SCUDDER
INVESTMENTS(SM)
[LOGO]
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EQUITY/DOMESTIC
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Scudder Tax Managed
Small Company Fund
Fund #307
Annual Report
October 31, 1999
The fund seeks long-term growth of capital on an after-tax basis.
A no-load fund with no commissions to buy, sell, or exchange shares.
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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
14 Glossary of Investment Terms
15 Investment Portfolio
24 Financial Statements
27 Financial Highlights
28 Notes to Financial Statements
32 Report of Independent Accountants
33 Tax Information
34 Trustees and Officers
35 Investment Products and Services
37 Scudder Solutions
2 SCUDDER TAX MANAGED SMALL COMPANY FUND
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Scudder Tax Managed Small Company Fund
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fund number 307
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Date of Inception:
9/18/98
o Reflecting the modest performance of small-cap
value stocks over the period, Scudder Tax Managed
Small Company Fund returned 1.69% for the 12-month
period ended October 31, 1999.
Total Net Assets as of 10/31/99:
$2.3 million
o Management continued to pursue the fund's goal of
long-term growth of capital on an after-tax basis
by following a disciplined approach to selecting
undervalued small-cap stocks.
o The fund's emphasis on value was not rewarded
during the period as investors focused on a small
group of high-priced growth stocks.
o At the end of the period, the portfolio was
broadly diversified among 207 securities with a
median price/earnings ratio of only 11x -- 43%
less than that of the Russell 2000 Index.
SCUDDER TAX MANAGED SMALL COMPANY FUND 3
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Letter from the Fund's President
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[PHOTO]
Lynn S. Birdsong
President,
Scudder Tax Managed
Small Company Fund
Dear Shareholders,
This fiscal period has tested one's commitment to an investment approach, as a
handful of large-cap and growth stocks continued to record impressive results.
Such short-term returns can be tempting, but we know that successful investing
is not premised solely on investing in last week's or last year's winners. It is
based on a thoughtful long-term approach that includes exposure to several asset
classes that offer the potential to earn a positive return when other
investments may not.
Over Scudder Tax Managed Small Company Fund's 12-month fiscal period, we
witnessed an unusually strong performance by a shrinking number of highly valued
large-cap growth and technology stocks. This narrow market leadership has
propelled the broader market averages higher while most stocks have provided
comparitively modest returns.
As we look ahead to areas of potential in 2000, I encourage you to seriously
review your portfolio's exposure to various asset classes. We believe that broad
diversification across multiple asset classes, especially given the four
consecutive years of 20%+ gains for the S&P 500 Index warrants a careful
examination of asset classes that are relatively undervalued (such as small-cap
stocks) or have a low correlation to sectors that have recently performed
especially well.
4 SCUDDER TAX MANAGED SMALL COMPANY FUND
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In the current environment, we believe that conditions are healthy for
investing. For investors that are seeking to invest in an area that has been
overlooked, we think that Scudder Tax Managed Small Company Fund continues to
offer attractive value and good potential given the relatively high valuations
assigned to many stocks.
In the following pages, portfolio managers James M. Eysenbach, Robert D.
Tymoczko, and Calvin S. Young describe how their investment process -- unlike
that used by other mutual funds -- is designed to maximize shareholders'
after-tax returns by systematically analyzing each stock's potential return on
an after-tax basis.
For current information on your fund and your account, visit our Internet Web
site at www.scudder.com. There you'll find a wealth of information, including
current fund performance, the latest news on Scudder products and services, and
the opportunity to perform account transactions. You can also call our
representatives at 1-800-SCUDDER (1-800-728-3337).
Thank you for your continued investment in Scudder Tax Managed Small Company
Fund.
Sincerely,
/s/ Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Tax Managed Small Company Fund
SCUDDER TAX MANAGED SMALL COMPANY FUND 5
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Performance Update
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October 31, 1999
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Growth of a $10,000 Investment
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THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE.
LINE CHART DATA:
Scudder
Tax Managed
Small Company Russell 2000
Fund Index*
9/98** 10000 10000
10/98 10350 10408
1/99 10917 11786
4/99 11059 11986
7/99 11670 12362
10/99 10524 11955
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 10/31/1999 $10,000 Cumulative Annual
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Scudder Tax Managed Small Company Fund
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1 year $ 10,169 1.69% 1.69%
Life of Fund** $ 10,524 5.24% 4.70%
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Russell 2000 Index*
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1 year $ 11,486 14.86% 14.86%
Life of Fund** $ 11,983 19.83% 17.59%
* The Russell 2000 Index is an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks. Index returns assume reinvested
dividends and, unlike Fund returns, do not reflect any fees or expenses.
Total return would have been lower had certain expenses not been reduced.
** The Fund commenced operations on September 18, 1998.
6 SCUDDER TAX MANAGED SMALL COMPANY FUND
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Returns and Per Share Information
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE, ILLUSTRATING
THE FUND TOTAL RETURN AND INDEX TOTAL RETURN* BELOW.
Yearly periods ended October 31
1998** 1999
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Fund Total 3.50 1.69
Return (%)
Index Total 4.08 14.86
Return (%)
Net Asset 12.42 12.58
Value ($)
Income -- .05
Dividends ($)
Capital Gains -- --
Distributions ($)
* The Russell 2000 Index is an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks. Index returns assume reinvested
dividends and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on September 18, 1998.
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total return for the 1-year and life
of Fund periods would have been lower.
SCUDDER TAX MANAGED SMALL COMPANY FUND 7
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Portfolio Summary
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October 31, 1999
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Asset Allocation
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The fund seeks to be fully invested in a broad selection of small-cap stocks
with attractive valuations.
[PIE CHART]
As a percentage of net assets
Common Stock 99%
Cash Equivalent, net 1%
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100%
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Sectors
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Holdings in the utilities and manufacturing sectors outperformed their
respective sectors, while an underweighting of financial stocks reduced the
fund's exposure to the negative effects of rising interest rates.
[PIE CHART]
(Excludes cash equivalents)
Consumer Discretionary 17%
Financial 14%
Manufacturing 12%
Construction 9%
Durables 8%
Technology 8%
Service Industries 7%
Energy 5%
Health 5%
Other 15%
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100%
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8 SCUDDER TAX MANAGED SMALL COMPANY FUND
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Ten Largest Equity Holdings
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(13% of Portfolio)
Management uses a proprietary, quantitative screening process to identify
attractively valued stocks with above-average capital appreciation potential.
The analysis is comprised of four factors: valuation, trends in sales and
earnings, price momentum, and risk.
1. CTS Corp.
Manufacturer of electronic and
electromechanical components
2. Optical Coating Laboratory, Inc.
Manufacturer of thin film coated components
3. Genesco Inc.
Retailer and wholesaler of branded footware
4. TNP Enterprises, Inc.
Electric utility in Texas and New Mexico
5. CTG Resources Inc.
Gas utility holding company
6. Garan, Inc.
Manufacturer and designer of clothing for
men, women, and children
7. Hilb, Rogal & Hamilton, Co.
Insurance agency
8. Energen Corp.
Natural gas distribution, oil and gas
exploration and production
9. JSB Financial, Inc.
Provider of banking and financial services
10. Monaco Coach Corp.
Manufacturer of recreational vehicles
For more complete details about the Fund's investment portfolio, see page 15. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
SCUDDER TAX MANAGED SMALL COMPANY FUND 9
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Portfolio Management Discussion
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October 31, 1999
In the following interview, portfolio managers James M. Eysenbach, Robert D.
Tymoczko, and Calvin S. Young discuss the market environment and their approach
to managing the fund.
Q: How would you describe the market environment over the 12-month period
that ended October 31, 1999?
A: This has been one of the most unusual periods concerning the
performance of large- and small-cap, and growth versus value stocks.
Large-caps outdistanced small-caps by a wide margin, returning 25.58%
versus 14.86%.(1) If it hadn't been for the outsized gains of large-cap
growth stocks, the 14.86% return for small-cap stocks would have seemed
generous. The divergence of performance was even greater between large-cap
growth stocks and small-cap value stocks, which returned 34.25% versus
0.72%.
The market's returns were driven primarily by a handful of high growth and
technology names, with many stocks actually declining over much of the
year. This preference for a shrinking number of highly priced, e.g., high
price/earnings (p/e), growth stocks had the greatest effect on stocks with
the smallest market capitalizations and value characteristics.
Q: How did the fund perform?
A: The fund trailed its benchmark for two related reasons: it had a
smaller market capitalization than its benchmark and a greater emphasis on
value. The market capitalization of stocks in the fund is typically
smaller than that of its benchmark ($240 million for the fund compared to
$414 million for the Russell 2000 Index). By purchasing stocks at the
smaller end of the size spectrum, we can hold positions longer before
these stocks graduate to large-cap status. This is one way we seek to
enhance tax efficiency. In addition to our focus on smaller size
companies, the fund has a stronger value orientation than its benchmark.
The portfolio's comparatively low median
(1) All indices are unmanaged. The Russell 1000 Index represents large-cap
stocks; the Russell 2000 Index represents small-cap stocks; the Russell
1000 Growth Index represents large-cap growth stocks; and the Russell 2000
Value Index represents small-cap value stocks.
10 SCUDDER TAX MANAGED SMALL COMPANY FUND
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p/e of 11.2x versus the Russell 2000 Index median p/e of 20.1x is one
indicator of the fund's emphasis on valuation. Though value stocks
recovered some ground during the second calendar quarter, this sector had
lower overall returns than growth stocks in this environment. Reflecting
the weak performance of small-cap value stocks, the Russell 2000 Value
Index returned a mere 0.72% over the 12-month period.
Q: Which sectors contributed to or subtracted from the fund's performance?
A: Despite solid gains for many of our holdings, the largest shortfall
came in the technology sector. Our technology holdings were up 36% -- a
terrific gain in a normal market, but the Russell 2000 technology sector
recorded an even more impressive 70% return for the 12-month period. Our
valuation discipline kept us from participating more fully in this sector
where, in our opinion, prices have significantly overshot fundamentals.
The fund's returns fell short of the index in the communications and media
sectors primarily for the same reason.
In other areas, our approach of focusing on stocks with attractive
valuations and favorable trends in sales and earnings was more successful.
In both the utilities and manufacturing sectors, for example, the fund's
holdings outpaced the index returns in those sectors. The fund also
benefited from a significant underweighting of the weak performing finance
sector as rising interest rates hampered the performance of finance
stocks.
Q: The fund's investment universe is comprised of 2,000 small U.S.
companies. How do you assess each stock's return potential?
A: We rely on a proprietary, quantitative screening process to identify
attractively valued stocks with above-average capital appreciation
potential. We consider four primary factors: valuations, trends in sales
and earnings, price momentum, and risk. Our valuation measures tell us how
inexpensive a security is relative to
SCUDDER TAX MANAGED SMALL COMPANY FUND 11
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our overall small-cap universe. Sales and earnings trends suggest whether
the company's fundamentals are stable, improving, or deteriorating. Price
momentum allows us to assess how the market is responding to these
fundamentals. Risk measures help us to understand the degree of financial
uncertainty for a given company. Each stock is then ranked based on its
relative attractiveness.
Q: How do you use these rankings to manage a tax-efficient portfolio?
A: First, we build a diversified portfolio of attractively rated
companies. To limit individual security risk and provide trading
flexibility, we typically hold more than 150 securities. On an ongoing
basis, we use a tax-aware portfolio optimization process to determine
which securities should be replaced due to diminishing return prospects,
while creating the lowest tax impact for shareholders. The process allows
us to keep the portfolio focused on attractively rated companies, while
managing overall portfolio risk and the tax consequences of portfolio
turnover.
Q: With small-cap stock valuations recently reaching a 20-year low
compared to large-cap stocks, what are you expecting from small-caps in
2000?
A: While it can be difficult to be invested in an asset class that is out
of favor, patience is often rewarded. Asset classes such as large- and
small-cap and growth versus value stocks have historically taken turns
leading market performance. Periods of outperformance are often followed
by stretches of underperformance. The most recent period of outperformance
by large-cap growth stocks is unprecedented. While no one can say with
certainty when small-cap stocks will return to favor, we think investors
need to ask themselves which asset classes have the greatest upside
potential going forward given current valuations. Can large-cap growth
stocks move up another 10%, 20%, or 30% from current valuation levels?
Will investors return to the lower valuations of small-cap stocks? In the
short run it's hard to say. However, over the
12 SCUDDER TAX MANAGED SMALL COMPANY FUND
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long term, we believe that the attractive valuations of small-cap stocks
overall are compelling and will eventually result in a rebound in this
sector. Given that such rebounds can be dramatic and can occur quickly, we
think investors should maintain a commitment to this segment of the market
as part of a well diversified portfolio.
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Scudder Tax Managed Small Company Fund:
A Team Approach to Investing
Scudder Tax Managed Small Company Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays an important
role in the fund's management process. Team members work together to develop
investment strategies and select securities for the fund's portfolio. They are
supported by the Adviser's large staff of economists, research analysts,
traders, and other investment specialists who work in our offices across the
United States and abroad. We believe our team approach benefits fund investors
by bringing together many disciplines and leveraging our extensive resources.
[PHOTO]
James M. Eysenbach
Lead portfolio manager James M. Eysenbach has responsibility for the fund's
day-to-day management and investment strategies. Mr. Eysenbach joined the
Adviser in 1991 as a senior quantitative analyst and has more than 10 years of
investment management experience, specializing in quantitative research.
[PHOTO]
Calvin S. Young
Portfolio manager Calvin S. Young joined the Adviser in 1990 as a quantitative
analyst. Mr. Young has eleven years of investment industry experience with a
special focus on small companies.
[PHOTO]
Robert D. Tymoczko
Portfolio manager Robert D. Tymoczko joined the Adviser in 1997 as a
quantitative analyst. Mr. Tymoczko has five years of experience in quantitative
research and econometric modeling.
SCUDDER TAX MANAGED SMALL COMPANY FUND 13
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Glossary of Investment Terms
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Market Capitalization
The value of a company's outstanding shares of common stock, determined by
multiplying the number of shares outstanding by the share price (shares x price
= market capitalization). The universe of publicly traded companies is
frequently divided into large-, mid-, and small-capitalizations.
Over/Under Weighting
Refers to the allocation of assets -- usually by sector, industry, or country --
within a portfolio relative to a benchmark index, (e.g., the Russell 2000 Index)
or an investment universe.
Price/Earnings Ratio (P/E) (also "earnings multiple")
A widely used gauge of a stock's valuation that indicates what investors are
paying for a company's earnings on a per share basis. A higher "earnings
multiple" indicates a higher expected growth rate and the potential for greater
price fluctuations.
Quantitative Model
A systematic approach to evaluating a security based on its financial
characteristics.
Standard Deviation
A statistical measure of the degree to which an investment's return tends to
vary from the mean return. Frequently used in portfolio management to measure
the variability of past returns and to gauge the likely range of possible future
returns.
Tax Basis
The price paid by an investor for a stock or bond plus any out-of-pocket
expenses such as brokerage commissions. A security's basis is used to determine
capital gains or losses for tax purposes when the stock is sold.
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 than growth stocks.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
Additional glossary terms are available at our Internet Web site --
www.scudder.com.
14 SCUDDER TAX MANAGED SMALL COMPANY FUND
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Investment Portfolio as of October 31, 1999
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Principal Market
Amount ($) Value ($)
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Short Term Notes 6.7%
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Federal Home Loan Mortgage Corp., 5.234%**, 11/1/1999 ---------
(Cost $163,000) ..................................... 163,000 163,000
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Shares
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Common Stocks 93.3%
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Consumer Discretionary 16.1%
Apparel & Shoes 4.2%
Deb Shops, Inc. ....................................... 200 4,200
Garan, Inc. ........................................... 800 25,500
Genesco, Inc.* ........................................ 2,200 29,150
Guess ?, Inc.* ........................................ 1,400 18,200
Hartmarx Corp.* ....................................... 2,700 11,812
J. Jill Group, Inc.* .................................. 500 2,062
K-Swiss Inc. "A" ...................................... 200 2,575
Steven Madden, Ltd.* .................................. 200 2,450
Wolverine World Wide, Inc. ............................ 500 5,125
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101,074
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Department & Chain Stores 2.4%
Ames Department Stores, Inc.* ......................... 600 19,012
Dress Barn, Inc.* ..................................... 600 10,669
Fred's, Inc. "A" ...................................... 700 8,400
Goody's Family Clothing, Inc.* ........................ 800 8,100
Jo-Ann Stores, Inc. "A"* .............................. 800 11,150
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57,331
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Home Furnishings 1.3%
Chromcraft Revington, Inc.* ........................... 1,400 15,313
Oneida Ltd. ........................................... 700 16,581
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31,894
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Hotels & Casinos 0.1%
Hollywood Park, Inc.* ................................. 200 3,463
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Recreational Products 1.8%
Arctic Cat, Inc. ...................................... 1,200 11,400
Coachmen Industries, Inc. ............................. 500 7,344
National R.V. Holdings, Inc.* ......................... 500 10,219
The accompanying notes are an integral part of the financial statements.
SCUDDER TAX MANAGED SMALL COMPANY FUND 15
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Market
Shares Value ($)
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THQ, Inc.* ............................................ 300 12,338
The First Years, Inc. ................................. 200 1,687
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42,988
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Restaurants 3.1%
Avado Brands, Inc. .................................... 1,200 6,750
CEC Entertainment, Inc.* .............................. 600 19,237
Rainforest Cafe, Inc.* ................................ 2,100 9,450
Ruby Tuesday, Inc. .................................... 400 7,625
Ryan's Family Steak Houses, Inc.* ..................... 1,300 13,609
VICORP Restaurants, Inc.* ............................. 1,100 18,563
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75,234
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Specialty Retail 3.2%
Coldwater Creek, Inc.* ................................ 400 9,650
Discount Auto Parts, Inc.* ............................ 600 8,550
Finlay Enterprises, Inc.* ............................. 600 7,200
Petco Animal Supplies, Inc.* .......................... 400 4,625
Piercing Pagoda, Inc.* ................................ 600 4,950
SCP Pool Corp.* ....................................... 100 2,269
The Finish Line, Inc. "A"* ............................ 800 5,525
Tractor Supply Co.* ................................... 600 12,000
United Auto Group, Inc.* .............................. 600 7,013
United Retail Group, Inc.* ............................ 400 4,000
West Marine, Inc.* .................................... 800 7,200
Wet Seal, Inc. "A"* ................................... 400 5,600
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78,582
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Consumer Staples 4.2%
Alcohol & Tobacco 0.3%
Schweitzer-Mauduit International, Inc. ................ 600 7,163
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Consumer Electronic & Photographic 0.1%
Salton, Inc.* ......................................... 100 2,850
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Consumer Specialties 1.2%
Jan Bell Marketing, Inc.* ............................. 2,000 5,500
Russ Berrie & Co., Inc. ............................... 600 11,550
Sola International, Inc.* ............................. 900 12,600
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29,650
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Food & Beverage 2.3%
Imperial Sugar Co. .................................... 2,600 13,812
M&F Worldwide Corp.* .................................. 1,800 12,937
The accompanying notes are an integral part of the financial statements.
16 SCUDDER TAX MANAGED SMALL COMPANY FUND
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Market
Shares Value ($)
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National Beverage Corp.* .............................. 2,100 17,063
Ralcorp Holdings, Inc.* ............................... 600 11,700
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55,512
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Package Goods/Cosmetics 0.3%
Chattem, Inc.* ........................................ 350 6,169
---------
Health 4.7%
Biotechnology 0.6%
Bio-Rad Laboratories, Inc. "A"* ....................... 600 14,400
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Health Industry Services 2.2%
Hanger Orthopedic Group, Inc.* ........................ 800 9,850
Magellan Health Services, Inc.* ....................... 1,100 6,669
PAREXEL International Corporation* .................... 200 1,912
Prime Medical Services, Inc.* ......................... 2,000 19,750
Syncor International Corp.* ........................... 450 16,481
---------
54,662
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Hospital Management 0.2%
Coventry Health Care, Inc.* ........................... 900 5,175
---------
Medical Supply & Specialty 1.1%
Cooper Cos., Inc. ..................................... 100 2,500
NBTY, Inc.* ........................................... 1,400 11,287
Vital Signs, Inc. ..................................... 600 12,975
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26,762
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Pharmaceuticals 0.6%
K-V Pharmaceutical Co.* ............................... 200 3,475
Medco Research, Inc.* ................................. 500 12,063
---------
15,538
---------
Communications 0.1%
Telephone/Communications 0.1%
Conestoga Enterprises, Inc. ........................... 150 2,850
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Financial 13.5%
Banks 7.9%
BSB Bancorp, Inc. ..................................... 700 15,444
Columbia Banking System, Inc. ......................... 420 5,513
Dime Community Bancshares ............................. 300 6,056
First Federal Financial Corp.* ........................ 900 14,400
First Financial Bankshares, Inc. ...................... 500 17,000
First Republic Bank* .................................. 600 15,000
The accompanying notes are an integral part of the financial statements.
SCUDDER TAX MANAGED SMALL COMPANY FUND 17
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Market
Shares Value ($)
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Haven Bancorp, Inc. ................................... 700 11,200
JSB Financial, Inc. ................................... 400 24,050
Medford Bancorp, Inc. ................................. 1,000 17,750
PFF Bancorp, Inc. ..................................... 900 18,337
Parkvale Financial Corp. .............................. 775 14,725
Republic Bancorp, Inc. ................................ 910 11,944
The Trust Company of N.J. ............................. 900 20,813
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192,232
---------
Insurance 4.0%
Baldwin & Lyons, Inc. "B" ............................. 800 16,500
Guarantee Life Companies, Inc. ........................ 700 21,744
Hilb, Rogal & Hamilton Co. ............................ 1,000 25,063
LandAmerica Financial Group, Inc. ..................... 300 5,569
National Western Life Insurance Co.* .................. 100 8,544
RLI Corp. ............................................. 400 13,325
Triad Guaranty Inc.* .................................. 300 6,169
---------
96,914
---------
Consumer Finance 0.1%
New Century Financial Corp.* .......................... 200 2,738
---------
Other Financial Companies 0.6%
ITLA Capital Corp.* ................................... 700 10,587
Resource Bancshares Mortgage Group, Inc. .............. 800 4,500
---------
15,087
---------
Real Estate 0.9%
CB Richard Ellis Services, Inc.* ...................... 600 7,387
Grubb & Ellis Co.* .................................... 1,500 8,156
Trammell Crow Co.* .................................... 300 4,350
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19,893
---------
Service Industries 6.5%
EDP Services 0.3%
Pomeroy Computer Resources, Inc.* ..................... 600 6,225
---------
Environmental Services 0.4%
URS Corp.* ............................................ 600 10,800
---------
Investment 1.3%
Advest Group, Inc. .................................... 700 13,519
Southwest Securities Group, Inc. ...................... 770 18,336
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31,855
---------
The accompanying notes are an integral part of the financial statements.
18 SCUDDER TAX MANAGED SMALL COMPANY FUND
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Market
Shares Value ($)
- --------------------------------------------------------------------------------
Miscellaneous Commercial Services 3.1%
CORT Business Services Corp.* ......................... 700 14,219
IT Group, Inc.* ....................................... 500 4,937
Morrison Knudsen Corp.* ............................... 700 6,387
NFO Worldwide, Inc.* .................................. 400 4,450
Personnel Group of America, Inc.* ..................... 1,800 12,037
RCM Technologies, Inc.* ............................... 600 6,937
RemedyTemp, Inc., "A"* ................................ 500 5,375
SOS Staffing Services, Inc.* .......................... 600 3,037
Staff Leasing, Inc.* .................................. 600 5,213
Volt Information Sciences, Inc.* ...................... 500 9,875
Workflow Management, Inc.* ............................ 200 2,538
---------
75,005
---------
Miscellaneous Consumer Services 0.4%
Miller Industries, Inc.* .............................. 500 1,219
Service Experts, Inc.* ................................ 400 2,400
Westaff Inc.* ......................................... 800 6,800
---------
10,419
---------
Printing/Publishing 0.7%
Merrill Corp. ......................................... 800 16,500
---------
Miscellaneous 0.3%
New Horizons Worldwide, Inc.* ......................... 300 4,462
REX Stores Corporation* ............................... 100 2,787
---------
7,249
---------
Durables 7.3%
Aerospace 2.6%
Aviall, Inc.* ......................................... 1,200 10,725
Ducommun, Inc.* ....................................... 1,300 13,650
Fairchild Corp. "A"* .................................. 788 6,402
Kaman Corp. "A" ....................................... 1,300 14,300
Primex Technologies, Inc. ............................. 800 18,400
---------
63,477
---------
Automobiles 2.8%
Aftermarket Technology Corp.* ......................... 600 5,662
Borg-Warner Automotive, Inc. .......................... 256 10,112
Dura Automotive Systems, Inc.* ........................ 400 7,500
Monaco Coach Corp.* ................................... 975 22,912
Oshkosh Truck Corp. "B" ............................... 750 22,547
---------
68,733
---------
The accompanying notes are an integral part of the financial statements.
SCUDDER TAX MANAGED SMALL COMPANY FUND 19
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Market
Shares Value ($)
- --------------------------------------------------------------------------------
Construction/Agricultural Equipment 0.4%
Cascade Corp. ......................................... 1,100 10,037
---------
Leasing Companies 1.5%
AMERCO* ............................................... 500 14,719
Electro Rent Corp.* ................................... 900 10,800
Neff Corp.* ........................................... 300 3,319
Rent-Way, Inc.* ....................................... 500 8,312
---------
37,150
---------
Manufacturing 11.0%
Chemicals 1.0%
Chemfab Corp.* ........................................ 800 12,600
Quaker Chemical Corp. ................................. 700 11,287
---------
23,887
---------
Containers & Paper 0.6%
Alltrista Corp.* ...................................... 600 13,762
---------
Diversified Manufacturing 1.6%
Justin Industries ..................................... 1,400 19,600
Myers Industries, Inc. ................................ 770 10,828
Park-Ohio Holdings Corp.* ............................. 900 9,225
---------
39,653
---------
Electrical Products 1.3%
AFC Cable Systems, Inc.* .............................. 300 11,287
C&D Technologies, Inc. ................................ 100 3,213
Katy Industries, Inc. ................................. 800 8,400
SLI, Inc.* ............................................ 400 4,300
Windmere-Durable Holdings, Inc.* ...................... 400 5,200
---------
32,400
---------
Industrial Specialty 3.9%
Gardner Denver, Inc.* ................................. 1,000 12,062
Hexcel Corp.* ......................................... 700 3,763
Optical Coating Laboratory, Inc. ...................... 500 53,438
RTI International Metals, Inc.* ....................... 1,000 7,250
Regal-Beloit Corp. .................................... 500 10,875
Vallen Corp.* ......................................... 600 8,175
---------
95,563
---------
Machinery/Components/Controls 1.8%
Amcast Industrial Corp. ............................... 700 9,494
Astec Industries, Inc.* ............................... 100 2,344
Columbus McKinnon Corp. ............................... 700 8,444
The accompanying notes are an integral part of the financial statements.
20 SCUDDER TAX MANAGED SMALL COMPANY FUND
<PAGE>
- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Intermet Corp. ........................................ 1,000 10,125
Woodward Governor Co. ................................. 500 13,250
---------
43,657
---------
Office Equipment/Supplies 0.2%
Interface, Inc. ....................................... 900 3,656
---------
Wholesale Distributors 0.6%
Barnett, Inc.* ........................................ 800 6,900
Watsco, Inc. .......................................... 800 8,100
---------
15,000
---------
Technology 6.9%
Computer Software 1.0%
Activision, Inc.* ..................................... 600 8,475
Caere Corp.* .......................................... 600 3,225
Indus International, Inc.* ............................ 1,500 9,281
MAPICS, Inc.* ......................................... 500 4,250
---------
25,231
---------
Diverse Electronic Products 0.9%
Cable Design Technologies Corp.* ...................... 600 11,625
SBS Technologies, Inc.* ............................... 400 11,200
---------
22,825
---------
Electronic Components/Distributors 3.4%
CTS Corp. ............................................. 1,000 56,562
Harmon Industries, Inc. ............................... 600 7,950
Technitrol, Inc. ...................................... 500 18,188
---------
82,700
---------
Electronic Data Processing 0.3%
Information Resources, Inc.* .......................... 600 6,375
---------
Military Electronics 0.5%
ESCO Electronics Corp.* ............................... 1,000 11,687
---------
Office/Plant Automation 0.8%
Kronos, Inc.* ......................................... 450 20,194
---------
Energy 4.6%
Oil & Gas Production 0.9%
UTI Energy Corp.* ..................................... 1,100 21,106
---------
The accompanying notes are an integral part of the financial statements.
SCUDDER TAX MANAGED SMALL COMPANY FUND 21
<PAGE>
- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Oil/Gas Transmission 0.5%
Kaneb Services, Inc.* ................................. 2,500 11,250
---------
Oilfield Services/Equipment 3.2%
Pool Energy Services Co.* ............................. 1,000 21,813
Seacor Smit Inc.* ..................................... 200 9,150
Tuboscope, Inc.* ...................................... 1,900 21,138
Varco International, Inc.* ............................ 1,400 14,788
Veritas DGC Inc.* ..................................... 750 10,547
---------
77,436
---------
Metals & Minerals 2.6%
Steel & Metals 2.6%
AK Steel Holding Corp. ................................ 1,148 19,875
Commercial Metals Co. ................................. 700 22,838
Commonwealth Industries, Inc. ......................... 200 2,000
Gibraltar Steel Corporation ........................... 600 14,662
Titanium Metals Corp. ................................. 700 4,200
---------
63,575
---------
Construction 8.8%
Building Materials 2.5%
Ameron International Corp. ............................ 400 17,050
Building Materials Holding Corporation* ............... 1,500 16,594
Elcor Corp. ........................................... 450 11,081
Florida Rock Industries, Inc. ......................... 500 16,875
---------
61,600
---------
Building Products 3.4%
Genlyte Group, Inc.* .................................. 700 15,619
International Aluminum Co. ............................ 800 20,950
Mestek, Inc.* ......................................... 900 17,606
Modtech Holdings, Inc.* ............................... 510 2,709
NCI Building Systems, Inc.* ........................... 600 9,487
Pitt-Des Moines, Inc. ................................. 200 4,525
Robertson-Ceco Corp.* ................................. 1,500 10,875
---------
81,771
---------
Homebuilding 2.9%
American Homestar Corp.* .............................. 200 794
Cavalier Homes, Inc. .................................. 1,200 5,700
Crossmann Communities, Inc.* .......................... 500 8,375
Engle Homes, Inc. ..................................... 1,100 11,138
Hovnanian Enterprises, Inc. "A"* ...................... 1,400 8,925
MDC Holdings, Inc. .................................... 700 10,938
The accompanying notes are an integral part of the financial statements.
22 SCUDDER TAX MANAGED SMALL COMPANY FUND
<PAGE>
- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Schuler Homes, Inc.* .................................. 2,200 14,025
Standard Pacific Corp. ................................ 900 9,675
---------
69,570
---------
Transportation 3.3%
Air Freight 0.4%
Kitty Hawk, Inc.* ..................................... 1,300 10,319
---------
Airlines 1.1%
Amtram, Inc.* ......................................... 400 8,150
Atlantic Coast Airlines Holdings* ..................... 400 9,300
Frontier Airlines, Inc.* .............................. 400 3,975
Mesaba Holdings, Inc.* ................................ 500 5,750
---------
27,175
---------
Trucking 1.7%
Covenant Transport, Inc. "A"* ......................... 950 14,606
Hub Group, Inc., "A"* ................................. 200 3,800
M.S. Carriers, Inc.* .................................. 500 14,125
U.S. Xpress Enterprises, Inc."A"* ..................... 900 7,650
---------
40,181
---------
Miscellaneous 0.1%
Travel Services International Inc.* ................... 400 3,500
---------
Utilities 3.7%
Electric Utilities 1.6%
TNP Enterprises, Inc. ................................. 700 27,913
UniSource Energy Corp.* ............................... 900 10,350
---------
38,263
---------
Natural Gas Distribution 2.1%
CTG Resources, Inc. ................................... 700 25,987
Energen Corp. ......................................... 1,300 24,050
---------
50,037
---------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $2,128,294) 2,267,984
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $2,291,294) (a) 2,430,984
- --------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase, not a coupon rate.
(a) The cost for federal income tax purposes was $2,291,294. At October 31,
1999, net unrealized appreciation for all securities based on tax cost was
$139,690. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $400,624 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $260,934.
The accompanying notes are an integral part of the financial statements.
SCUDDER TAX MANAGED SMALL COMPANY FUND 23
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of October 31, 1999
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Investments, at market (identified cost $2,291,294) ........... $ 2,430,984
Cash .......................................................... 754
Receivable for investments sold ............................... 16,762
Dividends receivable .......................................... 523
Receivable for Fund shares sold ............................... 500
Reimbursement from Adviser .................................... 36,211
Other assets .................................................. 141
--------------
Total assets .................................................. 2,485,875
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased ............................. 112,336
Other accrued expenses ........................................ 81,093
--------------
Total liabilities ............................................. 193,429
- --------------------------------------------------------------------------------
Net assets, at market value $ 2,292,446
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ........................... 9,064
Net unrealized appreciation (depreciation)
on investments ................................................ 139,690
Accumulated net realized gain (loss) .......................... (33,547)
Paid-in capital ............................................... 2,177,239
- --------------------------------------------------------------------------------
Net assets, at market value $ 2,292,446
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per
share ($2,292,446 / 182,216 outstanding shares
of beneficial interest, $.01 par value, unlimited --------------
number of shares authorized) ................................ $ 12.58
--------------
The accompanying notes are an integral part of the financial statements.
24 SCUDDER TAX MANAGED SMALL COMPANY FUND
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Operations for the year ended October 31, 1999
- --------------------------------------------------------------------------------
Investment Income (Loss)
- --------------------------------------------------------------------------------
Income:
Dividends .................................................... $ 19,336
Interest ..................................................... 1,459
--------------
20,795
--------------
Expenses:
Management fee ............................................... 19,641
Services to shareholders ..................................... 5,123
Custodian and accounting fees ................................ 48,493
Trustees' fees and expenses .................................. 28,913
Reports to shareholders ...................................... 8,674
Auditing ..................................................... 19,700
Legal ........................................................ 8,319
Registration fees ............................................ 26,545
Other ........................................................ 6,268
--------------
Total expenses before reductions ............................. 171,676
Expense reductions ........................................... (138,957)
--------------
Expenses, net ................................................ 32,719
- --------------------------------------------------------------------------------
Net investment income (loss) (11,924)
- --------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from investments .................... (33,547)
Net unrealized appreciation (depreciation) during the
period on investments ..................................... 42,325
- --------------------------------------------------------------------------------
Net gain (loss) on investment transactions 8,778
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (3,146)
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
SCUDDER TAX MANAGED SMALL COMPANY FUND 25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
September 18,
1998
Year Ended (commencement of
October 31, operations) to
Increase (Decrease) in Net Assets 1999 October 31, 1998
- ---------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ........................ $ (11,924) $ (177)
Net realized gain (loss) ............................ (33,547) --
Net unrealized appreciation (depreciation) on
investment transactions during the period ........ 42,325 97,365
-------------- -------------
Net increase (decrease) in net assets resulting
from operations .................................. (3,146) 97,188
-------------- -------------
Distributions to shareholders from net investment
income ........................................... (7,682) --
-------------- -------------
Fund share transactions:
Proceeds from shares sold ........................... 1,070,856 1,477,911
Net asset value of shares issued to shareholders
in reinvestment of distributions ................. 6,923 --
Cost of shares redeemed ............................. (356,557) (82)
Redemption fees ..................................... 5,835 --
-------------- -------------
Net increase (decrease) in net assets from Fund
share transactions ............................... 727,057 1,477,829
-------------- -------------
Increase (decrease) in net assets ................... 716,229 1,575,017
Net assets at beginning of period ................... 1,576,217 1,200
Net assets at end of period (including undistributed
net investment income of $9,064 and $3,301, -------------- -------------
respectively) .................................... $ 2,292,446 $ 1,576,217
-------------- -------------
Other Information
- ---------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ........... 126,926 100
-------------- -------------
Shares sold ......................................... 83,695 126,833
Shares issued to shareholders in reinvestment of
distributions .................................... 543 --
Shares redeemed ..................................... (28,948) (7)
-------------- -------------
Net increase (decrease) in Fund shares .............. 55,290 126,826
-------------- -------------
Shares outstanding at end of period ................. 182,216 126,926
-------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26 SCUDDER TAX MANAGED SMALL COMPANY FUND
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $12.42 $12.00
---------------------
Income from investment operations:
Net investment (loss) (.07) --
Net realized and unrealized gain on investments .24 .42
---------------------
Total from investment operations .17 .42
Less distributions from net investment income (.05) --
Redemption fees .04 --
Net asset value, end of period $12.58 $12.42
=====================
Total Return (%) (c) 1.69(d) 3.50(d)**
Ratios and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) 2 2
Ratio of operating expenses, net to average daily
net assets (%) 1.50 1.50*
Ratio of operating expenses, before expense reductions,
to average daily net assets (%) 7.87 38.75*
Ratio of net investment (loss) to average
daily net assets (%) (.55) (0.13)*
Portfolio turnover rate (%) 21.4 --
(a) Based on monthly average shares outstanding during the period.
(b) For the period September 18, 1998 (commencement of operations) to October
31, 1998.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Shareholders redeeming shares held less than one year will have a lower
total return due to the effect of the 2% redemption fee.
* Annualized
** Not annualized
SCUDDER TAX MANAGED SMALL COMPANY FUND 27
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder Tax Managed Small Company Fund (the "Fund") is a diversified series of
Investment 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'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.
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 Directors.
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.
28 SCUDDER TAX MANAGED SMALL COMPANY FUND
<PAGE>
- --------------------------------------------------------------------------------
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.
At October 31, 1999 the Fund had a net tax basis capital loss carryforward of
approximately $34,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October 31,
2007, the expiration date, whichever occurs first.
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.
Redemption Fees. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 2% of the current net asset value of the shares
will be assessed and retained by the Fund for the benefit of the remaining
shareholders. The redemption fee is accounted for as an addition to paid-in
capital.
SCUDDER TAX MANAGED SMALL COMPANY FUND 29
<PAGE>
- --------------------------------------------------------------------------------
B. Purchases and Sales of Securities
During the year ended October 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $1,171,637 and
$457,322, respectively.
C. Related Parties
Under the Fund's Investment Management Agreement (the "Management 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 Management Agreement. The
management fee payable under the Management Agreement is equal to an annual rate
of 0.90% of the Fund's average daily net assets, computed and accrued daily and
payable monthly. In addition, the Adviser has agreed not to impose all or a
portion of its management fee until February 29, 2000 in order to maintain the
annualized expenses of the Fund at not more than 1.50% of average daily net
assets. Accordingly, for the year ended October 31, 1999, the Adviser did not
impose any of its fee amounting to $19,641. Further, due to the limitations of
such Agreement, the Adviser's reimbursement payable to the Fund for the year
ended October 31, 1999 amounted to $36,211.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended October 31, 1999, SSC did not impose any of its fee, which amounted
to $4,029.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1999, SFAC did not impose any of its fee, which amounted to $37,500.
The Trust pays each Trustee not affiliated with the Adviser an annual retainer,
plus specified amounts for attended board and committee meetings. For the year
ended October 31, 1999, Trustees' fees and expenses aggregated $28,913, of which
$13,950 was not imposed.
30 SCUDDER TAX MANAGED SMALL COMPANY FUND
<PAGE>
- --------------------------------------------------------------------------------
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 period, the Fund's custodian
and transfer agent fees were reduced by $1,347 and $45, respectively, under
these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $850 million
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.
SCUDDER TAX MANAGED SMALL COMPANY FUND 31
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of Investment Trust and the Shareholders of Scudder Tax
Managed Small Company Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Scudder Tax Managed Small Company Fund (the "Fund") at October 31, 1999,
the results of its operations, the changes in its net assets, and the
financial highlights for the periods indicated therein, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at October 31, 1999
by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 16, 1999
32 SCUDDER TAX MANAGED SMALL COMPANY FUND
<PAGE>
Tax Information
- --------------------------------------------------------------------------------
October 31, 1999
For corporate shareholders, 100% of the income dividends paid during the
Fund's fiscal year ended October 31, 1999 qualified for the dividends
received deduction.
Please consult a tax adviser if you have questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have
specific questions about your account, please call 1-800-SCUDDER.
SCUDDER TAX MANAGED SMALL COMPANY FUND 33
<PAGE>
Trustees and Officers
- --------------------------------------------------------------------------------
Lynn S. Birdsong*
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
o Trustee; Executive Fellow, Center
for Business Ethics, Bentley
College; President, Driscoll
Associates
Peter B. Freeman
o Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
o Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
o Trustee; Professor of Business
Administration, Northeastern
University
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
o Trustee; Venture Partner,
Internet Capital Group
Bruce F. Beaty*
o Vice President
Jennifer P. Carter*
o Vice President
Philip S. Fortuna*
o Vice President
William F. Gadsden*
o Vice President
Valerie F. Malter*
o Vice President
Ann M. McCreary*
o Vice President
John Millette*
o Vice President and Secretary
John R. Hebble*
o Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
34 SCUDDER TAX MANAGED SMALL COMPANY FUND
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
The Scudder Family of Funds[
- --------------------------------------------------------------------------------
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market
Series -- Managed Shares*
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market
Series -- Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term
Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
U.S. Income
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and
Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
Choice Series
Scudder Financial Services Fund
Scudder Heath Care Fund
Scudder Technology Fund
Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
SCUDDER TAX MANAGED SMALL COMPANY FUND 35
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**[[
Scudder Horizon Advantage**[[[
Education Accounts
Education IRA
UGMA/UTMA
- --------------------------------------------------------------------------------
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
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.
36 SCUDDER TAX MANAGED SMALL COMPANY FUND
<PAGE>
Scudder Solutions
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1-800-SCUDDER www.scudder.com
Convenient ways to invest, quickly and reliably
Automatic Investment Plan
A convenient investment program in which money is 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-clock electronic account service and information, including some
transactions
Scudder Automated Information Line: SAIL(TM) -- 1-800-343-2890
Personalized account information, the ability to exchange or redeem
shares, and information on other Scudder funds and services via touchtone
telephone.
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.
SCUDDER TAX MANAGED SMALL COMPANY FUND 37
<PAGE>
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1-800-SCUDDER www.scudder.com
Retirees and those who depend on investment proceeds for living expenses can
enjoy these convenient, timely, and reliable automated withdrawal programs
Automatic Withdrawal Plan
You designate the bank account, determine the schedule (as frequently as
once a month) and amount of the redemptions, and Scudder does the rest.
Distributions Direct
Automatically deposits your fund distributions into the bank account you
designate within three business days after each distribution is paid.
QuickSell
Provides speedy access to your money by electronically crediting your
redemption proceeds to the bank account you previously designated.
For more information about these services
Call a Scudder representative at
1-800-SCUDDER
Or visit our Web site at
www.scudder.com
Please address all written correspondence to
The Scudder Funds
PO Box 2291
Boston, Massachusetts
02107-2291
38 SCUDDER TAX MANAGED SMALL COMPANY FUND
<PAGE>
Notes
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<PAGE>
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
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.
