SCUDDER
INVESTMENTS(SM)
[LOGO]
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EQUITY/DOMESTIC
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Scudder Small
Company Stock Fund
Annual Report
September 30, 2000
The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other small company stock funds.
<PAGE>
Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
16 Glossary of Investment Terms
17 Investment Portfolio
30 Financial Statements
33 Financial Highlights
35 Notes to Financial Statements
43 Report of Independent Accountants
44 Tax Information
45 Shareholder Meeting Results
46 Officers and Trustees
47 Investment Products and Services
49 Account Management Resources
2
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Scudder Small Company Stock Fund
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Class AARP ticker symbol ASCSX fund number 139
Class S ticker symbol SCSUX fund number 078
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Date of o On July 14, 2000, AARP Small Company Stock Fund
Inception: acquired all or substantially all of the assets and
2/1/97 all of the liabilities of Scudder Micro Cap Fund and
on July 17, the fund changed its name to Scudder
Small Company Stock Fund. In addition, the fund's
Total Net shares were divided into Class S and Class AARP
Assets as of shares.
9/30/00 --
o During the first half of Scudder Small Company Stock
Class AARP: Fund's most recent fiscal year ended September 30,
$47.6 million 2000, investors focused on a small group of
high-priced growth stocks in a narrow,
Class S: momentum-driven market.
$46.1 million
o As valuations reached levels that concerned even
aggressive investors, momentum stocks corrected
dramatically and stocks with more reasonable
valuations and solid fundamentals regained some lost
ground beginning in March.
3
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Letter from the Fund's President
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Dear Shareholders,
On July 14, 2000, AARP Small Company Stock Fund acquired Scudder Micro Cap Fund
and on July 17, the fund changed its name to Scudder Small Company Stock Fund,
with "S" and "AARP" share classes. The results for the fiscal year ended
September 30, 2000 represent the AARP Small Company Stock Fund prior to July 14
and the combined Scudder Small Company Stock Fund subsequent to that date. The
fund seeks to provide long-term capital growth and maintain lower downside risk
compared with other small company stock funds. The fund is designed for
long-term investors looking for broad exposure to small company stocks.
The managers use a proprietary computer model to assess the return potential of
small companies based on financial characteristics encompassing valuation,
trends in sales and earnings, price momentum, and risk. The fund seeks to take
advantage of the growth opportunities offered by small companies, while
tempering the volatility typically associated with these investments by avoiding
stocks most likely to disappoint investors (those with deteriorating
fundamentals, high valuations, and high risk).
Over the 12-month period ended September 30, 2000, the Class AARP shares of the
fund returned 2.41%, while the fund's benchmark, the Russell 2000 Index, posted
a 23.37% total
4
<PAGE>
return. Over the first half of the period, momentum stocks -- those with recent
top performance -- continued their dominance. These stocks outperformed almost
regardless of fundamentals or earnings histories, and commanded most of the
attention while the rest of the stock market remained flat or lost ground.
Beginning in March, however, an important shift in investor sentiment occurred,
as investors awakened to the risks of extreme valuations induced by momentum
investing. As demand for these stocks waned, their prices dropped sharply.
Meanwhile, stocks with solid fundamentals and reasonable valuations began to
gain ground.
As detailed in the interview that begins on page 8, the fund's managers have
taken steps to improve the fund's performance compared to its benchmark index.
With these changes, we believe that the Scudder Small Company Stock Fund will be
an attractive investment for shareholders seeking to participate in the growth
potential of small cap stocks.
If you have any questions regarding Scudder Small Company Stock Fund or any
other Scudder fund, please call Investor Relations at 1-800-SCUDDER. Or visit
Scudder's Web site at www.scudder.com.
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
President
Scudder Small Company Stock Fund
5
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Performance Update
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September 30, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Small Company
Stock Fund -- Class AARP Russell 2000 Index*
------------------------ -------------------
2/97** 10000 10000
3/97 9940 9297
9/97 13353 12413
3/98 14387 13202
9/98 11362 10050
3/99 10989 11055
9/99 12009 11967
3/00 11983 15177
9/00 12299 14764
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 9/30/2000 $10,000 Cumulative Annual
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Scudder Small Company Stock Fund -- Class AARP
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1 year $ 10,241 2.41% 2.41%
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Life of Fund** $ 12,299 22.99% 5.83%
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Russell 2000 Index*
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1 year $ 12,337 23.37% 23.37%
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Life of Fund** $ 14,764 47.64% 11.21%
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6
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Returns and Per Share Information
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
Yearly periods ended September 30
Scudder Small Company
Stock Fund -- Class AARP Russell 2000 Index*
------------------------ -------------------
1997** 33.53 24.13
1998 -14.91 -19.03
1999 5.70 19.07
2000 2.41 23.37
1997** 1998 1999 2000
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Fund Total
Return (%) 33.53 -14.91 5.70 2.41
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Index Total
Return (%) 24.13 -19.03 19.07 23.37
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Net Asset
Value ($) 20.02 16.93 17.89 18.30
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Income
Dividends ($) -- .04 .02 .02
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Capital Gains
Distributions ($) -- .08 -- --
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* The Russell 2000 Index is an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks. Index returns are calculated monthly
and assume reinvestment of dividends. Unlike fund returns, index returns do
not reflect any fees or expenses.
** The Fund commenced operations on February 1, 1997. Index comparisons begin
January 31, 1997.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained expenses during the period, total returns would have been lower.
On July 17, 2000 existing shares of the Fund were redesignated as Class
AARP shares. The total return information provided is for the Fund's Class
AARP shares.
7
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Portfolio Summary
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September 30, 2000
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Diversification
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THE ORIGINAL DOCUMENT CONTAINS A PIE CHART THAT REFLECTS THE FOLLOWING
INFORMATION.
Common Stocks 99% The fund pursues a
Cash Equivalents 1% fully invested
---------------------------------------- approach.
100%
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Stock Characteristics
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<TABLE>
<S> <C> <C> <C> <C>
Russell Fund as The fund's managers
2000 % of use a proprietary
Median Values Fund Index Universe computer model to
----------------------------------------------------------- assess the return
Market Capitalization ($ millions) 368 418 88% potential of small
----------------------------------------------------------- companies based on
Price/Earnings 15.4 19.9 78% financial
----------------------------------------------------------- characteristics
Return On Equity (3 year) 13.8 11.3 122% encompassing
----------------------------------------------------------- valuation, trends in
Sales Growth (5 year) 18.0 17.5 103% sales and earnings,
----------------------------------------------------------- price momentum,
Number of Stocks 332 1,722 and risk.
-----------------------------------------------------------
</TABLE>
8
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Sectors/Largest Holdings
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To provide greater
1. Technology (20%) consistency of returns
Bel Fuse, Inc. versus the Russell 2000
Designs, manufactures and sells products used in Index, we have moved to
networking, telecommunication, data transmission a "blended" approach
and automotive consumer electronics balancing value and
growth, with sector
2. Financial (14%) weightings closer to
Hilb, Rogal & Hamilton Co. those of the Index.
Insurance agency
3. Manufacturing (11%)
Shaw Group, Inc.
Manufacturer of piping systems
4. Consumer Discretionary (11%)
Ruby Tuesday, Inc.
Operator of restaurants
5. Health (10%)
Quest Diagnostics, Inc.
Clinical testing laboratory
6. Service Industries (8%)
Advest Group, Inc.
Provider of retail brokerage, institutional sales,
writing and distribution of corporate and municipal
securities, and other services
7. Durables (5%)
Aeroflex, Inc.
Manufacturer of electrical and magnetic products for
defense and government contractors
8. Utilities (5%)
Energen Corp.
Natural gas distribution, oil and gas exploration and
production
9. Consumer Staples (5%)
Salton, Inc.
Manufacturer of small kitchen and personal care
appliances
10. Construction (3%)
Florida Rock Industries, Inc.
Producer of ready mixed concrete, sand, gravel and
crushed stone
For more complete details about the fund's investment portfolio, see page 17. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
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Portfolio Management Discussion
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September 30, 2000
In the following interview, portfolio managers James M. Eysenbach and Calvin S.
Young discuss the fund's market environment and strategy for its most recent
fiscal year ended September 30, 2000.
Q: How did Scudder Small Company Stock Fund perform over the past 12
months?
A: The total return for the Class AARP shares of the fund during its
most recent fiscal year ended September 30, 2000 was 2.41%. The return
of the fund's benchmark, the Russell 2000 Index, was 23.37% over the
same period. Since the fund's inception on February 1, 1997, it has
returned 22.99%, for an average annual total return of 5.83%.
Q: How do you account for the spread between the performance of the
Index and that of the fund during the one-year period?
A: The fundamental approach used to select stocks for the fund was at
odds with the types of stocks that were favored by the market during
the first half of the period. Over that time frame, we experienced a
rip-roaring market driven by momentum investing; that is, investors
choosing stocks based on recent top performance alone. It was not a
period where most investors picked stocks on the basis of solid
fundamentals, improving sales and earnings trends, and reasonable
valuations -- all characteristics we look at when selecting
investments for the fund. The rise in market indices was centered
around a very small group of stocks, primarily biotech- and
Internet-related. The rally drove stock valuations in those areas to
extreme levels. In the first six months of the period, the Russell
2000 Index was up 26.2%, while the performance of the typical
small-cap stock fund was essentially flat.
Q: What happened during the second half of the period?
A: Due to weak operating results (high costs relative to revenues),
the outlook for profitability stretched further out into the future
for these high-flying stocks. As the prospect of these companies
running short of cash began
10
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to hit home, there was a dramatic correction among Internet stocks
beginning in March. Despite rebounds in June and again in August, this
weakness has spread to other high-priced segments of the market amid
an increasing number of earnings disappointments. On balance, over the
last six months of the period, stocks with more reasonable valuations
and a demonstrated record of growing earnings have outperformed.
During the second half of the fund's fiscal year the Russell 2000
Index declined -2.7% while the fund was up 2.6%. However, the recent
outperformance by stocks with more reasonable valuations did not
offset the tremendous performance by momentum stocks during the first
part of the period.
Q: Are investors viewing the market differently since last March?
A: Yes, we believe they are. High valuations have now become a concern
even to aggressive investors. We believe that, ultimately, the most
important question is whether a company can deliver earnings. Over the
past few years, investors have been willing to put their faith in
companies that promised that society-transforming technology would
eventually lead to superior profitability. For many of these
companies, that promise is now in doubt. Even among the largest and
most established technology companies that have substantial businesses
and have generated real earnings, expectations had risen to such a
level that investors had been pricing them to be perfect in terms of
meeting investor expectations, or else. Now that other factors such as
the Fed's efforts to engineer a soft landing for the U.S. economy,
rising oil prices, and the falling euro have begun to negatively
impact some of these growth companies' earnings, their stock prices
have been punished.
11
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How the Fund Is Managed
Investment Discipline
The fund's portfolio managers rely on a proprietary, quantitative screening
process to identify stocks with above-average capital appreciation potential
from the fund's investment universe of more than 3,000 small U.S. companies.
Small companies are generally defined as those with stock market capitalizations
(total market value of outstanding shares) below $2 billion. Four primary
factors are considered: valuation, trends in sales and earnings, price momentum,
and risk. Valuation helps the fund's managers measure how inexpensive a security
is relative to the overall small-cap universe. Sales and earnings trends suggest
whether the company's fundamentals are stable, improving, or deteriorating.
Price momentum provides an indicator of how the market is responding to these
fundamentals. Risk measures help management understand the degree of financial
uncertainty for a given company. Each stock is then ranked based on its relative
attractiveness.
Portfolio Construction
Management builds a diversified portfolio of attractively rated companies,
avoiding stocks most likely to disappoint investors due to deteriorating
fundamentals, high valuations, or high risk. To limit individual security risk
and provide trading flexibility, 300 or more small and micro-cap (those with
market capitalizations of $250 million or less) securities are held in the
portfolio. On an ongoing basis, a portfolio optimization program is used to
determine which securities should be replaced due to diminishing return
prospects, while managing the overall risk of the portfolio versus the benchmark
index.
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Q: Last July, AARP Small Company Stock Fund acquired Scudder Micro Cap Fund
and changed its name to Scudder Small Company Stock Fund, and began
offering Class S and Class AARP shares. How has the merger affected the
content of the fund's portfolio?
A: The fund has a broad-based small-capitalization stock portfolio that
includes both small- and micro-cap securities. For tax reasons, we need to
maintain a minimum of one third of the fund's micro-cap securities
12
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Market Capitalization:
Scudder Small Company Stock Fund versus Russell 2000 Index
as of September 30, 2000
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Scudder Small Company
Stock Fund Russell 2000 Index
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Over $2 billion 5.56% 7.70%
$1 billion to $2 billion 13.50% 36.83%
$500 million to $1 billion 23.91% 32.44%
$250 million to $500 million 21.71% 17.96%
Under $250 million 35.32% 5.07%
Total 100.00% 100.00%
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The fund had significantly higher (81%) exposure to stocks with market
capitalizations of $1 billion or below, compared with its benchmark (55%).
until at least July 2002. That could have implications for performance
going forward. Over long horizons, micro-cap stocks have had a return
advantage over small-cap stocks, but if we encounter a period of
market weakness, they could have a negative impact.
Q: What changes, if any, will you be making to improve the fund's
performance compared with its benchmark index?
A: When comparing the fund with its benchmark index, there has been a
trade-off between risk and return. While on balance the fund has
trailed the index return, over time it has been successful at meeting
its risk goal. Since inception, for example, the fund has experienced
17% less downside risk than its benchmark. This lower risk was
achieved in part by having a strong value orientation, which also
contributed to periods of wide outperformance and wide
underperformance. To provide greater consistency of returns versus the
Russell 2000 benchmark, we have moved to a more blended approach
balancing value and growth. In conjunction with this move, we are
managing the sector weights within a tighter range (see table on page
13) around the index. Finally, we are continuing our research efforts
to enhance the effectiveness of our stock selection process. With
these changes, we
13
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Scudder Small Company Stock Fund versus Russell 2000 Index
Sector weightings as of September 30, 2000
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Fund
Stock Fund Index Compared
Sector Weighting Weighting with Index^1
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Basic Materials 3.63% 4.87% -1.24%
Capital Goods 12.49% 9.36% 3.13%
Communication Services 0.61% 1.67% -1.06%
Consumer Cyclicals 17.36% 15.16% 2.20%
Consumer Staples 8.87% 6.87% 2.00%
Energy 1.49% 3.15% -1.66%
Financials 15.81% 18.38% -2.57%
Health Care 8.33% 12.57% -4.24%
Technology 23.50% 21.57% 1.93%
Transportation 2.00% 1.86% 0.14%
Utilities 4.79% 4.30% 0.49%
Other 1.12% 0.24% 0.88%
100.00% 100.00%
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Source: S&P Sector Groups, FactSet Research Systems.
^1 Percentage difference in weighting: Scudder Small Company Stock Fund
compared with Russell 2000 Index. Sector weightings are subject to change.
would expect a moderate increase in the downside risk, but a corresponding
reduction in the risk of underperforming the benchmark index.
Q: What do you look for from the small-cap sector over the coming
months?
A: We think it's possible that we'll see a correction among the
large-cap leaders, but small stocks, and in particular those with
strong fundamentals and reasonable valuations, could hold up quite
well. That's what we saw in the third quarter of 2000 when the S&P 500
Index was down 1%, small-cap stocks were up 1%, and the fund was up
3.5%. Although we know there will be fluctuations, we look for the
upward trend to continue.
The opinions expressed are those of the portfolio management team, as of
September 30, 2000, and may not actually come to pass.
14
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Scudder Small Company Stock Fund:
A Team Approach to Investing
Scudder Small Company Stock Fund is managed by a team of Scudder
Kemper Investments, Inc. (the "Adviser") professionals, each of whom
plays an important role in the fund's management process. Team members
work together to develop investment strategies and select securities
for the fund's portfolio. They are supported by the Adviser's large
staff of economists, research analysts, traders, and other investment
specialists who work in offices across the United States and abroad.
The Adviser believes that a team approach benefits fund investors by
bringing together many disciplines and leveraging the firm's extensive
resources.
Lead portfolio manager James M. Eysenbach is responsible for the
fund's investment strategies. Mr. Eysenbach joined the Adviser in 1991
as a senior quantitative analyst and has more than 15 years of
investment management experience, specializing in quantitative
research, analysis, and portfolio management.
Portfolio manager Calvin S. Young joined the Adviser in 1990 as a
quantitative analyst. Mr. Young joined the fund team in 1999 and has
more than 11 years of investment industry experience with a special
focus on small companies.
15
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Glossary of Investment Terms
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Downside Risk A measure of the frequency and magnitude of negative
returns.
Market The value of a company's outstanding shares of
Capitalization 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 Refers to the allocation of assets -- usually by
Weighting sector, industry, or country -- within a portfolio
relative to a benchmark index (e.g., the Russell 2000
Index), or an investment universe.
Price/Earnings A widely used gauge of a stock's valuation that
Ratio (P/E) indicates what investors are paying for a company's
(also "earnings earnings on a per share basis. A higher "earnings
multiple") multiple" indicates a higher expected growth rate and
the potential for greater price fluctuations.
Quantitative A systematic approach to evaluating a security based
Model on its financial characteristics.
Standard A statistical measure of the degree to which an
Deviation investment's return tends to vary from the mean
return. Frequently used in portfolio management to
measure the variability of past returns and to gauge
the likely range of possible future returns.
Value Stock A company whose stock price does not fully reflect
its intrinsic value, as indicated by price-earnings
ratio, price-book value ratio, dividend yield, or
some other valuation measure, relative to its
industry or the market overall. Value stocks tend to
display less price volatility and may carry higher
dividend yields.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms) Additional glossary terms are available at our Internet Web
site -- www.scudder.com.
16
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<TABLE>
<CAPTION>
Investment Portfolio as of September 30, 2000
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Principal
Amount ($) Value ($)
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Repurchase Agreements 0.6%
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<S> <C> <C>
State Street Bank and Trust Company, 6.48%, to be
repurchased at $560,302 on 10/2/2000** ---------
(Cost $560,000) ............................................. 560,000 560,000
---------
Shares
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Common Stocks 99.4%
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Consumer Discretionary 11.3%
Apparel & Shoes 2.0%
G-III Apparel Group, Ltd.* ..................................... 43,300 312,572
Genesco, Inc.* ................................................. 30,300 513,206
J. Jill Group, Inc.* ........................................... 38,800 499,550
Steven Madden, Ltd.* ........................................... 10,700 92,288
The Children's Place Retail Stores, Inc.* ...................... 4,000 103,000
Timberland Co. "A"* ............................................ 8,200 336,200
---------
1,856,816
---------
Department & Chain Stores 0.5%
Ames Department Stores, Inc.* .................................. 9,500 54,922
Hot Topic, Inc.* ............................................... 1,000 30,000
Pacific Sunwear of California, Inc.* ........................... 18,000 337,500
---------
422,422
---------
Home Furnishings 0.4%
La-Z-Boy, Inc. ................................................. 28,400 413,575
---------
Hotels & Casinos 1.7%
Argosy Gaming Co.* ............................................. 5,000 90,625
Humphrey Hospitality Trust, Inc. ............................... 17,700 140,494
Isle of Capri Casinos, Inc.* ................................... 28,600 443,300
Jackpot Enterprises, Inc.* ..................................... 52,000 494,000
Pinnacle Entertainment, Inc.* .................................. 1,500 32,625
Prime Hospitality Corp.* ....................................... 24,700 250,088
Shuffle Master, Inc.* .......................................... 4,400 85,525
---------
1,536,657
---------
Recreational Products 1.8%
4Kids Entertainment, Inc.* ..................................... 3,600 60,750
Bally Total Fitness Holding Corp.* ............................. 6,400 160,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Shares Value ($)
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Escalade, Inc.* ....................... 13,460 257,423
Fairfield Communities, Inc.* .......... 4,300 43,538
Holiday RV Superstores, Inc.* ......... 108,600 529,425
Thor Industries, Inc. ................. 27,250 630,156
---------
1,681,292
---------
Restaurants 3.0%
Applebee's International, Inc. ........ 10,500 241,500
Benihana, Inc. "A"* ................... 29,000 348,000
CEC Entertainment, Inc.* .............. 17,700 566,400
Garden Fresh Restaurant Corp.* ........ 50,900 594,894
IHOP Corp.* ........................... 3,800 72,675
Ruby Tuesday, Inc. .................... 73,400 825,750
Sizzler International, Inc.* .......... 48,700 79,138
---------
2,728,357
---------
Specialty Retail 1.9%
Brookstone, Inc.* ..................... 33,900 474,600
Christopher and Banks Corp.* .......... 17,650 686,144
Fossil, Inc.* ......................... 7,500 99,844
Pier 1 Imports, Inc. .................. 7,500 101,719
The Topps Company, Inc.* .............. 4,400 40,425
Trans World Entertainment Corp.* ...... 10,400 104,000
Zale Corp.* ........................... 7,400 240,038
---------
1,746,770
---------
Consumer Staples 4.5%
Alcohol 0.1%
Todhunter International, Inc.* ........ 15,600 109,200
---------
Consumer Electronic & Photographic 1.8%
Applica, Inc.* ........................ 12,800 79,200
Cobra Electronics Corp.* .............. 85,800 509,438
Salton, Inc.* ......................... 32,000 1,034,000
---------
1,622,638
---------
Consumer Specialties 0.3%
AMBI, Inc.* ........................... 90,600 141,563
Media Arts Group, Inc.* ............... 46,300 156,263
---------
297,826
---------
Farming 0.6%
AG Services of America, Inc.* ......... 18,700 329,588
Sylvan, Inc.* ......................... 27,800 269,313
---------
598,901
---------
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
Food & Beverage 1.6%
J & J Snack Foods Corp.* .............. 18,700 241,931
Jack in the Box, Inc.* ................ 2,300 49,306
Michael Foods, Inc. ................... 23,600 551,650
Schultz Sav-O Stores, Inc. ............ 29,700 319,275
Suprema Specialties, Inc.* ............ 9,800 78,859
Village Super Market, Inc. "A"* ....... 16,500 198,000
---------
1,439,021
---------
Package Goods/Cosmetics 0.1%
Chattem, Inc. * ....................... 9,100 87,019
---------
Health 9.5%
Biotechnology 0.8%
CYTOGEN Corp.* ........................ 5,800 36,613
Digene Corp.* ......................... 7,600 273,600
Pharmacopeia, Inc.* ................... 10,700 272,850
Vertex Pharmaceuticals, Inc.* ......... 1,600 135,200
---------
718,263
---------
Health Industry Services 2.9%
Air Methods Corp.* .................... 46,400 165,300
Covance, Inc.* ........................ 11,200 91,700
First Health Group Corp.* ............. 4,100 132,225
Healthcare Services Group, Inc.* ...... 52,050 256,997
Hooper Holmes, Inc. ................... 2,600 24,726
Immunomedics, Inc.* ................... 14,500 303,594
PAREXEL International Corp.* .......... 12,000 102,000
Prime Medical Services, Inc.* ......... 30,200 234,050
ProMedCo Management Co.* .............. 46,800 35,100
Quest Diagnostics, Inc.* .............. 8,700 998,325
Syncor International Corp.* ........... 6,200 228,238
US Oncology, Inc.* .................... 20,900 94,703
---------
2,666,958
---------
Hospital Management 0.5%
Coventry Health Care, Inc.* ........... 13,100 198,138
National Home Health Care Corp.* ...... 21,890 137,497
Quorom Health Group, Inc.* ............ 8,000 104,000
---------
439,635
---------
Medical Supply & Specialty 2.8%
Advanced Neuromodulation Systems, Inc.* 14,400 280,800
Cooper Companies, Inc. ................ 12,900 456,338
Cytyc Corp.* .......................... 4,500 194,063
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
Laboratory Corp. of America Holdings* 2,200 263,450
NBTY, Inc.* ......................... 25,500 166,547
Polymedica Industries, Inc.* ........ 7,900 338,713
Scherer Healthcare, Inc.* ........... 24,300 77,456
Superior Uniform Group, Inc. ........ 26,700 201,919
Techne Corp.* ....................... 2,300 257,600
Theragenics Corp.* .................. 11,200 72,800
Twinlab Corp.* ...................... 18,900 82,688
Ventana Medical Systems, Inc.* ...... 2,200 55,825
Zoll Medical Corp.* ................. 1,900 92,625
---------
2,540,824
---------
Pharmaceuticals 2.2%
Advance Paradigm, Inc.* ............. 5,000 210,938
ImmunoGen, Inc.* .................... 10,000 341,875
Medicis Pharmaceutical Corp.* ....... 2,800 172,200
Noven Pharmaceuticals, Inc.* ........ 9,300 397,575
Onyx Pharmaceuticals, Inc.* ......... 27,200 669,800
Ribozyme Pharmaceuticals, Inc.* ..... 3,300 95,700
Sicor, Inc.* ........................ 15,200 155,800
---------
2,043,888
---------
Miscellaneous 0.3%
Impath, Inc.* ....................... 5,300 334,563
---------
Communications 2.7%
Telephone/Communications 2.1%
Applied Signal Technology, Inc.* .... 20,900 148,913
Hector Communications Corp.* ........ 42,900 557,700
International FiberCom, Inc.* ....... 10,800 157,950
Plantronics, Inc.* .................. 12,900 490,200
Westell Technologies, Inc.* ......... 25,900 333,463
Xircom, Inc.* ....................... 10,200 257,550
---------
1,945,776
---------
Miscellaneous 0.6%
Metro One Telecommunications, Inc.* . 29,200 368,650
Tut Systems, Inc.* .................. 2,100 181,256
---------
549,906
---------
Financial 13.6%
Banks 5.4%
Columbia Banking System, Inc.* ...... 20,374 280,143
First Essex Bancorp ................. 15,800 333,775
First Keystone Financial, Inc. ...... 6,000 61,500
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
First Oak Brook Bancshares, Inc. "A" . 29,400 457,538
Haven Bancorp, Inc. .................. 12,200 358,375
Hingham Institution for Savings ...... 7,750 113,344
Imperial Bancorp* .................... 7,100 135,788
Jacksonville Bancorp, Inc. ........... 9,500 136,563
Kankakee Bancorp, Inc. ............... 4,400 98,588
Lawrence Savings Bank ................ 45,600 399,000
Medford Bancorp, Inc. ................ 23,600 380,550
New Hampshire Thrift Bancshares, Inc. 9,600 126,000
Northrim Bank ........................ 44,898 364,796
Parkvale Financial Corp. ............. 24,296 437,328
People's Bancshares, Inc. ............ 17,600 303,600
Pinnacle Bancshares, Inc. ............ 17,700 158,194
Progress Financial Corp. ............. 19,082 214,673
Seacoast Financial Services Corp. .... 15,900 174,900
Silicon Valley Bancshares* ........... 6,000 349,406
Southwest Bancorp, Inc. .............. 7,800 116,025
---------
5,000,086
---------
Insurance 5.6%
ACMAT Corp. "A"* ..................... 16,800 119,700
Atlantic American Corp.* ............. 71,600 143,200
Cotton States Life Insurance ......... 45,525 418,261
Delphi Financial Group, Inc. "A"* .... 1,000 40,500
Fidelity National Financial, Inc. .... 21,470 531,383
Hilb, Rogal & Hamilton Co. ........... 26,100 1,088,044
Horace Mann Educators Corp. .......... 22,400 366,800
Investors Title Co. .................. 19,100 200,550
Kansas City Life Insurance Co. ....... 6,400 211,200
RLI Corp. ............................ 19,375 747,148
Security National Financial Corp. "A"* 53,000 142,438
Selective Insurance Group, Inc. ...... 18,800 336,050
W.R. Berkley Corp. ................... 22,500 777,656
---------
5,122,930
---------
Consumer Finance 1.1%
AmeriCredit Corp.* ................... 10,000 288,125
Bank Plus Corp.* ..................... 40,000 157,500
WFS Financial, Inc.* ................. 6,200 105,013
Wit Soundview Group, Inc.* ........... 46,100 414,900
---------
965,538
---------
Other Financial Companies 1.1%
Affiliated Managers Group* ........... 1,000 56,938
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
ishares Russell 2000 Index Fund ...... 9,357 969,619
---------
1,026,557
---------
Real Estate 0.4%
AMREP Corp.* ......................... 65,600 356,700
---------
Media 1.4%
Print Media 0.8%
Advanced Marketing Services, Inc. .... 41,200 726,150
---------
Miscellaneous 0.6%
About.com, Inc.* ..................... 17,100 553,613
Zomax, Inc.* ......................... 6,400 44,800
598,413
---------
Service Industries 8.3%
Asset Management 0.2%
Eaton Vance Corp. .................... 3,700 188,700
---------
EDP Services 0.9%
Cognizant Technology Solutions Corp.* 5,000 195,000
Pomeroy Computer Resources, Inc.* .... 25,200 477,225
Systems & Computer Technology Corp.* . 6,800 119,425
---------
791,650
---------
Environmental Services 0.4%
GTS Duratek, Inc.* ................... 20,100 155,775
Scope Industries, Inc. ............... 4,000 166,000
---------
321,775
---------
Investment 1.7%
Advest Group, Inc. ................... 33,800 1,071,004
M.H. Meyerson & Co, Inc.* ............ 36,200 176,475
Southwest Securities Group, Inc. ..... 12,012 351,351
---------
1,598,830
---------
Miscellaneous Commercial Services 3.5%
24/7 Media, Inc.* .................... 37,000 373,469
ABM Industries, Inc. ................. 23,700 644,344
AnswerThink Consulting Group, Inc.* .. 2,700 43,875
Avocent Corporation* ................. 2,181 120,228
Computer Task Group, Inc. ............ 900 2,813
Dycom Industries, Inc.* .............. 6,900 287,213
Exponent, Inc.* ...................... 42,200 361,338
Grey Global Group, Inc. .............. 1,710 1,059,826
Labor Ready, Inc.* ................... 11,300 47,319
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
Pfsweb, Inc.* ........................... 8,269 17,055
RCM Technologies, Inc.* ................. 12,800 51,200
SITEL Corp.* ............................ 15,100 44,356
Source Information Management Co.* ...... 4,500 30,656
Volt Information Sciences, Inc.* ........ 7,000 150,500
---------
3,234,192
---------
Miscellaneous Consumer Services 1.5%
ACE Cash Express, Inc.* ................. 33,025 363,275
Earl Scheib, Inc.* ...................... 6,900 22,425
Heidrick & Struggles International, Inc.* 5,900 303,113
ICT Group, Inc.* ........................ 25,700 274,669
Infocus Corporation* .................... 8,100 429,300
---------
1,392,782
---------
Miscellaneous 0.1%
Adminstaff, Inc.* ....................... 800 60,560
---------
Durables 5.0%
Aerospace 1.5%
AAR Corp. ............................... 11,100 126,956
Aeroflex, Inc.* ......................... 14,200 690,475
Curtiss-Wright Corp. .................... 10,100 476,594
Ducommun, Inc.* ......................... 2,100 29,531
---------
1,323,556
---------
Automobiles 0.7%
Borg-Warner Automotive, Inc. ............ 8,158 270,234
Simpson Industries, Inc. ................ 28,000 343,000
---------
613,234
---------
Construction/Agricultural Equipment 0.5%
Terex Corp.* ............................ 3,700 48,331
The Manitowoc Company, Inc. ............. 22,950 441,788
---------
490,119
---------
Leasing Companies 1.5%
Aaron Rents, Inc. ....................... 42,800 551,050
McGrath Rentcorp ........................ 26,000 494,000
PLM International, Inc.* ................ 54,300 363,131
---------
1,408,181
---------
Telecommunications Equipment 0.8%
Antec Corp.* ............................ 200 5,900
Brooktrout Technology, Inc.* ............ 6,000 197,625
Cognitronics Corp.* ..................... 23,850 273,083
Comdial Corp.* .......................... 44,400 90,188
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
Glenayre Technologies, Inc.* ..... 12,700 138,113
Vari-L Company, Inc.* ............ 4,000 10,000
---------
714,909
---------
Manufacturing 11.3%
Chemicals 0.5%
Aceto Corp. ...................... 44,400 432,900
Georgia Gulf Corp. ............... 4,000 45,750
JLM Industries, Inc.* ............ 4,500 11,250
---------
489,900
---------
Containers & Paper 0.1%
Chesapeake Corp. ................. 2,000 38,500
Tufco Technologies, Inc.* ........ 6,600 66,825
---------
105,325
---------
Diversified Manufacturing 1.0%
Cantel Industries, Inc.* ......... 22,400 225,400
Clarcor, Inc. .................... 11,850 231,075
NCH Corp. ........................ 6,200 218,938
Robbins & Myers, Inc. ............ 1,200 28,350
Tredegar Industries, Inc. ........ 7,200 124,650
Valmont Industries ............... 3,500 69,563
---------
897,976
---------
Electrical Products 2.0%
Acme Electric Corp.* ............. 57,600 496,800
C&D Technologies, Inc. ........... 5,000 283,750
Measurement Specialties, Inc.* ... 7,400 357,050
Power Integrations, Inc.* ........ 3,700 51,569
Power-One, Inc.* ................. 3,800 229,959
SL Industries, Inc. .............. 36,000 402,750
---------
1,821,878
---------
Industrial Specialty 2.4%
Ault, Inc.* ...................... 6,600 54,450
Badger Meter, Inc. ............... 18,000 497,250
General Cable Corp. .............. 10,700 80,919
Lamson & Sessions Co.* ........... 21,000 249,375
Lawson Products, Inc. ............ 25,700 621,619
Regal-Beloit Corp. ............... 25,400 430,784
Spartech Corp. ................... 15,300 238,106
---------
2,172,503
---------
Machinery/Components/Controls 2.7%
Cybex International, Inc.* ....... 30,900 92,700
IMPCO Technologies, Inc.* ........ 1,700 48,875
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
Intermet Corp. ...................... 17,400 126,150
O.I. Corp.* ......................... 32,500 105,625
Reliance Steel & Aluminum Co. ....... 22,950 483,384
Shaw Group, Inc.* ................... 13,700 965,850
Summa Industries, Inc.* ............. 12,700 161,925
Woodward Governor Co. ............... 11,100 494,644
---------
2,479,153
---------
Office Equipment/Supplies 0.0%
United Stationers, Inc.* ............ 1,800 48,375
---------
Specialty Chemicals 0.5%
North American Scientific, Inc. ..... 14,000 444,500
---------
Wholesale Distributors 1.5%
Allou Health & Beauty, Inc. "A"* .... 50,500 274,594
Applied Industrial Technologies, Inc. 27,800 481,288
Insight Enterprises, Inc.* .......... 25,012 681,577
---------
1,437,459
---------
Miscellaneous 0.6%
Jakks Pacific, Inc.* ................ 6,800 63,963
Sipex Corp.* ........................ 11,000 462,688
---------
526,651
---------
Technology 20.1%
Computer Software 7.7%
Actuate Corp.* ...................... 7,400 255,647
Advanced Digital Information Corp.* . 25,200 382,725
Advent Software, Inc.* .............. 9,800 684,775
Allaire Corp.* ...................... 16,900 143,650
Epicor Software Corp.* .............. 9,000 31,500
Excalibur Technologies Corp.* ....... 6,900 463,594
Exchange Applications, Inc.* ........ 28,500 129,141
Group 1 Software, Inc.* ............. 12,900 264,450
Hyperion Solutions Corp.* ........... 6,100 157,838
InteliData Technologies Corp.* ...... 15,600 81,656
Intranet Solutions, Inc.* ........... 7,900 395,000
Keynote Systems, Inc.* .............. 25,400 679,450
MAPICS, Inc.* ....................... 18,400 124,200
MICROS Systems, Inc.* ............... 4,400 66,275
MTI Technology Corp.* ............... 14,500 55,281
MapInfo Corp.* ...................... 1,950 61,059
Mercator Software Inc.* ............. 8,400 139,125
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
NetIQ Corp.* .......................... 12,200 801,388
Onyx Sofware Corp.* ................... 14,400 297,000
Primus Knowledge Solutions* ........... 2,800 41,475
Progress Software Corp.* .............. 9,600 130,800
Remedy Corp.* ......................... 6,200 117,025
Structural Dynamics Research Corp.* ... 25,700 420,838
Sybase, Inc.* ......................... 7,800 179,400
THQ, Inc.* ............................ 15,300 355,725
Unigraphics Solutions, Inc.* .......... 400 7,850
Verity, Inc.* ......................... 11,800 421,113
Vertel Corp.* ......................... 15,700 145,225
---------
7,033,205
---------
Diverse Electronic Products 1.0%
C-COR.net Corp.* ...................... 3,500 53,594
Cable Design Technologies Corp.* ...... 3,600 87,525
DSP Group, Inc.* ...................... 4,600 171,925
Printrak International, Inc.* ......... 14,700 176,400
SBS Technologies, Inc.* ............... 20,400 474,300
---------
963,744
---------
EDP Peripherals 0.5%
Black Box Corp.* ...................... 1,300 60,613
NeoMagic Corp.* ....................... 14,600 55,663
Printronix, Inc.* ..................... 19,900 189,361
SCM Microsystems, Inc.* ............... 2,300 87,256
Wells-Gardner Electronics Corp.* ...... 47,500 109,844
---------
502,737
---------
Electronic Components/Distributors 5.5%
American Technical Ceramics Corp.* .... 10,700 166,813
Anaren Microwave, Inc.* ............... 5,400 732,375
Avnet, Inc. ........................... 12,734 361,327
Bel Fuse, Inc. "A" .................... 13,750 613,594
Bel Fuse, Inc. "B" .................... 26,650 1,026,025
Benchmark Electronics, Inc.* .......... 500 26,000
Brightpoint, Inc.* .................... 11,000 55,344
Imation Corp.* ........................ 12,400 230,950
Nu Horizons Electronics, Inc.* ........ 20,900 581,281
Pioneer-Standard Electronics, Inc. .... 43,100 584,544
Programmer's Paradise, Inc.* .......... 22,800 71,250
Technitrol, Inc. ...................... 5,700 575,700
---------
5,025,203
---------
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
Electronic Data Processing 0.4%
Epresence, Inc.* ............... 9,700 65,475
Webtrends Corp.* ............... 8,900 332,638
---------
398,113
---------
Military Electronics 1.8%
EDO Corp. ...................... 78,400 690,900
Engineered Support Systems, Inc. 35,400 677,025
Titan Corp.* ................... 17,000 280,500
---------
1,648,425
---------
Office/Plant Automation 0.9%
CACI International, Inc.* ...... 4,300 92,181
FileNet Corp.* ................. 7,700 140,044
Kronos, Inc.* .................. 4,600 138,000
Mercury Computer Systems, Inc.* 6,700 186,344
Pinnacle Systems, Inc.* ........ 11,700 131,625
Radiant Systems, Inc.* ......... 5,100 109,013
---------
797,207
---------
Precision Instruments 0.8%
Barringer Technologies, Inc.* .. 35,700 327,994
Coherent, Inc.* ................ 1,200 81,600
Photon Dynamics, Inc.* ......... 600 22,650
Zebra Technologies Corp.* ...... 5,400 259,538
---------
691,782
---------
Semiconductors 1.5%
Alliance Semiconductor Corp.* .. 20,000 397,500
Alpha Industries, Inc.* ........ 13,300 453,031
Exar Corp.* .................... 4,350 526,350
General Semiconductor, Inc.* ... 2,500 30,469
---------
1,407,350
---------
Energy 1.5%
Oil & Gas Production 1.0%
Atwood Oceanics, Inc.* ......... 1,200 50,025
Marine Drilling Companies, Inc.* 11,900 339,894
Petroleum Development Corp.* ... 77,600 552,900
---------
942,819
---------
Oilfield Services/Equipment 0.5%
Helmerich & Payne, Inc. ........ 5,000 180,625
Veritas DGC, Inc.* ............. 8,300 240,181
420,806
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
--------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------
Metals & Minerals 0.8%
Precious Metals 0.2%
Stillwater Mining Co.* ............. 5,700 154,299
---------
Steel & Metals 0.6%
Bayou Steel Corp.* ................. 24,700 43,225
Commercial Metals Co. .............. 13,000 331,500
Friedman Industries, Inc. .......... 43,000 166,625
---------
541,350
---------
Construction 2.8%
Building Materials 1.2%
Florida Rock Industries, Inc. ...... 20,300 800,581
Texas Industries, Inc. ............. 11,100 353,813
---------
1,154,394
---------
Building Products 0.3%
Continental Materials Corp.* ....... 20,900 276,925
---------
---------
Homebuilding 1.1%
Engle Homes, Inc. .................. 30,200 469,988
Skyline Corp. ...................... 9,700 206,731
Standard Pacific Corp. ............. 18,000 324,000
---------
1,000,719
---------
Miscellaneous 0.2%
Granite Construction, Inc. ......... 6,800 164,900
---------
Transportation 1.8%
Airlines 0.7%
Alaska Air Group, Inc.* ............ 9,600 230,400
Frontier Airlines, Inc.* ........... 7,600 147,725
Hawaiian Airlines, Inc.* ........... 80,000 200,000
Skywest, Inc. ...................... 900 46,125
---------
624,250
---------
Railroads 0.2%
Providence & Worcester Railroad Co. 25,000 176,563
---------
Trucking 0.9%
American Freightways Corp.* ........ 1,300 20,638
Forward Air Corp.* ................. 3,000 105,563
Kenan Transport Co. ................ 8,500 208,250
Roadway Express, Inc. .............. 8,500 152,469
Simon Transportation Services, Inc.* 9,600 57,600
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Shares Value ($)
------------------------------------------------------------------------------------
<S> <C> <C>
USFreightways Corp. ..................................... 13,600 308,550
----------
853,070
----------
Utilities 4.8%
Electric Utilities 1.1%
Black Hills Corp. ....................................... 12,200 342,363
Public Service Co. of New Mexico ........................ 19,700 509,738
Unitil Corp. ............................................ 6,500 169,813
----------
1,021,914
----------
Natural Gas Distribution 2.4%
Chesapeake Utilities Corp. .............................. 20,200 366,125
Energen Corp. ........................................... 30,800 916,300
NUI Corp. ............................................... 26,900 812,044
ONEOK, Inc. ............................................. 2,400 95,400
----------
2,189,869
----------
Water Supply 1.2%
California Water Service Group .......................... 17,900 478,825
Southwest Water Co. ..................................... 46,034 607,073
----------
1,085,898
----------
Miscellaneous 0.1%
Florida Public Utilities Co. ............................ 4,700 74,319
----------
------------------------------------------------------------------------------------
Total Common Stocks (Cost $78,037,006) 91,288,750
------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $78,597,006) (a) 91,848,750
------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $78,599,882. At September 30,
2000, net unrealized appreciation for all securities based on tax cost was
$13,248,868. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$24,307,877 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $11,059,009.
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of September 30, 2000
--------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------
Investments in securities, at value (cost $78,597,006) .. $ 91,848,750
Cash .................................................... 19,406
Receivable for investments sold ......................... 1,958,450
Dividends receivable .................................... 49,970
Interest receivable ..................................... 201
Receivable for Fund shares sold ......................... 8,911
Deferred organization expenses .......................... 4,029
Due from Adviser ........................................ 1,099
Other assets ............................................ 324
------------
Total assets ............................................ 93,891,140
Liabilities
--------------------------------------------------------------------------------
Payable for Fund shares redeemed ........................ 43,774
Accrued reorganization costs ............................ 21,642
Accrued Trustees' fees and expenses ..................... 2,198
Other accrued expenses and payables ..................... 127,780
------------
Total liabilities ....................................... 195,394
--------------------------------------------------------------------------------
Net assets, at value $ 93,695,746
--------------------------------------------------------------------------------
Net Assets
--------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments 13,251,744
Accumulated net realized gain (loss) .................... (12,894,926)
Paid-in capital ......................................... 93,338,928
--------------------------------------------------------------------------------
Net assets, at value $ 93,695,746
--------------------------------------------------------------------------------
Net Asset Value
--------------------------------------------------------------------------------
Class AARP
Net Asset Value, offering and redemption price per share
($47,620,940 / 2,599,603 outstanding shares of
beneficial interest, $.01 par value, unlimited number ------------
of shares authorized)................................. $ 18.32
------------
Class S
NetAsset Value, offering and redemption price per share
($46,074,806 / 2,517,291 outstanding shares of
beneficial interest, $.01 par value, unlimited number ------------
of shares authorized) $ 18.30
------------
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the year ended September 30, 2000
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Dividends ..................................................... $ 677,157
Interest ...................................................... 98,560
-----------
Total Income .................................................. 775,717
-----------
Expenses:
Management fee ................................................ 513,250
Services to shareholders ...................................... 264,406
Custodian and accounting fees ................................. 57,085
Administration fee ............................................ 91,200
Auditing ...................................................... 41,647
Trustees' fees and expenses ................................... 30,240
Reports to shareholders ....................................... 43,301
Registration fees ............................................. 15,882
Amortization of organization expenses ......................... 2,065
Reorganization ................................................ 39,419
-----------
Total expenses, before expense reductions ..................... 1,098,495
Expense reductions ............................................ (70,084)
-----------
Total expenses, after expense reductions ...................... 1,028,411
--------------------------------------------------------------------------------
Net investment income (loss) (252,694)
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from investments ..................... (7,613,703)
Net unrealized appreciation (depreciation) during the period on
investments ................................................ 8,259,469
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions 645,766
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 393,072
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended September 30,
Increase (Decrease) in Net Assets 2000 1999
----------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) ...................... $ (252,694) $ 116,574
Net realized gain (loss) on investment transactions (7,613,703) (3,853,562)
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... 8,259,469 9,318,977
------------ ------------
Net increase (decrease) in net assets resulting
from operations................................. 393,072 5,581,989
------------ ------------
Distributions to shareholders from:
Net investment income -- Class AARP ............... (66,234) (84,460)
------------ ------------
Fund share transactions:
Proceeds from shares sold ......................... 10,557,237 19,840,511
Net assets acquired in tax-free reorganizations ... 49,750,918 --
Reinvestment of distributions ..................... 63,139 81,440
Cost of shares redeemed ........................... (32,897,753) (56,215,601)
------------ ------------
Net increase (decrease) in net assets from Fund
share transactions.............................. 27,473,541 (36,293,650)
------------ ------------
Increase (decrease) in net assets ................. 27,800,379 (30,796,121)
Net assets at beginning of period ................. 65,895,367 96,691,488
Net assets at end of period (including
undistributed net investment income of $48,570 ------------ ------------
at September 30, 1999).......................... $ 93,695,746 $ 65,895,367
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<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>
Class AARP (a)
------------------------------------------------------------------------------------
Years Ended September 30, 2000 1999 1998 1997(b)
------------------------------------------------------------------------------------
Net asset value, beginning of period $17.89 $16.93 $20.02 $15.00
------------------------------------
------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income (loss) (c) (.08) .02 .01 .04
------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .51 .96 (2.98) 4.98
------------------------------------
Total from investment operations .43 .98 (2.97) 5.02
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net investment income (.02) (.02) (.04) --
------------------------------------------------------------------------------------
Net realized gains on investment transactions -- -- (.08) --
------------------------------------
------------------------------------------------------------------------------------
Total distributions (.02) (.02) (.12) --
------------------------------------------------------------------------------------
Net asset value, end of period $18.32 $17.89 $16.93 $20.02
------------------------------------------------------------------------------------
Total Return (%) 2.41(d) 5.70 (14.91)(d) 33.53(d)**
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 48 66 97 50
------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.86(e) 1.70 1.80 2.79*
------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.73(e) 1.70 1.75 1.75*
------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.46) .13 .07 .40*
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 48 17 12 5*
------------------------------------------------------------------------------------
</TABLE>
(a) On July 17, 2000, existing shares of the Fund were redesignated as Class
AARP shares.
(b) For the period February 1, 1997 (commencement of operations of Class AARP)
to September 30, 1997.
(c) Based on monthly average shares outstanding during the period.
(d) Total return would have been lower had certain expenses not been reduced.
(e) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.78% and
1.65%, respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
33
<PAGE>
--------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class S
-------------------------------------------------------------------------------------
2000(a)
-------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 18.50
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------
Net investment income (loss) (--)(b)
-------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.20)
-------------------------------------------------------------------------------------
Total from investment operations (.20) Less distributions from:
-------------------------------------------------------------------------------------
Net investment income --
-------------------------------------------------------------------------------------
Net asset value, end of period $ 18.30
-------------------------------------------------------------------------------------
Total Return (%) (1.14)**
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 46
-------------------------------------------------------------------------------------
Ratio of expenses (%) 1.19*(c)
-------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.21)*
-------------------------------------------------------------------------------------
Portfolio turnover rate (%) 48
-------------------------------------------------------------------------------------
</TABLE>
(a) For the period from July 17, 2000 (commencement of sale of Class S) to
September 30, 2000.
(b) Amount shown is less than $.005.
(c) The ratio of operating expenses includes a one-time reduction in
reorganization expenses. The ratio without this reduction was 1.24%.
* Annualized
** Not annualized
34
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder Small Company Stock Fund (the "Fund"), formerly AARP Small Company Stock
Fund, a series of AARP Growth Trust, 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 and is
organized as a Massachusetts business trust.
On July 17, 2000, the Fund was reorganized from AARP Small Company Stock Fund
into Class AARP of Scudder Small Company Stock Fund. Shares of Class AARP are
especially designed for members of AARP. In addition, all of the net assets
acquired from the merger with Scudder Micro Cap Fund were designated as Class S
shares (see Note G). The two classes of shares provide investors with different
purchase options.
Investment income, realized and unrealized gains and losses, certain fund level
expenses and expense reductions, if any, are borne pro rata on the basis of
relative net assets by the holders of all classes of shares, except that each
class bears certain expenses unique to that class such as reorganization
expenses (see Note F). Differences in class expenses may result in payment of
different per share dividends by class. All shares of the Fund have equal rights
with respect to voting subject to class-specific arrangements. Effective July
17, 2000, there are no class-specific expenses.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which require the
use of management estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there is 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
35
<PAGE>
--------------------------------------------------------------------------------
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 Trustees.
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 is required.
At September 30, 2000, the Fund had a net tax basis capital loss carryforward of
approximately $4,440,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until September
30, 2006 ($2,000), September 30, 2007 ($663,000) and September 30, 2008
($3,775,000), the respective expiration dates, whichever occurs first.
In addition, the Fund inherited approximately $1,220,000 of capital losses from
its merger (see Note G) with Scudder Micro Cap Fund, which can be used to offset
gains in future years, or until September 30, 2006 ($553,000) and September 30,
2008 ($667,000), the respective expiration dates, subject to certain limitations
imposed by Section 382 of the Internal Revenue Code.
In addition, from November 1, 1999 through September 30, 2000, the Fund incurred
approximately $7,232,000 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the fiscal year ending September 30, 2001.
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
36
<PAGE>
--------------------------------------------------------------------------------
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from accounting principles generally accepted in the United
States of America. These differences primarily relate to investments in certain
securities sold at a loss. 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.
Organization Costs. Costs incurred by Class AARP in connection with its
organization have been deferred and are being amortized on a straight line basis
over a five-year period.
B. Purchases and Sales of Securities
During the year ended September 30, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $30,531,637 and
$50,583,627, respectively.
C. Related Parties
As described in Note F, Scudder Kemper Investments, Inc. has initiated a
restructuring program for most of its Scudder no-load, open-end funds. As part
of this reorganization, the Fund adopted a new Investment Management Agreement
and entered into an Administrative Agreement. Both of these agreements were
effective July 17, 2000. The terms of the newly adopted and the pre-existing
agreements are set out below.
Management Agreement. Prior to July 17, 2000, under the investment management
agreement (the "Management Agreement") between AARP Growth Trust, on behalf of
the Fund, and Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), the management fee consisted of two elements: a Base Fee and an
Individual Fund Fee. The Base Fee was calculated
37
<PAGE>
--------------------------------------------------------------------------------
as a percentage of the combined net assets of all of the AARP Funds ("Program
Assets") except the AARP Diversified Income with Growth and the AARP Diversified
Growth Portfolios, and each AARP Fund paid, as its portion of the Base Fee, an
amount equal to the ratio of its daily net assets to the daily net assets of all
of the AARP Funds (excluding the AARP Diversified Income with Growth and the
AARP Diversified Growth Portfolios). The Annual Base Fee was calculated as
follows: 0.35% of the first $2,000,000,000 of such net assets, 0.33% of the next
$2,000,000,000 of such net assets, 0.30% of the next $2,000,000,000 of such net
assets, 0.28% of the next $2,000,000,000 of such net assets, 0.26% of the next
$3,000,000,000 of such net assets, 0.25% of the next $3,000,000,000 of such net
assets and 0.24% of such net assets thereafter. In addition to the Base Fee, the
Fund agreed to pay the Adviser a flat Individual Fund Fee based on the average
daily net assets of the Fund. The Individual Fund Fee Rate recognized the
different characteristics of the Fund, and the varying levels of complexity of
investment research and securities trading required to manage the Fund. The
Individual Fund Fee Rate was calculated at 0.55% of the average daily net assets
of the Fund. As manager of the assets of the Fund, the Adviser directed the
investments of the Fund in accordance with its investment objectives, policies
and restrictions. In addition to portfolio management services, the Adviser,
under the Management Agreement, provided certain administrative services in
accordance with such Agreement. The Adviser also had a Member Services Agreement
with AARP Financial Services Corp. ("AFSC"), a subsidiary of AARP, and paid
portions of its investment management fee to AFSC.
Effective July 17, 2000, the Fund, as approved by the Fund's Board of Trustees,
adopted a new Investment Management Agreement (the "Agreement") with Scudder
Kemper. As manager of the assets of the Fund, the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies
and restrictions. In addition to portfolio management services, the Adviser,
under the Agreement, will provide certain administrative services in accordance
with such Agreement. The management fee payable under the Agreement is equal to
an annual rate of 0.75% on the first $500,000,000 of average daily net assets,
0.70% on the next $500,000,000 of such net assets and 0.65% of such net assets
in excess of $1,000,000,000, computed and accrued daily and payable monthly.
Accordingly, for the year ended September 30, 2000, the Adviser did not impose a
portion of its management fee pursuant to the Agreements aggregating $64,772 and
the amount imposed aggregated $448,478, which
38
<PAGE>
--------------------------------------------------------------------------------
was equivalent to an annual effective rate of 0.70% of the Fund's average daily
net assets.
Administrative Fee. Effective July 17, 2000, the Fund, as approved by the Fund's
Board of Trustees, adopted an Administrative Agreement (the "Administrative
Agreement") with Scudder Kemper. Under the Administrative Agreement the Adviser
provides or pays others to provide substantially all of the administrative
services required by the Fund (other than those provided by Scudder Kemper under
its Agreement with the Fund, as described above) in exchange for the payment by
the Fund of an administrative services fee (the "Administrative Fee") of 0.45%
of average daily net assets. As of the effective date of the Administrative
Agreement, each service provider will continue to provide the services that it
currently provides to the Fund (i.e., fund accounting, shareholder services,
custody, audit and legal) under the current arrangements, except that Scudder
Kemper will pay these entities for the provision of their services to the Fund
and will pay most other Fund expenses, including insurance, registration,
printing and postage fees. Certain expenses of the Fund will not be borne by
Scudder Kemper under the Administrative Agreement, such as taxes, brokerage,
interest and extraordinary expenses, and the fees and expenses of the
Independent Trustees (including the fees and expenses of their independent
counsel). For the period July 17, 2000 through September 30, 2000, the
Administrative Agreement expense charged to the Fund amounted to $91,200, all of
which is unpaid at September 30, 2000.
Other Fees. Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is
the transfer, dividend-paying and shareholder service agent for the Fund. Prior
to July 17, 2000, the amount charged to the Fund by SSC aggregated $156,405, of
which $7,612 is unpaid at September 30, 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. Prior to July 17,
2000, the amount charged to the Fund by SFAC aggregated $43,006, of which
$12,644 is unpaid at September 30, 2000.
Effective July 17, 2000, the above fees will be paid by the Adviser in
accordance with the Administrative Agreement.
Trustees' Fees and Expenses. The Fund pays each Trustee not affiliated with the
Adviser an annual retainer plus specified amounts for attended board and
committee meetings. For the year ended September 30, 2000, Trustees' fees and
expenses aggregated $28,042. In addition, a one-time fee of $2,198 was
39
<PAGE>
accrued, by Class AARP prior to July 17, 2000, for payment to those Trustees not
affiliated with the Adviser who did not stand for re-election under the
reorganization discussed in Note F. Inasmuch as the Adviser will also benefit
from administrative efficiencies of a consolidated Board, the Adviser has agreed
to bear $1,099 of such costs.
Other Related Parties. Effective July 17, 2000, Scudder Kemper has agreed to pay
a fee to AARP and/or its affiliates in return for advice and other services
relating to investments by AARP members in Class AARP shares of the Fund. This
fee is calculated on a daily basis as a percentage of the combined net assets of
the AARP Classes of all funds managed by Scudder Kemper. The fee rates, which
decrease as the aggregate net assets of the AARP Classes become larger, are as
follows: 0.07% for the first $6,000,000,000 of net assets, 0.06% for the next
$10,000,000,000 of such net assets and 0.05% of such net assets thereafter.
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 year ended September 30,
2000, the Fund's custodian fees were reduced by $1,102. Prior to July 17, 2000,
transfer agent fees were reduced by $3,111.
Effective July 17, 2000, transfer agent credits will no longer be used to reduce
Fund expenses.
E. Line of Credit
The Fund and several other Scudder Funds (the "Participants") share in a $1
billion revolving credit facility with Chase Manhattan Bank for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Participants are
charged an annual commitment fee which is allocated, pro rata based upon net
assets, among each of the Participants. Interest is calculated based on the
market rates at the time of the borrowing. The Fund may borrow up to a maximum
of 33 percent of its net assets under the agreement.
F. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the
40
<PAGE>
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management and operations of most of the no-load open-end funds Scudder Kemper
advises principally through the liquidation of several small funds, mergers of
certain funds with similar investment objectives, the creation of one Board of
Directors/Trustees and the adoption of an administrative fee covering the
provision of most of the services currently paid for by the affected funds.
Costs incurred in connection with this restructuring initiative are being borne
jointly by Scudder Kemper and certain of the affected funds. These costs,
including printing, shareholder meeting expenses and professional fees, are
presented as reorganization expenses in the Statement of Operations of the Fund.
G. Acquisition of Assets
On July 14, 2000, the Fund acquired all of the net assets of Scudder Micro Cap
Fund pursuant to a plan of reorganization approved by shareholders on July 13,
2000. The acquisition was accomplished by a tax-free exchange of 2,689,131
shares of the Class S shares of the Fund for 3,212,382 shares of Scudder Micro
Cap Fund outstanding on July 14, 2000. Scudder Micro Cap Fund's net assets at
that date ($49,750,918), including $7,494,671 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $52,385,849. The combined net assets of
the Fund immediately following the acquisition were $102,136,767.
41
<PAGE>
--------------------------------------------------------------------------------
H. Share Transactions
The following tables summarize share and dollar activity in the Fund:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 2000 September 30, 1999
------------------------------------------------------------------
Shares Dollars Shares Dollars
Shares sold
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class AARP* ......... 553,522 $ 9,694,025 1,115,726 $ 19,840,511
Class S** ........... 47,076 863,212 -- --
-------------- --------------
$ 10,557,237 $ 19,840,511
-------------- --------------
Shares issued to shareholders in tax-free reorganization
-------------------------------------------------------------------------------------
Class AARP* ......... -- $ -- -- $ --
Class S** ........... 2,689,131 49,750,918 -- --
-------------- --------------
$ 49,750,918 $ --
-------------- --------------
Shares issued to shareholders in reinvestment of distributions
-------------------------------------------------------------------------------------
Class AARP* ......... 3,643 $ 63,139 4,548 $ 81,440
Class S** ........... -- -- -- --
-------------- --------------
$ 63,139 $ 81,440
-------------- --------------
Shares redeemed
-------------------------------------------------------------------------------------
Class AARP* ......... (1,640,072) $ (28,917,665) (3,148,477) $ (56,215,601)
Class S** ........... (218,916) (3,980,088) -- --
-------------- --------------
$ (32,897,753) $ (56,215,601)
-------------- --------------
Net increase (decrease)
-------------------------------------------------------------------------------------
Class AARP* ......... (1,082,907) $ (19,160,501) (2,028,203) $ (36,293,650)
Class S** ........... 2,517,291 46,634,042 -- --
-------------- --------------
$ 27,473,541 $ (36,293,650)
-------------- --------------
</TABLE>
* On July 17, 2000, existing shares of the Fund were redesignated as Class
AARP shares.
** For the period from July 17, 2000 (commencement of sale of Class S) to
September 30, 2000.
42
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of Investment Trust and the Shareholders of Scudder
Small Company Stock 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 Small Company Stock Fund (formerly AARP Small Company Stock
Fund) (the "Fund") at September 30, 2000, the results of its
operations, the changes in its net assets and the financial highlights
for each of the periods indicated therein, in conformity with
accounting principles generally accepted in the United States of
America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of
America which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at September 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
Boston, Massachusetts PricewaterhouseCoopers LLP
November 28, 2000
43
<PAGE>
Tax Information (Unaudited)
--------------------------------------------------------------------------------
For corporate shareholders, 100% of the income dividends paid during
the Fund's fiscal year ended September 30, 2000 qualified for the
dividends received deduction.
Please consult a tax adviser if you have questions about federal or
state income tax laws, or on how to prepare your tax returns. If you
have specific questions about your account, please call 1-800-SCUDDER.
44
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder Small Company Stock
Fund (the "fund"), a series of Investment Trust, formerly AARP Small Company
Stock Fund, a series of AARP Growth Trust, was held on July 11, 2000, at the
office of Scudder Kemper Investments, Inc., Two International Place, Boston,
Massachusetts 02110. At the Meeting the following matters were voted upon by the
shareholders (the resulting votes for each matter are presented below).
1. To elect Trustees of AARP Growth Trust.
Number of Votes:
Trustee For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 1,759,450 51,465
Linda C. Coughlin 1,761,902 49,012
Dawn-Marie Driscoll 1,761,663 49,251
Edgar R. Fiedler 1,760,084 50,831
Keith R. Fox 1,761,519 49,395
Joan E. Spero 1,760,817 50,097
Jean Gleason Stromberg 1,761,215 49,700
Jean C. Tempel 1,761,481 49,434
Steven Zaleznick 1,758,716 52,198
--------------------------------------------------------------------------------
2. To approve an Agreement and Plan of Reorganization for the fund whereby all
or substantially all of the assets and liabilities of the fund would be
acquired by a new series of Investment Trust in exchange for shares of the
AARP class of such series.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------------------------------------------------------------------------------
1,726,177 45,143 36,085 3,510
--------------------------------------------------------------------------------
3. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the fiscal year ending September 30, 2000.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------------------------------------------------------------------------------
1,767,519 14,435 28,960 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* Broker non-votes are proxies received by the fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
45
<PAGE>
Officers and Trustees
Linda C. Coughlin*
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President, WGBH
Educational Foundation
Dawn-Marie Driscoll
o Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Edgar R. Fiedler
o Trustee; Senior Fellow and
Economic Counsellor, The
Conference Board, Inc.
Keith R. Fox
o Trustee; General Partner,
The Exeter Group of Funds
Joan E. Spero
o Trustee; President, The Doris
Duke Charitable Foundation
Jean Gleason Stromberg
o Trustee; Consultant
Jean C. Tempel
o Trustee; Managing Director,
First Light Capital, LLC
Steven Zaleznick
o Trustee; President and
Chief Executive Officer,
AARP Services, Inc.
Thomas V. Bruns*
o Vice President
James M. Eysenbach*
o Vice President
William F. Gadsden*
o Vice President
William F. Glavin*
o Vice President
Valerie F. Malter*
o Vice President
James E. Masur*
o Vice President
Ann M. McCreary*
o Vice President
Kathleen T. Millard*
o Vice President
Howard S. Schneider*
o Vice President
John Millette*
o Vice President and Secretary
Kathryn L. Quirk*
o Vice President and
Assistant Secretary
John R. Hebble*
o Treasurer
Brenda Lyons*
o Assistant Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
46
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Scudder Funds
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund
Prime Reserve Shares Scudder Small Company Value Fund
Premium Shares
Managed Shares Growth
Scudder Tax Free Money Fund Scudder Classic Growth Fund
Scudder Capital Growth Fund
Tax Free Scudder Large Company Growth Fund
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund Scudder Small Company Stock Fund
Scudder California Tax Free Fund Scudder 21st Century Growth Fund
Scudder Massachusetts Tax Free Fund
Scudder New York Tax Free Fund Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund
Scudder GNMA Fund Scudder Global Discovery Fund
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio Scudder Health Care Fund
Scudder Pathway Growth Portfolio Scudder Technology Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
47
<PAGE>
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
--------------------------------------------------------------------------------
Closed-End Funds
--------------------------------------------------------------------------------
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
Scudder funds are offered by prospectus only. For more complete information on
any fund or variable annuity registered in your state, including information
about a fund's objectives, strategies, risks, advisory fees, distribution
charges, and other expenses, please order a free prospectus. Read the prospectus
before investing in any fund to ensure the fund is appropriate for your goals
and risk tolerance. There is no assurance that the objective of any fund will be
achieved, and fund returns and net asset values fluctuate. Shares are redeemable
at current net asset value, which may be more or less than their original cost.
A money market mutual fund investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although a
money market mutual fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in such a fund.
The services and products described should not be considered a solicitation to
buy or an offer to sell a security to any person in any jurisdiction where such
offer, solicitation, purchase, or sale would be unlawful under the securities
laws of such jurisdiction.
Scudder Investor Services, Inc.
48
<PAGE>
Account Management Resources
--------------------------------------------------------------------------------
For shareholders of Scudder funds including those in the AARP Investment Program
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly
to regularly purchase fund shares and "dollar cost
average" -- buy more shares when the fund's price is
lower and fewer when it's higher, which can reduce
your average purchase price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to
purchase shares -- use distributions from one Scudder
fund to purchase shares in another, automatically
(accounts with identical registrations or the same
social security or tax identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of
your transactions is electronically debited from a
previously designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government
checks -- invested in up to four Scudder funds at one
time.
* Dollar cost averaging involves continuous
investment in securities regardless of price
fluctuations and does not assure a profit or
protect against loss in declining markets.
Investors should consider their ability to
continue such a plan through periods of low
price levels.
Around-the- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to
exchange or redeem shares, and information on other
Scudder funds and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.scudder.com
Personal Investment Organizer: Offering account
information and transactions, interactive worksheets,
prospectuses and applications for all Scudder funds,
plus your current asset allocation, whenever you need
them. Scudder's site also provides news about Scudder
funds, retirement planning information, and more.
49
<PAGE>
--------------------------------------------------------------------------------
Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the
proceeds for schedule (as frequently as once a month) and amount
living expenses of the redemptions, and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into
automated the bank account you designate within three business
withdrawal days after each distribution is paid.
programs
QuickSell
Provides speedy access to your money by
electronically crediting your redemption proceeds to
the bank account you previously designated.
For more Scudder Class S Shareholders:
information
about these Call a Scudder representative at
services 1-800-SCUDDER
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 2291
Boston, Massachusetts
02107-2291
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 2540
Boston, Massachusetts
02208-2540
50
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most
experienced investment management organizations worldwide, managing
more than $290 billion in assets globally for mutual fund investors,
retirement and pension plans, institutional and corporate clients,
insurance companies, and private family and individual accounts.
Scudder Kemper Investments has a rich heritage of innovation,
integrity, and client-focused service. In 1997, Scudder, Stevens &
Clark, Inc., founded over 80 years ago as one of the nation's first
investment counsel organizations, joined the Zurich Financial Services
Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York,
Scudder Kemper Investments offers a full range of investment counsel
and asset management capabilities, based on a combination of
proprietary research and disciplined, long-term investment strategies.
With its global investment resources and perspective, the firm seeks
opportunities in markets throughout the world to meet the needs of
investors.
Scudder Kemper Investments, Inc., the global asset management firm, is
a member of the Zurich Financial Services Group. The Zurich Financial
Services Group is an internationally recognized leader in financial
services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current
prospectus.
Portfolio changes should not be considered recommendations for action
by individual investors.
SCUDDER
INVESTMENTS(SM)
[LOGO]
AARP Investment
Program from Scudder
PO Box 2540
Boston, MA 02208-2540
1-800-253-2277
aarp.scudder.com
Scudder Funds
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Finanical Services Group
