Scudder
Small Company
Value Fund
Annual Report
August 31, 1997
A pure no-load(TM) (no sales charges) mutual fund which offers opportunities for
long-term growth of capital by seeking undervalued stocks of small U.S.
companies.
o For the twelve-month period ended August 31, 1997, Scudder Small Company Value
Fund provided a total return of 44.67%, exceeding by a wide margin the 37.30%
total return of small company value stocks and the 28.96% return of small
company stocks overall, as measured by the unmanaged Russell 2000 Value and the
Russell 2000 indices, respectively.
o After trailing large-cap stocks for most of the year, the Fund also surpassed
the performance of large-cap stocks, as represented by the 40.66% return of the
S&P 500.
o As of August 31, 1997, the Fund was invested in 201 small U.S. companies with
a median stock market capitalization of $437 million and a price-to-earnings
ratio of roughly one-half that of small company stocks, reflecting the Fund's
disciplined, value-oriented approach.
Table of Contents
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Glossary of Investment Terms
10 Investment Portfolio
19 Financial Statements
22 Financial Highlights
23 Notes to Financial Statements
26 Report of Independent Accountants
27 Tax Information
28 Officers and Trustees
29 Investment Products and Services
30 Scudder Solutions
2 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Dear Shareholders,
We are pleased to present the annual report for Scudder Small Company Value
Fund for the twelve-month period ended August 31, 1997.
Your Fund benefited from its disciplined, value-oriented approach to
investing in small company stocks, as it outperformed both small-cap and
small-cap value indices during the fiscal period. This satisfying performance
placed the Fund among the top 6% (24th) of 421 small company funds according to
Lipper Analytical Services, Inc. for the period. A complete discussion of your
Fund's activities begins on page 1.
On the heels of several back-to-back years of strong performance by the
U.S. stock market, yet another year of outstanding performance is almost hard to
believe. Returns over this period exceed by a wide margin the approximately 10%
long run average for U.S. stocks. Considering the recent strength of the market,
we believe it is especially important for investors to have realistic
expectations for stocks. While we expect the environment that has contributed to
the stock market's good performance to continue, double-digit returns may not be
repeated in 1998. Part of a sound approach to building a portfolio is adequate
diversification with exposure to small-cap, foreign, emerging market, and fixed
income securities in addition to large-cap U.S. stocks. Our Investor Relations
representatives can assist you with assessing your needs and determining the
next steps to achieving your long-term goals.
Please feel free to give them a call toll-free at 1-800-225-2470.
For those of you who are interested in new Scudder products, we recently
introduced Scudder International Growth and Income Fund, which pursues a
yield-oriented approach to investing in international equities. The Fund seeks
to provide long-term growth of capital plus current income. Investors who desire
international exposure but wish to take a more conservative approach may
appreciate the Fund's emphasis on dividend paying stocks of established
companies listed on foreign exchanges. For further information on this new fund,
please turn to page 31.
Thank you for your continued investment in Scudder Small Company Value
Fund. If you have any questions about your Fund, please call Scudder Investor
Relations at 1-800-225-2470 or visit our Internet Web site at
http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Small Company Value Fund
3 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Performance Update as of August 31, 1997
- ----------------------------------------
Fund Index Comparisons
- ----------------------------------------
Total Return
- ----------------------------------------
Period Growth
Ended of Average
8/31/97 $10,000 Cumulative Annual
- ----------------------------------------
Scudder Small Company Fund
Ticker Symbol: SCSUX
- ----------------------------------------
1 Year $14,467 44.67% 44.67%
Life of
Fund** $16,425 64.25% 29.87%
- ----------------------------------------
Russell 2000 Value Index
- ----------------------------------------
1 Year $13,730 37.30% 37.30%
Life of
Fund** $15,431 54.31% 25.59%
- ----------------------------------------
Russell 2000 Index
- ----------------------------------------
1 Year $12,896 28.96% 28.96%
Life of
Fund** $14,467 44.67% 21.40%
- ----------------------------------------
S&P 500 Index
- ----------------------------------------
1 Year $14,066 40.66% 40.66%
Life of
Fund** $16,064 60.64% 28.26%
- ----------------------------------------
Growth of a $10,000 Investment
- ----------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Scudder Micro Cap Fund
Year Amount
- ----------------------
10/95* $10,000
11/95 $10,409
2/96 $10,844
5/96 $11,930
8/96 $11,605
11/96 $12,837
2/97 $13,522
5/97 $14,637
8/97 $16,789
Russell 2000 Value Index
Year Amount
- ----------------------
10/95* $10,000
11/95 $10,397
2/96 $10,959
5/96 $11,786
8/96 $11,506
11/96 $12,600
2/97 $13,325
5/97 $14,206
8/97 $15,799
Russell 2000 Index
Year Amount
- ----------------------
10/95* $10,000
11/95 $10,420
2/96 $11,017
5/96 $12,309
8/96 $11,399
11/96 $12,143
2/97 $12,403
5/97 $13,168
8/97 $14,701
S&P 500 Index
Year Amount
- ----------------------
10/95* $10,000
11/95 $10,439
2/96 $11,105
5/96 $11,669
8/96 $11,432
11/96 $13,347
2/97 $14,009
5/97 $15,102
8/97 $16,081
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Nasdaq Stock Market.
The Russell 2000 Index is an unmanaged capitalization-weighted measure
of approximately 2000 small U.S. stocks. The Russell 2000 Value Index
measures the performance of those Russell 2000 companies with lower
price-to-book ratios and lower forecasted growth rates. Index returns
assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
* The Fund commenced operations on October 6, 1995. The graphed Index
comparison begins October 31, 1995.
- ----------------------------------------
Returns and Per Share Information
- ----------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended August 31
1996** 1997
- --------------------------------------------------------------------------------
Net Asset Value $13.57 $19.58
- --------------------------------------------------------------------------------
Income Dividends $ .05 $ .03
- --------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ .01
- --------------------------------------------------------------------------------
Fund Total Return (%) 13.54 44.67
- --------------------------------------------------------------------------------
Index Total Return (%) 12.38 37.30
- --------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total return for the one year and life
of Fund periods would have been lower.
* The Fund commenced operations on October 6, 1995.
4 - SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Portfolio Summary as of August 31, 1997
- ----------------------------------------
Asset Allocation
- ----------------------------------------
A graph in the form of a pie chart appears
here, illustrating the exact data points
in the below table.
Equity Securities 96%
Cash Equivalents 4%
- ----------------------------------------
100%
- ----------------------------------------
The Fund seeks to be fully invested in
stocks of small U.S. companies.
- ----------------------------------------
Sectors/Largest Holdings
(Excludes 4% Cash Equivs.)
- ----------------------------------------
1. Manufacturing (18%)
L.S. Starrett Corp.
Manufacturing tools
2. Financial (17%)
Harleysville Group, Inc.
Regional insurance holding company
3. Consumer Discretionary (10%)
Toro Co.
Manufacturer of lawn and snow
removal equipment
4. Construction (9%)
U.S. Home Corp
Single home builder and financier
5. Technology (7%)
CTS Corp.
Manufacturer of electronic and
electromechanical components
6. Utilities (7%)
Energen Corp.
Natural gas distributor
7. Service Industries (6%)
Mine Safety Appliance Co.
Manufacturer of safety and health
protection equipment and instruments
8. Durables (6%)
NACCO Industries, Inc. "A"
Manufacturer of forklift trucks
9. Metals & Minerals (5%)
Brush Wellman Inc.
Manufacturer of engineered metal
products
10. Consumer Staples (5%)
Nash-Finch Co.
Owner and operator of supermarkets
and warehouse stores
- ----------------------------------------------------------------------
Stock Characteristics
- ----------------------------------------------------------------------
Fund as
% of
Russell S&P Russell
Fund 2000* 500** 2000
- ----------------------------------------------------------------------
Small Companies ($ millions)
Market Capitalization: Median 437 461 6,260 95%
Market Capitalization: Wgt. Avg. 467 741 49,685 63%
Revenues 767 590 25,301 130%
Value Orientation
P/E: Trailing Twelve Months 15.1 31.5 22.6 48%
Price/Sales 0.6 1.2 1.5 51%
Price/Book Value 1.8 2.8 3.7 66%
Yield (Avg. Stock) 1.3% 1.1% 1.7% 111%
* The Russell 2000 Index is an unmanaged capitalization weighted
measure of approximately 2000 small U.S. stocks.
** The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Nasdaq Stock Market.
Reflecting the Fund's value orientation, the portfolio's
average price-earnings ratio is less than half that of the
overall small-cap market.
For more complete details about the Fund's Investment Portfolio, see page 10.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
5 - SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Portfolio Management Discussion
In the following interview, James M. Eysenbach and Philip S. Fortuna, portfolio
managers of Scudder Small Company Value Fund, discuss the Fund's strategy and
market environment during the fiscal period.
Q: How did the Fund perform?
A: For the trailing twelve-month period ended August 31, 1997, the Fund provided
a total return of 44.67%, exceeding the 37.30% return of the unmanaged Russell
2000 Value Index of small company value stocks and the 28.96% return of the
Russell 2000 Index of small company stocks overall. Among its peers, the Fund
ranked in the top 6% (24th) of 421 small-cap funds according to Lipper
Analytical Services, Inc. for the same period. The Fund's net asset value per
share increased from $13.57 to $19.58, and it paid an income distribution of
$0.03 per share and a capital gain distribution of $0.01 per share.
Q: How do you judge this performance?
A: The Fund's disciplined method of stock selection, which focuses on companies
with attractive valuations, has been particularly rewarding during a period when
the small-cap market struggled to keep pace with the strong returns of large-cap
stocks. Towards the end of the period, we began to see a change as large-cap
stock performance slipped. As a result, the Fund outperformed the larger-cap S&P
500 Index in addition to small-cap benchmarks over the trailing twelve-month
period and from the Fund's inception on October 6, 1995. Of course, these are
still relatively short time periods. A minimum three-to five-year investment
horizon can provide a more realistic perspective in evaluating the performance
of a stock fund.
Q: What is your investment strategy?
A: We seek to exploit inefficiencies in the small-cap segment of the U.S. stock
market and add value through quantitative equity analysis, portfolio
construction and efficient trading. We do not attempt to add value through
market timing, either by moving between stocks and cash or among various
segments of the equity markets. Instead, we attempt to keep the Fund essentially
fully-invested in small U.S. stocks. This approach is consistently applied and
does not change significantly from one reporting period to the next.
Q: How is your investment strategy different from other funds?
A: Instead of attempting to gauge the growth prospects of a company's new
products or the quality of management and their projections for the future, we
seek to invest in attractively valued small company stocks. We conduct a
quantitative evaluation of more than one thousand small companies, analyzing
valuations, sales and earnings trends, returns to shareholders, and risk
characteristics to identify promising candidates for the Fund.
Q: What characterizes the Fund's value orientation?
A: We look at valuation from several perspectives. One measure is the
portfolio's price-earnings (P/E) multiple. The P/E is a widely used stock
valuation gauge that indicates what investors are paying for a company's
earnings on a per-share basis. A low "earnings multiple" can indicate an
undervalued security for a given level of earnings. The Fund's current average
P/E is 15.1, or roughly one-half that of the Russell 2000 Index of small company
stocks. This below-average P/E is indicative of the Fund's value approach, and
6 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
has the potential to provide a degree of downside protection if stocks decline.
Q: Is the Fund less volatile than the market?
A: As a result of our value-oriented investment strategy, the Fund has been less
volatile than the overall stock market, whether measured against the Russell
2000 small-cap stock universe or the S&P 500 Index of larger company stocks. The
Fund's overall volatility, as measured by the standard deviation of monthly
returns from inception, has been about 20% lower than the Russell 2000 and about
10% less volatile than the S&P 500. While lower volatility is typical of
small-cap value stocks relative to small-cap stocks overall, this period has
been unusual in that this segment has also exhibited lower volatility than
large-cap stocks.
Q: How do you select investments?
A: Our process is highly systematic, and starts with collecting extensive
financial information on individual companies. Using a proprietary investment
model, we analyze this data in a consistent, objective way across a large
universe of small companies. Each stock is assigned a ranking based on its
relative attractiveness. In addition, as new information streams in, such as
recent earnings reports, it is incorporated into the evaluation so that we can
instantly see how the fresh data affects the relative attractiveness of each
stock. Careful consideration is then given to the risk characteristics of these
stocks within the context of a diversified portfolio. We employ the assistance
of a computer model to assess the millions of possibilities and identify the
portfolio with the highest potential return for a given level of risk. Finally,
we work with our traders to determine the most efficient means of executing our
purchase and sale decisions.
Q: Are there other considerations that go into the investment process?
A: Yes. We consider the tax implications of portfolio management decisions and
keep turnover at a relatively modest level -- 44% over the trailing
twelve-months. This strategy has resulted in lower realized gains and therefore,
lower taxable capital gains distributions to shareholders, while still providing
attractive total returns.
Q: The small-cap market is perceived as high risk. What do you do to manage
risk?
A: The risks of holding individual small-cap stocks can be high. Small companies
generally have higher business risks than more established companies, such as
untested management, less diversified product lines, and limited financial
resources. This makes small companies more vulnerable to adverse business
developments than larger companies. Also, because some small-cap stocks are
traded less frequently, the price of these issues can drop quickly if investors
rush to sell. Conversely, the price can be dramatically bid up if an investor
tries to initiate a large position in a stock. We attempt to control these risks
throughout the selection process by holding a relatively large number of
securities in the portfolio. That way, if a few individual securities experience
problems, the effect is minimized. The Fund is also structured to promote a
stable base of assets. To discourage short-term trading, the Fund imposes a 1%
7 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
redemption fee on shares held less than one year.
Q: What is your outlook for small-cap value stocks and the Fund?
A: As believers in our own investment strategy, we think small-cap value stocks
have an important place in nearly every long-term investor's portfolio. However,
small-cap value stocks will have periods of underperformance and will not always
provide the exceptional tailwind that this segment has recently enjoyed. We
believe that small-cap value stocks offer many long-term benefits, including the
potential to improve an investor's portfolio diversification. With sales and
earnings growth having become harder to sustain at some large companies, we
believe small-caps should continue to provide a good place for long-term
investors seeking exposure to a dynamic sector of the stock market.
Scudder Small Company Value Fund: A Team Approach
to Investing
Scudder Small Company Value Fund is managed by a team of Scudder investment
professionals who each play 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 Scudder's
large staff of quantitative analysts, traders and other investment specialists
who work in Scudder's offices across the United States and abroad. Scudder
believes its team approach benefits Fund investors by bringing together many
disciplines and leveraging Scudder's extensive resources.
James M. Eysenbach joined Scudder in 1991 as a senior quantitative analyst,
served as director of quantitative services from 1993 to 1997 and is currently
managing portfolios full-time. Mr. Eysenbach has more than 10 years investment
management experience, specializing in quantitative research, analysis and
portfolio management. Philip S. Fortuna joined Scudder in 1986 as a manager of
institutional equity accounts, and has served as director of quantitative
services and director of investment operations. He has also been involved in
global planning and new product development in addition to his portfolio
management responsibilities. Mr. Fortuna is currently director of Scudder's
quantitative group.
8 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Glossary of Investment Terms
FUNDAMENTAL RESEARCH Analysis of companies based on
the projected impact of management,
products, sales, and earnings on balance
sheets and income statements. Distinct
from technical analysis, which evaluates
the attractiveness of a stock based on
historical price and trading volume
movements, rather than the financial
results of the underlying company.
GROWTH STOCK Stock of a company that has
displayed above average earnings growth
and is expected to continue to increase
profits rapidly going forward.
LIQUIDITY A stock that is liquid has enough shares
outstanding and a substantial enough
market capitalization to allow large
purchases and sales to occur without
causing a significant change in its
market price.
MARKET CAPITALIZATION The value of a company's
outstanding shares of common stock,
determined by the number of shares
outstanding multiplied by the share price
(Shares x Price = Market Capitalization).
The universe of publicly traded companies
is frequently divided into large-, mid-,
and small-capitalizations. In general,
"large-cap" stocks tend to be more liquid
than "small-cap" stocks.
OVER/UNDER WEIGHTING Refers to the allocation of
assets -- usually by sector, industry, or
country -- within a portfolio relative to
a benchmark index, (i.e. the Russell
2000) or an investment universe.
PRICE-EARNINGS RATIO (P/E) A widely used gauge of a stock's
(also "earnings multiple") valuation that indicates what investors
are paying for a company's earnings on
a per share basis. A higher "earnings
multiple" indicates a higher expected
growth rate and the potential for greater
price fluctuations.
STANDARD DEVIATION A statistical measure of the
degree to which an individual value tends
to vary from the mean of the
distribution. Frequently used in
portfolio management to determine the
range of possible future performances
based on the past performance of a
security.
VALUE STOCK A stock that does not fully reflect
the company's 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.
(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)
9 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Investment Portfolio as of August 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 4.2%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 8/29/97 at
5.45%, to be repurchased at $5,261,184 on 9/2/97, collateralized by a -----------
$3,755,000 U.S. Treasury Note, 12%, 8/15/13 (Cost $5,258,000) ........................ 5,258,000 5,258,000
-----------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 95.8%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 9.8%
Apparel & Shoes 0.6%
Oxford Industries, Inc. ................................................................. 21,500 721,594
-----------
Department & Chain Stores 3.4%
AnnTaylor Stores Corp.* ................................................................. 6,100 104,463
Carson Pirie Scott & Co.* ............................................................... 27,400 972,700
Casey's General Stores, Inc.* ........................................................... 37,900 862,225
Dress Barn Inc.* ........................................................................ 20,300 416,150
Shopko Stores, Inc.* .................................................................... 35,900 987,250
Syms Corp.* ............................................................................. 65,000 824,688
-----------
4,167,476
-----------
Home Furnishings 3.5%
Ethan Allen Interiors Inc. .............................................................. 3,300 242,550
Furniture Brands International Inc.* .................................................... 22,700 400,088
Interface, Inc. ......................................................................... 26,000 728,000
Mikasa, Inc.* ........................................................................... 40,900 485,688
Oneida Ltd. ............................................................................. 26,500 839,719
Thomas Industries, Inc. ................................................................. 21,900 648,788
Toro Co. ................................................................................ 28,000 1,039,500
-----------
4,384,333
-----------
Hotels & Casinos 0.5%
Prime Hospitality Corp.* ................................................................ 30,100 571,900
-----------
Recreational Products 0.2%
Outboard Marine Corp. ................................................................... 14,800 264,550
-----------
Restaurants 0.8%
Ryan's Family Steak Houses, Inc.* ....................................................... 101,200 936,100
-----------
Specialty Retail 0.8%
Fabri-Centers of America "A"* ........................................................... 24,400 594,750
Inacom Corp. ............................................................................ 12,600 434,700
-----------
1,029,450
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Staples 5.2%
Food & Beverage 3.8%
Earthgrains Co. ......................................................................... 15,000 615,000
International Multifoods Corp. .......................................................... 10,600 284,875
Michael Foods, Inc. ..................................................................... 31,000 670,375
Morningstar Group, Inc.* ................................................................ 23,000 687,125
Nash-Finch Co. .......................................................................... 48,200 1,030,275
Pilgrim's Pride Corp. ................................................................... 59,900 703,825
Rykoff-Sexton, Inc. ..................................................................... 29,800 752,450
-----------
4,743,925
-----------
Package Goods/Cosmetics 0.5%
American Safety Razor Co.* .............................................................. 32,000 596,000
-----------
Textiles 0.9%
Guilford Mills, Inc. .................................................................... 50,500 1,098,375
-----------
Health 1.2%
Hospital Management 0.4%
Mariner Health Group, Inc.* ............................................................. 36,000 522,000
-----------
Medical Supply & Specialty 0.8%
Bindley Western Industries, Inc. ........................................................ 30,200 760,663
West Co., Inc. .......................................................................... 6,100 189,863
-----------
950,526
-----------
Financial 16.3%
Banks 7.4%
Banknorth Group, Inc. ................................................................... 20,800 1,040,000
Bok Financial Corp. ..................................................................... 10,400 384,800
Chittenden Corp. ........................................................................ 14,050 481,213
Citizens Banking Corp. .................................................................. 17,800 703,100
Commerce Bancorp, Inc. .................................................................. 10,249 379,204
Community First Bankshares, Inc. ........................................................ 13,700 558,275
First Citizens BancShares, Inc. "A" ..................................................... 1,200 107,400
FirstBank Puerto Rico ................................................................... 15,900 448,181
Heritage Financial Services, Inc. ....................................................... 27,600 531,300
MAF Bancorp, Inc. ....................................................................... 14,100 433,575
National Bancorp of Alaska, Inc. ........................................................ 5,100 448,800
People's Heritage Financial Group, Inc. ................................................. 2,659 99,048
Riggs National Corp. .................................................................... 39,900 837,900
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Silicon Valley Bancshares* .............................................................. 7,300 392,375
Susquehanna Bancshares, Inc. ............................................................ 18,000 495,000
TR Financial Corp. ...................................................................... 16,000 442,000
UST Corporation ......................................................................... 23,100 496,650
Usbancorp, Inc. ......................................................................... 10,200 626,025
Webster Financial Corp. ................................................................. 6,300 333,113
-----------
9,237,959
-----------
Insurance 7.4%
Acceptance Insurance Cos., Inc.* ........................................................ 24,600 547,350
Allied Group, Inc.* ..................................................................... 11,750 519,938
American Annuity Group, Inc. ............................................................ 25,600 531,200
American Heritage Life Investment Corp. ................................................. 25,000 882,813
Baldwin & Lyons, Inc. "B" ............................................................... 13,400 259,625
Capitol Transamerica Corp. .............................................................. 7,700 200,200
Delphi Financial Group, Inc. "A" ........................................................ 5,586 244,719
Guarantee Life Companies, Inc. .......................................................... 16,800 449,400
Guaranty National Corp. ................................................................. 32,100 904,819
Harleysville Group, Inc. ................................................................ 25,700 1,089,038
Life Re Corp. ........................................................................... 10,200 523,388
Life USA Holdings Inc.* ................................................................. 44,300 670,038
Medical Assurance, Inc. ................................................................. 5,155 257,740
Nymagic, Inc. ........................................................................... 30,100 726,163
Presidential Life Corp. ................................................................. 45,700 874,013
Trenwick Group, Inc. .................................................................... 12,500 454,688
-----------
9,135,132
-----------
Business Finance 0.7%
Imperial Bancorp ........................................................................ 27,000 882,563
-----------
Consumer Finance 0.5%
North American Mortgage Co. ............................................................. 23,900 618,413
-----------
Other Financial Companies 0.3%
Cash America International, Inc. ........................................................ 38,939 418,594
-----------
Service Industries 6.0%
Environmental Services 1.2%
Mine Safety Appliance Co. ............................................................... 15,400 970,200
OHM Corp.* .............................................................................. 66,600 553,613
-----------
1,523,813
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment 1.3%
Interra Financial, Inc. ................................................................. 16,000 696,000
Jefferies Group, Inc. ................................................................... 8,800 598,400
Phoenix Duff & Phelps Corp. ............................................................. 44,600 340,075
-----------
1,634,475
-----------
Miscellaneous Commercial Services 2.5%
Berlitz International, Inc. ............................................................. 34,600 908,250
CORT Business Services Corp.* ........................................................... 10,900 417,606
Getty Realty Corp.* ..................................................................... 19,700 344,750
McGrath Rentcorp ........................................................................ 38,000 874,000
Volt Information Sciences, Inc.* ........................................................ 9,900 552,544
-----------
3,097,150
-----------
Printing/Publishing 1.0%
Bowne & Co., Inc. ....................................................................... 20,700 599,006
Merrill Corp. ........................................................................... 16,800 680,400
-----------
1,279,406
-----------
Durables 5.7%
Aerospace 0.5%
Tracor, Inc. ............................................................................ 21,200 638,650
-----------
Automobiles 3.3%
A.O. Smith Corp. ........................................................................ 10,000 352,500
Arvin Industries, Inc. .................................................................. 10,300 358,569
Excel Industries Inc. ................................................................... 30,400 775,200
Simpson Industries, Inc. ................................................................ 88,000 979,000
Titan International, Inc. ............................................................... 34,900 636,925
Walbro Inc. ............................................................................. 20,100 432,150
Wynn's International, Inc. .............................................................. 20,050 578,944
-----------
4,113,288
-----------
Construction/Agricultural Equipment 1.7%
Allied Products Corp. ................................................................... 10,300 363,719
Global Industrial Technologies, Inc.* ................................................... 32,200 609,788
NACCO Industries, Inc. "A" .............................................................. 12,600 1,086,750
-----------
2,060,257
-----------
Leasing Companies 0.2%
AMERCO .................................................................................. 7,300 196,188
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing 17.0%
Chemicals 2.0%
Cambrex Corp. ........................................................................... 10,950 533,128
NCH Corp. ............................................................................... 16,400 1,115,200
Stepan Co. .............................................................................. 36,600 862,388
-----------
2,510,716
-----------
Containers & Paper 0.6%
Mosinee Paper Corp. ..................................................................... 20,699 615,795
Shorewood Packaging Corp.* .............................................................. 8,300 179,488
-----------
795,283
-----------
Diversified Manufacturing 4.1%
ACX Technologins, Inc.* ................................................................. 17,900 468,756
Cascade Corp. ........................................................................... 36,100 652,056
Griffon Corp.* .......................................................................... 54,200 758,800
Insilco Corp.* .......................................................................... 15,100 577,575
Robbins & Myers, Inc. ................................................................... 18,500 603,563
Scotsman Industries, Inc. ............................................................... 30,300 835,144
Tredegar Industries, Inc. ............................................................... 11,800 811,988
Valmont Industries ...................................................................... 17,000 357,000
-----------
5,064,882
-----------
Electrical Products 0.5%
AFC Cable Systems, Inc.* ................................................................ 18,700 560,973
-----------
Hand Tools 1.0%
L.S. Starrett Corp. "A" ................................................................. 35,400 1,239,000
-----------
Industrial Specialty 3.3%
Apogee Enterprises, Inc. ................................................................ 14,500 317,188
Applied Power, Inc. "A" ................................................................. 5,600 355,600
Barnes Group, Inc. ...................................................................... 26,600 733,163
Commercial Intertech Corp. .............................................................. 23,600 395,300
Electro Scientific Industries, Inc.* .................................................... 13,300 645,050
FSI International, Inc.* ................................................................ 27,500 508,750
Kulicke & Soffa Industries, Inc.* ....................................................... 11,700 537,469
Spartech Corp. .......................................................................... 22,300 354,013
Wyman-Gordon Co.* ....................................................................... 8,300 226,694
-----------
4,073,227
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery/Components/Controls 3.4%
Amcast Industrial Corp. ................................................................. 30,400 737,200
Columbus McKinnon Corp. ................................................................. 18,500 376,938
Commonwealth Industries Inc. ............................................................ 5,000 95,625
DT Industries, Inc. ..................................................................... 6,300 187,425
Gleason Corp. ........................................................................... 13,600 742,900
Mueller Industries, Inc.* ............................................................... 5,500 240,969
Sequa Corp. "A"* ........................................................................ 13,600 697,000
Tennant Company ......................................................................... 24,400 838,750
Zero Corporation ........................................................................ 12,600 339,413
-----------
4,256,220
-----------
Office Equipment/Supplies 0.3%
General Binding Corp. ................................................................... 11,900 368,900
-----------
Wholesale Distributors 1.8%
Applied Industrial Technology, Inc. ..................................................... 18,450 758,756
Hughes Supply, Inc. ..................................................................... 24,250 621,406
Rexel, Inc.* ............................................................................ 38,500 801,281
-----------
2,181,443
-----------
Technology 7.0%
Computer Software 0.4%
MTS Systems Corp. ....................................................................... 16,200 518,400
-----------
Diverse Electronic Products 1.2%
Cubic Corp. ............................................................................. 24,000 837,000
Esterline Technologies Corp.* ........................................................... 17,000 631,125
-----------
1,468,125
-----------
EDP Peripherals 0.1%
Black Box Corp. ......................................................................... 4,700 170,963
-----------
Electronic Components/Distributors 2.9%
CTS Corp. ............................................................................... 12,600 1,020,600
MicroAge Inc.* .......................................................................... 27,600 750,375
Park Electrochemical Corp. .............................................................. 24,900 737,663
Photronics, Inc.* ....................................................................... 2,400 141,600
Pioneer Standard Electronics, Inc. ...................................................... 27,200 408,000
Rogers Corp.* ........................................................................... 15,600 590,850
-----------
3,649,088
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Data Processing 0.1%
Sequent Computer Systems, Inc.* ......................................................... 6,300 177,581
-----------
Military Electronics 1.2%
Tech-Sym Corp.* ......................................................................... 27,000 896,063
Watkins-Johnson Co. ..................................................................... 17,700 608,438
-----------
1,504,501
-----------
Precision Instruments 0.2%
Silicon Valley Group Inc. ............................................................... 9,000 303,750
Semiconductors 0.9%
Electroglas, Inc.* ...................................................................... 17,200 550,400
Oak Technology, Inc. .................................................................... 2,200 23,925
Siliconix, Inc.* ........................................................................ 14,500 558,250
-----------
1,132,575
-----------
Energy 3.6%
Oil & Gas Production 1.1%
Plains Resources, Inc.* ................................................................. 38,400 700,800
Tesoro Petroleum Corp.* ................................................................. 39,000 667,875
-----------
1,368,675
-----------
Oil Companies 0.6%
Giant Industries, Inc. .................................................................. 18,200 335,563
Holly Corp. ............................................................................. 15,400 403,288
-----------
738,851
-----------
Oilfield Services/Equipment 1.9%
Cliffs Drilling Co.* .................................................................... 13,400 639,013
Getty Petroleum Corp. ................................................................... 19,400 109,125
Pride International Inc.* ............................................................... 23,500 752,000
RPC, Inc. ............................................................................... 40,400 873,650
-----------
2,373,788
-----------
Metals & Minerals 5.2%
Steel & Metals
Brush Wellman, Inc. ..................................................................... 40,500 1,012,500
Carpenter Technology Corp. .............................................................. 1,100 49,294
Chaparral Steel Co. ..................................................................... 36,400 550,550
Citation Corp.* ......................................................................... 31,200 546,000
Cleveland-Cliffs, Inc. .................................................................. 22,200 925,463
Commercial Metals Co. ................................................................... 18,900 581,175
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lone Star Technologies* ................................................................. 15,600 636,675
National Steel Corp. "B"* ............................................................... 35,800 673,488
Quanex Corp. ............................................................................ 22,400 813,400
RMI Titanium Co.* ....................................................................... 18,200 381,063
Shiloh Industries, Inc.* ................................................................ 15,300 283,050
-----------
6,452,658
-----------
Construction 9.1%
Building Materials 5.3%
Ameron International Corp. .............................................................. 18,000 1,051,875
Butler Manufacturing Co. ................................................................ 13,100 471,600
Florida Rock Industries, Inc. ........................................................... 17,100 844,313
Lone Star Industries, Inc. .............................................................. 12,600 669,375
Medusa Corp. ............................................................................ 9,700 455,900
Puerto Rican Cement Co., Inc. ........................................................... 30,400 1,069,700
Southdown, Inc. ......................................................................... 14,100 661,819
Texas Industries, Inc. .................................................................. 12,700 423,069
Triangle Pacific Corp.* ................................................................. 15,200 478,800
Universal Forest Products, Inc. ......................................................... 27,600 469,200
-----------
6,595,651
-----------
Building Products 0.7%
Zurn Industries, Inc. ................................................................... 28,300 840,156
-----------
Homebuilding 2.5%
Champion Enterprises, Inc.* ............................................................. 9,200 158,700
D.R. Horton, Inc. ....................................................................... 24,900 392,175
NVR Inc.* ............................................................................... 44,400 949,050
Skyline Corp. ........................................................................... 15,900 460,106
U.S. Home Corp.* ........................................................................ 33,800 1,193,563
-----------
3,153,594
-----------
Miscellaneous 0.6%
Granite Construction, Inc. .............................................................. 36,500 766,500
-----------
Transportation 2.9%
Air Freight 0.6%
Circle International Group, Inc. ........................................................ 29,600 743,700
-----------
Airlines 0.6%
Alaska Air Group Inc.* .................................................................. 26,700 732,581
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marine Transportation 0.5%
Avondale Industries, Inc.* .............................................................. 24,500 560,438
-----------
Trucking 1.2%
Roadway Express, Inc. ................................................................... 22,800 524,400
USFreightways Corp. ..................................................................... 22,500 675,000
Yellow Corp.* ........................................................................... 8,500 266,688
-----------
1,466,088
-----------
Utilities 6.8%
Electric Utilities 4.0%
Black Hills Corp. ....................................................................... 21,800 607,675
Central Lousiana Electric Co. ........................................................... 24,700 648,375
Central Hudson Gas & Electric Co. ....................................................... 19,000 634,125
Commonwealth Energy System Cos. ......................................................... 41,500 1,021,938
El Paso Electric Co.* ................................................................... 149,400 933,750
Northwestern Public Service Co. ......................................................... 46,400 896,100
SIGCORP, Inc. ........................................................................... 9,600 242,400
-----------
4,984,363
-----------
Natural Gas Distribution 2.6%
Energen Corp. ........................................................................... 30,100 1,085,481
Laclede Gas Co. ......................................................................... 15,700 383,669
North Carolina Natural Gas Corp. ........................................................ 15,700 491,606
Northwest Natural Gas Co. ............................................................... 26,500 662,500
Southern Union Co. ...................................................................... 24,310 556,091
-----------
3,179,347
-----------
Water Supply 0.2%
Aquarion Co. ............................................................................ 11,500 299,723
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $90,875,958) 119,053,857
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $96,133,958) (a) 124,311,857
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $96,133,958. At August 31,
1997, net unrealized appreciation for all securities based on tax cost was
$28,177,899. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $28,445,899 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$268,000.
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
18 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of August 31, 1997
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $96,133,958) .................. $ 124,311,857
Cash .................................................................. 187
Receivable on Fund shares sold ........................................ 782,140
Dividends and interest receivable ..................................... 127,818
Deferred organization expense ......................................... 14,697
Other assets .......................................................... 791
----------------
Total assets .......................................................... 125,237,490
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ..................................... 1,611,176
Payable for Fund shares redeemed ...................................... 37,101
Accrued management fee ................................................ 82,323
Other payables and accrued expenses ................................... 108,068
----------------
Total liabilities ..................................................... 1,838,668
--------------------------------------------------------------------------------------------
Net assets, at market value $ 123,398,822
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................... 19,194
Net unrealized appreciation (depreciation) on investments ............. 28,177,899
Accumulated net realized gain ......................................... 2,442,080
Paid-in capital ....................................................... 92,759,649
--------------------------------------------------------------------------------------------
Net assets, at market value $ 123,398,822
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($123,398,822 / 6,303,515 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ... $19.58
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Statement of Operations
year ended August 31, 1997
<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $1,662) ................ $ 943,691
Interest ........................................................... 161,977
-----------------
1,105,668
-----------------
Expenses:
Management fee ..................................................... 526,383
Services to shareholders ........................................... 346,695
Custodian and accounting fees ...................................... 101,264
Trustees' fees and expenses ........................................ 42,307
Registration fees .................................................. 14,649
Reports to shareholders ............................................ 65,189
Auditing ........................................................... 19,608
Legal .............................................................. 13,143
Amortization of organization expense ............................... 4,749
Other .............................................................. 9,531
-----------------
Total expenses before reductions ................................... 1,143,518
Expense reductions ................................................. (89,398)
-----------------
Expenses, net ...................................................... 1,054,120
---------------------------------------------------------------------------------------------
Net investment income 51,548
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .......................... 2,467,254
Net unrealized appreciation (depreciation) during the period on
investments ..................................................... 25,374,837
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 27,842,091
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 27,893,639
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
October 6, 1995
Year (commencement
Ended of
August 31, operations) to
Increase (Decrease) in Net Assets 1997 August 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ..................................... $ 51,548 $ 153,303
Net realized gain (loss) from investment transactions ..... 2,467,254 (6,985)
Net unrealized appreciation (depreciation) on
investment transactions during the period .............. 25,374,837 2,803,062
----------------- ----------------
Net increase (decrease) in net assets resulting from
operations ............................................. 27,893,639 2,949,380
----------------- ----------------
Distributions to shareholders from net investment income .. (127,322) (61,519)
----------------- ----------------
Distributions to shareholders from net realized gains ..... (18,189) --
----------------- ----------------
Fund share transactions:
Proceeds from shares sold ................................. 67,337,610 42,630,158
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 138,706 59,327
Cost of shares redeemed ................................... (13,069,182) (4,422,357)
Redemption fees ........................................... 56,374 30,997
----------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ........................................... 54,463,508 38,298,125
----------------- ----------------
Increase (decrease) in net assets ......................... 82,211,636 41,185,986
Net assets at beginning of period ......................... 41,187,186 1,200
Net assets at end of period (including undistributed
net investment income of $19,194 and ----------------- ----------------
$93,313, respectively) ................................. $123,398,822 $41,187,186
----------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................. 3,034,156 100
----------------- ----------------
Shares sold ............................................... 4,061,936 3,368,696
Shares issued to shareholders in reinvestment of
distributions .......................................... 9,042 4,792
Shares redeemed ........................................... (801,619) (339,432)
----------------- ----------------
Net increase (decrease) in Fund shares .................... 3,269,359 3,034,056
----------------- ----------------
Shares outstanding at end of period ....................... 6,303,515 3,034,156
----------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
October 6, 1995
(commencement of
Year Ended operations) to
August 31, August 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------------------------------
Net asset value, beginning of period .............................................. $13.57 $12.00
-----------------------------------
Income from investment operations: ................................................ .01 .07
Net investment income
Net realized and unrealized gain on investment transactions ....................... 6.03 1.53
-----------------------------------
Total from investment operations .................................................. 6.04 1.60
-----------------------------------
Less distributions:
From net investment income ........................................................ (.03) (.05)
From net realized gains on investment transactions ................................ (.01) --
-----------------------------------
Total distributions ............................................................... (.04) (.05)
-----------------------------------
Redemption fees ................................................................... .01 .02
-----------------------------------
Net asset value, end of period .................................................... $19.58 $13.57
-----------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) .............................................................. 44.67 13.54(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................ 123 41
Ratio of operating expenses, net to average daily net assets (%) .................. 1.50 1.50*
Ratio of operating expenses before expense reductions, to average daily net
assets (%) ..................................................................... 1.63 2.61*
Ratio of net investment income to average daily net assets (%) .................... .07 .67*
Portfolio turnover rate (%) ....................................................... 43.64 33.97*
Average commission rate paid ...................................................... $.0332 $.0364
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
22 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Small Company Value Fund (the "Fund") is a diversified series of Scudder
Securities Trust (the "Trust"). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on U.S. stock
exchanges are valued at the most recent sale price reported on the exchange on
which the security is traded most extensively. If no sale occurred, the security
is then valued at the calculated mean between the most recent bid and asked
quotations. If there are no such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the Nasdaq System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation shall be used. Short-term investments
having a 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,
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, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended (the "Code") 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
provision for federal income tax was required.
Redemption Fees. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 1% of the current net asset value of the shares
will be assessed and retained by the Fund for the benefit of the remaining
shareholders. The redemption fee is accounted for as an addition to paid-in
capital.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions
23 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
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.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on an accrual basis.
B. Purchases and Sales of Securities
During the year ended August 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $80,668,714 and
$30,128,716, respectively.
C. Related Parties
Under the Fund's Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund pays the Adviser a fee equal to
an annual rate of 0.75% of the Fund's average daily net assets, computed and
accrued daily and payable monthly. 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. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The Adviser has agreed not to impose all or a portion of its
management fee until December 31, 1997 in order to maintain the annualized
expenses of the Fund at not more than 1.50% of average daily net assets. For the
year ended August 31, 1997, the Adviser imposed fees amounting to $436,985 and
the portion not imposed amounted to $89,398 of which $82,323 was unpaid as of
August 31, 1997.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close in the fourth quarter of 1997.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended August 31, 1997, the amount charged by SSC aggregated $285,621 of
which $31,498 was unpaid at August 31, 1997.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended August 31, 1997,
the amount charged to the Fund by STC aggregated $20,160, of which $3,172 was
unpaid at August 31, 1997.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
24 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At August 31, 1997, the
Special Servicing Agreement expense charged to the Fund amounted to $6,566.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
August 31, 1997, the amount charged to the Fund by SFAC aggregated $57,935, of
which $5,319 was unpaid at August 31, 1997.
The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually, plus specified amounts for attended board and committee meetings. For
the year ended August 31, 1997, Trustees' fees and expenses aggregated $42,307.
D. Lines of Credit
The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33.33% of its net assets under the agreement. In addition, the Fund
also maintains an uncommitted line of credit.
25 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder Securities Trust and the Shareholders of Scudder
Small Company Value Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Small Company Value Fund, including the investment portfolio, as of August 31,
1997, and the related statement of operations for the year then ended, the
statements of changes in net assets, and the financial highlights for the year
then ended, and for the period October 6, 1995 (commencement of operations) to
August 31, 1996. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Small Company Value Fund as of August 31, 1997, the results of its
operations for the year then ended, and the changes in its net assets, and the
financial highlights for the year then ended and for the period October 6, 1995
(commencement of operations) to August 31, 1996, in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
October 2, 1997
26 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Tax Information
Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$2,391,656 as capital gain dividends for its fiscal year ended August 31, 1997.
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 Scudder Fund account, please call a Scudder Investors Relations
Representative at 1-800-225-5163.
27 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
William T. Burgin*
Trustee
Thomas J. Devine
Trustee; Consultant
Keith R. Fox
Trustee; Private Equity Investor, Exeter Capital Management Corporation
Dr. Wilson Nolen
Trustee; Consultant
Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary
Dr. Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University Graduate School
of Business
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Visiting Professor, Columbia
University Graduate School of Business
Robert G. Stone, Jr.
Honorary Trustee; Chairman Emeritus and Director, Kirby Corporation
Edmund R. Swanberg*
Honorary Trustee
Peter Chin*
Vice President
James M. Eysenbach*
Vice President
Philip S. Fortuna*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Trustee and Vice President
Roy C. McKay*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Richard W. Desmond*
Assistant Secretary
28 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **Not available in all states. +++ +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised
by Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
29 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. 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.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
30 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
</TABLE>
31 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
[LOGO]
*Scudder, Stevens & Clark, Inc.
