SCUDDER
INVESTMENTS (SM)
[LOGO]
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EQUITY/DOMESTIC
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Scudder Small
Company Value Fund
Fund #078
Semiannual Report
January 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.
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
15 Glossary of Investment Terms
16 Investment Portfolio
26 Financial Statements
29 Financial Highlights
30 Notes to Financial Statement
34 Officers and Trustees
35 Investment Products and Services
37 Scudder Solutions
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 Undervalued small-cap stocks continued to be out of
10/6/95 favor over the six months as investors focused on a
handful of high priced growth stocks.
Total Net Assets as
of 1/31/00: o The fund's underweighting in financial stocks helped
$198.8 million relative performance, as the sector declined with
rising interest rates. But, this positive relative
contribution was insufficient to offset the fund's
underweighting in technology, which provided
record-setting gains.
o Although modifying the fund's investment mandate might
have improved short-term performance, the fund's
managers believe that a disciplined approach to
selecting undervalued small-cap stocks will be
rewarding over the long term.
3
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Letter from the Fund's President
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Dear Shareholders,
I probably don't need to tell you about the exceptional outperformance of growth
stocks versus value stocks in the small-cap sector. The performance differences
between these two styles reached epic proportions during the six-month period.
Small growth stocks, driven by a large technology weighting, achieved nearly a
30% return for this period. In contrast, small value stocks posted negative
total returns. In this environment, momentum stocks -- those with recent top
performance -- again delivered the best returns almost regardless of
fundamentals or earnings histories. This narrow focus came at the expense of
most other stocks.
We believe that this type of investing is problematic because it ignores a
widely accepted and long-standing principle: Companies that consistently deliver
earnings should command higher prices. Just the opposite has been true over the
last year. In many cases, companies with little or no earnings and inconsistent
earnings records were among the best performers and commanded the highest
prices. In the investment management industry we say that "past performance is
no guarantee of future results," yet it seems that investors based their
decisions almost entirely on past performance during this period.
While we are not going to attempt to predict when value stocks will return to
favor, we know that over the last 20 years growth and value stocks have each
taken several turns leading
4
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performance (see chart on page 14). The timing of a shift is, of course, the big
question. However, those of you who question high-priced stocks without good
fundamentals should derive some comfort from the fund's strategy of investing in
companies with attractive valuations and strong operating records. Because
investor sentiment often shifts very quickly and dramatically in the small-cap
sector, you may want to consider increasing your exposure to small-cap value
stocks through this fund's disciplined investment approach. Before you consider
such a move, I encourage you to read the detailed discussion from your fund's
portfolio management team that begins on page 10.
For current information on your fund and your account, visit our Internet Web
site at www.scudder.com. There you'll find a wealth of information, including
current fund performance, the latest news on Scudder products and services, and
the opportunity to perform account transactions. You can also call our
representatives at 1-800-SCUDDER (1-800-728-3337).
Thank you for your continued investment in Scudder Small Company Value Fund.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Small Company Value Fund
5
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Performance Update
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January 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 Russell 2000 S&P 500
Company Value Fund Value Index* Index* Index*
10/95** 10000 10000 10000 10000
1/96 10349 10426 10437 10977
7/96 10877 10663 10527 11171
1/97 13204 12846 12464 13876
7/97 16090 15200 14125 17010
1/98 17465 16473 14761 17619
7/98 17533 16143 14455 20296
1/99 16324 15316 14809 23351
7/99 16685 16124 15215 24403
1/00 13871 15029 17478 25771
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 1/31/2000 $10,000 Cumulative Annual
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Scudder Small Company Value Fund
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1 year $ 8,487 -15.13% -15.13%
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Life of Fund** $ 13,854 38.54% 7.83%
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Russell 2000 Value Index*
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1 year $ 9,817 -1.83% -1.83%
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Life of Fund** $ 15,029 50.29% 9.88%
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Russell 2000 Index*
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1 year $ 11,773 17.73% 17.73%
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Life of Fund** $ 17,478 74.78% 13.76%
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S&P 500 Index*
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1 year $ 11,036 10.36% 10.36%
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Life of Fund** $ 25,771 157.71% 24.43%
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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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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN AND INDEX TOTAL RETURN
BAR CHART DATA:
Yearly periods ended January 31
Scudder Small Russell 2000
Company Value Fund Value Index*
1996** 3.50 4.26
1997 27.58 22.43
1998 32.27 27.46
1999 -6.53 -6.87
2000 -15.13 -1.83
1996** 1997 1998 1999 2000
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Fund Total
Return (%) 3.50 27.58 32.27 -6.53 - 15.13
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Index Total
Return (%) 4.26 22.43 27.46 -6.87 -1.83
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Net Asset
Value ($) 12.37 15.74 20.50 18.98 16.09
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Income
Dividends ($) 0.05 0.04 0.02 0.05 0.02
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Capital Gains
Distributions ($) -- 0.01 0.30 0.14 --
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* The Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth
rates. Index returns assume reinvestment of dividends and, unlike Fund
returns, do not reflect any fees or expenses.
** The Fund commenced operations on October 6, 1995.
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total returns for the one year and life
of Fund periods would have been lower.
7
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Portfolio Summary
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January 31, 2000
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Asset Allocation
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The fund seeks to be
fully invested in the
stocks of small-cap U.S.
companies.
A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA POINTS IN THE TABLE BELOW.
Common Stock 99%
Cash Equivalents 1%
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100%
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Stock Characteristics
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Management's emphasis on
stocks with attractive
valuations is evident in
the fund's
price/earnings,
price/sales and
price/book ratios, which
are lower than both
small- and large-cap
stocks.
Fund as
% of
Russell S&P Russell
Median Values Fund 2000* 500** 2000
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Small Companies
($ millions)
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Market
Capitalization 294 433 7,595 68%
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Value Orientation
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P/E Trailing
Twelve Months 9.5x 19.8x 21.0x 48%
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Price/Sales 0.4x 1.3x 1.4x 28%
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Price/Book Value 1.2x 2.0x 3.0x 58%
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* 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 major industries.
8
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Ten Largest Equity Holdings
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(13% of the Portfolio) The fund's disciplined
approach that emphasizes
value stocks was not in
favor as a select group
of high-growth stocks
commanded exceptional
returns.
1. Cleco Corp.
Electric utility
2. El Paso Electric Co.
Generator and distributor of electricity
3. TNP Enterprises, Inc.
Electric utility in Texas and New Mexico
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. Performance Food Group Co.
Food distributor
8. Pioneer-Standard Electronics, Inc.
Distributor of electronic components
9. CORT Business Services Corp.
Furniture rental
10. NVR, Inc.
Builder of single-family homes, townhouses, and
condominium apartment buildings
For more complete details about the Fund's investment portfolio, see page 16. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
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Portfolio Management Discussion
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January 31, 2000
In the following interview, portfolio managers Philip S. Fortuna, James M.
Eysenbach, and Calvin S. Young discuss the market environment and their approach
to managing the fund.
Q: How would you characterize the investment environment for the six-month
period?
A: The primary factor affecting the fund during this period was the phenomenal
performance of a few growth stocks. The disparity of performance between growth
and value investment styles widened to unprecedented levels over the six months,
as investors continued to buy last week's best performers regardless of company
fundamentals or earnings reliability. This phenomenon held true for both large-
and small-cap stocks and is evident in the total returns of the Russell 2000
indices (see table below).
The strong returns of growth stocks were driven primarily by a handful of stocks
with high price/earnings (P/E) ratios, especially technology stocks.
Surprisingly, many stocks actually declined over much of the period. In fact,
43% of stocks in the Russell 2000 Index declined for the six months. This
preference for a shrinking number of highly priced growth stocks left little
interest for stocks with the greatest value characteristics, such as those in
which the fund invests.
Over this six-month period, the Russell indices showed that smaller-cap stocks
outperformed larger-cap stocks. Unfortunately, the apparent rebound of the
small-cap market is misleading, since it was driven by the largest
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Growth Outperformed Value by a Wide Margin
Total returns for small-cap stocks for the six months ended 1/31/00^1
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Growth Stocks Value Stocks Difference
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29.66% -6.44% 36.30%
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^1 All indices are unmanaged. Growth stocks are represented by the Russell
2000 Growth Index and value stocks are represented by the Russell 2000
Value Index. Past performance is no guarantee of future results.
10
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Large-cap stocks were the big winners
Average monthly return by market capitalization rebalanced monthly
from 7/31/99 to 1/31/00
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Market capitalization Total return
(billions) (six-month)
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$6-10 16%
4-6 17%
2-4 11%
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1-2 2.5%
0.5-1 1.2%
0.1-0.5 5.2%
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Shaded area = small-cap stocks
Source: Frank Russell Company and Scudder Kemper Investments. Past performance
is no guarantee of future results.
names in the Russell 2000 Index. When you look at the average monthly return by
market capitalization, you can see that the majority of the big gainers were not
truly small-cap (typically less than $2 billion in market cap).
Q: How did the fund perform?
A: The fund's -16.96% total return underperformed the -6.64% return of the
Russell 2000 Value Index. The primary reason for this dramatic shortfall was the
fund's distinct value orientation. One measure of the fund's significant value
emphasis is the fund's lower median price/earnings ratio of 9.5x, which is
one-third less than the Russell 2000 Value Index P/E of 14.8x. Although value
stocks recovered at certain points in 1999, this sector underperformed growth
stocks by the widest margin in the 21-year history of the Russell indices.
Even in this unusual market environment, we have remained true to our
disciplined investment strategy. We continue to feel justified in this approach
because we recognize that historically stocks with low valuations have provided
some of the best returns in the small-cap realm.
11
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Portfolio Characteristics
As of 1/31/00
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Median earnings
Price/earnings Median return per share
ratios on equity growth rate
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Fund 9.5x 12.4% 21.5%
Russell 2000 Value Index 14.8x 11.3% 8.0%
Russell 2000 Index 19.8x 11.6% 10.5%
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Q: Which sectors contributed to or subtracted from the fund's performance?
A: Generally, the strongest performing sectors contained stocks with the
greatest growth characteristics. This was a distinct disadvantage for small-cap
value managers. The three sectors that provided the best returns were
technology, communications, and health care -- sectors that were underweighted
in the portfolio because of our value emphasis. Overall, the fund's technology
stocks were significant drivers of performance, but our limited exposure to this
sector's exceptional gains held back fund performance.
In other areas, the portfolio was overweighted in manufacturing and consumer
stocks -- sectors that generally lagged the overall small-cap market. This weak
performance defies history because typically a robust economy benefits these
kinds of stocks. Our model's significant weighting in these sectors, combined
with weak performance, detracted from the fund's return.
In contrast, our underweighting in the finance sector made a positive
contribution to performance as rising interest rates negatively impacted many
stocks in this area. As this sector declined with rising interest rates, some
stocks became "buy" candidates and were added to the portfolio.
Q: What are you expecting from small-caps this year?
A: The most recent period of outperformance by growth stocks is unprecedented.
While it can be difficult to be invested in an asset class that is currently out
of favor,
12
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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
First, 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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patience is often rewarded. Asset classes such as large and small, and growth
and value have historically taken turns leading market performance. Periods of
underperformance are often followed by stretches of outperformance (see "A
Closer Look at Small Cap Styles" chart on page 14).
No one can say with certainty when value stocks will return to favor. In the
meantime, investors need to ask themselves which asset classes have the greatest
upside potential going forward given current valuations. Can growth stocks move
up another 10%, 20%, or 30% from current levels?
13
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A Closer Look at Small Cap Styles
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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
12 months ended
Past performance is no guarantee of future results.
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Over the long term, we believe that the attractive valuations of small-cap value
stocks overall are compelling and will eventually result in a rebound. Given
that such recoveries can be dramatic and occur over a short period, we would
urge investors to maintain a commitment to this segment of the market as part of
a well-diversified portfolio.
14
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Glossary of Investment Terms
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Market The value of a company's outstanding shares of common
Capitalization stock, determined by multiplying the number of shares
outstanding by the share price (Shares x Price = Market
Capitalization). The universe of publicly traded companies
is frequently divided into large-, mid-, and
small-capitalizations.
Over/Under Refers to the allocation of assets -- usually by 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 share basis. A higher "earnings multiple" indicates a
"earnings higher expected growth rate and the potential for greater
multiple") 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
Deviation investment's return tends to vary from the mean return.
Frequently used in portfolio management to measure the
variability of past returns and to gauge the likely range
of possible future returns.
Value Stock A company whose stock price does not fully reflect its
intrinsic value, as indicated by price-earnings ratio,
price-book value ratio, dividend yield, or some other
valuation measure, relative to its industry or the market
overall. Value stocks tend to display less price volatility
and may carry higher dividend yields.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
Additional glossary terms are available at our Internet Web site --
www.scudder.com.
15
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Investment Portfolio as of January 31, 2000 (Unaudited)
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Principal
Amount ($) Value ($)
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Repurchase Agreements 1.3%
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State Street Bank and Trust Company,
5.68%, to berepurchased at $2,521,398
on 2/1/2000, -----------
(Cost $2,521,000)** ................. 2,521,000 2,521,000
-----------
Shares
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Common Stocks 98.7%
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Consumer Discretionary 14.5%
Apparel & Shoes 1.7%
Brown Shoe Company, Inc. .............. 7,300 75,738
Columbia Sportswear Co.* .............. 4,200 75,600
Deb Shops, Inc. ....................... 54,400 839,800
Hartmarx Corp.* ....................... 162,900 498,881
Oxford Industries, Inc. ............... 51,700 891,825
Phillips-Van Heusen Corp. ............. 50,900 343,575
Stride Rite Corp. ..................... 111,300 674,756
-----------
3,400,175
-----------
Department & Chain Stores 3.3%
Ames Department Stores, Inc.* ......... 40,500 845,438
Burlington Coat Factory Warehouse Corp. 28,500 301,031
Cato Corp. "A" ........................ 43,800 448,950
Charming Shoppes Inc.* ................ 40,000 272,500
Dress Barn Inc.* ...................... 71,600 1,118,750
Goody's Family Clothing, Inc.* ........ 97,000 469,844
Jo-Ann Stores, Inc. "A"* .............. 81,400 839,438
Shopko Stores, Inc.* .................. 61,600 1,128,050
Syms Corp.* ........................... 174,300 784,350
Value City Department Stores, Inc.* ... 17,800 272,563
-----------
6,480,914
-----------
Home Furnishings 1.0%
Haverty Furniture Co., Inc. ........... 115,000 1,265,000
Mikasa, Inc. .......................... 7,500 71,719
Oneida Ltd. ........................... 19,800 418,275
Pillowtex Corp. ....................... 31,600 134,300
-----------
1,889,294
-----------
Hotels & Casinos 1.9%
Anchor Gaming* ........................ 4,900 218,663
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Aztar Corp.* ......................... 47,600 455,175
Boyd Gaming Corp.* ................... 139,900 743,219
Hollywood Park, Inc.* ................ 78,900 1,548,413
Prime Hospitality Corp.* ............. 93,500 736,313
-----------
3,701,783
-----------
Recreational Products 0.6%
Coachmen Industries, Inc. ............ 64,100 921,438
Thor Industries, Inc. ................ 13,100 384,813
-----------
1,306,251
-----------
Restaurants 2.4%
CKE Restaurants, Inc. ................ 99,700 641,819
IHOP Corp.* .......................... 58,600 966,900
NPC International, Inc.* ............. 78,200 657,369
O'Charley's Inc.* .................... 35,700 450,713
Rainforest Cafe Inc.* ................ 224,600 912,438
Ryan's Family Steak Houses, Inc.* .... 137,100 1,225,331
-----------
4,854,570
-----------
Specialty Retail 3.6%
Avis Rent A Car, Inc.* ............... 32,700 694,875
Central Garden & Pet Co.* ............ 106,100 1,097,472
Friedman's, Inc., "A" ................ 104,300 728,470
Lithia Motors, Inc., "A"* ............ 4,900 67,375
PETCO Animal Supplies, Inc.* ......... 18,000 225,000
Pier 1 Imports, Inc. ................. 6,000 49,500
Scotts Company "A"* .................. 10,100 354,131
Systemax Inc.* ....................... 114,600 1,081,538
The Finish Line, Inc. "A"* ........... 114,100 656,075
Trans World Entertainment Corp.* ..... 115,600 1,069,300
United Auto Group, Inc.* ............. 56,600 555,388
United Retail Group, Inc.* ........... 55,000 543,125
-----------
7,122,249
-----------
Consumer Staples 5.9%
Alcohol & Tobacco 0.5%
Schweitzer-Mauduit International, Inc. 61,900 882,075
-----------
Consumer Specialties 0.1%
Russ Berrie & Co., Inc. .............. 5,300 130,181
Sola International, Inc.* ............ 28,000 173,250
-----------
303,431
-----------
Food & Beverage 4.0%
Earthgrains Co. ...................... 30,000 472,500
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Imperial Sugar Co. .................. 194,100 655,088
J & J Snack Foods Corp.* ............ 24,300 464,738
Michael Foods, Inc. ................. 61,200 1,281,375
Performance Food Group Co.* ......... 98,600 2,273,963
Pilgrim's Pride Corp. ............... 121,300 924,913
Pilgrim's Pride Corp. "A" ........... 54,150 304,594
Riviana Foods, Inc. ................. 88,900 1,455,738
Seaboard Corp. ...................... 300 55,575
-----------
7,888,484
-----------
Textiles 1.3%
Collins & Aikman Corp. .............. 24,200 145,200
Polymer Group, Inc.* ................ 110,600 1,880,200
Springs Industries, Inc. "A" ........ 12,800 465,600
-----------
2,491,000
-----------
Health 1.4%
Biotechnology 0.1%
Bio-Rad Laboratories, Inc. "A"* ..... 7,300 168,356
-----------
Health Industry Services 0.9%
AmeriPath, Inc.* .................... 77,100 703,538
Hanger Orthopedic Group, Inc.* ...... 5,500 24,750
Magellan Health Services, Inc.* ..... 141,200 1,006,050
-----------
1,734,338
-----------
Hospital Management 0.0%
Coventry Health Care, Inc.* ......... 8,900 64,525
-----------
Medical Supply & Specialty 0.4%
Acuson Corporation* ................. 5,200 70,200
Cooper Companies, Inc. .............. 3,300 99,825
Laboratory Corp. of America Holdings* 80,200 265,663
Twinlab Corp.* ...................... 49,800 389,063
-----------
824,751
-----------
Financial 10.9%
Banks 2.4%
Bok Financial Corp. ................. 22,727 380,676
Dime Community Bancshares ........... 52,400 808,925
Downey Financial Corp. .............. 1,400 26,950
First Citizens BancShares, Inc. "A" . 1,200 73,050
First Federal Financial Corp.* ...... 121,900 1,592,319
First Republic Bank* ................ 20,400 400,350
First Washington Bancorp, Inc. ...... 31,300 414,725
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
GBC Bancorp ............................ 17,000 331,500
PFF Bancorp, Inc. ...................... 18,300 256,200
St. Francis Capital Corp. .............. 19,200 300,000
Westcorp, Inc. ......................... 15,000 171,563
-----------
4,756,258
-----------
Insurance 6.3%
American Annuity Group, Inc. ........... 25,600 414,400
Delphi Financial Group, Inc. "A" ....... 32,904 1,085,832
Farm Family Holdings, Inc.* ............ 13,500 477,563
Fidelity National Financial, Inc. ...... 55,658 695,725
Harleysville Group, Inc. ............... 74,900 894,119
Kansas City Life Insurance Co. ......... 59,200 1,983,200
LandAmerica Financial Group, Inc. ...... 54,600 972,563
Medical Assurance, Inc. ................ 40,722 890,797
PICO Holdings, Inc.* ................... 12,900 170,119
PMA Capital Corp. ...................... 113,000 2,005,750
Penn Treaty American Corp.* ............ 51,300 695,756
Philadelphia Consolidated Holding Corp.* 27,900 404,550
SCPIE Holdings Inc. .................... 8,000 220,000
Stewart Information Services Corp. ..... 61,600 812,350
The Midland Company .................... 28,900 576,194
Triad Guaranty Inc.* ................... 9,500 187,031
-----------
12,485,949
-----------
Other Financial Companies 1.8%
Advanta Corp. "A" ...................... 47,900 886,150
Bay View Capital Corp. ................. 98,100 974,869
Resource America, Inc. "A" ............. 63,700 433,956
Walter Industries, Inc. ................ 142,100 1,243,375
-----------
3,538,350
-----------
Real Estate 0.4%
CB Richard Ellis Services Inc.* ........ 35,200 431,200
Delta Financial Corp.* ................. 67,800 279,675
-----------
710,875
-----------
Service Industries 6.2%
EDP Services 0.6%
Pomeroy Computer Resources, Inc.* ...... 68,700 1,116,375
-----------
Environmental Services 0.4%
URS Corp.* ............................. 42,800 743,650
-----------
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Investment 0.7%
Advest Group, Inc. ..................... 82,400 1,493,500
-----------
Miscellaneous Commercial Services 4.2%
Berlitz International, Inc.* ........... 23,900 436,175
Building One Services Corp.* ........... 29,900 297,131
CORT Business Services Corp.* .......... 76,200 2,114,550
IT Group, Inc.* ........................ 50,400 384,300
Morrison Knudsen Corp.* ................ 109,600 808,300
Personnel Group of America, Inc.* ...... 141,500 1,344,250
SITEL Corp.* ........................... 33,900 279,675
UniFirst Corporation ................... 71,200 818,800
Volt Information Sciences, Inc.* ....... 62,400 1,462,500
Wackenhut Corp., "A" ................... 28,800 399,600
-----------
8,345,281
-----------
Miscellaneous Consumer Services 0.3%
CDI Corp.* ............................. 5,700 132,881
Group Maintenance America Corp.* ....... 14,700 132,300
National Equipment Services, Inc.* ..... 66,000 412,500
-----------
677,681
-----------
Durables 8.8%
Aerospace 4.0%
AAR Corp. .............................. 28,300 500,556
Curtiss-Wright Corp. ................... 71,300 2,544,519
Kaman Corp. "A" ........................ 107,600 1,035,650
Kellstrom Industries, Inc.* ............ 81,900 691,031
Primex Technologies, Inc. .............. 75,600 1,615,950
Sequa Corp. "A"* ....................... 34,700 1,522,463
-----------
7,910,169
-----------
Automobiles 1.4%
A.O. Smith Corp. ....................... 2,000 39,375
Arvin Industries, Inc. ................. 13,200 306,075
Dura Automotive Systems, Inc.* ......... 44,427 710,832
Oshkosk Truck Corp. .................... 7,300 211,700
Simpson Industries, Inc. ............... 88,000 913,000
Tower Automotive, Inc.* ................ 8,200 117,875
Wynn's International, Inc. ............. 30,675 479,297
-----------
2,778,154
-----------
Construction/Agricultural Equipment 1.2%
Cascade Corp. .......................... 93,900 950,738
NACCO Industries, Inc. "A" ............. 12,600 639,450
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Terex Corp. .......................... 30,500 693,875
-----------
2,284,063
-----------
Leasing Companies 1.9%
AMERCO* .............................. 20,000 520,000
Aaron Rents, Inc. .................... 38,200 573,000
Dollar Thrifty Automotive Group, Inc.* 54,700 1,083,744
Electro Rent Corp.* .................. 37,800 439,425
McGrath Rentcorp ..................... 73,000 1,222,750
-----------
3,838,919
-----------
Telecommunications Equipment 0.3%
Superior Telecom Inc. ................ 39,200 590,450
-----------
Manufacturing 17.9%
Chemicals 0.8%
Ethyl Corp. .......................... 103,200 393,450
Stepan Co. ........................... 50,000 1,100,000
-----------
1,493,450
-----------
Containers & Paper 1.5%
Alltrista Corp.* ..................... 20,100 478,630
P.H. Glatfelter Company .............. 139,000 1,711,438
Rock-Tenn Co. "A" .................... 70,200 780,975
Silgan Holdings Inc.* ................ 2,200 29,700
-----------
3,000,743
-----------
Diversified Manufacturing 3.7%
ACX Technologies, Inc.* .............. 30,900 166,088
Barnes Group, Inc. ................... 21,700 316,006
Griffon Corp.* ....................... 171,200 1,251,900
Justin Industries .................... 89,500 1,297,750
Myers Industries, Inc. ............... 53,680 711,260
NCH Corp. ............................ 40,800 1,774,800
SPS Technologies, Inc.* .............. 36,100 1,213,863
Tredegar Industries, Inc. ............ 35,400 692,513
-----------
7,424,180
-----------
Electrical Products 1.1%
C&D Technologies, Inc. ............... 9,000 367,875
MagneTek Inc.* ....................... 34,200 305,663
Stoneridge, Inc.* .................... 38,300 440,450
Windmere-Durable Holdings, Inc. ...... 78,200 1,129,013
-----------
2,243,001
-----------
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Hand Tools 0.9%
L.S. Starrett Corp. ................... 71,999 1,727,976
-----------
Industrial Specialty 1.9%
CoorsTek, Inc.* ....................... 7,725 139,050
Fleetwood Enterprises, Inc. ........... 26,100 425,756
Gardner Denver Inc.* .................. 60,600 1,068,075
General Cable Corp. ................... 30,300 234,825
Hexcel Corp. .......................... 107,400 563,850
Lennox International Inc. ............. 32,763 307,153
Mine Safety Appliances Co. ............ 13,500 837,844
UNOVA, Inc.* .......................... 23,900 256,925
-----------
3,833,478
-----------
Machinery/Components/Controls 6.6%
Amcast Industrial Corp. ............... 59,400 809,325
Columbus McKinnon Corp. ............... 105,200 1,433,350
Gleason Corp. ......................... 80,000 1,830,000
Intermet Corp. ........................ 145,500 1,655,063
MascoTech, Inc. ....................... 99,500 1,237,531
Mueller Industries, Inc.* ............. 29,800 981,538
Reliance Steel & Aluminum Co. ......... 82,350 1,708,763
Shaw Group, Inc.* ..................... 68,800 1,586,700
Tennant Company ....................... 15,500 503,750
Woodward Governor Co. ................. 57,500 1,326,094
-----------
13,072,114
-----------
Office Equipment/Supplies 0.5%
United Stationers Inc.* ............... 34,500 897,000
-----------
Wholesale Distributors 0.8%
Applied Industrial Technologies, Inc. . 45,425 723,961
Hughes Supply, Inc. ................... 50,950 897,994
-----------
1,621,955
-----------
Miscellaneous 0.1%
Wabash National Corp. ................. 11,300 150,431
-----------
Technology 3.3%
Computer Software 0.4%
MTS Systems Corp. ..................... 119,200 834,400
-----------
Electronic Components/Distributors 1.8%
Avnet, Inc. ........................... 14,821 795,702
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Pioneer-Standard Electronics, Inc. 163,900 2,235,698
Rogers Corp.* .................... 15,600 592,800
-----------
3,624,200
-----------
Electronic Data Processing 0.2%
Information Resources, Inc.* ..... 35,400 288,731
-----------
Office/Plant Automation 0.3%
CACI International, Inc.* ........ 28,100 635,763
-----------
Precision Instruments 0.4%
Moog Inc. ........................ 39,300 773,719
-----------
Semiconductors 0.2%
Exar Corp. ....................... 6,600 415,800
-----------
Energy 2.1%
Oilfield Services/Equipment
Oceaneering International, Inc.* . 30,800 512,050
Parker Drilling Co.* ............. 182,500 638,750
Seacor Smit Inc.* ................ 35,300 1,628,213
Varco International, Inc. ........ 32,200 326,025
Veritas DGC Inc. ................. 69,900 1,096,556
-----------
4,201,594
-----------
Metals & Minerals 2.1%
Steel & Metals
Commercial Metals Co. ............ 36,100 1,148,431
Gibraltar Steel Corporation ...... 49,500 903,375
IMCO Recycling Inc. .............. 48,500 551,688
Metals USA, Inc.* ................ 72,800 586,950
Ryerson Tull, Inc. ............... 6,100 116,281
Shiloh Industries, Inc.* ......... 85,000 850,000
-----------
4,156,725
-----------
Construction 9.6%
Building Materials 2.6%
Ameron International Corp. ....... 50,500 1,969,500
Florida Rock Industries, Inc. .... 32,400 1,085,400
Texas Industries, Inc. ........... 33,800 1,235,813
Universal Forest Products, Inc. .. 73,700 921,250
-----------
5,211,963
-----------
Building Products 1.7%
Emcor Group, Inc.* ............... 26,700 485,606
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
NCI Building Systems, Inc.* ........... 75,800 1,146,475
Nortek, Inc.* ......................... 58,600 1,230,600
Pitt-Des Moines, Inc. ................. 26,600 573,563
-----------
3,436,244
-----------
Homebuilding 5.0%
Crossmann Communities, Inc.* .......... 38,500 625,625
D.R. Horton, Inc. ..................... 31,200 360,750
Del Webb Corp. ........................ 74,700 1,363,275
MDC Holdings, Inc. .................... 52,700 744,388
NVR Inc.* ............................. 45,200 2,045,300
Ryland Group, Inc. .................... 62,200 1,022,413
Skyline Corp. ......................... 81,700 1,685,063
Standard Pacific Corp. ................ 124,000 1,154,750
U.S. Home Corp.* ...................... 37,600 900,050
-----------
9,901,614
-----------
Miscellaneous 0.3%
Granite Construction, Inc. ............ 25,600 510,400
-----------
Transportation 6.1%
Air Freight 0.3%
Kitty Hawk, Inc.* ..................... 78,800 541,750
Offshore Logistics, Inc.* ............. 4,400 40,700
-----------
582,450
-----------
Airlines 1.5%
Alaska Air Group Inc.* ................ 42,300 1,348,313
America West Holdings Corp. "B"* ...... 47,500 849,063
Atlantic Coast Airlines Holdings, Inc.* 19,400 350,413
Frontier Airlines, Inc.* .............. 38,100 392,888
-----------
2,940,677
-----------
Trucking 4.3%
American Freightways Corp.* ........... 42,900 584,513
Arnold Industries, Inc. ............... 30,300 409,050
Consolidated Freightways Corp.* ....... 105,200 611,475
Covenant Transport, Inc. "A"* ......... 40,000 535,000
M.S. Carriers Inc.* ................... 23,200 498,800
Roadway Express, Inc. ................. 104,800 2,410,400
U.S. Xpress Enterprises, Inc. "A"* .... 86,400 561,600
USFreightways Corp. ................... 45,200 1,644,150
Yellow Corp.* ......................... 83,700 1,276,425
-----------
8,531,413
-----------
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Utilities 9.9%
Electric Utilities 7.7%
CH Energy Group, Inc. ....... 62,900 1,949,900
Cleco Corp. ................. 98,200 3,301,975
El Paso Electric Co.* ....... 352,500 3,150,469
Northwestern Corp. .......... 111,900 2,475,788
SIGCORP, Inc. ............... 81,300 1,671,731
TNP Enterprises, Inc. ....... 66,100 2,726,625
-----------
15,276,488
-----------
Natural Gas Distribution 2.2%
Energen Corp. ............... 100,600 1,735,350
Laclede Gas Co. ............. 35,000 660,625
NUI Corp. ................... 69,300 1,927,406
-----------
4,323,381
-----------
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $228,311,646) 195,491,760
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0%
(Cost $230,832,646) (a) 198,012,760
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $230,832,646. At January 31,
2000, net unrealized depreciation for all securities based on tax cost was
$32,819,886. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$13,888,487 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $46,708,373.
* Non-income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of January 31, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Investments in securities, at value (cost $230,832,646) .... $ 198,012,760
Cash ....................................................... 790
Receivable for investments sold ............................ 1,861,176
Dividends receivable ....................................... 107,422
Interest receivable ........................................ 398
Receivable for Fund shares sold ............................ 256,594
Deferred organization expenses ............................. 3,819
Other assets ............................................... 1,433
-------------
Total assets ............................................... 200,244,392
Liabilities
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed ........................... 940,287
Accrued management fee ..................................... 71,032
Other accrued expenses and payables ........................ 479,038
-------------
Total liabilities .......................................... 1,490,357
- --------------------------------------------------------------------------------
Net assets, at value $ 198,754,035
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment
income ................................................... (4,909)
Net unrealized appreciation (depreciation) on investments .. (32,819,886)
Accumulated net realized gain (loss) ....................... 1,132,836
Paid-in capital ............................................ 230,445,994
- --------------------------------------------------------------------------------
Net assets, at value $ 198,754,035
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($198,754,035 / 12,352,381 outstanding shares of beneficial
interest, $.01 par value, unlimited -----------------
number of shares authorized) ............................. $ 16.09
-----------------
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations for the six months ended January 31, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------
Dividends ..................................................... $ 1,562,330
Interest ...................................................... 125,909
------------
Total income .................................................. 1,688,239
------------
Expenses:
Management fee ................................................ 938,741
Services to shareholders ...................................... 869,452
Custodian and accounting fees ................................. 51,669
Trustees' fees and expenses ................................... 22,764
Registration fees ............................................. 21,802
Reports to shareholders ....................................... 28,114
Auditing ...................................................... 17,803
Legal ......................................................... 4,254
Amortization of organization expenses ......................... 2,289
Other ......................................................... 7,745
------------
Total expenses, before expense reductions ..................... 1,964,633
Expense reductions ............................................ (400,064)
------------
Total expenses, after expense reductions ...................... 1,564,569
- --------------------------------------------------------------------------------
Net investment income (loss) 123,670
- --------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from investments ..................... 7,425,477
Net unrealized appreciation (depreciation) during the period on
investments ................................................. (54,394,814)
- --------------------------------------------------------------------------------
Net gain (loss) on investment transactions (46,969,337)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(46,845,667)
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended January Eleven Months Year Ended
31, 2000 Ended July August 31,
Increase (Decrease) in Net Assets (Unaudited) 31, 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) .... $ 123,670 $ 273,203 $ 746,953
Net realized gain (loss) on
investment transactions ....... 7,425,477 (6,157,554) 2,367,119
Net unrealized appreciation
(depreciation) on investment
transactions during the
period ........................ (54,394,814) 33,001,223 (39,604,194)
------------- ------------- -------------
Net increase (decrease) in net
assets resulting from
operations .................... (46,845,667) 27,116,872 (36,490,122)
------------- ------------- -------------
Distributions to shareholders
from:
Net investment income ........... (257,871) (638,982) (197,998)
------------- ------------- -------------
Net realized gains .............. -- (1,915,016) (2,969,965)
------------- ------------- -------------
Fund share transactions:
Proceeds from shares sold ....... 27,479,406 153,893,420 225,960,585
Reinvestment of distributions ... 240,307 2,401,901 3,041,559
Cost of shares redeemed ......... (75,951,093) (123,819,127) (76,441,815)
Redemption fees ................. 71,270 299,293 378,256
------------- ------------- -------------
Net increase (decrease) in net
assets from Fund share
transactions .................. (48,160,110) 32,775,487 152,938,585
------------- ------------- -------------
Increase (decrease) in net assets (95,263,648) 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 accumulated distributions
in excess of net investment income
of $4,909 and undistributed net
investment income of $129,292 ------------- ------------- -------------
and $124,951, respectively) ... $ 198,754,035 $ 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 ..................... 1,572,956 8,373,062 10,582,782
Shares issued to shareholders in
reinvestment of distributions . 14,381 126,950 148,152
Shares redeemed ................. (4,393,444) (6,752,303) (3,623,670)
---------------- --------------- ---------------
Net increase (decrease) in Fund
shares ........................ (2,806,107) 1,747,709 7,107,264
Shares outstanding at end of ---------------- --------------- --------------
period ........................ 12,352,381 15,158,488 13,410,779
---------------- --------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<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) .01 .02 .07 .01 .07
- --------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (3.31) 1.90 (1.71) 6.03 1.53
------------------------------------------------------
- --------------------------------------------------------------------------------------
Total from investment
operations (3.30) 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 $16.09 $19.40 $17.65 $19.58 $13.57
------------------------------------------------------
- --------------------------------------------------------------------------------------
Total Return (%) (16.96)(f)(g)** (10.96(f)(g)**(8.45) 44.67(f) 13.54(f)(g)**
- --------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 199 294 237 123 41
- --------------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 1.57* 1.59* 1.39 1.63 2.61*
- --------------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 1.25* 1.32* 1.39 1.50 1.50*
- --------------------------------------------------------------------------------------
Ratio of net investment income
(loss) (%) .10* .11* .31 .07 .67*
- --------------------------------------------------------------------------------------
Portfolio turnover rate (%) 61* 34* 23 44 34*
- --------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the six months ended January 31, 2000 (Unaudited).
(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 return would have been lower had certain expenses not been reduced.
(g) 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
29
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
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 Trustees of the Fund changed the fiscal year end from
August 31 to July 31.
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. 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.
30
<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, 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, whichever occurs first. 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 ending
July 31, 2000.
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.
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 six months ended January 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $37,293,180 and
$84,455,896, 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 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, 2000. For the six months ended January 31, 2000, the Adviser did
not impose a portion of its management fee which amounted to $393,285, and the
amount imposed amounted to $545,456, which was equivalent to an annualized
effective rate of 0.44% 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
six months ended January 31, 2000, the amount charged to the Fund by SSC
aggregated $310,952, of which $151,310 was unpaid at January 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 six months ended January
31, 2000, the amount charged to the Fund by STC aggregated $548,578, of which
$270,510 was unpaid at January 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
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<PAGE>
six months ended January 31, 2000, the amount charged to the Fund by SFAC
aggregated $37,554, of which $5,954 was unpaid at January 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 January 31, 2000, the
Special Servicing Agreement expense charged to the Fund amounted to $23,492.
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 six months ended January 31, 2000, Trustees' fees and expenses aggregated
$22,764.
D. Expense Off-Set Arrangements
The Fund has entered into an arrangement 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. For the six months ended January 31,
2000, the Fund's custodian and transfer agent fees were reduced by $3,826 and
$2,953, respectively, under these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
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.
33
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Lynn S. Birdsong*
o President
Sheryle J. Bolton
o Trustee; Chief Executive Officer,
Scientific Learning Corporation
William T. Burgin
o Trustee; General Partner, Bessemer
Venture Partners
Keith R. Fox
o Trustee; Private Equity Investor
William H. Luers
o Trustee; Chairman and President,
U.N. Association of America
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Joan E. Spero
o Trustee; President, Doris Duke
Charitable Foundation
Paul Bancroft III
o Honorary Trustee; Venture
Capitalist and Consultant
Wilson Nolen
o Honorary Trustee; Consultant
Robert G. Stone, Jr.
o Honorary Trustee; Chairman
Emeritus and Director, Kirby
Corporation
Edmund R. Swanberg
o Honorary Trustee
Peter Chin*
o Vice President
J. Brooks Dougherty*
o Vice President
James M. Eysenbach*
o Vice President
James E. Fenger*
o Vice President
Philip S. Fortuna*
o Vice President
Sewall F. Hodges*
o Vice President
Ann M. McCreary*
o Vice President
Thaddeus Paluszek*
o Vice President
John Millette*
o Vice President and Secretary
John R. Hebble*
o Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
34
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
35
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
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>
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.
36
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.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 your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
37
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal 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 Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
38
<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.
