Scudder
Small Company
Value Fund
Annual Report
August 31, 1998
Pure No-Load(TM) Funds
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.
SCUDDER (logo)
<PAGE>
Scudder Small Company Value Fund
- --------------------------------------------------------------------------------
Date of Inception: 10/6/95 Total Net Assets as of Ticker Symbol: SCSUX
8/31/98: $236.7 million
- --------------------------------------------------------------------------------
o For the 12-month period ended August 31, 1998, Scudder Small Company Value
Fund returned -8.45%, outperforming the -11.95% total return of small company
value stocks and the -19.42% return of small company stocks overall, as measured
by the unmanaged Russell 2000 Value and Russell 2000 indices, respectively.
o Despite an environment of increased volatility, the Fund is up more than 50%
for an average annualized return of more than 15% since inception.
o In an increasingly volatile period for small company stocks, the Fund
outperformed the vast majority of its peers, ranking in the top 8% of 560
small-cap funds according to Lipper Analytical Services.
o The divergence between small- and large-cap stock prices over the past year
has resulted in compelling values among small-cap stocks. This is illustrated by
the Fund's median price/earnings ratio which is significantly lower than those
of both small- and large-cap benchmarks.
Table of Contents
3 Letter from the Fund's President 23 Financial Highlights
4 Performance Update 24 Notes to Financial Statements
5 Portfolio Summary 27 Report of Independent Accountants
6 Portfolio Management Discussion 28 Tax Information
9 Glossary of Investment Terms 28 Officers and Trustees
10 Investment Portfolio 29 Investment Products and Services
20 Financial Statements 30 Scudder Solutions
2 - Scudder Small Company Value Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
Over the 12-month period, the economic crisis in the emerging markets has
spread across the globe, causing investors to seek cover in safer havens, such
as U.S. Treasury bonds and stocks of large, growth companies. In the process,
other securities such as small company stocks have been driven down. In a
broad-based market downdraft such as this, even shares of small companies with
positive fundamentals can get hit hard.
As difficult as these sell-offs are to deal with, they can provide
extraordinary opportunities for those willing to endure short-term volatility.
Over the long-term, we believe that stocks with attractive fundamentals will
ultimately be recognized and rewarded in the marketplace. In this challenging
climate, we believe that investors should remain focused on their long-term
investment goals and try not to guess short-term fluctuations.
By sticking with a disciplined approach to selecting attractively valued
small-cap stocks, the Fund has continued to outperform its benchmarks and most
other small-cap funds. For this report, we asked Fund managers James Eysenbach,
Phil Fortuna, and Calvin Young to discuss the small-cap market and the Fund's
performance for the 12-month period. Their discussion begins on page 6.
For those of you who are interested in new Scudder funds, we recently
introduced two international funds: Scudder International Growth Fund -- which
seeks to invest in high growth opportunities in both developed and developing
markets, and Scudder International Value Fund -- which seeks to invest in
undervalued foreign securities. For further information on these new funds,
please call Scudder Investor Information at 1-800-225-2470.
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 the number above 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, 1998
- ----------------------------------------
Fund Index Comparisons
- ----------------------------------------
Total Return
- ----------------------------------------
Period Growth
Ended of Average
8/31/98 $10,000 Cumulative Annual
- ----------------------------------------
Scudder Small Company Value Fund
- ----------------------------------------
1 Year $ 9,155 -8.45% -8.45%
Life of
Fund* $ 15,037 50.37% 15.08%
- ----------------------------------------
Russell 2000 Value Index
- ----------------------------------------
1 Year $ 8,805 -11.95% -11.95%
Life of
Fund* $ 13,594 35.94% 11.15%
- ----------------------------------------
Russell 2000 Index
- ----------------------------------------
1 Year $ 8,058 -19.42% -19.42%
Life of
Fund* $ 11,661 16.61% 5.43%
- ----------------------------------------
S&P 500 Index
- ----------------------------------------
1 Year $ 10,813 8.13% 8.13%
Life of
Fund* $ 17,364 73.64% 20.92%
- ----------------------------------------
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 SMALL COMPANY VALUE FUND
Year Amount
- ----------------------
10/95* $10,000
2/96 $10,844
8/96 $11,605
2/97 $13,522
8/97 $16,789
2/98 $19,123
8/98 $15,370
RUSSELL 2000 VALUE INDEX
Year Amount
- ----------------------
10/95* $10,000
2/96 $10,959
8/96 $11,506
2/97 $13,336
8/97 $15,812
2/98 $17,855
8/98 $13,922
RUSSELL 2000 INDEX
Year Amount
- ----------------------
10/95* $10,000
2/96 $11,017
8/96 $11,399
2/97 $12,403
8/97 $14,701
2/98 $16,116
8/98 $11,846
S&P 500 INDEX
Year Amount
- ----------------------
10/95* $10,000
2/96 $11,105
8/96 $11,432
2/97 $14,009
8/97 $16,081
2/98 $18,916
8/98 $17,389
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.
- ----------------------------------------
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 1998
- --------------------------------------------------------------------------------
Net Asset Value $13.57 $19.58 $17.65
- --------------------------------------------------------------------------------
Income Dividends $ .05 $ .03 $ .02
- --------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ .01 $ .30
- --------------------------------------------------------------------------------
Fund Total Return (%) 13.54 44.67 -8.45
- --------------------------------------------------------------------------------
Russell 2000 Value Index
Total Return (%) 12.38 37.30 -11.95
- --------------------------------------------------------------------------------
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 life of Fund period would have been lower.
**The Fund commenced operations on October 6, 1995.
4 - Scudder Small Company Value Fund
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Portfolio Summary as of August 31, 1998
- ----------------------------------------
Asset Allocation
- ----------------------------------------
A graph in the form of a pie chart appears
here, illustrating the exact data points
in the below table.
Equity Securities 98%
Cash Equivalents 2%
- ----------------------------------------
100%
- ----------------------------------------
The Fund seeks to be
fully invested in stocks
of small U.S. companies.
- ----------------------------------------
Sectors/Largest Holdings
(Excludes 2% Cash Equivs.)
- ----------------------------------------
1. Manufacturing (16%)
L.S. Starrett Co. - Cl A
Maker of machine tools
2. Utilities (13%)
Black Hills Corp.
Provides electricity
3. Financial (13%)
Firstbank of Puerto Rico
Commercial bank
4. Construction (11%)
Granite Construction, Inc.
Heavy construction contractor
5. Consumer Discretionary (10%)
Syms Corp.
Operates apparel stores
6. Durables (8%)
Curtiss-Wright Corp.
Produces aerospace components
7. Consumer Staples (6%)
Pilgrims Pride Corp.
Preparation and packaging of chicken products
8. Service Industries (5%)
Dames & Moore Group
Provides engineering services
9. Technology (4%)
MTS Systems Corp.
Manufacturer of computer based systems and software
for design analysis and performance evaluation
10.Energy (4%)
Cliffs Drilling
Operator of mobile offshore production units
- ----------------------------------------------------------------------
Stock Characteristics
- ----------------------------------------------------------------------
Fund as
% of
Russell S&P Russell
Fund 2000* 500** 2000
- ----------------------------------------------------------------------
Small Companies ($ millions)
Market Capitalization 365 358 6,333 102%
Value Orientation
P/E: Trailing Twelve Months 11.7x 17.4x 19.4x 67%
Price/Sales 0.6x 1.3x 1.3x 47%
Price/Book Value 1.6x 2.0x 2.6x 79%
*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 disciplined approach to selecting
attractively valued stocks, the portfolio's average
price/earnings, price/sales, and price/book ratios were
significantly lower than 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, Philip S. Fortuna, and Calvin S.
Young, portfolio managers of Scudder Small Company Value Fund, discuss the
Fund's strategy and market environment during the 12-month fiscal report period
ended August 31, 1998.
Q: How did the Fund perform?
A: The Fund managed to avoid much of the volatility in the small-cap area,
experiencing less than half the decline of the unmanaged Russell 2000 Index. For
the 12-month period, the Fund returned -8.45% versus -19.42% for the unmanaged
Russell 2000 Index and -11.95% for the Russell 2000 Value Index. In this
environment, the Fund was able to maintain its impressive relative performance
ranking, closing the period in the top 8% of 560 small-cap funds according to
Lipper Analytical Services. The average small-cap fund returned -19.44% during
this same period.
Q: Why was the period so challenging for small-cap stocks?
A: Over the 12 months, small-caps were weighed down by decelerating U.S. growth,
deepening troubles in Asia, and a devaluation of the Russian currency in August,
which sent shocks through the world's financial markets. While the Fund's
holdings have limited direct exposure to the foreign markets, small-caps were
affected by the broad worldwide sell-off and a "flight to quality" that was
concentrated in U.S. Treasury securities and large-cap U.S. growth stocks.
Overall, small-caps lagged large-caps because many investors believed that
certain large-cap companies would hold up better in an environment of global
disinflation and slowing corporate profit growth. Despite the fact that
small-cap stocks have not been this attractive versus large-caps from a
valuation standpoint in ten years (see chart on page 8), small-caps experienced
sharp declines, especially toward the end of the period.
Q: Did any segments of the small-cap market escape the downdraft?
A: Actually, there was a wide spread in performance across sectors. The
utilities, media, and construction sectors reported positive returns over the
year. At the other extreme, you had the energy, metals and minerals, and
technology sectors -- all down 40% or more. In general, commodity-related
companies and high priced growth stocks were hardest hit, while interest rate
sensitive stocks faired better. The surprising strength of the construction
sector was due to robust earnings in a strong U.S. real estate market.
Q: What contributed to the Fund's outperformance?
A: Our investment strategy is focused on adding value in three areas: security
selection, portfolio risk control, and efficient trading. All three areas were
important in this market environment. The wide spread in performance among
segments of the small-cap market provided a significant opportunity to add value
through stock selection. The small-cap market favored our value-oriented
approach, as indicated by the performance of the value segment of the Russell
2000 Index. Beyond that, however, our disciplined approach to identifying
attractively priced securities -- those with low valuations and stable or
improving fundamentals -- allowed us to outperform the Russell 2000 Value Index
6 - Scudder Small Company Value Fund
<PAGE>
in the majority of sectors. Among the Fund's three largest sectors, for example,
our utilities holdings were up 24% versus 14% for the Index; our finance
holdings returned nearly 15% versus -5% for the Index. While the Fund's
manufacturing holdings lost nearly 12%, this was about half as much as the
decline for the overall sector. Together these three sectors represented about
41% of Fund assets. One area we missed out on was the strength in communications
and media stocks.
Q: You say that portfolio risk control and efficient trading also contributed to
performance. How did they help during the period?
A: Risk control is important in seeking to provide more stable returns over time
and to ensure that a few bad stock picks don't ruin performance. We attempt to
control risk in a number of ways. One way is through our emphasis on stocks with
below-average P/Es. This has the potential to provide a degree of downside
protection relative to other small-cap stocks in a market sell-off. We also
limit individual security risk by holding a large number of securities
(approximately 200) in the portfolio and investing no more than 2% of assets in
any one security. Taken together, we think these risk control measures are the
reason the Fund declined less than the overall small-cap market and other
small-cap funds for the period.
The third factor that we believe can help performance is efficient trading. We
take a longer term perspective when evaluating stocks, thus our portfolio
turnover rate of less than 50% per year is relatively low for a small-cap fund.
We also keep a tight rein on transaction costs, typically paying less than four
cents per share on stock trades. An additional advantage of holding a large
7 - Scudder Small Company Value Fund
<PAGE>
number of stocks is that it provides more flexibility when trading. At any given
time we can spread our purchases across a greater number of stocks, thus being
less likely to push up the price we have to pay. This is especially important
when trading small-cap stocks due to their lower liquidity.
Q: How would you assess the Fund's longer term performance as it approaches its
three-year anniversary?
A: The Fund has performed well both in absolute and relative terms. Even after
the recent decline, the Fund is up 50% from its commencement of operations on
October 6, 1995. This translates to an average annual rate of 15%. We also look
to several market benchmarks to evaluate the Fund's performance relative to the
market. (Detailed performance information is listed on page.) Over the short run
- -- horizons of three years or less -- we believe comparisons to the Russell 2000
Value Index are the most meaningful for value-oriented funds investing in
small-caps. The Fund has exceeded this style benchmark over all horizons of one
year or longer. Over the intermediate term (five years) we also seek to
outperform the broader small-cap market. While still two years short of a
five-year record, the Fund has outperformed the Russell 2000 Index by more than
nine percentage points on an annualized basis. To date, the Fund has also been
significantly less volatile than the Russell 2000 Index and, as seen over the
last year, has tended to decline less in down markets.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE:
Valuations: Small-caps vs. large-caps
LINE CHART DATA:
12/87 1.04
1.24
1.24
1.30
1.33
1.35
1.18
1.05
12/89 1.04
1.02
0.87
0.87
0.88
0.98
0.91
0.92
12/91 0.77
0.91
0.76
0.81
0.89
0.89
0.79
0.89
12/93 0.97
0.96
0.95
1.02
1.06
1.05
1.05
1.05
12/95 0.98
0.98
0.94
0.92
0.98
0.92
0.87
0.88
12/97 0.82
0.78
0.66
8/98 0.62
Compares the price/earnings ratios of small-cap stocks (the unmanaged Russell
2000 Value Index) to large-cap stocks (the S&P 500 Index). Lower values
indicate small-caps are more attractively valued; higher values indicate
large-caps are more attractively valued.
Q: You also seek to outperform larger-cap stocks over the long run. How has it
measured up to this bogey?
A: The Fund is currently trailing the S&P 500 by nearly six percentage points on
an annualized basis. While the Fund clearly has significant ground to make up in
order to meet this goal, this is not surprising given the recent strength of
large-cap stocks. Small-cap stocks have sustained numerous periods of extended
underperformance and yet have still outperformed over the long run. We continue
to believe that this will be the case going forward.
Scudder Small Company Value Fund: A Team Approach
to Investing
Scudder Small Company Value Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") 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 the Adviser's large staff of economists, research analysts,
traders, and other investment specialists who work in our offices across the
United States and abroad. We believe our team approach benefits Fund
investors by bringing together many disciplines and leveraging our extensive
resources.
Co-lead Portfolio Managers Philip S. Fortuna and James M. Eysenbach have
responsibility for the Fund's day-to-day management and investment
strategies. Mr. Fortuna joined the Adviser in 1986 as a manager of
institutional equity accounts and is currently director of the Adviser's
quantitative group.
Mr. Eysenbach joined the Adviser in 1991 as a senior quantitative analyst and
has more than 10 years investment management experience, specializing in
quantitative research, analysis, and portfolio management.
Calvin S. Young serves as Portfolio Manager for the Fund. Mr. Young joined
the Adviser in 1990 as a quantitative analyst and has more than nine years of
investment industry experience with a special focus on small companies.
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 characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.
MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, determined by multiplying the
number of shares outstanding by the share price
(Shares x Price = Market Capitalization). The
universe of publicly-traded companies is frequently
divided into large-, mid-, and small-capitalizations.
OVER/UNDER WEIGHTING Refers to the allocation of assets -- usually by
sector, industry, or country -- within a
portfolio relative to a benchmark index, (e.g. the
Russell 2000 Value Index) or an investment universe.
PRICE/EARNINGS RATIO A widely used gauge of a stock's valuation that
(P/E) (also "earnings indicates what investors are paying for a company's
multiple") 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
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.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
9 - Scudder Small Company Value Fund
<PAGE>
Investment Portfolio as of August 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 2.3%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 8/31/1998 at
5.75%, to be repurchased at $5,437,868 on 9/1/1998, collateralized by a -----------
$5,420,000 U.S. Treasury Bond, 6.125%, 7/31/2000 (Cost $5,437,000) .................... 5,437,000 5,437,000
-----------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 97.7%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 9.9%
Apparel & Shoes 0.4%
Oxford Industries, Inc. ................................................................. 37,100 1,004,019
-----------
Department & Chain Stores 3.6%
Ames Department Stores, Inc.* ........................................................... 74,000 1,091,500
Casey's General Stores, Inc. ............................................................ 95,600 1,236,825
Dress Barn Inc.* ........................................................................ 71,600 1,244,050
Jo-Ann Fabrics and Crafts, Inc. "A"* .................................................... 58,300 1,337,256
Shopko Stores, Inc.* .................................................................... 61,600 1,582,350
Syms Corp.* ............................................................................. 174,300 2,048,025
-----------
8,540,006
-----------
Home Furnishings 2.3%
Ethan Allen Interiors Inc. .............................................................. 6,600 214,500
Interface, Inc. ......................................................................... 88,600 1,085,350
Mikasa, Inc. ............................................................................ 90,600 1,070,213
Oneida Ltd. ............................................................................. 58,200 1,185,825
Thomas Industries, Inc. ................................................................. 81,950 1,521,197
U.S. Industries, Inc. ................................................................... 34,880 483,960
-----------
5,561,045
-----------
Hotels & Casinos 0.2%
Prime Hospitality Corp. ................................................................. 42,500 353,281
-----------
Recreational Products 0.2%
CPI Corp. ............................................................................... 19,800 398,475
-----------
Restaurants 1.1%
IHOP Corp.* ............................................................................. 19,300 726,163
Landry's Seafood Restaurants, Inc.* ..................................................... 56,800 477,475
Ryan's Family Steak Houses, Inc.* ....................................................... 137,100 1,396,706
-----------
2,600,344
-----------
</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>
Specialty Retail 2.1%
BT Office Products International, Inc.* ................................................. 95,100 1,277,906
Friedman's Inc.,"A"* .................................................................... 104,300 1,003,888
Global Directmail Corp.* ................................................................ 62,900 837,356
Hollywood Entertainment Corp.* .......................................................... 25,000 257,813
Inacom Corp.* ........................................................................... 58,100 1,118,425
Just For Feet, Inc.* .................................................................... 25,400 360,363
United Auto Group, Inc.* ................................................................ 18,000 239,625
-----------
5,095,376
-----------
Consumer Staples 6.3%
Alcohol & Tobacco 0.3%
Robert Mondavi Corp. "A"* ............................................................... 37,500 782,813
-----------
Consumer Specialties 0.6%
Imperial Holly Corp ..................................................................... 150,200 995,075
Sola International, Inc.* ............................................................... 24,000 348,000
-----------
1,343,075
-----------
Food & Beverage 3.6%
Earthgrains Co. ......................................................................... 30,000 825,000
Michael Foods, Inc. ..................................................................... 61,200 1,514,700
Performance Food Group Co.* ............................................................. 98,600 1,910,375
Pilgrim's Pride Corp. ................................................................... 121,300 2,372,931
Riviana Foods, Inc. ..................................................................... 88,900 1,878,013
Seaboard Corp. .......................................................................... 300 84,600
-----------
8,585,619
-----------
Package Goods/Cosmetics 0.4%
American Safety Razor Co.* .............................................................. 112,500 1,005,469
-----------
Textiles 1.4%
Guilford Mills, Inc. .................................................................... 92,800 1,363,000
Hartmarx Corp.* ......................................................................... 295,200 1,955,700
-----------
3,318,700
-----------
Health 1.6%
Health Industry Services 0.5%
Genesis Health Ventures, Inc.* .......................................................... 39,600 470,250
PharMerica, Inc.* ....................................................................... 200,500 783,203
-----------
1,253,453
-----------
</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>
Medical Supply & Specialty 1.1%
Bindley Western Industries, Inc. ........................................................ 77,866 2,043,983
Maxxim Medical Inc.* .................................................................... 17,700 285,413
West Co., Inc. .......................................................................... 6,100 159,744
-----------
2,489,140
-----------
Financial 13.1%
Banks 5.5%
Banknorth Group, Inc. ................................................................... 65,000 1,779,375
Bok Financial Corp. ..................................................................... 10,712 460,616
Chittenden Corp. ........................................................................ 42,812 1,222,818
Citizens Banking Corp. .................................................................. 26,700 764,288
F.N.B. Corp. ............................................................................ 52,500 1,522,500
First Citizens BancShares, Inc. "A" ..................................................... 1,200 100,200
First Federal Financial Corp.* .......................................................... 108,000 1,593,000
FirstBank Puerto Rico ................................................................... 85,000 2,029,375
Imperial Bancorp* ....................................................................... 40,500 835,313
National Bancorp of Alaska, Inc. ........................................................ 40,000 1,210,000
Riggs National Corp. .................................................................... 39,900 877,800
Silicon Valley Bancshares* .............................................................. 14,600 356,788
UST Corp. ............................................................................... 23,100 381,150
-----------
13,133,223
-----------
Insurance 7.1%
Acceptance Insurance Cos., Inc. ......................................................... 50,700 963,300
Allied Group, Inc. ...................................................................... 17,625 827,273
American Annuity Group, Inc.* ........................................................... 25,600 560,000
American Heritage Life Investment Corp. ................................................. 51,600 1,009,425
Baldwin & Lyons, Inc. "B" ............................................................... 52,042 1,099,387
Delphi Financial Group, Inc. "A"* ....................................................... 8,654 361,305
Fidelity National Financial, Inc. ....................................................... 40,780 1,129,096
Guarantee Life Companies, Inc. .......................................................... 53,100 955,800
Harleysville Group, Inc. ................................................................ 96,500 1,881,750
Life Re Corp. ........................................................................... 10,200 915,450
Life USA Holdings Inc. .................................................................. 56,400 655,650
Medical Assurance, Inc. ................................................................. 35,258 848,396
Nymagic, Inc. ........................................................................... 88,800 1,931,400
Presidential Life Corp. ................................................................. 71,000 1,411,125
</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>
State Auto Financial Corp. .............................................................. 77,200 984,300
Trenwick Group, Inc. .................................................................... 35,400 1,221,300
-----------
16,754,957
-----------
Business Finance 0.1%
Advest Group, Inc. ...................................................................... 15,000 286,875
-----------
Other Financial Companies 0.2%
Delta Financial Corp* ................................................................... 67,800 533,925
-----------
Real Estate 0.2%
IMC Mortgage Co. ........................................................................ 76,800 518,400
-----------
Service Industries 5.3%
EDP Services 0.1%
Electro Rent Corp.* ..................................................................... 16,000 204,000
-----------
Environmental Services 2.1%
Dames & Moore, Inc. ..................................................................... 210,600 2,500,875
Mine Safety Appliance Co. ............................................................... 32,800 2,421,050
-----------
4,921,925
-----------
Investment 0.5%
Jefferies Group, Inc. ................................................................... 47,800 1,365,288
-----------
Miscellaneous Commercial Services 1.7%
Berlitz International, Inc.* ............................................................ 44,500 1,190,375
CORT Business Services Corp.* ........................................................... 38,800 948,175
McGrath Rentcorp ........................................................................ 38,000 681,625
Volt Information Sciences, Inc.* ........................................................ 62,400 1,263,600
-----------
4,083,775
-----------
Printing/Publishing 0.9%
Bowne & Co., Inc. ....................................................................... 94,000 1,480,500
Merrill Corp. ........................................................................... 33,600 667,800
-----------
2,148,300
-----------
Durables 7.5%
Aerospace 2.4%
Curtiss-Wright Corp. .................................................................... 71,300 3,141,656
Fairchild Corp. "A"* .................................................................... 85,792 1,190,364
Kaman Corp. "A" ......................................................................... 107,600 1,445,875
-----------
5,777,895
-----------
</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>
Automobiles 3.5%
Arvin Industries, Inc. .................................................................. 10,300 388,825
Coachmen Industries, Inc. ............................................................... 64,100 1,197,869
Excel Industries Inc. ................................................................... 105,900 1,350,225
Intermet Corp. .......................................................................... 81,900 1,228,500
Simpson Industries, Inc. ................................................................ 88,000 924,000
Standard Motor Products, Inc. ........................................................... 65,100 1,570,538
Titan International, Inc. ............................................................... 93,500 993,438
Wynn's International, Inc. .............................................................. 30,675 519,558
-----------
8,172,953
-----------
Construction/Agricultural Equipment 0.7%
Allied Products Corp. ................................................................... 60,250 549,781
NACCO Industries, Inc. "A" .............................................................. 12,600 1,200,150
-----------
1,749,931
-----------
Leasing Companies 0.9%
Budget Group, Inc.* ..................................................................... 44,700 759,900
Leasing Solutions, Inc.* ................................................................ 60,300 1,420,819
-----------
2,180,719
-----------
Manufacturing 15.3%
Chemicals 1.5%
NCH Corp. ............................................................................... 40,800 2,320,500
Stepan Co. .............................................................................. 50,000 1,262,500
-----------
3,583,000
-----------
Diversified Manufacturing 3.8%
ACX Technologies, Inc.* ................................................................. 17,900 283,044
Cascade Corp. ........................................................................... 131,300 1,723,313
Griffon Corp.* .......................................................................... 165,800 1,471,475
Justin Industries ....................................................................... 51,400 703,538
Robbins & Myers, Inc. ................................................................... 16,800 399,000
SPS Technologies, Inc.* ................................................................. 36,100 1,507,175
Scotsman Industries, Inc. ............................................................... 90,600 2,129,100
Tredegar Industries, Inc. ............................................................... 35,400 570,825
Valmont Industries ...................................................................... 17,000 257,125
-----------
9,044,595
-----------
</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>
Electrical Products 1.2%
AFC Cable Systems, Inc.* ................................................................ 66,675 1,543,926
C&D Technologies, Inc. .................................................................. 58,200 1,273,125
-----------
2,817,051
-----------
Hand Tools 1.1%
L.S. Starrett Corp. "A" ................................................................. 71,999 2,479,466
-----------
Industrial Specialty 1.5%
Applied Power, Inc. "A" ................................................................. 21,910 543,642
Barnes Group, Inc. ...................................................................... 62,800 1,503,275
Commercial Intertech Corp. .............................................................. 72,500 1,042,188
Spartech Corp. .......................................................................... 22,300 367,950
Wyman-Gordon Co.* ....................................................................... 8,300 116,200
-----------
3,573,255
-----------
Machinery/Components/Controls 4.2%
Amcast Industrial Corp. ................................................................. 59,400 909,563
Columbus McKinnon Corp. ................................................................. 79,700 1,424,638
DT Industries, Inc. ..................................................................... 63,300 931,697
Gleason Corp. ........................................................................... 54,100 1,190,200
Mueller Industries, Inc.* ............................................................... 11,000 281,188
Reliance Steel & Aluminum Co. ........................................................... 46,100 1,406,050
Sequa Corp. "A"* ........................................................................ 26,700 1,703,794
Shaw Group, Inc.* ....................................................................... 52,800 425,700
Tennant Co. ............................................................................. 45,000 1,794,375
-----------
10,067,205
-----------
Office Equipment/Supplies 0.8%
General Binding Corp. ................................................................... 56,100 1,867,078
-----------
Wholesale Distributors 1.2%
A.M. Castle & Co. ....................................................................... 54,400 986,000
Applied Industrial Technology, Inc. ..................................................... 40,425 704,911
Hughes Supply, Inc. ..................................................................... 45,250 1,233,063
-----------
2,923,974
-----------
Technology 4.3%
Computer Software 0.6%
MTS Systems Corp. ....................................................................... 119,200 1,490,000
-----------
</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>
Diverse Electronic Products 1.1%
Cubic Corp. ............................................................................. 63,800 1,355,750
Esterline Technologies Corp.* ........................................................... 80,800 1,292,800
-----------
2,648,550
-----------
Electronic Components/Distributors 1.1%
CTS Corp. ............................................................................... 47,500 1,347,813
CompuCom Systems, Inc.* ................................................................. 22,300 94,775
Park Electrochemical Corp. .............................................................. 53,200 711,550
Rogers Corp.* ........................................................................... 15,600 401,700
-----------
2,555,838
-----------
Military Electronics 0.6%
Tech-Sym Corp.* ......................................................................... 59,300 1,460,263
-----------
Precision Instruments 0.3%
Innovex, Inc. ........................................................................... 59,600 618,350
-----------
Semiconductors 0.6%
Siliconix, Inc.* ........................................................................ 87,300 1,473,188
-----------
Energy 3.5%
Oil & Gas Production 1.5%
Plains Resources, Inc.* ................................................................. 100,600 1,546,725
Tesoro Petroleum Corp.* ................................................................. 109,835 1,414,126
UTI Energy Corp.* ....................................................................... 114,800 753,375
-----------
3,714,226
-----------
Oil Companies 0.1%
Giant Industries, Inc. .................................................................. 18,200 245,700
-----------
Oilfield Services/Equipment 1.9%
Cliffs Drilling Co.* .................................................................... 70,700 1,003,056
Patterson Energy, Inc.* ................................................................. 174,700 731,556
Pool Energy Services Co.* ............................................................... 128,600 916,275
Pride International Inc.* ............................................................... 52,800 419,100
RPC, Inc. ............................................................................... 91,500 852,094
Seacor Smit Inc.* ....................................................................... 17,600 607,200
-----------
4,529,281
-----------
Metals & Minerals 4.2%
Coal Mining 0.9%
Zeigler Coal Holding Co. ................................................................ 105,800 2,089,550
-----------
</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>
Steel & Metals 3.3%
Armco, Inc.* ............................................................................ 282,800 1,166,550
Carpenter Technology Corp. .............................................................. 1,100 39,806
Citation Corp.* ......................................................................... 66,400 705,500
Cleveland-Cliffs, Inc. .................................................................. 26,700 974,550
Commercial Metals Co. ................................................................... 36,100 879,938
Lone Star Technologies* ................................................................. 40,200 399,488
Quanex Corp. ............................................................................ 51,500 1,120,125
RMI Titanium Co.* ....................................................................... 69,800 1,247,675
Shiloh Industries, Inc.* ................................................................ 85,000 1,434,375
-----------
7,968,007
-----------
Construction 10.6%
Building Materials 5.0%
Ameron International Corp. .............................................................. 46,600 1,773,713
Butler Manufacturing Co. ................................................................ 24,900 605,381
Florida Rock Industries, Inc. ........................................................... 73,600 2,028,600
Giant Cement Holding, Inc.* ............................................................. 50,000 1,309,375
Lone Star Industries, Inc. .............................................................. 31,100 1,869,888
Puerto Rican Cement Co., Inc. ........................................................... 44,300 1,896,594
Southdown, Inc. ......................................................................... 14,100 595,725
Texas Industries, Inc. .................................................................. 24,000 868,500
Universal Forest Products, Inc. ......................................................... 73,700 1,054,831
-----------
12,002,607
-----------
Building Products 0.9%
NCI Building Systems, Inc.* ............................................................. 56,600 1,004,650
Nortek, Inc.* ........................................................................... 46,900 1,163,706
-----------
2,168,356
-----------
Homebuilding 3.6%
Cavalier Homes, Inc. .................................................................... 37,800 368,550
Champion Enterprises, Inc.* ............................................................. 9,200 215,050
Del Webb Corp. .......................................................................... 59,800 1,177,313
D.R. Horton, Inc. ....................................................................... 31,200 499,200
NVR Inc.* ............................................................................... 45,200 1,471,825
Ryland Group, Inc. ...................................................................... 39,500 780,125
Skyline Corp. ........................................................................... 81,700 2,308,025
</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>
Standard Pacific Corp. .................................................................. 77,600 916,650
U.S. Home Corp.* ........................................................................ 37,600 1,064,550
-----------
8,801,288
-----------
Miscellaneous 1.1%
Granite Construction, Inc. .............................................................. 106,800 2,536,500
-----------
Transportation 3.2%
Air Freight 0.7%
Circle International Group, Inc. ........................................................ 55,800 1,129,950
Pittston Burlington Group ............................................................... 55,600 441,325
-----------
1,571,275
-----------
Airlines 0.7%
Alaska Air Group Inc.* .................................................................. 42,300 1,647,056
-----------
Marine Transportation 0.6%
Avondale Industries, Inc.* .............................................................. 61,100 1,565,688
-----------
Trucking 0.9%
Roadway Express, Inc. ................................................................... 82,800 1,252,350
USFreightways Corp. ..................................................................... 40,000 897,500
-----------
2,149,850
-----------
Miscellaneous 0.3%
Greyhound Lines Inc.* ................................................................... 179,600 684,725
-----------
Utilities 12.9%
Electric Utilities 10.4%
Black Hills Corp. ....................................................................... 134,050 3,116,663
Central Hudson Gas & Electric Co. ....................................................... 62,900 2,685,044
Cleco Corp. ............................................................................. 98,200 3,050,338
Commonwealth Energy System Cos. ......................................................... 62,500 1,890,625
El Paso Electric Co.* ................................................................... 352,500 2,775,938
Northwestern Public Service Corp. ....................................................... 111,900 2,818,481
SIGCORP, Inc. ........................................................................... 93,200 2,994,050
TNP Enterprises Inc. .................................................................... 91,100 2,704,531
United Illuminating Co. ................................................................. 54,900 2,748,431
-----------
24,784,101
-----------
Natural Gas Distribution 2.5%
Energen Corp. ........................................................................... 100,600 1,571,875
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder Small Company Value Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Laclede Gas Co. ......................................................................... 125,500 2,839,438
North Carolina Natural Gas Corp. ........................................................ 64,350 1,516,247
-----------
5,927,560
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $244,576,859) 233,150,564
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $250,013,859) (a) 238,587,564
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $250,013,859. At August 31,
1998, net unrealized depreciation for all securities based on tax cost was
$11,426,295. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $21,655,999 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$33,082,294.
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
19 - Scudder Small Company Value Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of August 31, 1998
<TABLE>
<S> <C> <C>
Assets
----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $250,013,859) .............. $ 238,587,564
Cash ............................................................... 535
Receivable for investments sold .................................... 2,342,083
Dividends and interest receivable .................................. 315,998
Receivable for Fund shares sold .................................... 327,909
Deferred organization expense ...................................... 10,263
Other assets ....................................................... 432
----------------
Total assets ....................................................... 241,584,784
Liabilities
----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .................................. 3,050,296
Payable for Fund shares redeemed ................................... 1,406,470
Accrued management fee ............................................. 172,709
Other payables and accrued expenses ................................ 275,987
----------------
Total liabilities .................................................. 4,905,462
-------------------------------------------------------------------------------------------
Net assets, at market value $ 236,679,322
-------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................ 124,951
Net unrealized appreciation (depreciation) on investments .......... (11,426,295)
Accumulated net realized gain (loss) ............................... 2,283,804
Paid-in capital .................................................... 245,696,862
-------------------------------------------------------------------------------------------
Net assets, at market value $ 236,679,322
-------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($236,679,322 / 13,410,779 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ...................................................... $17.65
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - Scudder Small Company Value Fund
<PAGE>
Statement of Operations
year ended August 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $4,963) ................ $ 3,532,777
Interest ........................................................... 512,546
----------------
4,045,323
----------------
Expenses:
Management fee ..................................................... 1,778,500
Services to shareholders ........................................... 1,118,628
Custodian and accounting fees ...................................... 113,521
Trustees' fees and expenses ........................................ 63,346
Registration fees .................................................. 99,478
Reports to shareholders ............................................ 55,139
Auditing ........................................................... 30,385
Legal .............................................................. 14,500
Amortization of organization expense ............................... 4,455
Other .............................................................. 20,418
----------------
3,298,370
-------------------------------------------------------------------------------------------
Net investment income 746,953
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .......................... 2,367,119
Net unrealized appreciation (depreciation) during the period on
investments ...................................................... (39,604,194)
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (37,237,075)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (36,490,122)
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 - Scudder Small Company Value Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended August 31,
Increase (Decrease) in Net Assets 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................ $ 746,953 $ 51,548
Net realized gain (loss) from investment transactions ............ 2,367,119 2,467,254
Net unrealized appreciation (depreciation) on
investment transactions during the period ...................... (39,604,194) 25,374,837
----------------- ----------------
Net increase (decrease) in net assets resulting from
operations ..................................................... (36,490,122) 27,893,639
----------------- ----------------
Distributions to shareholders from:
Net investment income ............................................ (197,998) (127,322)
----------------- ----------------
Net realized gains ............................................... (2,969,965) (18,189)
----------------- ----------------
Fund share transactions:
Proceeds from shares sold ........................................ 225,960,585 67,337,610
Net asset value of shares issued to shareholders in
reinvestment of distributions .................................. 3,041,559 138,706
Cost of shares redeemed .......................................... (76,441,815) (13,069,182)
Redemption fees .................................................. 378,256 56,374
----------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ................................................... 152,938,585 54,463,508
----------------- ----------------
Increase (decrease) in net assets ................................ 113,280,500 82,211,636
Net assets at beginning of period ................................ 123,398,822 41,187,186
Net assets at end of period (including undistributed
net investment income of $124,951 and $19,194, ----------------- ----------------
respectively) .................................................. $236,679,322 $123,398,822
----------------- ----------------
Other Information
-----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ........................ 6,303,515 3,034,156
----------------- ----------------
Shares sold ...................................................... 10,582,782 4,061,936
Shares issued to shareholders in reinvestment of
distributions .................................................. 148,152 9,042
Shares redeemed .................................................. (3,623,670) (801,619)
----------------- ----------------
Net increase (decrease) in Fund shares ........................... 7,107,264 3,269,359
----------------- ----------------
Shares outstanding at end of period .............................. 13,410,779 6,303,515
----------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22 - 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
Years Ended of operations) to
August 31, August 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------
Net asset value, beginning of period ......................................... $ 19.58 $ 13.57 $ 12.00
----------------------------------------
Income from investment operations:
Net investment income ........................................................ .07 .01 .07
Net realized and unrealized gain (loss) on investment transactions ........... (1.71) 6.03 1.53
----------------------------------------
Total from investment operations ............................................. (1.64) 6.04 1.60
----------------------------------------
Less distributions:
From net investment income ................................................... (.02) (.03) (.05)
From net realized gains on investment transactions ........................... (.30) (.01) --
----------------------------------------
Total distributions .......................................................... (.32) (.04) (.05)
----------------------------------------
Redemption fees .............................................................. .03 .01 .02
----------------------------------------
Net asset value, end of period ............................................... $ 17.65 $ 19.58 $ 13.57
----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............................................................. (8.45) 44.67(b) 13.54(b)(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....................................... 237 123 41
Ratio of operating expenses, net to average daily net assets (%) ............. 1.39 1.50 1.50*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) ............................................... 1.39 1.63 2.61*
Ratio of net investment income to average daily net assets (%) ............... .31 .07 .67*
Portfolio turnover rate (%) .................................................. 22.6 43.6 34.0*
</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
23 - 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. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq Stock Market, Inc.
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported on Nasdaq. If there are no such sales, the value is the high or
"inside" 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 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.
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,
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, 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
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
24 - 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, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $202,385,419 and
$51,051,638, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Directors and by the Fund's Shareholders. The
Management Agreement, which is effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
Under the Management Agreement with Scudder Kemper, 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 Management Agreement. For the year ended August 31, 1998, the Adviser
imposed fees amounting to $1,778,500, of which $172,709 was unpaid at August 31,
1998.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. The Board of the Fund
has approved a new investment management agreement with Scudder Kemper, which is
substantially identical to the former investment management agreement, except
for the dates of
25 - Scudder Small Company Value Fund
<PAGE>
execution and termination. The Board of the Fund will seek shareholder approval
of the new investment management agreement through a proxy solicitation that is
currently scheduled to conclude in mid-December.
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, 1998, the amount charged to the Fund by SSC aggregated
$736,233, of which $72,297 was unpaid at August 31, 1998.
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, 1998,
the amount charged to the Fund by STC aggregated $255,111, of which $77,328 was
unpaid at August 31, 1998.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Fund 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, 1998, the
Special Servicing Agreement expense charged to the Fund amounted to $10,107.
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, 1998, the amount charged to the Fund by SFAC aggregated $81,326, of
which $6,320 was unpaid at August 31, 1998.
The Fund pays each of its Trustees not affiliated with the Adviser an annual
retainer, plus specified amounts for attended board and committee meetings. For
the year ended August 31, 1998, Trustees' fees and expenses aggregated $63,346.
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.
26 - 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:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, 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 Value Fund
(the "Fund") at August 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
October 2, 1998
27 - Scudder Small Company Value Fund
<PAGE>
Tax Information
The Fund paid distributions of $0.25 per share from net long-term capital gains
during its year ended August 31, 1998, of which 28% represents 20% rate gains.
Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$2,500,000 as capital gain dividends for its year ended August 31, 1998, of
which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal of 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.
Officers and Trustees
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and
Consultant
Sheryle J. Bolton
Trustee; Chief Executive Officer,
Scientific Learning Corporation
William T. Burgin
Trustee; General Partner, Bessemer
Venture Partners
Thomas J. Devine
Trustee; Consultant
Keith R. Fox
Trustee; Private Equity Investor
William H. Luers
Trustee; President, The
Metropolitan Museum of Art
Wilson Nolen
Trustee; Consultant
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Robert G. Stone, Jr.
Honorary Trustee; Chairman
Emeritus and Director, Kirby
Corporation
Edmund R. Swanberg
Honorary Trustee
Peter Chin*
Vice President
J. Brooks Dougherty*
Vice President
James M. Eysenbach*
Vice President
James E. Fenger*
Vice President
Philip S. Fortuna*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Roy C. McKay*
Vice President
Thaddeus Paluszek*
Vice President
Kimberly A. Purvis*
Vice President
Peter Taylor*
Vice President
Thomas F. McDonough*
Vice President, Secretary and
Treasurer
Richard W. Desmond*
Assistant Secretary
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
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 Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal 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. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
29 - 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 money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
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 previously designated.
Distributions Direct
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 8,000 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 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
</TABLE>
31 - Scudder Small Company Value Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich 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 Group. The Zurich 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
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