Scudder
Small Company
Value Fund
Annual Report
July 31, 1999
No-Load Funds
A no-load (no sales charges) mutual fund which invests for long-term growth of
capital by seeking undervalued stocks of small U.S. companies.
SCUDDER
<PAGE>
Scudder Small Company Value Fund
- --------------------------------------------------------------------------------
Date of Inception: 10/6/95 Total Net Assets as of Ticker Symbol: SCSUX
7/31/99: $294 million
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o Small-cap stocks rallied strongly near the end of the period as valuations
reached historically attractive levels versus large-cap stocks.
o Despite Scudder Small Company Value Fund's strong 14.45% return in the last
four months, its 12-month performance of -4.84% was overshadowed by the
dominance of growth stocks and selected technology issues.
o Even after the most recent year, the fund's three-year returns continue to
outperform both the unmanaged Russell 2000 Value and the Russell 2000 indices
and rank in the top third of 117 small-cap value funds according to Morningstar,
Inc.^1
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 29 Officers and Trustees
10 Investment Portfolio 30 Investment Products and Services
20 Financial Statements 31 Scudder Solutions
^1 Morningstar rankings are subject to change every month and reflect total
return performance as of 7/31/99. In the small value category, the fund was
ranked 170th out of 225 funds for the one-year period and 39th out of 117
funds for the three-year period. The fund is not ranked for the five- or
ten-year periods because it commenced operations on 10/6/95. Past
performance is no guarantee of future results.
2 - Scudder Small Company Value Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
Despite the weak performance of small-cap stocks over most of the period,
your fund's portfolio management team remained committed to their disciplined
approach to investing in undervalued small-cap companies. Beginning in April, a
shift to small-cap value stocks rewarded their commitment to this approach as
the fund outperformed large- and small-cap stocks by a significant margin. In
the following pages, portfolio managers James Eysenbach, Phil Fortuna, and
Calvin Young discuss the small-cap market and the fund's performance in this
environment.
With this report you will notice that we have changed the fund's fiscal
year-end from August 31st to July 31st. This change is part of a larger effort
to create efficiencies and reduce the costs of producing Scudder fund regulatory
materials such as fund reports and prospectuses. From now on you will receive
the fund's semiannual report following the fund's January 31st fiscal period end
and its annual report following the fund's July 31st fiscal period end.
In closing, it should be noted that Daniel Pierce retired in June of this
year as President of Scudder Small Company Value Fund, at which time I assumed
that role and its responsibilities. We are fortunate that Dan's longstanding
affiliation with Scudder is ongoing, and that we will continue to benefit from
his counsel going forward. I am pleased to join the fund's team in this
capacity, and look forward to serving your interests.
We recognize that it has been a difficult year for small-cap investors, and
thank you for your continued investment in Scudder Small Company Value Fund. We
believe your patience will be rewarded over the long run.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Small Company Value Fund
3 - Scudder Small Company Value Fund
<PAGE>
Performance Update as of July 31, 1999
- ----------------------------------------------------
Fund Index Comparison
- ----------------------------------------------------
Total Return
-------------------------------------------------
Period Ended Growth of Average
7/31/1999 $10,000 Cumulative Annual
-------------------------------------------------
Scudder Small Company Value Fund
-------------------------------------------------
1 Year $ 9,516 -4.84% -4.84%
Life of Fund* $ 16,685 66.85% 14.36%
-------------------------------------------------
Russell 2000 Value Index
-------------------------------------------------
1 Year $ 9,988 -.12% -.12%
Life of Fund* $ 16,091 60.91% 13.26%
-------------------------------------------------
Russell 2000 Index
-------------------------------------------------
1 Year $ 10,742 7.42% 7.42%
Life of Fund* $ 15,540 55.40% 12.24%
-------------------------------------------------
S&P 500 Index
-------------------------------------------------
1 Year $ 12,021 20.21% 20.21%
Life of Fund* $ 24,404 144.04% 26.31%
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Growth of a $10,000 Investment
- ----------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Russell 2000 Scudder Small Russell
Value Index Company Value Fund 2000 Index S&P 500 Index
----------- ------------------ ---------- -------------
10/95* 10000 10000 10000 10000
1/96 10790 10579 10683 11002
7/96 11027 11118 10773 11196
1/97 13210 13496 12710 13901
7/97 15564 16446 14371 17035
1/98 16837 17852 15007 17644
7/98 16507 17922 14701 20321
1/99 15680 16685 15055 23376
7/99 16488 17055 15791 24428
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. 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.
- ----------------------------------------------------
Returns and Per Share Information
- ----------------------------------------------------
Yearly Periods Ended
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
1996* 1997 1998 1999
- -------------------------------------------------------------------------------
Net Asset Value $ 13.00 $ 19.18 $ 20.58 $ 19.40
- -------------------------------------------------------------------------------
Income Dividends $ .05 $ .03 $ .02 $ .05
- -------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ .01 $ .30 $ .14
- -------------------------------------------------------------------------------
Fund Total Return (%) 8.77 47.92 8.97 -4.84
- -------------------------------------------------------------------------------
Russell 2000 Value Index Total Return (%) 7.71 41.14 6.06 -.12
- -------------------------------------------------------------------------------
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 returns 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 July 31, 1999
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Asset Allocation
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A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Equity Securities 98%
Cash Equivalents 2%
--------------------------------
100%
--------------------------------
The fund seeks to be fully invested in the stocks of small-cap U.S. companies.
- --------------------------------------------------------------------------------
Sectors/Largest Holdings
(Excludes 2% Cash Equivs.)
- --------------------------------------------------------------------------------
1. Manufacturing (19%)
Scotsman Industries, Inc.
Manufacturer of commercial
refrigeration products
2. Consumer Discretionary (14%)
Ames Department Stores, Inc.
Operator of discount department
stores
3. Utilities (11%)
TNP Enterprises, Inc.
Electric utility
4. Construction (11%)
Florida Rock Industries, Inc.
Producer of ready mixed
concrete, sand, gravel and
crushed stone
5. Financial (9%)
Kansas City Life Insurance Co.
Provider of life insurance and
annuities
6. Durables (7%)
Curtiss-Wright Corp.
Producer of precision
components for aerospace,
industrial and marine companies
7. Service Industries (6%)
Southwest Securities Group, Inc.
Securities brokerage,
investment banking and asset
management services
8. Consumer Staples (5%)
Performance Food Group Co.
Food distributor
9. Technology (4%) CTS Corp.
Manufacturer of electronic and
electromechanical components
10. Transportation (4%)
Roadway Express, Inc.
Less-than-truckload shipping
services
- --------------------------------------------------------------------------------
Stock Characteristics
- --------------------------------------------------------------------------------
Fund as
% of
Russell S&P Russell
Median Values Fund 2000* 500** 2000
- ----------------------------------------------------------------
Small Companies ($ millions)
Market Capitalization 364 446 8,116 82%
Value Orientation
P/E: Trailing Twelve Months 12.5x 22.3x 25.4x 56%
Price/Sales 0.5x 1.5x 1.6x 34%
Price/Book Value 1.4x 2.4x 3.4x 58%
* The Russell 2000 Index is an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks.
** The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries.
Reflecting the fund's disciplined approach to selecting attractively valued
stocks, the portfolio's average price/earnings, price/sales, and price/book
ratios are significantly lower than the overall small-cap market.
For more complete details about the Fund's Investment Portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Small Company Value Fund
<PAGE>
Portfolio Management Discussion
We asked portfolio managers James M. Eysenbach, Philip S. Fortuna, and Calvin S.
Young to review the market environment and the fund's performance for the
12-month period ended July 31, 1999.
Q: How would you characterize the market environment for small-cap stocks over
the 12-month period?
A: It was a very difficult year for small-cap stocks generally and for value
stocks in particular. While large-cap stocks (as represented by the S&P 500
Index) returned 20.21%, small-cap stocks (as measured by the Russell 2000 Index)
returned just 7.42%. Within the small-cap market, growth stocks and selected
technology issues dominated performance, as reflected in the Russell 2000 Growth
Index return of 14.51%. By contrast, the Russell 2000 Value Index had a slight
loss, down 0.12%.
Q: Underlying these results, can you describe the shifts in market leadership
that occurred during the year?
A: The 12-month period can basically be divided into three phases. The fund's
fiscal year began on a down note with the August 1998 market drop (-14% for
large-cap stocks, -19% for small-cap stocks). In the wake of the emerging
markets crisis, U.S. stocks fell amid concerns that economic weakness overseas
would spread to the United States. As we would expect, small value stocks
outperformed small growth stocks during this down market.
A market recovery led by large-cap stocks and growth stocks marked the second
phase. Over the next seven months (8/31/98 to 3/31/99), the S&P 500 rose 35% and
small stocks gained nearly 19%. While not uniform throughout, small growth
stocks (up 34%) decisively outpaced small value stocks (up a meager 4%). We were
not surprised that growth stocks led such a dramatic rally, although the margin
of outperformance was surprising. During this period growth stocks outperformed
value stocks by 30 percentage points -- one of the largest spreads in the
20-year history of the Russell indices. Very narrow market leadership
accentuated the phenomenon where a handful of primarily Internet stocks achieved
spectacular triple-digit returns.
In the third phase, beginning in April of this year, we saw a partial recovery
for small stocks and value stocks. This change resulted, in part, from a
realization that the U.S. economy was growing at a healthy pace and small-cap
stocks represented attractive values relative to large-cap stocks. Over the
final four months of the fund's fiscal year that ended July 31, 1999, small
stocks outperformed large stocks by more than eight percentage points and small
value outperformed small growth by more than two percentage points.
- -------------------------------------------------------
A Shift Toward Small Stocks and Value
April - July 1999
- -------------------------------------------------------
Small-cap value stocks 13.79%
Small-cap growth stocks 11.20%
Large-cap stocks 3.71%
The unmanaged Russell 2000 Value Index represents small-cap value stocks; the
unmanaged Russell 2000 Growth Index represents small-cap growth stocks. The S&P
500 represents large-cap stocks.
6 - Scudder Small Company Value Fund
<PAGE>
Q: How did the fund perform?
A: The Scudder Small Company Value Fund returned -4.84% over the 12-month
period. As expected, given our value approach, the fund outperformed in both the
first and third phases when the market favored value stocks but trailed in the
middle phase favoring growth stocks. The fund's shortfall for the year is
attributable to its underperformance during the middle growth phase. In this
narrow growth market, the fund's returns were greatly constrained by our strict
valuation and small-cap size discipline (see Stock Characteristics on page 5).
As a result, the fund underperformed both the Russell 2000 and 2000 Value
indices.
Q: Can you elaborate on your investment discipline and how it impacts
performance?
A: Our portfolio management discipline is centered on size, valuation and
diversification, and is designed to ensure style-consistency (a focus on
small-cap value stocks) and below-average risk over time. For example, we
purchase stocks for the fund from the Russell 2000 Value Index, sell those that
grow out of the index and diversify across approximately 200 companies. We
believe our investment discipline makes a positive contribution to performance
over time.
Nevertheless, a discipline can work against you in the short run, as ours did
during the past year when small value stocks dramatically underperformed.
Because our discipline is designed to ensure style consistency, it hurt
performance. At those times, owning stocks outside the small-cap universe --
larger-cap stocks or growth stocks -- can benefit performance. Furthermore, when
market leadership is very narrowly concentrated, a diversified portfolio is more
likely to underperform.
However, over the long term, the fund's discipline has contributed to its
outperformance. For the three-year period that ended July 31st, for example, the
fund has achieved a 15.33% annualized total return versus 14.34% for the Russell
2000 Value Index and 13.60% for the Russell 2000 Index. Relative to other
small-cap value funds for the three-year period, Scudder Small Company Value
ranked in the top third for return and the lowest third in terms of risk,
according to Morningstar, Inc.^1
Q: How did the fund perform at the sector level?
A: For the trailing 12-month period, the energy, finance, and health sectors
were the strongest contributors, while the manufacturing, durables and
technology sectors were weakest relative to the benchmark.
The fund's holdings in the energy and health sectors returned more than 20% for
the year. Energy stocks were down early in the period, but rebounded sharply
beginning in March after excessive pessimism had pushed prices to unjustifiably
low levels. The returns in health stocks were earned more evenly during the
period. In finance, the fund benefited from significant underweighting relative
to the market in this poor performing sector.
- ----------------------------------
^1 Morningstar rankings are subject to change every month and reflect total
return performance as of 7/31/99. In the small value category, the fund was
ranked 170th out of 225 funds for the one-year period and 39th out of 117
funds for the three-year period. The fund is not ranked for the five- or
ten-year periods because it commenced operations on 10/6/95. Past performance
is no guarantee of future results.
7 - Scudder Small Company Value Fund
<PAGE>
Unlike energy stocks, manufacturing and durables failed to rebound from
depressed levels, weighing down the fund's returns for the year. We continue to
see value in these sectors and are maintaining our above-market positions. By
contrast we have a below-market weight in technology, where our valuation
discipline has kept us from participating in some of the strongest performing
stocks in this sector.
Q: What is your outlook for small-cap value stocks and the fund?
A: We feel strongly that small-cap stocks will provide attractive returns over
the long term. The unfettered performance of large-cap stocks through March 31st
yielded one of the widest performance spreads between small- and large-cap
stocks this century and has obscured the higher return potential small-cap
stocks have realized over the long term. While such record-setting differences
in performance are infrequent, it is not unusual for market leadership to change
quickly in the small-cap area as we witnessed in April. Consequently, an
investor who does not maintain a long-term commitment to this segment of the
market can easily miss a significant rally in the small-cap market.
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, each of whom plays an important
role in the fund's management process. Team members work together to develop
investment strategies and select securities for the fund's portfolio. They are
supported by the Adviser's large staff of economists, research analysts,
traders, and other investment specialists who work in our offices across the
United States and abroad. We believe our team approach benefits fund investors
by bringing together many disciplines and leveraging our extensive resources.
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 11 years of 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 10 years of
investment industry experience with a special focus on small companies.
8 - Scudder Small Company Value Fund
<PAGE>
Glossary of Investment Terms
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 (P/E) A widely used gauge of a stock's valuation
(also "earnings multiple") 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 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)
An expanded list of terms is located at our Web site, www.scudder.com.
9 - Scudder Small Company Value Fund
<PAGE>
Investment Portfolio as of July 31, 1999
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 1.6%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust Company dated 7/30/1999 at 5.04%, to be
repurchased at $4,590,927 on 8/02/1999, collateralized by a $4,655,000 U.S. Treasury Note, ----------
5.50%, 3/31/2003 (Cost $4,589,000) .................................................................. 4,589,000 4,589,000
----------
Shares
- -------------------------------------------------------------------------------------------------------------------------------
Common Stocks 98.4%
- -------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 13.7%
Apparel & Shoes 1.5%
Deb Shops, Inc. ....................................................................................... 34,700 733,038
Guess ?, Inc.* ........................................................................................ 64,000 904,000
Hartmarx Corp.* ....................................................................................... 350,300 1,532,563
Oxford Industries, Inc. ............................................................................... 51,700 1,289,269
----------
4,458,870
----------
Department & Chain Stores 3.3%
Ames Department Stores, Inc.* ......................................................................... 70,900 2,906,900
Dress Barn, Inc.* ..................................................................................... 71,600 1,141,125
Goody's Family Clothing, Inc.* ........................................................................ 73,600 772,800
Jo-Ann Stores, Inc."A"* ............................................................................... 81,400 1,144,688
Shopko Stores, Inc.* .................................................................................. 61,600 2,360,050
Syms Corp. * .......................................................................................... 174,300 1,307,250
----------
9,632,813
----------
Home Furnishings 1.3%
Haverty Furniture Cos., Inc. .......................................................................... 57,500 1,822,031
Oneida Ltd. ........................................................................................... 28,600 743,600
Pillowtex Corp. ....................................................................................... 72,200 1,132,638
----------
3,698,269
----------
Hotels & Casinos 0.8%
Hollywood Park, Inc.* ................................................................................. 78,900 1,459,650
Prime Hospitality Corp.* .............................................................................. 93,500 1,022,656
----------
2,482,306
----------
Recreational Products 0.9%
Arctic Cat, Inc. ...................................................................................... 97,400 882,687
CPI Corp. ............................................................................................. 19,800 667,013
Coachmen Industries, Inc. ............................................................................. 64,100 1,233,925
----------
2,783,625
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Small Company Value Fund
<PAGE>
Market
Shares Value ($)
- -----------------------------------------------------------
Restaurants 3.3%
Avado Brands, Inc. ................. 147,900 1,294,125
CKE Restaurants, Inc. .............. 99,700 1,395,800
IHOP Corp.* ........................ 58,600 1,362,450
Lone Star Steakhouse & Saloon, Inc.* 166,200 1,459,444
NPC International, Inc.* ........... 78,200 1,036,150
Rainforest Cafe, Inc.* ............. 224,600 1,572,200
Ryan's Family Steak Houses, Inc.* .. 137,100 1,465,256
----------
9,585,425
----------
Specialty Retail 2.6%
Central Garden & Pet Co.* .......... 106,100 961,531
Discount Auto Parts Inc.* .......... 53,900 1,206,013
Friedman's, Inc.,"A" ............... 104,300 893,068
Hollywood Entertainment Corp.* ..... 9,900 174,488
Just For Feet, Inc.* ............... 69,800 255,206
Systemax, Inc.* .................... 114,600 1,138,838
The Finish Line, Inc. "A"* ......... 79,100 830,550
Trans World Entertainment Corp.* ... 115,600 1,437,775
United Auto Group, Inc.* ........... 56,600 725,187
----------
7,622,656
----------
Consumer Staples 4.7%
Alcohol & Tobacco 0.5%
Robert Mondavi Corp. "A"* .......... 37,500 1,368,750
----------
Consumer Specialties 0.2%
Sola International, Inc. * ......... 37,400 626,450
----------
Food & Beverage 3.6%
Earthgrains Co. .................... 30,000 783,750
Imperial Sugar Co. ................. 194,100 1,298,044
Michael Foods, Inc. ................ 61,200 1,419,075
Performance Food Group Co.* ........ 98,600 2,649,875
Pilgrim's Pride Corp. .............. 121,300 2,532,138
Riviana Foods, Inc. ................ 88,900 1,722,438
Seaboard Corp. ..................... 300 81,000
----------
10,486,320
----------
The accompanying notes are an integral part of the financial statements.
11 - Scudder Small Company Value Fund
<PAGE>
Market
Shares Value ($)
- -------------------------------------------------------------
Textiles 0.4%
Polymer Group, Inc.* .................. 110,600 1,285,725
----------
Health 2.8%
Health Industry Services 1.4%
AmeriPath, Inc.* ...................... 77,100 742,087
Magellan Health Services, Inc.* ....... 141,200 1,429,650
NCS HealthCare, Inc. "A"* ............. 105,800 482,713
US Oncology, Inc.* .................... 115,600 1,372,750
----------
4,027,200
----------
Medical Supply & Specialty 1.4%
Bindley Western Industries, Inc. ...... 103,821 2,245,129
Maxxim Medical Inc.* .................. 30,800 719,950
Twinlab Corp.* ........................ 148,600 1,272,388
----------
4,237,467
----------
Financial 9.3%
Banks 1.4%
Bok Financial Corp. ................... 22,066 502,001
First Citizens BancShares, Inc. "A" ... 1,200 95,700
First Federal Financial Corp.* ........ 121,900 1,950,400
First Washington Bancorp, Inc. ........ 31,300 592,744
Local Financial Corp.* ................ 46,600 495,125
Silicon Valley Bancshares* ............ 14,600 357,700
UST Corp .............................. 9,100 276,412
----------
4,270,082
----------
Insurance 7.0%
ARM Financial Group, Inc. "A" ......... 88,100 440,500
American Annuity Group, Inc. .......... 25,600 614,400
American Heritage Life Investment Corp. 51,600 1,602,825
Baldwin & Lyons, Inc. "B" ............. 10,000 203,750
Delphi Financial Group, Inc. "A" ...... 32,259 1,209,713
Fidelity National Financial, Inc. ..... 55,658 970,536
Guarantee Life Companies, Inc. ........ 53,100 1,334,138
Harleysville Group, Inc. .............. 96,500 1,881,750
Kansas City Life Insurance Co. ........ 59,200 2,693,600
LandAmerica Financial Group, Inc. ..... 54,600 1,337,700
Medical Assurance, Inc. ............... 38,783 1,163,490
The accompanying notes are an integral part of the financial statements.
12 - Scudder Small Company Value Fund
<PAGE>
Market
Shares Value ($)
- -------------------------------------------------------------
PMA Capital Corp. .................... 113,000 2,302,375
Penn Treaty American Corp.* .......... 51,300 1,183,106
Presidential Life Corp. .............. 79,200 1,519,650
Stewart Information Services Corp. ... 61,600 1,366,750
Trenwick Group, Inc. ................. 35,400 854,025
-----------
20,678,308
-----------
Other Financial Companies 0.7%
Resource America, Inc. "A" ........... 17,000 232,688
Walter Industries, Inc. * ............ 142,100 1,794,012
-----------
2,026,700
-----------
Real Estate 0.2%
Delta Financial Corp. * .............. 67,800 504,263
-----------
Service Industries 6.0%
EDP Services 0.3%
Pomeroy Computer Resources, Inc.* .... 68,700 991,856
-----------
Environmental Services 0.4%
URS Corp. * .......................... 42,800 1,112,800
-----------
Investment 1.5%
Advest Group, Inc. ................... 82,400 1,684,050
Southwest Securities Group, Inc. ..... 67,980 2,799,926
-----------
4,483,976
-----------
Miscellaneous Commercial Services 2.9%
Berlitz International, Inc.* ......... 44,500 814,906
CORT Business Services Corp.* ........ 76,200 1,843,088
Morrison Knudsen Corp.* .............. 109,600 1,102,850
Personnel Group of America, Inc.* .... 141,500 1,335,406
SITEL Corp.* ......................... 201,800 706,300
UniFirst Corporation ................. 71,200 1,188,150
Volt Information Sciences, Inc.* ..... 62,400 1,466,400
-----------
8,457,100
-----------
Miscellaneous Consumer Services 0.1%
Miller Industries, Inc. * ............ 53,800 164,763
-----------
Printing/Publishing 0.8%
Bowne & Co., Inc. .................... 72,300 957,975
Merrill Corp. ........................ 77,500 1,550,000
-----------
2,507,975
-----------
The accompanying notes are an integral part of the financial statements.
13 - Scudder Small Company Value Fund
<PAGE>
Market
Shares Value ($)
- ---------------------------------------------------------------
Durables 7.3%
Aerospace 3.7%
AAR Corp. .............................. 28,300 596,069
Curtiss-Wright Corp. ................... 71,300 2,642,556
Fairchild Corp. "A"* ................... 105,892 1,125,103
Kaman Corp. "A" ........................ 107,600 1,560,200
Kellstrom Industries, Inc.* ............ 81,900 931,613
Primex Technologies, Inc. .............. 75,600 1,606,500
Sequa Corp. "A" * ...................... 34,700 2,472,375
-----------
10,934,416
-----------
Automobiles 1.1%
Arvin Industries, Inc. ................. 10,300 384,962
Dura Automotive Systems, Inc.* ......... 44,427 1,310,597
Simpson Industries, Inc. ............... 88,000 1,056,000
Wynn's International, Inc. ............. 30,675 594,328
-----------
3,345,887
-----------
Construction/Agricultural Equipment 1.3%
Cascade Corp. .......................... 131,300 1,805,375
NACCO Industries, Inc. "A" ............. 12,600 985,950
Terex Corp. * .......................... 30,500 915,000
-----------
3,706,325
-----------
Leasing Companies 1.2%
Budget Group, Inc.* .................... 57,700 530,118
Dollar Thrifty Automotive Group, Inc.* . 54,700 1,176,050
Electro Rent Corp.* .................... 37,800 467,775
McGrath Rentcorp ....................... 73,000 1,350,500
-----------
3,524,443
-----------
Manufacturing 19.0%
Chemicals 0.6%
Ethyl Corp. ............................ 103,200 586,950
Stepan Co. ............................. 50,000 1,246,875
-----------
1,833,825
-----------
Containers & Paper 1.1%
P.H. Glatfelter Company ................ 139,000 1,937,313
Rock-Tenn Co. "A" ...................... 70,200 1,193,400
-----------
3,130,713
-----------
The accompanying notes are an integral part of the financial statements.
14 - Scudder Small Company Value Fund
<PAGE>
Market
Shares Value ($)
- ------------------------------------------------------------
Diversified Manufacturing 4.4%
ACX Technologies, Inc.* ............. 32,400 376,650
Barnes Group, Inc. .................. 62,800 1,244,225
Griffon Corp.* ...................... 171,200 1,284,000
Justin Industries, Inc. ............. 89,500 1,247,406
Myers Industries, Inc. .............. 48,800 1,159,000
NCH Corp. ........................... 40,800 2,032,350
Robbins & Myers, Inc. ............... 16,800 383,250
Scotsman Industries, Inc. ........... 90,600 3,029,438
SPS Technologies, Inc.* ............. 36,100 1,477,844
Tredegar Industries, Inc. ........... 35,400 820,837
-----------
13,055,000
-----------
Electrical Products 2.1%
AFC Cable Systems, Inc.* ............ 66,675 2,537,817
C&D Technologies, Inc. .............. 58,200 1,753,275
MagneTek, Inc.* ..................... 76,000 774,250
Windmere-Durable Holdings, Inc. * ... 78,200 1,158,337
-----------
6,223,679
-----------
Hand Tools 0.7%
L.S. Starrett Co. "A" ............... 71,999 1,997,972
-----------
Industrial Specialty 2.2%
Commercial Intertech Corp. .......... 72,500 1,064,843
Gardner Denver Inc.* ................ 60,600 1,094,588
Mine Safety Appliances Co. .......... 32,800 2,111,500
O'Sullivan Industries Holdings, Inc.* 75,000 1,181,250
RTI International Metals, Inc.* ..... 87,400 1,125,275
-----------
6,577,456
-----------
Machinery/Components/Controls 6.6%
Amcast Industrial Corp. ............. 59,400 1,087,762
Citation Corp.* ..................... 58,000 942,500
Columbus McKinnon Corp. ............. 105,200 2,413,025
DT Industries, Inc. ................. 64,900 405,625
Gleason Corp. ....................... 80,000 1,290,000
Intermet Corp. ...................... 145,500 1,655,063
MascoTech, Inc. ..................... 99,500 1,666,625
Mueller Industries, Inc.* ........... 29,800 1,018,788
The accompanying notes are an integral part of the financial statements.
15 - Scudder Small Company Value Fund
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------
Reliance Steel & Aluminum Co. ......... 54,900 1,866,600
Shaw Group, Inc.* ..................... 68,800 1,367,400
Tennant Company ....................... 20,000 685,000
Thomas Industries, Inc. ............... 25,950 543,328
Varlen Corp. .......................... 43,100 1,632,412
Woodward Governor Co. ................. 57,500 1,394,375
Wyman-Gordon Co.* ..................... 75,100 1,431,593
-----------
19,400,096
-----------
Office Equipment/Supplies 0.1%
Interface, Inc. ....................... 41,800 373,588
-----------
Wholesale Distributors 1.2%
A.M. Castle & Co. ..................... 54,400 833,000
Applied Industrial Technology, Inc. ... 45,425 726,800
Corporate Express, Inc.* .............. 48,000 418,500
Hughes Supply, Inc. ................... 50,950 1,452,075
-----------
3,430,375
-----------
Technology 4.3%
Computer Software 0.4%
MTS Systems Corp. ..................... 119,200 1,251,600
-----------
Diverse Electronic Products 0.7%
Cable Design Technologies Corp.* ...... 39,600 717,750
Esterline Technologies Corp. * ........ 80,800 1,247,350
-----------
1,965,100
-----------
Electronic Components/Distributors 2.8%
CHS Electronics, Inc.* ................ 133,400 508,588
CTS Corp. ............................. 41,600 3,416,400
Marshall Industries* .................. 43,800 1,631,550
Pioneer-Standard Electronics, Inc. .... 163,900 2,099,969
Rogers Corp.* ......................... 15,600 516,750
-----------
8,173,257
-----------
Precision Instruments 0.4%
Moog Inc. "A"* ........................ 39,300 1,218,300
-----------
Energy 3.0%
Oil & Gas Production 0.5%
UTI Energy Corp. * .................... 80,900 1,344,962
-----------
The accompanying notes are an integral part of the financial statements.
16 - Scudder Small Company Value Fund
<PAGE>
Market
Shares Value ($)
- -------------------------------------------------------
Oilfield Services/Equipment 2.5%
Oceaneering International, Inc.* 92,200 1,625,025
Parker Drilling Co.* ........... 182,500 672,969
Pride International Inc.* ...... 116,600 1,384,625
RPC, Inc. ...................... 91,500 634,781
Seacor Smit Inc.* .............. 35,300 1,753,968
Veritas DGC Inc. * ............. 69,900 1,249,462
----------
7,320,830
----------
Metals & Minerals 2.7%
Steel & Metals
Armco, Inc.* ................... 282,800 1,855,875
Carpenter Technology Corp. ..... 1,100 29,150
Cleveland-Cliffs, Inc. ......... 26,700 854,400
Commercial Metals Co. .......... 36,100 1,191,300
Gibraltar Steel Corporation .... 49,500 1,243,688
IMCO Recycling Inc. ............ 48,500 845,719
Metals USA, Inc.* .............. 72,800 905,450
Shiloh Industries, Inc. * ...... 85,000 1,020,000
----------
7,945,582
----------
Construction 11.0%
Building Materials 3.8%
Ameron International Corp. ..... 50,500 2,149,406
Florida Rock Industries, Inc. .. 73,600 2,833,600
Giant Cement Holding, Inc.* .... 50,000 1,087,500
Lone Star Industries, Inc. ..... 62,200 2,383,038
Texas Industries, Inc. ......... 33,800 1,191,450
Universal Forest Products, Inc. 73,700 1,372,662
----------
11,017,656
----------
Building Products 1.7%
NCI Building Systems, Inc.* .... 75,800 1,449,675
Nortek, Inc.* .................. 58,600 2,285,400
TJ International, Inc. ......... 45,100 1,398,100
----------
5,133,175
----------
Homebuilding 4.6%
Cavalier Homes, Inc. ........... 103,300 561,693
Champion Enterprises, Inc.* .... 9,200 125,925
The accompanying notes are an integral part of the financial statements.
17 - Scudder Small Company Value Fund
<PAGE>
Market
Shares Value ($)
- ----------------------------------------------------------
D.R. Horton, Inc. ................. 31,200 507,000
Del Webb Corp. .................... 74,700 1,662,075
MDC Holdings, Inc. ................ 52,700 1,093,525
NVR Inc.* ......................... 45,200 2,542,500
Ryland Group, Inc. ................ 62,200 1,733,825
Skyline Corp. ..................... 81,700 2,476,531
Standard Pacific Corp. ............ 124,000 1,604,250
U.S. Home Corp. * ................. 37,600 1,292,500
-----------
13,599,824
-----------
Miscellaneous 0.9%
Granite Construction, Inc. ........ 106,800 2,703,375
-----------
Transportation 3.5%
Air Freight 0.2%
Kitty Hawk, Inc. * ................ 78,800 531,900
-----------
Airlines 0.6%
Alaska Air Group Inc. * ........... 42,300 1,877,062
-----------
Trucking 2.7%
Consolidated Freightways Corp.* ... 105,200 1,111,175
Roadway Express, Inc. ............. 104,800 2,285,950
U.S. Xpress Enterprises, Inc."A"* . 86,400 842,400
USFreightways Corp. ............... 45,200 2,231,750
Yellow Corp. * .................... 83,700 1,433,362
-----------
7,904,637
-----------
Utilities 11.1%
Electric Utilities 8.8%
Black Hills Corp. ................. 134,050 3,368,006
Carolina Power & Light Co. ........ 51,827 2,131,385
Central Hudson Gas & Electric Corp. 62,900 2,633,938
Cleco Corp. ....................... 98,200 3,154,675
Commonwealth Energy System ........ 62,500 2,726,563
El Paso Electric Co.* ............. 352,500 3,194,531
Northwestern Corp. ................ 111,900 2,797,500
SIGCORP, Inc. ..................... 93,200 2,446,500
TNP Enterprises, Inc. ............. 91,100 3,478,881
-----------
25,931,979
-----------
The accompanying notes are an integral part of the financial statements.
18 - Scudder Small Company Value Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Natural Gas Distribution 2.3%
Energen Corp. ............................................. 100,600 1,886,250
Laclede Gas Co. ........................................... 125,500 2,941,406
NUI Corp. ................................................. 69,300 1,849,444
----------
6,677,100
- -------------------------------------------------------------------------------------
Total Common Stocks (Cost $268,048,885) 289,623,813
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $272,637,885) (a) 294,212,813
- -------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $272,637,885. At July 31,
1999, net unrealized appreciation for all securities based on tax cost was
$21,574,928. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $49,576,088 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$28,001,160.
* 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 July 31, 1999
<TABLE>
<CAPTION>
Assets
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $272,637,885) ............................ $ 294,212,813
Cash ............................................................................. 972
Dividends and interest receivable ................................................ 180,450
Receivable for Fund shares sold .................................................. 230,984
Deferred organization expense .................................................... 6,108
Other assets ..................................................................... 1,618
-------------
Total assets ..................................................................... 294,632,945
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ................................................ 61,318
Payable for Fund shares redeemed ................................................. 190,649
Other payables and accrued expenses .............................................. 363,295
-------------
Total liabilities ................................................................ 615,262
--------------------------------------------------------------------------------------------------
Net assets, at market value $ 294,017,683
--------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .............................................. 129,292
Net unrealized appreciation (depreciation) on investments ........................ 21,574,928
Accumulated net realized gain (loss) ............................................. (6,292,641)
Paid-in capital .................................................................. 278,606,104
--------------------------------------------------------------------------------------------------
Net assets, at market value $ 294,017,683
--------------------------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($294,017,683 /
15,158,488 outstanding shares of beneficial interest, $.01 par value, unlimited -------------
number of shares authorized) .................................................. $ 19.40
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - Scudder Small Company Value Fund
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
Eleven
Months
Ended Year Ended
July 31, 1999 August 31,
Investment Income (Note E) 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Dividends (net of foreign taxes withheld of $3,840 and $4,963,
respectively) ............................................... $ 3,209,568 $ 3,532,777
Interest ...................................................... 285,220 512,546
------------ ------------
3,494,788 4,045,323
------------ ------------
Expenses:
Management fee ................................................ 1,834,717 1,778,500
Services to shareholders ...................................... 1,714,398 1,118,628
Custodian and accounting fees ................................. 86,679 113,521
Trustees' fees and expenses ................................... 34,819 63,346
Registration fees ............................................. 44,702 99,478
Reports to shareholders ....................................... 113,008 55,139
Auditing ...................................................... 21,124 30,385
Legal ......................................................... 16,902 14,500
Amortization of organization expense .......................... 4,155 4,455
Other ......................................................... 21,283 20,418
------------ ------------
Total expenses before reductions .............................. 3,891,787 3,298,370
Expense reductions ............................................ (670,202) --
------------ ------------
Expenses, net ................................................. 3,221,585 3,298,370
----------------------------------------------------------------------------------------------
Net investment income 273,203 746,953
----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments ..................... (6,157,554) 2,367,119
Net unrealized appreciation (depreciation) during the period on
investments ................................................. 33,001,223 (39,604,194)
----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 26,843,669 (37,237,075)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 27,116,872 $(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>
Eleven Months Year Ended August 31,
Ended July 31,
Increase (Decrease) in Net Assets 1999 (Note E) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ..................................... $ 273,203 $ 746,953 $ 51,548
Net realized gain (loss) from investment transactions ..... (6,157,554) 2,367,119 2,467,254
Net unrealized appreciation (depreciation) on
investment transactions during the period ............... 33,001,223 (39,604,194) 25,374,837
------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations .............................................. 27,116,872 (36,490,122) 27,893,639
------------- ------------- -------------
Distributions to shareholders from:
Net investment income ..................................... (638,982) (197,998) (127,322)
------------- ------------- -------------
Net realized gains ........................................ (1,915,016) (2,969,965) (18,189)
------------- ------------- -------------
Fund share transactions:
Proceeds from shares sold ................................. 153,893,420 225,960,585 67,337,610
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................... 2,401,901 3,041,559 138,706
Cost of shares redeemed ................................... (123,819,127) (76,441,815) (13,069,182)
Redemption fees ........................................... 299,293 378,256 56,374
------------- ------------- -------------
Net increase (decrease) in net assets from Fund share
transactions ............................................ 32,775,487 152,938,585 54,463,508
------------- ------------- -------------
Increase (decrease) in net assets ......................... 57,338,361 113,280,500 82,211,636
Net assets at beginning of period ......................... 236,679,322 123,398,822 41,187,186
Net assets at end of period (including undistributed
net investment income of $129,292, $124,951, and $19,194, ------------- ------------- -------------
respectively) ........................................... $ 294,017,683 $ 236,679,322 $ 123,398,822
Other Information ------------- ------------- -------------
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................. 13,410,779 6,303,515 3,034,156
------------- ------------- -------------
Shares sold ............................................... 8,373,062 10,582,782 4,061,936
Shares issued to shareholders in reinvestment of
distributions ........................................... 126,950 148,152 9,042
Shares redeemed ........................................... (6,752,303) (3,623,670) (801,619)
------------- ------------- -------------
Net increase (decrease) in Fund shares .................... 1,747,709 7,107,264 3,269,359
------------- ------------- -------------
Shares outstanding at end of period ....................... 15,158,488 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 of
Eleven Months Years Ended August 31, operations) to
Ended July 31, August 31,
1999 (Note E) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-----------------------------------------------------------
Net asset value, beginning of period .................... $ 17.65 $ 19.58 $ 13.57 $12.00
-----------------------------------------------------------
Income from investment operations:
Net investment income ................................... .02 .07 .01 .07
Net realized and unrealized gain (loss) on investment
transactions .......................................... 1.90 (1.71) 6.03 1.53
-----------------------------------------------------------
Total from investment operations ........................ 1.92 (1.64) 6.04 1.60
-----------------------------------------------------------
Less distributions:
From net investment income .............................. (.05) (.02) (.03) (.05)
From net realized gains on investment transactions ...... (.14) (.30) (.01) --
-----------------------------------------------------------
Total distributions ..................................... (.19) (.32) (.04) (.05)
-----------------------------------------------------------
Redemption fees ......................................... .02 .03 .01 .02
-----------------------------------------------------------
Net asset value, end of period .......................... $ 19.40 $ 17.65 $ 19.58 $ 13.57
- ----------------------------------------------------------------------------------------------------------------------
Total Return (%) ........................................ 10.96(b)** (8.45) 44.67(b) 13.54(b)(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................. 294 237 123 41
Ratio of operating expenses net, to average daily net
assets (%) ............................................ 1.32* 1.39 1.50 1.50*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) .......................... 1.59* 1.39 1.63 2.61*
Ratio of net investment income to average daily net
assets (%) ............................................ .11* .31 .07 .67*
Portfolio turnover rate (%) ............................. 33.7* 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") which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sale price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Trust, whose
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required. In addition, from November 1, 1998 through
July 31, 1999 the Fund incurred approximately $6,023,000 of net realized capital
losses. As permitted by tax regulations, the Fund intends to elect to defer
these losses and treat them as arising in the fiscal year ended July 31, 2000.
At July 31, 1999 the Fund had a net tax basis capital loss carryforward of
approximately $135,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until July 31,
2007, the expiration date.
24 - Scudder Small Company Value Fund
<PAGE>
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
Expenses. Expenses arising in connection with a specific Fund are allocated to
that Fund. Other Trust expenses are allocated between the Funds in proportion to
their relative net assets.
Organization Costs. Costs incurred by the Fund in connection with its
organization were deferred and are being amortized on a straight-line basis over
a five-year period.
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.
B. Purchases and Sales of Securities
During the eleven months ended July 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $112,919,219 and
$81,492,751, respectively. 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
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of approximately 0.75% of
the Fund's average daily net assets computed and accrued daily and payable
monthly. In addition, as of December 1, 1998, the Adviser agreed to maintain the
annualized expenses of the Fund at not more than 1.25% of average daily net
assets until November 30, 1999. For the eleven months ended July 31, 1999, the
Adviser did not impose a portion of its management fee which amounted to
$670,202, and the amount imposed amounted to $1,164,515. For the year ended
August 31, 1998, the Adviser imposed fees amounting to $1,778,500.
25 - Scudder Small Company Value Fund
<PAGE>
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
eleven months ended July 31, 1999, the amount charged to the Fund by SSC
aggregated $696,431, of which $59,497 was unpaid at July 31, 1999. During the
year ended August 31, 1998, the amount charged to the Fund by SSC aggregated
$736,233.
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 eleven months ended July
31, 1999, the amount charged to the Fund by STC aggregated $743,277, of which
$170,877 was unpaid at July 31, 1999. During the year ended August 31, 1998, the
amount charged to the Fund by STC aggregated $255,111.
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 eleven months
ended July 31, 1999, the amount charged to the Fund by SFAC aggregated $67,799,
of which $13,084 was unpaid at July 31, 1999. During the year ended August 31,
the amount charged to the Fund by SFAC aggregated $81,326.
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 July 31, 1999, the Special
Servicing Agreement expense charged to the Fund amounted to $44,359. During the
year ended August 31, 1998, the Special Servicing Agreement expense charged to
the Fund amounted to $10,107.
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 eleven months ended July 31, 1999, Trustees' fees and expenses aggregated
$34,819. During the year ended August 31, 1998, Trustees' fees and expenses
aggregated $63,346.
D. Line of Credit
The Fund and several other Scudder Funds (the "Participants") share in a $850
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated, pro rata based on net assets, among each of the
Participants. Interest is calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum of 33% of its net assets
under the agreement.
E. Year End Change
On September 16, 1998, the Fund changed its fiscal year end for financial
reporting and federal income tax purposes to July 31 from August 31.
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 investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Small Company Value Fund
(the "Fund") at July 31, 1999, the results of its operations, the changes in its
net assets, and the financial highlights for the periods indicated therein, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at July 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
September 14, 1999
27 - Scudder Small Company Value Fund
<PAGE>
Tax Information
The Fund paid distributions of $0.135 per share from net long-term capital gains
during the period ended July 31, 1999,of which 100% represents 20% rate gains.
For corporate shareholders, 100% of the income dividends paid during the Fund's
fiscal period ended July 31, 1999 qualified for the dividends received
deduction.
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.
28 - Scudder Small Company Value Fund
<PAGE>
Officers and Trustees
Lynn S. Birdsong*
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
Keith R. Fox
Trustee; Private Equity
Investor
William H. Luers
Trustee; Chairman and President,
U.N. Association of America
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Joan E. Spero
Trustee; President, Doris
Duke Charitable Foundation
Thomas J. Devine
Honorary Trustee; Consultant
Wilson Nolen
Honorary Trustee; Consultant
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
Ann M. McCreary*
Vice President
Thaddeus Paluszek*
Vice President
Kurt R. Stalzer*
Vice President
Peter Taylor*
Vice President
John Millette*
Vice President and Secretary
Richard W. Desmond*
Assistant Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
29 - 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 --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market^+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free^+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder 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
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. ***Only the Scudder Shares of
the Fund are part of the Scudder Family of Funds. ++Only the International
Shares of the Fund are part of the Scudder Family of Funds. +++ +++A no-load
variable annuity contract provided by Charter National Life Insurance Company
and its affiliate, offered by Scudder's insurance agencies, 1-800-225-2470. +++
+++ +++A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder Kemper
Investments, Inc., are traded on the New York Stock Exchange and, in some cases,
on various other stock exchanges.
30 - 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 -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: 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-SCUDDER
Please address all written correspondence to: The Scudder Funds, P.O. Box 2291, Boston, Massachusetts 02107-2291
- ------------------------------------------------------------------------------------------------------------------------------
</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 organizations worldwide, managing more than $280 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
