilities
- ------------------------------------------------------------------------------------------
Payable for investments purchased ....................................... 3,509,248
Payable for Fund shares redeemed ........................................ 6,464,375
Accrued management fee .................................................. 771,020
Other accrued expenses and payables ..................................... 1,547,450
---------------
Total liabilities ....................................................... 12,292,093
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Net assets, at value $2,201,709,321
- ------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ..................................... 2,170,513
Net unrealized appreciation (depreciation) on investments ............... 518,059,592
Accumulated net realized gain (loss) .................................... 68,838,639
Paid-in capital ......................................................... 1,612,640,577
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Net assets, at value $2,201,709,321
- ------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($2,201,709,321 /
84,603,848 outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) ............................... $ 26.02
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Operations for the six months ended January 31, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------
<S> <C>
Dividends (net of foreign taxes withheld of $173,416) .......... $ 23,626,065
Interest ....................................................... 1,402,607
---------------
Total Income ................................................... 25,028,672
---------------
Expenses:
Management fee ................................................. 7,356,580
Services to shareholders ....................................... 2,974,091
Custodian and accounting fees .................................. 98,925
Trustees' fees and expenses .................................... 24,884
Reports to shareholders ........................................ 135,560
Auditing ....................................................... 28,659
Legal .......................................................... 18,836
Registration fees .............................................. 14,209
Other .......................................................... 62,780
---------------
Total expenses before expense reductions ....................... 10,714,524
Expense reductions ............................................. (36,348)
---------------
Total expenses after expense reductions ........................ 10,678,176
Net investment income (loss) 14,350,496
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 113,872,650
Foreign currency related transactions .......................... (2,208)
---------------
113,870,442
---------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (314,962,596)
Net gain (loss) on investment transactions (201,092,154)
Net increase (decrease) in net assets resulting from operations $(186,741,658)
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended January Ten Months Year Ended
31, 2000 Ended July 31, September 30,
Increase (Decrease) in Net Assets (Unaudited) 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) .... $ 14,350,496 $ 24,963,189 $ 28,421,758
Net realized gain (loss) from
investment transactions ...... 113,870,442 109,584,503 162,388,328
Net unrealized appreciation
(depreciation) on investment
transactions during the period (314,962,596) 401,441,655 (280,820,721)
---------------- --------------- ---------------
Net increase (decrease) in net
assets resulting from
operations ................... (186,741,658) 535,989,347 (90,010,635)
---------------- --------------- ---------------
Distributions to shareholders:
From net investment income ...... (31,941,232) (14,320,764) (18,248,388)
---------------- --------------- ---------------
From net realized gain .......... (118,822,149) (166,948,064) (141,425,011)
---------------- --------------- ---------------
Fund share transactions:
Proceeds from shares sold ....... 222,517,863 533,428,766 349,010,684
Reinvestment of distributions ... 141,138,828 172,807,082 152,377,751
Cost of shares redeemed ......... (379,604,699) (502,959,873) (467,271,665)
---------------- --------------- ---------------
Net increase (decrease) in net
assets from Fund share
transactions ................. (15,948,008) 203,275,975 34,116,770
---------------- --------------- ---------------
Increase (decrease) in net assets (353,453,047) 557,996,494 (215,567,264)
Net assets at beginning of period 2,555,162,368 1,997,165,874 2,212,733,138
Net assets at end of period
(including undistributed net
investment income of
$2,170,513, $19,761,249, and ---------------- --------------- ---------------
$23,122,144, respectively) ... $ 2,201,709,321 $ 2,555,162,368 $ 1,997,165,874
---------------- --------------- ---------------
Other Information
- -----------------------------------------------------------------------------------------
Shares outstanding at beginning
of period .................... 85,028,260 77,857,803 76,343,193
---------------- --------------- ---------------
Shares sold ..................... 7,922,724 18,349,312 12,220,382
Shares issued to shareholders in
reinvestment of distributions 5,303,974 6,234,024 5,700,627
Shares redeemed ................. (13,651,110) (17,412,879) (16,406,399)
---------------- --------------- ---------------
Net increase (decrease) in Fund
shares ....................... (424,412) 7,170,457 1,514,610
Shares outstanding at end of ---------------- --------------- ---------------
period ....................... 84,603,848 85,028,260 77,857,803
---------------- --------------- ---------------
</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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
2000(a)(b) 1999(a)(c) 1998(a)(d) 1997(a)(d) 1996(d) 1995(d) 1994(d)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $30.05 $25.65 $28.98 $22.64 $22.92 $19.54 $23.06
-------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------
Net investment
income (loss) .17 .30(e) .36 .38 .36 .13 (.02)
- -----------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on
investment
transactions (2.36) 6.38 (1.59) 8.60 2.94 3.98 (.88)
-------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Total from
investment
operations (2.19) 6.68 (1.23) 8.98 3.30 4.11 (.90)
- -----------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------
Net investment
income (.39) (.18) (.24) (.16) (.08) -- --
- -----------------------------------------------------------------------------------------
Net realized gains
on investment
transactions (1.45) (2.10) (1.86) (2.48) (3.50) (.73) (2.62)
-------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Total distributions (1.84) (2.28) (2.10) (2.64) (3.58) (.73) (2.62)
- -----------------------------------------------------------------------------------------
Net asset value, end
of period $26.02 $30.05 $25.65 $28.98 $22.64 $ 22.92 $19.54
-------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Total Return (%) (7.42)** 26.79** (4.54) 43.06 15.94 21.96 (4.72)
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -----------------------------------------------------------------------------------------
Net assets, end of
period ($ millions) 2,202 2,555 1,997 2,213 1,651 1,492 1,338
- -----------------------------------------------------------------------------------------
Ratio of expenses (%) .89* .87* .88 .93 .92 .98 .97
- -----------------------------------------------------------------------------------------
Ratio of net
investment income
(loss) (%) 1.20* 1.25* 1.25 1.51 1.62 .62 (.12)
- -----------------------------------------------------------------------------------------
Portfolio turnover
rate (%) 39* 35* 40 43 151 154 76
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended January 31, 2000 (Unaudited).
(c) For the ten months ended July 31, 1999. On July 7, 1999, the Trustees
of the Fund changed the fiscal year end from September 30 to July 31.
(d) For the year ended September 30.
(e) Net investment income per share includes non-recurring dividend income
amounting to $.05 per share.
* Annualized
** Not annualized
22
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder Large Company Value (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.
On July 7, 1999, the Trustees of the Fund changed the fiscal year end from
September 30 to July 31.
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 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/dealer-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.
23
<PAGE>
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.
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 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. Purchases and Sales of Securities
During the six months ended January 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $447,898,430 and
$598,528,152, respectively.
24
<PAGE>
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. (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 Fund has agreed to pay to the
Adviser a fee equal to an annual rate of 0.75% of the first $500,000,000 of
average daily net assets, 0.65% of the next $500,000,000 of such net assets,
0.60% of the next $500,000,000 of such net assets, 0.55% of the next
$500,000,000 of such net assets, and 0.50% of such net assets in excess of
$2,000,000,000 computed and accrued daily and payable monthly. For the six
months ended January 31, 2000, the fees pursuant to the Agreement amounted to
$7,356,580 which was equivalent to an annual effective rate of 0.61% of the
Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended January 31, 2000, the amount charged to the Fund by SSC
amounted to $1,316,618, of which $741,609 is unpaid at January 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 Fund. For the six months ended January
31, 2000, the amount charged to the Fund by STC amounted to $871,422, of which
$341,265 is unpaid at January 31, 2000.
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 January 31, 2000, the amount charged to the Fund by SFAC aggregated
$86,843, of which $14,036 is unpaid at January 31, 2000.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses
25
<PAGE>
that exceed the estimated savings to each respective Underlying Fund. These
estimated savings result from the elimination of separate shareholder accounts
which either currently are or have the potential to be invested in the
Underlying Funds. At January 31, 2000, the Special Servicing Agreement expense
charged to the Fund amounted to $135,164.
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 January 31, 2000, Trustees' fees and expenses aggregated
$24,884.
D. 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 January 31,
2000, the Fund's custodian and transfer agent fees were reduced by $42 and
$36,306 respectively, under these arrangements.
E. 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 pro rata 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.
26
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Lynn S. Birdsong* Ann M. McCreary*
o President and Trustee o Vice President
Sheryle J. Bolton Kathleen T. Millard*
o Trustee; Chief Executive Officer o Vice President
and Director, Scientific Learning
Corporation Lois Roman*
o Vice President
William T. Burgin
o Trustee; General Partner, Bessemer Robert D. Tymoczko*
Venture Partners o Vice President
Keith R. Fox John Millette*
o Trustee; Private Equity Investor, o Vice President and Secretary
Exeter Capital Management Corporation
John R. Hebble*
William H. Luers o Treasurer
o Trustee; Chairman and President,
U.N. Association of America Caroline Pearson*
o Assistant Secretary
Kathryn L. Quirk*
o Trustee, Vice President and *Scudder Kemper Investments, Inc.
Assistant Secretary
Joan E. Spero
o Trustee; President, The 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
27
<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>
28
<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.
29
<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.
30
<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
31
<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.
