SCUDDER
INVESTMENTS (SM)
[LOGO]
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EQUITY/DOMESTIC
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Scudder Small
Company Value Fund
Fund #078
Annual Report
July 31, 2000
For investors seeking long-term growth of capital by investing primarily in
undervalued common stocks of small U.S. companies.
A no-load fund with no commissions to buy, sell, or exchange shares.
<PAGE>
Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
17 Glossary of Investment Terms
18 Investment Portfolio
27 Financial Statements
30 Financial Highlights
31 Notes to Financial Statements
36 Report of Independent Accountants
37 Tax Information
38 Shareholder Meeting Results
39 Officers and Trustees
40 Investment Products and Services
42 Account Management Resources
2
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Scudder Small Company Value Fund
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ticker symbol SCSUX fund number 078
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Date of Inception: o For its most recent fiscal year ended July 31, 2000,
10/6/95 Scudder Small Company Value Fund posted a -14.43% total
return. The returns of the Russell 2000 Value Index and
the Russell 2000 Index were 4.84% and 13.75%,
respectively, over the same time period.
Total Net Assets as
of 7/31/00: o During a volatile period for small company value
$160.7 million stocks, the fund is up 42.77% since inception, with an
average annual total return of 7.66%.
o We are hopeful that recent signs of a shift towards
more reasonable valuations in the stock market could
lead to a sustainable rally in small-cap value stocks
over the coming year and improved relative performance
for the fund.
3
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Letter from the Fund's President
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Dear Shareholders,
We are pleased to report on Scudder Small Company Value Fund's most recent
fiscal year ended July 31, 2000. The fund seeks long-term growth of capital by
applying two techniques that historically have provided superior long-term
returns: investing in small stocks and employing value-oriented selection
criteria. The fund's selection process begins by narrowing the prospective
investment universe to U.S. companies with a market capitalization of less than
$1.5 billion. To this list, a proprietary screening process that evaluates a
stock's future return potential based on valuation, growth, and risk
characteristics is then applied. The small company stocks we identify as
displaying the most attractive combination of these investment characteristics
make up the fund's portfolio.
The fund's most recent fiscal year was a difficult one. The fund posted a
-14.43% total return, compared with the 4.84% return of the Russell 2000 Value
Index and the 13.75% return of the Russell 2000 Index. The fund has a stronger
value orientation than either of these two indices, which caused it to
underperform during the period when small capitalization value stocks remained
largely out of favor. Percentage differences in performance between small-cap
growth and small-cap value stocks reached a near-record high during the period,
as a narrowly focused market
4
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sought out health and technology issues to the exclusion of most other sectors.
At the present time, as described in the Portfolio Management Discussion that
begins on page 10, the fund's orientation toward value stocks with higher
earnings growth has not been rewarded nearly as much as a focus on price
momentum alone.
We believe that the fund's emphasis on holding stocks with strong fundamentals
will be rewarded over time. And, as in the past, the fund's distinct value
orientation should prove beneficial when style leadership swings back from
growth to value. For our shareholders, we would like to emphasize the continued
importance of holding a diversified portfolio of stocks, including growth and
value, large and small capitalization, domestic and international, as well as
fixed-income and money market holdings as appropriate.
If you have any questions regarding Scudder Small Company Value Fund or any
other Scudder fund, please call Investor Relations at 1-800-SCUDDER. Or visit
Scudder's Web site at www.scudder.com.
Sincerely,
/s/Linda C. Coughlin
Linda C. Coughlin
President
Scudder Small Company Value Fund
5
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Performance Update
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July 31, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Small Russell 2000 S&PO500
Company Value Fund Value Index* Russell 2000 Index* Index*
10/95** 10000 10000 10000 10000
1/96 10350 10539 10516 10990
7/96 10877 10771 10603 11184
1/97 13204 12892 12509 13885
7/97 16090 15189 14143 17016
1/98 17465 16431 14769 17624
7/98 17533 16110 14468 20301
1/99 16324 15303 14816 23353
7/99 16685 16091 15540 24404
1/00 13855 15022 17443 25771
7/00 14277 16870 17677 26599
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 7/31/2000 $10,000 Cumulative Annual
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Scudder Small Company Value Fund
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1 year $ 8,557 -14.43% -14.43%
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Life of Fund** $ 14,277 42.77% 7.66%
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Russell 2000 Value Index*
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1 year $ 10,484 4.84% 4.84%
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Life of Fund** $ 16,870 68.70% 11.66%
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Russell 2000 Index*
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1 year $ 11,375 13.75% 13.75%
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Life of Fund** $ 17,677 76.77% 12.77%
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S&P 500 Index*
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1 year $ 10,900 9.00% 9.00%
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Life of Fund** $ 26,599 165.99% 22.49%
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* 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.
** The Fund commenced operations on October 6, 1995.
6
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Rates and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE SCUDDER SMALL
COMPANY VALUE FUND TOTAL RETURN (%) AND RUSSELL 2000 VALUE INDEX* TOTAL RETURN
(%)
BAR CHART DATA:
Yearly periods ended July 31
1996** 1997 1998 1999 2000
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Fund Total
Return (%) 8.77 47.92 8.97 -4.84 -14.43
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Index Total
Return (%) 7.71 41.14 6.06 -.12 4.84
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Net Asset Value ($) 13.00 19.18 20.58 19.40 16.58
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Income
Dividends ($) .05 .03 .02 .05 .02
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Capital Gains
Distributions ($) -- .01 .30 .14 --
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* The Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth
rates. Index returns assume reinvestment of dividends and, unlike Fund
returns, do not reflect any fees or expenses.
** The Fund commenced operations on October 6, 1995.
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total returns for the one year and life
of Fund periods would have been lower.
7
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Portfolio Summary
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July 31, 2000
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Asset Allocation
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The fund seeks to be
fully invested in the
stocks of small-cap
U.S. companies.
A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW.
Common Stock 98%
Cash Equivalents 2%
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100%
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Stock Characteristics
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Management's emphasis on
stocks with attractive
valuations is evident
in the fund's
price/earnings,
price/sales, and
price/book value ratios,
which are lower than
those for both small-
and large-cap stocks.
Russell
2000 Russell
Median Values Fund Value* 2000** S&P 500***
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Small Companies
($ millions)
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Market
Capitalization 316 380 421 7,444
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Value Orientation
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P/E Trailing Twelve
Months 8.9x 14.7x 18.6x 19.2x
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Price/Sales 0.4x 0.9x 1.2x 1.3x
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Price/Book Value 1.1x 1.4x 1.8x 2.9x
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* The Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth
rates.
** 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.
8
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Ten Largest Equity Holdings
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(16% of the Portfolio) The fund's disciplined
approach emphasizing
value stocks was not in
favor as returns for
stocks with higher
earnings growth were
actually negative after
taking price momentum
into account.
1. El Paso Electric Co.
Generator and distributor of electricity
2. Cleco Corp.
Electric utility
3. NVR, Inc.
Builder of single-family homes, townhouses and
condominium apartment buildings
4. Curtiss-Wright Corp.
Producer of precision components for aerospace,
industrial and marine companies
5. Northwestern Corp.
Electric and natural gas service, propane distribution
6. Roadway Express, Inc.
Less-than-truckload shipping services
7. Energen Corp.
Natural gas distribution, oil and gas exploration and
production
8. Advest Group, Inc.
Provider of retail brokerage, institutional sales, writing and
distribution of corporate and municipal securities, and other
services
9. NUI Corp.
Natural gas utility
10. First Federal Financial Corp.
Bank holding company
For more complete details about the Fund's investment portfolio, see page 18. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
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Portfolio Management Discussion
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July 31, 2000
In the following interview, portfolio managers James Eysenbach and Calvin Young
discuss the fund's market environment and strategy for its most recent fiscal
year ended July 31, 2000.
Q: How did Scudder Small Company Value Fund perform over the past twelve months?
A: The fund's total return was -14.43% for its most recent fiscal year ended
July 31, 2000. The return of the fund's benchmark, the Russell 2000 Value Index,
was 4.84% over the same period. Since the fund's inception on October 6, 1995,
it has returned 42.77%, for an average annual return of 7.66%.
Q: Please comment on the fund's performance.
A: It was a disappointing 12 months for the fund. In the current volatile market
environment, our search for long-term value based on company fundamentals did
not deliver strong relative performance. Because the fund's portfolio has even
stronger value characteristics than the value index, we would expect our
approach to produce less favorable results in a period favoring growth stocks.
The magnitude of the shortfall versus the value index was surprising, however.
In past periods when value was out of favor, our strategy produced better
investment returns because (1) value's underperformance was less extreme and (2)
focusing on cheap stocks with a demonstrated record of strong earnings growth
typically helped performance.
In the past year, investors caught up in the thrill of new-era investing largely
ignored fundamentals such as earnings growth. Instead, the characteristic most
desired was "relative strength," or a stock price that had gone up in the past.
In other words, the best-performing strategy was to chart the stock price, look
for the steepest upward sloping line, and buy the stock. By contrast, the
returns that came from focusing on stocks with higher earnings growth were
actually negative after taking price momentum into account. (See chart,
"Investing By Fundamentals Was Not Rewarded Over the Period" on page 11.)
10
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Investing By Fundamentals Was Not Rewarded Over the Period
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Scudder
Small Company Value Russell 2000
Fund Value Index
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Growth
Earnings Per Share Growth Rate 14.4% 11.5%
Valuation 10.2x 16.5x
Price/Earnings 1.16x 1.43x
Price/Book 0.35x 0.66x
Price/Sales
Momentum
Relative Strength Versus Broader
Market* 0.89 1.12
Performance
One-Year Total Return -14.43% 4.84%
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* The 12-month change in the prices of stocks within the respective
portfolios, compared with the average 12-month change in the prices of
stocks within a broad universe (market capitalization of $250 million and
above).
Source: NIS Fundamental Summary, August 1999-July 2000
Even in the Russell 2000 Value Index, the stocks driving performance were not
what would typically be considered value stocks. The majority of the index's
leaders, for example, were reporting losses and the others had average stock
prices of 30 times earnings at the beginning of the period. These stocks
returned over 300% for the year. By contrast, the typical stock in the index had
a P/E of only 18 and returned -13%. (See chart, "Russell 2000 Value Index
Leaders" on page 12.)
Q: Can you characterize the market environment for small-cap value stocks over
the fund's most recent fiscal year?
A: It was a year of extremes. There was extreme narrowness in the market caused
by investors' singular focus on the tech/biotech new economy theme. The health
care sector returned 90% and technology 66% over the period, resulting in
unprecedented spreads between growth and value.
11
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Russell 2000 Value Index Leaders
Stocks with greatest impact on index return from 7/31/1999 through 7/31/2000
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7/31/99 7/31/99-7/31/00
Price/Earnings Total Return
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PE Corp Celera Genomics Group negative earnings 559%
Integrated Device Tech negative earnings 308%
MRV Communications negative earnings 659%
Quest Diagnostics 24 292%
Tektronix negative earnings 95%
Vertex Pharmaceuticals negative earnings 288%
Coherent 40 229%
Protein Design Labs negative earnings 356%
International Rectifier 37 281%
Silicon Valley Bancshares* 17 258%
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* Only index leader remaining in Russell 2000 Value Index after 6/30/2000
rebalancing.
In the first seven months of the period, the overall small-cap market as
characterized by the Russell 2000 Index increased 31%; the Russell 2000 Growth
Index rose 60%, while the Russell 2000 Value Index declined 1%. The next five
months saw a partial reversal: a 13% drop in the Russell 2000 with the Russell
2000 Growth down 24% and the Russell 2000 Value up 6%. Nevertheless, the period
favored growth on balance by a spread of 16 percentage points.
Prior to this year, the typical absolute monthly spread between small-cap value
and small-cap growth was 2 percentage points. Over the past 12 months, the
average absolute monthly spread ballooned to 9 percentage points and was an
astonishing 17 percentage points in February alone!
12
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Q: Which sectors contributed to or detracted from fund performance?
A: As we've stated, health care and technology drove index returns. We were
underweighted in both sectors due to their high valuations. Despite the
expensive valuations, the market pushed these stocks to even higher levels for
most of the period. The fund's strongest returns came in technology, but our
holdings -- selling at more reasonable valuations within the tech sector -- did
not keep pace with the higher priced stocks in the sector. In health care, the
outsized gains were predominately among biotech stocks, many of which are still
reporting losses and thus did not meet our valuation criteria. Our overweights
in consumer cyclicals and manufacturing hurt performance. Even with inexpensive
valuations and in many cases strong earnings growth, these stocks were largely
ignored by investors or sold as a source of cash for increased technology and
health care investments.
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Small-Cap Style Performance
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THE ORIGINAL DOCUMENT CONTAINS A MOUNTAIN CHART HERE
Russell 2000 Value Total Return minus Russell 2000 Growth Total Return
MOUNTAIN CHART DATA (FROM 1980-1999):
Positive numbers indicate "Value Outperforming"
Negative numbers indicate "Growth Outperforming"
-15.46
-21.23
-27.30
-11.11
-12.21
-14.58
-15.55
-23.48
-24.90
-28.32
-37.48
-42.56
-26.88
-14.68
-6.86
-19.33
-15.50
-19.68
-5.50
0.54
8.85
15.43
16.66
26.59
24.09
20.83
21.15
21.99
19.51
21.88
16.56
17.01
16.58
14.24
14.66
8.49
7.54
1.38
-8.59
-7.34
-4.99
-10.96
-18.62
-9.72
-5.52
-1.33
11.58
15.05
18.50
26.23
27.72
25.08
23.51
23.42
23.81
20.99
18.93
20.13
17.96
20.01
18.10
12.50
9.71
8.16
9.56
7.50
9.41
6.10
9.96
7.73
4.94
0.77
0.04
0.80
1.87
1.47
-3.03
-2.23
-3.82
0.69
1.76
3.63
1.97
2.25
3.83
3.28
0.98
0.19
2.81
3.96
5.27
3.97
1.69
-3.04
5.61
7.24
3.37
8.94
10.51
9.70
9.50
9.65
9.52
9.51
10.78
10.68
8.06
6.41
9.10
3.82
5.31
5.67
4.74
2.44
4.94
1.23
-2.48
-4.00
-6.21
-8.43
-7.74
-3.54
-6.04
-6.62
-5.59
-8.34
-11.29
-8.63
-4.55
-2.00
-2.05
-4.08
-4.36
-9.31
-9.18
-8.14
-5.53
-1.74
1.34
-0.96
-6.26
-10.79
-14.95
-7.43
-9.48
-7.67
-1.58
4.51
7.43
10.62
11.92
14.73
17.31
18.12
19.65
17.10
21.37
24.33
25.60
23.17
18.99
12.91
10.38
10.29
7.35
7.39
8.85
13.24
10.48
6.84
-0.07
0.59
0.64
5.87
6.72
6.43
4.0
3.25
0.84
-0.69
0.88
1.50
0.56
-3.78
-3.18
-4.72
-11.19
-17.07
-10.54
-9.61
-4.63
-5.59
-5.29
-5.46
-8.0
-4.78
-13.08
-17.85
-5.37
7.63
2.82
0.87
6.25
9.64
10.11
7.43
18.34
21.80
28.11
26.03
23.64
15.88
17.29
19.30
16.01
16.52
18.84
18.72
7.95
1.97
-1.93
10.82
6.69
7.36
14.34
12.04
8.17
0.90
-7.68
-14.11
-7.70
-10.99
-11.56
-13.45
-14.01
-14.64
-29.22
-26.8
-28.56
-34.08
-44.58
-37.49
-72.26
-45.79
-26.99
-19.95
-29.32
-16.28
Past performance is no guarantee of future results.
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13
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Q: What would you say to investors who have been awaiting a resurgence by value
investments?
A: From history, we know that style leadership tends to rotate between growth
and value, particularly after significant outperformance by one style. Over the
short term this effect can be magnified by momentum, but over the longer term
prices tend to follow fundamentals. There are many very inexpensive companies
within the small-cap universe -- approximately 20% of these stocks are selling
at single-digit price-to-earnings ratios. Small-cap value stocks offer many
promising opportunities, which we believe will ultimately be recognized by the
market. (See chart on small-cap value versus small-cap growth performance over
the 20-year period ended July 31, 2000.)
Q: What is your outlook for the fund and its category over the coming months?
A: We have yet to see a sustained shift in favor of small cap value, but there
have been signs of a shift from the market extremes earlier in the year and a
renewed interest in stocks selling at more reasonable valuations. These shifts
have a way of creeping up on investors and are often not fully recognized until
the next phase is well underway. Thus it makes sense to maintain a long-term
commitment to a diversified mix of funds -- including large- and small-cap,
value and growth styles -- and not attempt to jump between styles based upon
what has been hot in the recent past. We believe Scudder Small Company Value
Fund is well positioned to benefit from a rebound in small company value stocks
driven by a market more focused on fundamental investing.
14
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How the fund is managed
Investment Discipline
The fund's portfolio managers rely on a proprietary, quantitative screening
process to identify attractively valued stocks with above-average capital
appreciation potential from the fund's investment universe of approximately
2,000 small U.S. companies. Four primary factors are considered: valuation,
trends in sales and earnings, price momentum, and risk. Valuation helps the
fund's managers measure how inexpensive a security is relative to the overall
small-cap universe. Sales and earnings trends suggest whether the company's
fundamentals are stable, improving or deteriorating. Price momentum provides an
indicator of how the market is responding to these fundamentals. Risk measures
help management understand the degree of financial uncertainty for a given
company. Each stock is then ranked based on its relative attractiveness.
Portfolio Construction
Management builds a diversified portfolio of attractively rated companies. To
limit individual security risk and provide trading flexibility, 150 or more
securities are held in the portfolio. On an ongoing basis, a proprietary
portfolio optimization program is used to determine which securities should be
replaced due to diminishing return prospects. The process allows the fund's
managers to keep the portfolio focused on attractively rated companies, while
managing overall portfolio risk and turnover.
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15
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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 offices across the United
States and abroad. The Adviser believes that a team approach benefits fund
investors by bringing together many disciplines and leveraging the firm's
extensive resources.
Lead portfolio manager James M. Eysenbach is responsible for overseeing the
fund's day-to-day management and investment strategies. Mr. Eysenbach joined the
Adviser in 1991 as a senior quantitative analyst and has more than 13 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 nine years of
investment industry experience with a special focus on small companies.
16
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Glossary of Investment Terms
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Market The value of a company's outstanding shares of common stock,
Capitalization determined by multiplying the number of shares outstanding
by the share price (shares x price = market capitalization).
The universe of publicly traded companies is frequently
divided into large-, mid-, and small-capitalizations.
Over/Under Refers to the allocation of assets -- usually by sector,
Weighting industry, or country -- within a portfolio relative to a
benchmark index (e.g., the Russell 2000 Index), or an
investment universe.
Price/Earnings A widely used gauge of a stock's valuation that indicates
Ratio (P/E) what investors are paying for a company's earnings on a per
(also "earnings share basis. A higher "earnings multiple" indicates a higher
multiple") expected growth rate and the potential for greater price
fluctuations.
Quantitative A systematic approach to evaluating a security based on its
Model financial characteristics.
Standard A statistical measure of the degree to which an investment's
Deviation return tends to vary from the mean return. Frequently used
in portfolio management to measure the variability of past
returns and to gauge the likely range of possible future
returns.
Value Stock A company whose stock price does not fully reflect its
intrinsic value, as indicated by price-earnings ratio,
price-book value ratio, dividend yield, or some other
valuation measure, relative to its industry or the market
overall. Value stocks tend to display less price volatility
and may carry higher dividend yields.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
17
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Investment Portfolio as of July 31, 2000
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Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------
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Repurchase Agreements 2.1%
--------------------------------------------------------------------------------
State Street Bank and Trust Company,
6.53%, to be repurchased at
$3,469,629 on 8/1/2000**
(Cost $3,469,000) ................. 3,469,000 3,469,000
Shares
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Common Stocks 97.9%
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Consumer Discretionary 13.3%
Apparel & Shoes 1.6%
Brown Shoe Company, Inc. ............. 27,800 394,413
Hartmarx Corp.* ...................... 11,600 26,825
Kellwood Co. ......................... 6,200 138,725
Oxford Industries, Inc. .............. 51,700 998,456
Phillips-Van Heusen Corp. ............ 50,900 458,100
Stride Rite Corp. .................... 111,300 660,844
---------
2,677,363
---------
Department & Chain Stores 3.2%
Burlington Coat Factory Warehouse
Corp. 28,500 334,875
Cato Corp. "A" ....................... 47,200 525,100
Charming Shoppes, Inc.* .............. 80,000 450,000
Deb Shops, Inc. ...................... 54,400 540,600
Dress Barn, Inc.* .................... 71,600 1,485,700
Goody's Family Clothing, Inc.* ....... 97,000 506,219
Jo-Ann Stores, Inc. "A"* ............. 10,400 75,400
Shopko Stores, Inc.* ................. 61,600 889,350
Value City Department Stores, Inc.* .. 39,800 348,250
---------
5,155,494
---------
Home Furnishings 0.9%
Haverty Furniture Co., Inc. .......... 115,000 1,329,688
Mikasa, Inc. ......................... 7,500 72,656
---------
1,402,344
---------
Hotels & Casinos 2.1%
Aztar Corp.* ......................... 66,400 1,012,600
Pinnacle Entertainment, Inc.* ........ 78,900 1,543,481
Prime Hospitality Corp.* ............. 93,500 888,250
---------
3,444,331
---------
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Shares Value ($)
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Recreational Products 0.6%
Coachmen Industries, Inc. ............ 64,100 665,038
Thor Industries, Inc. ................ 13,100 308,669
---------
973,707
---------
Restaurants 1.7%
NPC International, Inc.* ............. 78,200 684,250
O'Charley's, Inc.* ................... 35,700 477,488
Rainforest Cafe, Inc.* ............... 132,800 282,200
Ryan's Family Steak Houses, Inc.* .... 137,100 1,251,038
---------
2,694,976
---------
Specialty Retail 3.2%
Avis Group Holdings, Inc.* ........... 32,700 731,663
Central Garden & Pet Co.* ............ 40,200 296,475
Friedman's, Inc., "A" ................ 104,300 599,725
Lithia Motors, Inc., "A"* ............ 4,900 59,106
PETCO Animal Supplies, Inc.* ......... 31,300 620,131
Pier 1 Imports, Inc. ................. 6,000 71,625
Scotts Company, "A"* ................. 10,100 329,513
Systemax, Inc.* ...................... 73,900 272,506
Trans World Entertainment Corp.* ..... 115,600 1,394,425
United Auto Group, Inc.* ............. 56,600 442,188
United Retail Group, Inc.* ........... 55,000 321,406
---------
5,138,763
---------
Consumer Staples 5.7%
Alcohol & Tobacco 0.5%
Schweitzer-Mauduit International, Inc. 61,900 820,175
Consumer Electronic & Photographic 0.5%
Applica, Inc.* ....................... 78,200 811,325
Consumer Specialties 0.1%
Russ Berrie & Co., Inc. .............. 5,300 104,013
Food & Beverage 3.8%
Earthgrains Co. ...................... 30,000 600,000
Imperial Sugar Co. ................... 121,400 197,275
International Multifoods Corp. ....... 10,400 181,350
J & J Snack Foods Corp.* ............. 24,300 361,463
Lance, Inc. .......................... 52,900 515,775
Michael Foods, Inc. .................. 61,200 1,468,800
Performance Food Group Co.* .......... 5,600 184,450
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Pilgrim's Pride Corp. .............. 121,300 879,425
Pilgrim's Pride Corp. "A" .......... 54,150 284,288
Riviana Foods, Inc. ................ 88,900 1,444,625
---------
6,117,451
---------
Textiles 0.8%
Collins & Aikman Corp. ............. 14,200 81,650
Polymer Group, Inc. ................ 110,600 850,238
Springs Industries, Inc. "A" ....... 12,800 412,800
---------
1,344,688
---------
Health 2.4%
Health Industry Services 1.4%
AmeriPath, Inc.* ................... 77,100 978,206
DVI, Inc.* ......................... 44,400 771,450
Hanger Orthopedic Group, Inc.* ..... 5,500 22,344
US Oncology, Inc.* ................. 100,100 500,500
---------
2,272,500
---------
Hospital Management 0.6%
Coventry Health Care, Inc.* ........ 45,600 763,800
Quorum Health Group, Inc.* ......... 18,200 196,788
---------
960,588
---------
Medical Supply & Specialty 0.4%
Cooper Companies, Inc. ............. 12,300 432,038
Laboratory Corp. of America
Holdings* ....................... 2,620 257,415
---------
689,453
---------
Financial 15.9%
Banks 5.6%
Bok Financial Corp.* ............... 22,727 416,188
Dime Community Bancshares .......... 52,400 897,350
Downey Financial Corp. ............. 26,200 917,000
First Citizens BancShares, Inc. "A" 1,200 73,200
First Federal Financial Corp.* ..... 121,900 1,950,400
First Republic Bank* ............... 20,400 443,700
First Sentinel Bancorp, Inc. ....... 40,800 355,088
First Washington Bancorp, Inc. ..... 31,300 430,375
GBC Bancorp ........................ 56,000 1,820,000
MAF Bancorp, Inc. .................. 50,600 1,008,838
PFF Bancorp, Inc. .................. 18,300 317,963
Westcorp, Inc. ..................... 35,800 465,400
---------
9,095,502
---------
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Insurance 8.3%
Delphi Financial Group, Inc. "A"* ..... 32,904 1,266,804
Farm Family Holdings, Inc.* ........... 13,500 449,719
Fidelity National Financial, Inc. ..... 55,658 984,451
Harleysville Group, Inc. .............. 74,900 1,362,244
Kansas City Life Insurance Co. ........ 12,300 351,703
LandAmerica Financial Group, Inc. ..... 54,600 1,324,050
National Western Life Insurance Co.* .. 12,800 940,800
PMA Capital Corp. ..................... 57,400 1,011,675
Penn Treaty American Corp.* ........... 51,300 820,800
Philadelphia Consolidated Holding Corp. 27,700 448,394
RLI Corp. ............................. 37,200 1,302,000
Selective Insurance Group, Inc. ....... 37,500 691,406
Stewart Information Services Corp. .... 61,600 816,200
The Midland Co. ....................... 28,900 765,850
Triad Guaranty, Inc.* ................. 38,000 921,500
----------
13,457,596
----------
Other Financial Companies 1.8%
Advanta Corp. "A" ..................... 42,200 482,663
Doral Financial Corp. ................. 25,100 326,300
Resource America, Inc. "A" ............ 63,700 485,713
Walter Industries, Inc. ............... 142,100 1,554,219
----------
2,848,895
----------
Real Estate 0.2%
CB Richard Ellis Services, Inc.* ...... 27,600 313,950
Service Industries 4.7%
EDP Services 0.7%
Pomeroy Computer Resources, Inc.* ..... 68,700 1,167,900
----------
Environmental Services 0.4%
URS Corp.* ............................ 42,800 642,000
----------
Investment 1.3%
Advest Group, Inc. .................... 82,400 2,157,850
----------
Miscellaneous Commercial Services 1.6%
Comfort Systems USA, Inc.* ............ 66,600 295,538
Encompass Services Corp.* ............. 54,611 266,229
IT Group, Inc.* ....................... 40,500 177,188
Morrison Knudsen Corp.* ............... 109,600 1,054,900
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Personnel Group of America, Inc.* ..... 97,000 309,188
Wackenhut Corp., "A"* ................. 28,800 387,000
---------
2,490,043
---------
Miscellaneous Consumer Services 0.5%
CDI Corp.* ............................ 22,300 443,213
National Equipment Services, Inc.* .... 66,000 346,500
---------
789,713
---------
Printing/Publishing 0.2%
Standard Register Co. ................. 24,000 307,500
---------
Durables 10.0%
Aerospace 5.0%
Curtiss-Wright Corp. .................. 71,300 2,767,331
GenCorp, Inc. ......................... 71,000 563,563
Kaman Corp. "A" ....................... 107,600 1,345,000
Kellstrom Industries, Inc.* ........... 34,100 191,813
Primex Technologies, Inc. ............. 75,600 1,743,525
Sequa Corp. "A"* ...................... 34,700 1,481,256
---------
8,092,488
---------
Automobiles 1.6%
A.O. Smith Corp. ...................... 12,700 204,788
Dura Automotive Systems, Inc.* ........ 44,427 458,153
Oshkosh Truck Corp. ................... 20,800 704,600
Simpson Industries, Inc. .............. 88,000 715,000
Tower Automotive, Inc.* ............... 39,500 481,406
---------
2,563,947
---------
Construction/Agricultural Equipment 0.3%
Terex Corp.* .......................... 30,500 503,250
---------
Leasing Companies 2.9%
AMERCO* ............................... 20,000 395,000
Aaron Rents, Inc. ..................... 38,200 553,900
Dollar Thrifty Automotive Group, Inc.* 54,700 1,029,044
Electro Rent Corp.* ................... 37,800 470,138
McGrath Rentcorp ...................... 73,000 1,104,125
Rollins Truck Leasing Corp. ........... 154,800 1,102,950
---------
4,655,157
---------
Telecommunications Equipment 0.2%
Superior TeleCom, Inc. ................ 40,376 350,767
---------
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Manufacturing 14.1%
Chemicals 0.9%
Arch Chemicals, Inc. ............ 6,300 126,000
Ethyl Corp. ..................... 103,200 206,400
Stepan Co. ...................... 50,000 1,100,000
---------
1,432,400
---------
Containers & Paper 1.5%
Alltrista Corp.* ................ 20,100 447,225
Chesapeake Corp. ................ 22,100 578,744
P.H. Glatfelter Co. ............. 139,000 1,407,375
---------
2,433,344
---------
Diversified Manufacturing 3.4%
Barnes Group, Inc. .............. 21,700 428,575
Griffon Corp.* .................. 171,200 1,070,000
Myers Industries, Inc. .......... 53,680 717,970
NCH Corp. ....................... 40,800 1,555,500
SPS Technologies, Inc.* ......... 36,100 1,619,988
---------
5,392,033
---------
Electrical Products 0.5%
C&D Technologies, Inc. .......... 10,900 441,450
Stoneridge, Inc.* ............... 49,000 407,313
---------
848,763
---------
Hand Tools 0.5%
L.S. Starrett Corp. ............. 43,200 785,700
---------
Industrial Specialty 1.1%
CoorsTek, Inc.* ................. 7,725 332,658
Fleetwood Enterprises, Inc. ..... 26,100 337,669
Gardner Denver, Inc.* ........... 55,200 810,750
General Cable Corp. ............. 37,400 322,575
---------
1,803,652
---------
Machinery/Components/Controls 4.1%
Intermet Corp. .................. 60,800 440,800
MascoTech, Inc. ................. 99,500 1,144,250
Mueller Industries, Inc.* ....... 29,800 866,063
Reliance Steel & Aluminum Co. ... 82,350 1,729,350
Shaw Group, Inc.* ............... 10,800 508,950
Woodward Governor Co. ........... 57,500 1,897,500
---------
6,586,913
---------
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Office Equipment/Supplies 0.8%
Interface, Inc. ...................... 59,800 306,475
United Stationers, Inc.* ............. 34,500 1,004,813
---------
1,311,288
---------
Wholesale Distributors 1.1%
Applied Industrial Technologies, Inc. 45,425 732,478
Hughes Supply, Inc. .................. 50,950 964,866
Watsco, Inc. ......................... 3,600 50,175
---------
1,747,519
---------
Miscellaneous 0.2%
Wabash National Corp. ................ 34,400 369,800
---------
Technology 2.8%
Diverse Electronic Products 0.1%
Esterline Technologies Corp.* ........ 7,700 113,575
---------
Electronic Components/Distributors 1.6%
Pioneer-Standard Electronics, Inc. ... 131,400 1,773,900
Rogers Corp.* ........................ 22,800 815,100
---------
2,589,000
---------
Office/Plant Automation 0.3%
CACI International, Inc.* ............ 28,100 477,700
---------
Precision Instruments 0.7%
Moog, Inc. "A"* ...................... 39,300 1,139,700
---------
Semiconductors 0.0%
Exar Corp.* .......................... 600 55,688
---------
Miscellaneous 0.1%
Paxar Corp.* ......................... 16,700 206,663
---------
Metals & Minerals 1.5%
Steel & Metals
Commercial Metals Co. ................ 36,100 1,060,438
Gibraltar Steel Corporation .......... 49,500 757,969
Shiloh Industries, Inc.* ............. 85,000 563,125
---------
2,381,532
---------
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Construction 12.5%
Building Materials 3.2%
Ameron International Corp. ........... 50,500 1,893,750
Florida Rock Industries, Inc. ........ 32,400 1,166,400
Texas Industries, Inc. ............... 33,800 1,096,388
Universal Forest Products, Inc. ...... 73,700 925,856
----------
5,082,394
----------
Building Products 2.5%
Dal-Tile International, Inc.* ........ 5,500 49,500
Emcor Group, Inc.* ................... 26,700 625,781
NCI Building Systems, Inc.* .......... 75,800 1,430,725
Nortek, Inc.* ........................ 58,600 1,150,025
Pitt-Des Moines, Inc. ................ 26,600 776,388
----------
4,032,419
----------
Homebuilding 6.8%
Crossmann Communities, Inc.* ......... 38,500 577,500
D.R. Horton, Inc. .................... 31,200 483,600
Del Webb Corp.* ...................... 74,700 1,139,175
Lennar Corp. ......................... 36,096 866,304
MDC Holdings, Inc. ................... 52,700 1,054,000
NVR, Inc.* ........................... 45,200 2,785,450
Ryland Group, Inc. ................... 62,200 1,244,000
Skyline Corp. ........................ 41,100 829,706
Standard Pacific Corp. ............... 124,000 1,573,250
Toll Brothers, Inc.* ................. 19,900 481,331
----------
11,034,316
----------
Transportation 6.4%
Air Freight 0.2%
Offshore Logistics, Inc.* ............ 18,200 229,775
----------
Airlines 1.3%
Alaska Air Group, Inc.* .............. 42,300 1,160,606
America West Holdings Corp. "B"* ..... 47,500 762,969
Atlantic Coast Airlines Holdings, Inc. 3,200 118,000
Frontier Airlines, Inc.* ............. 4,000 71,750
----------
2,113,325
----------
Trucking 4.9%
American Freightways Corp.* .......... 42,900 744,047
Arnold Industries, Inc. .............. 30,300 414,731
Consolidated Freightways Corp.* ...... 43,400 191,231
J.B. Hunt Transport Services, Inc. ... 18,800 278,475
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Shares Value ($)
--------------------------------------------------------------------------------
Landstar System, Inc.* .......... 3,200 174,200
M.S. Carriers, Inc.* ............ 23,200 465,450
Roadway Express, Inc. ........... 104,800 2,489,000
U.S. Xpress Enterprises, Inc.
"A"* 86,400 704,700
USFreightways Corp. ............. 39,900 1,107,225
Yellow Corp.* ................... 83,700 1,344,431
---------
7,913,490
---------
Utilities 8.5%
Electric Utilities 5.9%
Cleco Corp. ..................... 88,700 3,270,813
El Paso Electric Co.* ........... 278,200 3,581,825
Northwestern Corp. .............. 111,900 2,573,682
---------
9,426,320
---------
Natural Gas Distribution 2.6%
Energen Corp. ................... 100,600 2,263,500
NUI Corp. ....................... 69,300 1,953,394
---------
4,216,894
---------
Miscellaneous 0.1%
Miscellaneous
ArvinMeritor, Inc.* ............. 13,200 206,250
---------
--------------------------------------------------------------------------------
Total Common Stocks (Cost $170,337,499) 157,974,182
--------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $173,806,499) (a) 161,443,182
--------------------------------------------------------------------------------
* Non-income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $173,806,499. At July 31,
2000, net unrealized depreciation for all securities based on tax cost was
$12,363,317. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$18,096,638 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $30,459,955.
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of July 31, 2000
--------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------
Investments in securities, at value (cost $173,806,499) . $ 161,443,182
Receivable for investments sold ......................... 268,833
Dividends receivable .................................... 94,023
Interest receivable ..................................... 629
Receivable for Fund shares sold ......................... 161,304
Deferred organization expenses .......................... 1,555
Due from Adviser ........................................ 398,385
Other assets ............................................ 1,252
-------------
Total assets ............................................ 162,369,163
Liabilities
--------------------------------------------------------------------------------
Due to custodian bank ................................... 2,562
Payable for Fund shares redeemed ........................ 1,237,431
Accrued reorganization costs ............................ 87,212
Accrued Trustees' fees and expenses ..................... 63,108
Other accrued expenses and payables ..................... 240,424
-------------
Total liabilities ....................................... 1,630,737
--------------------------------------------------------------------------------
Net assets, at value $ 160,738,426
--------------------------------------------------------------------------------
Net Assets
--------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ..................... 135,409
Net unrealized appreciation (depreciation) on investments (12,363,317)
Accumulated net realized gain (loss) .................... (14,615,511)
Paid-in capital ......................................... 187,581,845
--------------------------------------------------------------------------------
Net assets, at value $ 160,738,426
--------------------------------------------------------------------------------
Net Asset Value
--------------------------------------------------------------------------------
NetAsset Value, offering and redemption price per share
($160,738,426 / 9,695,250 outstanding shares of
beneficial interest, $.01 par value, unlimited -------------
number of shares authorized) ......................... $ 16.58
-------------
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the year ended July 31, 2000
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Dividends ..................................................... $ 2,782,481
Interest ...................................................... 246,601
------------
Total Income .................................................. 3,029,082
------------
Expenses:
Management fee ................................................ 1,589,183
Services to shareholders ...................................... 1,842,766
Custodian and accounting fees ................................. 92,678
Auditing ...................................................... 33,331
Legal ......................................................... 17,099
Trustees' fees and expenses ................................... 93,928
Reports to shareholders ....................................... 55,228
Registration fees ............................................. 35,071
Amortization of organization expenses ......................... 4,553
Reorganization ................................................ 111,559
Other ......................................................... 16,177
------------
Total expenses, before expense reductions ..................... 3,891,573
Expense reductions ............................................ (1,106,374)
------------
Total expenses, after expense reductions ...................... 2,785,199
--------------------------------------------------------------------------------
Net investment income (loss) 243,883
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from investments ..................... (8,457,957)
Net unrealized appreciation (depreciation) during the period on
investments ................................................ (33,938,245)
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions (42,396,202)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(42,152,319)
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Statements of Changes in Net Assets
------------------------------------------------------------------------------------
Year Ended July Eleven Months
31, Ended July 31, Year Ended
Increase (Decrease) in Net Assets 2000 1999 August 31, 1998
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) .... $ 243,883 $ 273,203 $ 746,953
-------------
Net realized gain (loss) on
investment transactions ...... (8,457,957) (6,157,554) 2,367,119
-------------
Net unrealized appreciation
(depreciation) on investment
transactions during the period (33,938,245) 33,001,223 (39,604,194)
------------- ------------- -------------
-------------
Net increase (decrease) in net
assets resulting from
operations ................... (42,152,319) 27,116,872 (36,490,122)
------------- ------------- -------------
Distributions to shareholders
from:
Net investment income ........... (257,874) (638,982) (197,998)
------------- ------------- -------------
Net realized gains .............. -- (1,915,016) (2,969,965)
------------- ------------- -------------
Fund share transactions:
Proceeds from shares sold ....... 47,191,147 153,893,420 225,960,585
Reinvestment of distributions ... 240,308 2,401,901 3,041,559
Cost of shares redeemed ......... (138,417,091) (123,819,127) (76,441,815)
Redemption fees ................. 116,572 299,293 378,256
------------- ------------- -------------
Net increase (decrease) in net
assets from Fund share
transactions ................. (90,869,064) 32,775,487 152,938,585
------------- ------------- -------------
Increase (decrease) in net assets (133,279,257) 57,338,361 113,280,500
Net assets at beginning of period 294,017,683 236,679,322 123,398,822
Net assets at end of period
(including undistributed net
investment income of $135,409,
$129,292 and $124,951, ------------- ------------- -------------
respectively) ................ $ 160,738,426 $ 294,017,683 $ 236,679,322
------------- ------------- -------------
Other Information
------------------------------------------------------------------------------------
Shares outstanding at beginning
of period .................... 15,158,488 13,410,779 6,303,515
------------- ------------- -------------
Shares sold ..................... 2,794,707 8,373,062 10,582,782
Shares issued to shareholders in
reinvestment of distributions 14,381 126,950 148,152
Shares redeemed ................. (8,272,326) (6,752,303) (3,623,670)
------------- ------------- -------------
Net increase (decrease) in Fund
shares ....................... (5,463,238) 1,747,709 7,107,264
Shares outstanding at end of ------------- ------------- -------------
period ....................... 9,695,250 15,158,488 13,410,779
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
2000(b) 1999(c) 1998(d) 1997(d) 1996(e)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $19.40 $17.65 $19.58 $13.57 $12.00
-------------------------------------------------
------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------
Net investment income (loss) (a) .02 .02 .07 .01 .07
------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions (2.83) 1.90 (1.71) 6.03 1.53
-------------------------------------------------
------------------------------------------------------------------------------------
Total from investment operations (2.81) 1.92 (1.64) 6.04 1.60
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net investment income (.02) (.05) (.02) (.03) (.05)
------------------------------------------------------------------------------------
Net realized gains on investment
transactions -- (.14) (.30) (.01) --
-------------------------------------------------
------------------------------------------------------------------------------------
Total distributions (.02) (.19) (.32) (.04) (.05)
------------------------------------------------------------------------------------
Redemption fees .01 .02 .03 .01 .02
------------------------------------------------------------------------------------
Net asset value, end of period $16.58 $19.40 $17.65 $19.58 $13.57
-------------------------------------------------
------------------------------------------------------------------------------------
Total Return (%) (14.43) (10.96(f)(g)* (8.45) 44.67(f) 13.54(f)(g)**
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 161 294 237 123 41
------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 1.84(h) 1.59* 1.39 1.63 2.61*
------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.32(h) 1.32* 1.39 1.50 1.50*
------------------------------------------------------------------------------------
Ratio of net investment income
(loss) (%) .12 .11* .31 .07 .67*
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 29 34* 23 44 34*
------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the year ended July 31, 2000.
(c) For the eleven months ended July 31, 1999. On September 16, 1998, the
Trustees of the Fund changed the fiscal year end from August 31 to July 31.
(d) For the year ended August 31.
(e) For the period of October 6, 1995 (commencement of operations) to August
31, 1996.
(f) Total returns would have been lower had certain expenses not been reduced.
(g) Total returns do not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
(h) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.76% and
1.25%, respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
30
<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.
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.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the use of
management estimates. The policies described below are followed consistently by
the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sale price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. If there are no such bid and asked
quotations, the most recent bid quotation shall be used. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amoritized 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.
31
<PAGE>
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
At July 31, 2000, the Fund had a net tax basis capital loss carryforward of
approximately $2,744,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until July 31,
2007 ($135,000) and July 31, 2008 ($2,609,000), the respective expiration dates
or whichever occurs first. In addition, from November 1, 1999 through July 31,
2000, the Fund incurred approximately $11,871,000 of net realized capital
losses. As permitted by tax regulations, the Fund intends to elect to defer
these losses and treat them as arising in the fiscal year ending July 31, 2001.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from accounting principles generally accepted in the United
States. As a result, net investment income (loss) and net realized gain (loss)
on investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been 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
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<PAGE>
remaining shareholders. The redemption fee is accounted for as an addition to
paid-in capital.
B. Purchases and Sales of Securities
During the year ended July 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $59,693,548 and
$148,946,977, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. (the "Adviser"), the Adviser directs the investments of the
Fund in accordance with its investment objectives, policies, and restrictions.
The Adviser determines the securities, instruments, and other contracts relating
to investments to be purchased, sold or entered into by the Fund. In addition to
portfolio management services, the Adviser provides certain administrative
services in accordance with the Agreement. The management fee payable under the
Agreement is equal to an annual rate of 0.75% of the Fund's average daily net
assets computed and accrued daily and payable monthly. In addition, during the
period, the Adviser maintained the annualized expenses of the Fund at not more
than 1.25% of average daily net assets. Certain expenses, such as
reorganization, taxes, brokerage, and interest expense are excluded from the
expense limitation. For the year ended July 31, 2000, the Adviser did not impose
a portion of its management fee which amounted to $1,067,391, and the amount
imposed amounted to $521,792, which was equivalent to an annualized effective
rate of 0.25% of the Fund's average daily net assets.
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 July 31, 2000, the amount charged to the Fund by SSC aggregated
$556,594, of which $36,746 was unpaid at July 31, 2000.
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 July 31, 2000,
the amount charged to the Fund by STC aggregated $1,106,826, of which $93,738
was unpaid at July 31, 2000.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the
33
<PAGE>
year ended July 31, 2000, the amount charged to the Fund by SFAC aggregated
$71,632, of which $5,494 was unpaid at July 31, 2000.
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, 2000, the Special
Servicing Agreement expense charged to the Fund amounted to $46,249.
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 July 31, 2000, Trustees' fees and expenses aggregated $36,658. In
addition, a one-time fee of $57,270 was accrued for payment to those Trustees
not affiliated with the Adviser who are not standing for re-election, under the
reorganization discussed in Note F. Inasmuch as the Adviser will also benefit
from administrative efficiencies of a consolidated Board, the Adviser has agreed
to bear $28,634 of such costs.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the year ended July 31, 2000,
the Fund's custodian and transfer agent fees were reduced by $4,028 and $6,321,
respectively, under these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility with Chase Manhattan Bank for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Participants are charged an
annual commitment fee which is allocated, pro rata based upon net assets, among
each of the Participants. Interest is calculated based on
34
<PAGE>
the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement.
F. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds. These costs, including printing, shareholder meeting
expenses and professional fees, are presented as reorganization expenses in the
Statement of Operations of the Fund.
35
<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, 2000, the results of its operations, the changes in its
net assets, and the financial highlights for the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States 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, 2000 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
September 14, 2000
36
<PAGE>
Tax Information
--------------------------------------------------------------------------------
For corporate shareholders, 100% of the income dividends paid during the Fund's
fiscal year ended July 31, 2000 qualified for the dividends received deduction.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
37
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder Small Company Value
Fund (the "fund") was held on July 13, 2000, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To elect Trustees of the fund.
Number of Votes:
Trustee For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 4,934,342 150,608
Linda C. Coughlin 4,931,535 153,416
Dawn-Marie Driscoll 4,933,887 151,063
Edgar R. Fiedler 4,930,180 154,770
Keith R. Fox 4,931,180 153,770
Joan E. Spero 4,930,030 154,919
Jean Gleason Stromberg 4,931,947 153,003
Jean C. Tempel 4,933,285 151,665
Steven Zaleznick 4,930,024 154,925
--------------------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the current fiscal year.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------------------------------------------------------------------------------
4,950,437 71,980 62,533 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* Broker non-votes are proxies received by the fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
38
<PAGE>
Officers and Trustees
Linda C. Coughlin*
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President, WGBH
Educational Foundation
Dawn-Marie Driscoll
o Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics, Bentley
College
Edgar R. Fiedler
o Trustee; Senior Fellow and
Economic Counsellor, The
Conference Board, Inc.
Keith R. Fox
o Trustee; General Partner,
The Exeter Group of Funds
Joan E. Spero
o Trustee; President, The Doris
Duke Charitable Foundation
Jean Gleason Stromberg
o Trustee; Consultant
Jean C. Tempel
o Trustee; Managing Director,
First Light Capital, LLC
Steven Zaleznick
o Trustee; President and
Chief Executive Officer,
AARP Services, Inc.
Thomas V. Bruns*
o Vice President
Peter Chin*
o Vice President
J. Brooks Dougherty*
o Vice President
James M. Eysenbach*
o Vice President
James E. Fenger*
o Vice President
William F. Glavin*
o Vice President
Sewall F. Hodges*
o Vice President
James E. Masur*
o Vice President
Ann M. McCreary*
o Vice President
Howard S. Schneider*
o Vice President
John Millette*
o Vice President and Secretary
Kathryn L. Quirk*
o Vice President and Assistant Secretary
John R. Hebble*
o Treasurer
Brenda Lyons*
o Assistant Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
39
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Scudder Funds
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series-- Scudder Value Fund
Prime Reserve Shares Scudder Small Company Value Fund
Premium Shares
Managed Shares Growth
Scudder Tax Free Money Fund Scudder Classic Growth Fund
Scudder Capital Growth Fund
Tax Free Scudder Large Company Growth Fund
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund Scudder Small Company Stock Fund
Scudder California Tax Free Fund Scudder 21st Century Growth Fund
Scudder Massachusetts Tax Free Fund
Scudder New York Tax Free Fund Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund
Scudder GNMA Fund Scudder Global Discovery Fund
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Choice Series
Scudder Health Care Fund
U.S. Growth and Income Scudder Technology Fund
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
40
<PAGE>
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
--------------------------------------------------------------------------------
Closed-End Funds
--------------------------------------------------------------------------------
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
Scudder funds are offered by prospectus only. For more complete information on
any fund or variable annuity registered in your state, including information
about a fund's objectives, strategies, risks, advisory fees, distribution
charges, and other expenses, please order a free prospectus. Read the prospectus
before investing in any fund to ensure the fund is appropriate for your goals
and risk tolerance. There is no assurance that the objective of any fund will be
achieved, and fund returns and net asset values fluctuate. Shares are redeemable
at current net asset value, which may be more or less than their original cost.
A money market mutual fund investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although a
money market mutual fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in such a fund.
The services and products described should not be considered a solicitation to
buy or an offer to sell a security to any person in any jurisdiction where such
offer, solicitation, purchase, or sale would be unlawful under the securities
laws of such jurisdiction.
Scudder Investor Services, Inc.
41
<PAGE>
Account Management Resources
--------------------------------------------------------------------------------
For shareholders of Scudder funds including those in the AARP Investment Program
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly
to regularly purchase fund shares and "dollar cost
average" -- buy more shares when the fund's price is
lower and fewer when it's higher, which can reduce
your average purchase price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to
purchase shares -- use distributions from one Scudder
fund to purchase shares in another, automatically
(accounts with identical registrations or the same
social security or tax identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of
your transactions is electronically debited from a
previously designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government
checks -- invested in up to four Scudder funds at one
time.
* Dollar cost averaging involves continuous
investment in securities regardless of price
fluctuations and does not assure a profit or
protect against loss in declining markets.
Investors should consider their ability to
continue such a plan through periods of low
price levels.
Around-the- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to
exchange or redeem shares, and information on other
Scudder funds and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.scudder.com
Personal Investment Organizer: Offering account
information and transactions, interactive worksheets,
prospectuses and applications for all Scudder funds,
plus your current asset allocation, whenever you need
them. Scudder's site also provides news about Scudder
funds, retirement planning information, and more.
42
<PAGE>
--------------------------------------------------------------------------------
Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the
proceeds for schedule (as frequently as once a month) and amount
living expenses of the redemptions, and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into
automated the bank account you designate within three business
withdrawal days after each distribution is paid.
programs
QuickSell
Provides speedy access to your money by
electronically crediting your redemption proceeds to
the bank account you previously designated.
For more Scudder Class S Shareholders:
information
about these Call a Scudder representative at
services 1-800-SCUDDER
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 2291
Boston, Massachusetts
02107-2291
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 2540
Boston, Massachusetts
02208-2540
43
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
SCUDDER
INVESTMENTS (SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
