UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number 811-4257
SCUDDER VALUE SERIES
----------------------------------------
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, IL 60606
--------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2663
--------------
Salvatore Schiavone
Two International Place
Boston, Massachusetts 02110
---------------------------------------
(Name and Address of Agent for Service)
Date of fiscal year end: 11/30
Date of reporting period: 11/30/04
ITEM 1. REPORT TO STOCKHOLDERS
Scudder-Dreman Small Cap Value Fund
|
| |
| Annual Report to Shareholders |
| November 30, 2004 |
|
This report must be preceded or accompanied by a prospectus. To obtain a prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest.
Investments in mutual funds involve risk. Some funds have more risk than others. This fund is subject to stock market risk. Stocks of small companies involve greater risk, as they often have limited product lines, markets or financial resources and may be exposed to more erratic and abrupt market movements than securities of larger, more-established companies. The fund may focus its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Please read this fund's prospectus for specific details regarding its investments and risk profile.
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.
Performance Summary November 30, 2004 |
|
All performance shown is historical, assumes reinvestment of all dividends and capital gains, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit scudder.com for the product's most recent month-end performance.
The maximum sales charge for Class A shares is 5.75%. For Class B shares, the maximum contingent deferred sales charge (CDSC) is 4% within the first year after purchase, declining to 0% after six years. Class C shares have no adjustments for front-end sales charges but redemptions within one year of purchase may be subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and would have been lower if they had. Class I, Class R, and Institutional Class shares are not subject to sales charges.
Returns and rankings during the 3-year, 5-year and 10-year periods shown for Class A, B, C and R and the 3-year, 5-year and Life of Class periods shown for Class I, reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
Returns shown for Class B and C shares for the periods prior to their inception on September 11, 1995 and for Class R shares prior to October 1, 2003 are derived from the historical performance of Class A shares of the Scudder-Dreman Small Cap Value Fund during such periods and have been adjusted to reflect the higher gross total annual operating expenses of each specific class. Any differences in expenses will affect performance.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 11/30/04 |
Scudder-Dreman Small Cap Value Fund | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | 27.37% | 17.99% | 12.75% | 12.94% |
Class B | 26.30% | 17.02% | 11.83% | 12.00% |
Class C | 26.48% | 17.12% | 11.92% | 12.10% |
Class R | 27.07% | 17.55% | 12.28% | 12.44% |
Russell 2000 Index+ | 17.26% | 12.63% | 8.29% | 11.51% |
Russell 2000 Value Index++ | 23.71% | 17.90% | 17.39% | 15.24% |
Scudder-Dreman Small Cap Value Fund | 1-Year | 3-Year | 5-Year | Life of Class* |
Class I | 27.87% | 18.60% | 13.40% | 11.54% |
Russell 2000 Index+ | 17.26% | 12.63% | 8.29% | 10.17% |
Russell 2000 Value Index++ | 23.71% | 17.90% | 17.39% | 14.49% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
* Class I commenced operations on November 1, 1995. Index returns begin October 31, 1995.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 11/30/04 |
Scudder-Dreman Small Cap Value Fund | 1-Year | Life of Class** |
Institutional Class | 27.91% | 24.60% |
Russell 2000 Index+ | 17.26% | 25.52% |
Russell 2000 Value Index++ | 23.71% | 26.55% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
** Institutional Class commenced operations on August 19, 2002. Index returns begin August 31, 2002.
Net Asset Value and Distribution Information |
| Class A | Class B | Class C | Class I | Class R | Institutional Class |
Net Asset Value: 11/30/04 | $ 31.98 | $ 30.01 | $ 30.28 | $ 33.38 | $ 32.09 | $ 32.10 |
11/30/03 | $ 25.27 | $ 23.76 | $ 23.94 | $ 26.39 | $ 25.26 | $ 25.31 |
Distribution Information: Twelve Months: Income Dividends as of 11/30/04 | $ .17 | $ — | $ — | $ .29 | $ .01 | $ .22 |
Class A Lipper Rankings — Small-Cap Core Funds Category as of 11/30/04 |
Period | Rank | | Number of Funds Tracked | Percentile Ranking |
1-Year | 20 | of | 556 | 4 |
3-Year | 46 | of | 448 | 11 |
5-Year | 136 | of | 317 | 43 |
10-Year | 44 | of | 92 | 48 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return unadjusted for sales charges with distributions reinvested. If sales charges had been included, rankings might have been less favorable. Rankings are for Class A shares; other share classes may vary.
Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
[] Scudder-Dreman Small Cap Value Fund — Class A [] Russell 2000 Index+ [] Russell 2000 Value Index++ |
 |
Yearly periods ended November 30 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 5.75%. This results in a net investment of $9,425. The growth of $10,000 is cumulative.
Comparative Results (Adjusted for Maximum Sales Charge) as of 11/30/04 |
Scudder-Dreman Small Cap Value Fund | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | Growth of $10,000 | $12,004 | $15,482 | $17,174 | $31,815 |
Average annual total return | 20.04% | 15.69% | 11.42% | 12.27% |
Class B | Growth of $10,000 | $12,326 | $15,826 | $17,393 | $31,052 |
Average annual total return | 23.26% | 16.53% | 11.71% | 12.00% |
Class C | Growth of $10,000 | $12,648 | $16,064 | $17,564 | $31,344 |
Average annual total return | 26.48% | 17.12% | 11.92% | 12.10% |
Class R | Growth of $10,000 | $12,707 | $16,242 | $17,849 | $32,295 |
Average annual total return | 27.07% | 17.55% | 12.28% | 12.44% |
Russell 2000 Index+ | Growth of $10,000 | $11,726 | $14,288 | $14,889 | $29,717 |
Average annual total return | 17.26% | 12.63% | 8.29% | 11.51% |
Russell 2000 Value Index++ | Growth of $10,000 | $12,371 | $16,389 | $22,293 | $41,294 |
Average annual total return | 23.71% | 17.90% | 17.39% | 15.24% |
The growth of $10,000 is cumulative.
Comparative Results as of 11/30/04 |
Scudder-Dreman Small Cap Value Fund | 1-Year | 3-Year | 5-Year | Life of Class* |
Class I | Growth of $10,000 | $12,787 | $16,683 | $18,756 | $26,971 |
Average annual total return | 27.87% | 18.60% | 13.40% | 11.54% |
Russell 2000 Index+ | Growth of $10,000 | $11,726 | $14,288 | $14,889 | $24,095 |
Average annual total return | 17.26% | 12.63% | 8.29% | 10.17% |
Russell 2000 Value Index++ | Growth of $10,000 | $12,371 | $16,389 | $22,293 | $34,173 |
Average annual total return | 23.71% | 17.90% | 17.39% | 14.49% |
The growth of $10,000 is cumulative.
Scudder-Dreman Small Cap Value Fund | 1-Year | Life of Class** |
Institutional Class | Growth of $1,000,000 | $1,279,100 | $1,652,400 |
Average annual total return | 27.91% | 24.60% |
Russell 2000 Index+ | Growth of $1,000,000 | $1,172,600 | $1,667,500 |
Average annual total return | 17.26% | 25.52% |
Russell 2000 Value Index++ | Growth of $1,000,000 | $1,237,100 | $1,698,600 |
Average annual total return | 23.71% | 26.55% |
The growth of $1,000,000 is cumulative.
The minimum initial investment for Institutional Class shares is $1,000,000.
* Class I commenced operations on November 1, 1995. Index returns begin October 31, 1995.
** Institutional Class commenced operations on August 19, 2002. Index returns begin August 31, 2002.
+ The Russell 2000 Index is an unmanaged capitalization-weighted measure of approximately 2,000 small US stocks.
++ The Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.
Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Information About Your Fund's Expenses |
|
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended November 30, 2004.
The tables illustrate your Fund's expenses in two ways:
Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment
for the six months ended November 30, 2004 |
Actual Fund Return | Class A | Class B | Class C | Class I | Class R | Institutional Class |
Beginning Account Value 6/1/04 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 11/30/04 | $ 1,168.00 | $ 1,163.70 | $ 1,164.20 | $ 1,171.60 | $ 1,164.80 | $ 1,170.70 |
Expenses Paid per $1,000* | $ 7.34 | $ 11.28 | $ 11.19 | $ 4.39 | $ 10.45 | $ 4.87 |
Hypothetical 5% Fund Return | Class A | Class B | Class C | Class I | Class R | Institutional Class |
Beginning Account Value 6/1/04 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 11/30/04 | $ 1,018.30 | $ 1,014.64 | $ 1,014.73 | $ 1,021.03 | $ 1,015.41 | $ 1,020.58 |
Expenses Paid per $1,000* | $ 6.83 | $ 10.50 | $ 10.41 | $ 4.08 | $ 9.73 | $ 4.53 |
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A | Class B | Class C | Class I | Class R | Institutional Class |
Scudder-Dreman Small Cap Value Fund | 1.35% | 2.08% | 2.06% | .81% | 1.93% | .89% |
For more information, please refer to the Fund's prospectus.
Portfolio Management Review |
|
Scudder-Dreman Small Cap Value Fund:
A Team Approach to Investing
Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for Scudder-Dreman Small Cap Value Fund. DeIM and its predecessors have more than 80 years of experience managing mutual funds and DeIM provides a full range of investment advisory services to institutional and retail clients.
Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
DeIM is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.
Dreman Value Management LLC ("DVM"), Aspen, Colorado, is the subadvisor for the fund. DVM was founded in 1977 and currently manages over $12 billion in assets as of November 30, 2004.
Portfolio Management Team
Dreman Value Management, LLC is the subadvisor for the fund.
David N. Dreman
Co-Lead Portfolio Manager.
Began investment career in 1957.
Joined the fund team in 2002.
Founder and Chairman, Dreman Value Management, LLC since 1977.
Nelson Woodard
Co-Lead Portfolio Manager.
Began investment career in 1985.
Joined the fund team in 2002.
PhD, University of Virginia.
In the following interview, Co-Lead Portfolio Managers David N. Dreman and Nelson Woodard address the economy, the management team's approach and the resulting performance of Scudder-Dreman Small Cap Value Fund during the annual period ended November 30, 2004.
Q: Will you provide an overview of market conditions during the period?
A: Early in the period, the market was buoyed by the continuing robust growth of the US economy and corporate earnings. Interest rates and inflation remained relatively low throughout the end of 2003.
With the stimulative effect of tax cuts waning, the pace of economic growth slowed soon after the new year in 2004. The market grew more volatile, as disappointed market watchers began to question the strength and long-term viability of economic recovery. Investor sentiment was further tested by rising short-term interest rates, the unfolding of events in Iraq, historically high energy prices and the rhetoric of a hotly contested US presidential campaign. Throughout the end of the period, confused and nervous investors rotated into and out of traditionally defensive and more economically sensitive stocks and industry sectors, creating a challenging investment environment.
The fund benefited from a market that continued to favor small-capitalization stocks over their large-cap counterparts, and value- over growth-style investing. The Russell 2000 Value Index, generally a measure of the small-cap value universe and the fund's value benchmark, gained 23.71% for the year ended November 30, 2004. This compares with the Russell 1000 Value Index, generally a measure of the large-cap value universe, which rose 19.67%, and the Russell 2000 Growth Index, generally a measure of the small-cap growth universe, which advanced 10.83%, also for the period.1
1 The Russell 1000 Value Index is an unmanaged index, which consists of those stocks in the Russell 1000 Index with lower price-to-book (P/B) ratios and lower forecasted-growth values. The Russell 2000 Growth Index is an unmanaged index that measures the performance of those Russell 2000 companies with higher price-to-book (P/B) ratios and higher forecasted growth values. P/B is equal to a stock's market capitalization divided by its book value. (This ratio compares the market's valuation of a company to the value of that company as indicated on its financial statements.) Index returns assume reinvestment of dividends, and, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Q: How did the fund perform?
A: Scudder-Dreman Small Cap Value Fund Class A shares posted a total return of 27.37% for the year ended November 30, 2004. (Returns are unadjusted for sales charges. If sales charges had been included, returns would have been lower. Past performance is no guarantee of future results.) The fund far outpaced the 17.26% return of its Russell 2000 Index benchmark and the 23.71% return of its value benchmark, the Russell 2000 Value Index. (Please see pages 3 through 6 for the performance of other share classes and more complete performance information.)
We are extremely proud of the fund's performance. We believe that our disciplined, "bottom-up" approach, which focuses on determining the fundamental strengths of individual companies, resulted in some very strong stock selection. In addition, our decision to add to the portfolio's energy holdings proved crucial. The move paid off handsomely when crude oil and natural gas prices hit historic highs in October.
Q: Would you describe the "contrarian" philosophy that informs your investment management decisions?
A: The classic contrarian value investing philosophy is based on our contention that consensus opinion, especially when it comes to investing, is often wrong. We seek companies that we believe are financially sound and that have, for one reason or another, fallen out of favor with the investing public. We look for stocks that are trading below what we believe are their intrinsic values, with prices that are low relative to their earnings (P/E) (the most common measure of how expensive a stock is), book value (P/B) (generally, a comparison of the market's valuation of a company to the value of that company as indicated on its financial statements) and cash flow (P/CF).2 Typically, these types of companies provide potential for above-market returns over time.
2 P/E is equal to a stock's market capitalization divided by its after-tax earnings over the most recent 12-month period. P/B is equal to a stock's market capitalization divided by its book value. (This ratio compares the market's valuation of a company to the value of that company as indicated on its financial statements.) P/CF is equal to a stock's capitalization divided by its cash flow for the latest fiscal year.
We base our stock selection solely on fundamental, "bottom-up" analysis, a process of evaluation that takes into account the individual merits of each stock. Therefore, we do not choose stocks based on industry sector or the macroeconomic environment. Industry sector weightings are a result of individual stock selection.
Q: Which strategies or individual stocks contributed most to performance?
A: The fund's performance was driven largely by its energy holdings, which climbed along with crude oil and natural gas prices. Early in the period, we increased the portfolio's already substantial energy stake. By the period's end, the fund's weighting in energy was more than double that of the benchmark index.
As we mentioned earlier, asset allocation is a result of bottom-up stock selection. Our strategy, in this case, was predicated both upon a correct assumption that energy prices would continue to rise — crude oil in October hit an historic $50 a barrel — and that demand for natural gas would continue to intensify. Therefore, we increased holdings particularly in exploration and production companies with natural gas exposure.
The portfolio's top performer was Ultra Petroleum Corp., an independent company engaged in the acquisition, exploration, operation and production of oil and gas properties. The company attracted attention after a major discovery of natural gas on its Wyoming property sent the stock soaring early in the period. The company soon thereafter initiated production in three wells on the site, each of which broke all previous initial production records. Further, through its wholly owned subsidiary, the company, during the period, began the production and sale of oil from fields off China's shores. Increased production combined with stronger commodities prices to fuel the tremendous growth of company earnings and cash flow.
While at one point during the period the stock was the portfolio's second-largest position, we reduced holdings to lock in profits for shareholders. We kept a portion of shares in Ultra Petroleum Corp., however, because we believe that the company continues to offer significant opportunity based on untapped production capacity and the likelihood of sustained energy prices. Finally, we believe the company is a likely takeover candidate, given that many major companies have had difficulty finding new sources of crude oil and gas.
Adept stock selection enabled the portfolio to significantly outperform the utilities sector of the benchmark Russell 2000 Value Index, despite a neutral weighting (fund assets held in approximately equal proportion to the benchmark index). The portfolio originally was invested in merchant energy companies, such as Reliant Energy, Inc., in 2002 after fallout from the Enron scandal and the collapse of energy trading laid the group low. Reliant Energy, Inc., once on the brink of bankruptcy, was one of the fund's top-performing utility stocks during the period. Astute management and the resolution of serious short-term liquidity issues helped save the company, which has rebounded strongly. Sierra Pacific Resources also contributed powerfully to results. Earnings from its subsidiaries showed marked improvement, reflecting the enhancement of operational efficiency and customer growth.
We continue to be convinced that these companies offer outstanding prospects, based on the as yet unrealized value of their assets, specifically their power plants. Nevertheless, we have reduced the fund's positions in both stocks, which have grown markedly through appreciation over time, to take profits for shareholders. In addition, Reliant Energy, Inc.'s market capitalization has outgrown the fund's small-cap parameters; regrettably we will reduce the portfolio's stake in this company still further.
Successful stock selection enabled the portfolio to keep pace with the benchmark despite an underweight position in the materials sector, which was one of the better-performing sectors during the period. The materials sector includes metals and mining companies as well as chemical companies. Several industrial companies added to the fund's performance. Precision Castparts Corp., which was among the portfolio's 10 largest holdings, demonstrated strong performance across all four of its operating segments. The company is the leading manufacturer of large, complex metal castings and forged components used in jet aircraft engines and industrial gas turbines. Brisk sales and gains in market share within the key aerospace and industrial gas turbine markets helped the company to outperform analyst expectations during the period.
Q: Were there strategies or individual stocks that disappointed?
A: During the period, the portfolio sustained only small losses in individual stocks:
Stillwater Mining Co. is a significant producer of palladium, platinum and associated metals in the US. Metals and mining stocks trade like commodities. Their performance is very closely tied to the health of the economy, making earnings volatile. A significant decline in the price of the commodities prompted us to take a small loss in the position as we eliminated the stock from the portfolio.
Parallel Petroleum Corp. is engaged in the production of oil and natural gas. The fund held a small position in the stock, which it sold at a small loss in order to focus on other names in the energy space.
Integrated Electrical Services, Inc., a provider of electrical system design and contracting services, slipped after it announced losses on several contracts that it had procured through acquisition. Because of disappointing financial performance, the company announced it was facing prohibitive costs associated with the surety bonding on certain projects. Surety bonds are used to assure the owner of a construction project that the contractor will perform the agreed-upon work and pay the requisite labor and materials costs. Integrated Electrical also became the subject of an informal investigation by the Securities and Exchange Commission due to accounting issues arising from the contract losses it announced. As the fundamentals of the company deteriorated, the fund sold out its position at a loss.
Q: How did financial services stocks, the portfolio's largest sector position, perform amid rising interest rates?
A: The fund's financial services holdings advanced, roughly tracking performance of the financial sector of the benchmark Russell 2000 Value Index, despite its slightly lighter weighting.
Four of the portfolio's 10 largest holdings were real estate investment trusts (REITs), which performed exceedingly well during the period. REITs offered high yields, relative to many other investments. Riding a wave of high profile mergers and acquisitions in 2004, small banks and savings and loans, many of which were rumored to be takeover targets, benefited from speculation. Insurance stocks also advanced, based on a stronger-than-expected pricing environment.
Q: Do you have any closing comments for shareholders?
A: We are looking ahead to 2005 with tempered optimism. The performance of small cap stocks has been outstanding over the past several years. While we hope to see small caps continue to outperform their large cap counterparts, we believe it is doubtful that the small cap market can sustain the remarkably robust returns of the past two years, in particular.
We expect to face challenges in the year ahead. The US current account deficit continues to swell, putting pressure on the dollar and interest rates. We believe the Fed will continue to raise short term rates in order to bring rates more in line with GDP growth and inflation. Commodities prices, including crude oil and natural gas, are at or near their record highs, putting pressure on profit margins. Inflation, while currently contained, is also a chief concern in the years ahead as the imbalances in Social Security and Medicare become more acute.
We are pleased with the current portfolio composition, especially as compared to the benchmark index. We believe the fund is positioned to perform well in almost any market environment, other than one led by technology and aggressive growth stocks. We will continue to seek opportunities within the small cap universe that meet our strict investment criteria. Going forward, we will look particularly for companies that are likely to provide attractive returns regardless of the direction of interest rates.
As always, we are thankful for the continued support of the fund's shareholders. We look forward to serving their needs in the days ahead.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
Portfolio Summary November 30, 2004 |
|
Asset Allocation | 11/30/04 | 11/30/03 |
|
Equity Securities | 93% | 95% |
Corporate Bonds | 1% | — |
Investment Company | 1% | — |
Exchange Traded Fund | 1% | 1% |
Cash Equivalents | 4% | 4% |
| 100% | 100% |
Sector Diversification (Excludes Cash Equivalents) | 11/30/04 | 11/30/03 |
|
Financials | 28% | 37% |
Industrials | 20% | 18% |
Energy | 13% | 8% |
Health Care | 10% | 8% |
Utilities | 8% | 5% |
Materials | 7% | 1% |
Consumer Discretionary | 6% | 13% |
Consumer Staples | 4% | 7% |
Information Technology | 4% | 3% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
Ten Largest Equity Holdings at November 30, 2004 (16.0% of Net Assets) |
1. Novastar Financial, Inc. (REIT) Operator of a real estate investment trust | 2.5% |
2. KKR Financial Corp. (REIT) Providing financing primarily to companies that are privately owned | 1.9% |
3. Reliant Energy, Inc. Provider of electricity and energy services | 1.8% |
4. Newcastle Investment Corp. (REIT) Operator of a real estate investment trust | 1.8% |
5. Headwaters, Inc. Develops and deploys alternative fuel and related technologies | 1.4% |
6. Patterson-UTI Energy, Inc. Provides land-based drilling services to major and independent oil and natural gas companies | 1.4% |
7. Southern Union Co. Distributes natural gas and electricity | 1.4% |
8. Precision Castparts Corp. Manufacturer of complex metal components and products | 1.3% |
9. Denbury Resources, Inc. Developer, operator and explorer of oil and gas properties | 1.3% |
10. Fieldstone Investment Corp. (REIT) Provider of financial services | 1.2% |
Portfolio holdings are subject to change.
For more complete details about the Fund's investment portfolio, see page 20. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end will be posted to scudder.com on the 15th of the following month. Please see the Account Management Resources section for contact information.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio as of November 30, 2004 |  |  |
|
|
Shares
| Value ($) |
| |
Common Stocks 92.8% |
Consumer Discretionary 5.9% |
Auto Components 0.2% |
Noble International Ltd. | 72,500 | 1,429,047 |
Hotels Restaurants & Leisure 1.7% |
Alliance Gaming Corp.* | 233,500 | 2,823,015 |
Bluegreen Corp.* | 155,600 | 2,474,040 |
CBRL Group, Inc. | 94,500 | 3,852,765 |
Multimedia Games, Inc.* | 230,500 | 3,014,940 |
Navigant International, Inc.* | 171,800 | 1,886,364 |
| 14,051,124 |
Household Durables 0.4% |
Standard Pacific Corp. | 61,200 | 3,427,812 |
Leisure Equipment & Products 0.7% |
Lakes Entertainment, Inc.* | 388,300 | 5,416,785 |
Media 0.1% |
Catalina Marketing Corp. | 28,500 | 800,850 |
Specialty Retail 2.0% |
Borders Group, Inc. | 183,000 | 4,168,740 |
Linens 'N Things, Inc.* | 149,600 | 3,716,064 |
Mettler-Toledo International, Inc.* | 171,000 | 8,823,600 |
| 16,708,404 |
Textiles, Apparel & Luxury Goods 0.8% |
Phillips-Van Heusen Corp. | 257,564 | 7,031,497 |
Consumer Staples 4.3% |
Food & Staples Retailing 0.8% |
B&G Foods, Inc. * | 423,800 | 6,306,144 |
Food Products 1.8% |
Chiquita Brands International, Inc.* | 352,800 | 6,978,384 |
Ralcorp Holdings, Inc. | 199,000 | 8,198,800 |
| 15,177,184 |
Personal Products 0.8% |
Helen of Troy Ltd.* | 236,100 | 6,643,854 |
Tobacco 0.9% |
Universal Corp. | 73,500 | 3,577,980 |
Vector Group Ltd. | 205,305 | 3,367,002 |
| 6,944,982 |
Energy 11.5% |
Energy Equipment & Services 4.8% |
Atwood Oceanics, Inc.* | 60,400 | 3,166,772 |
Grant Prideco, Inc.* | 318,700 | 6,867,985 |
Offshore Logistics, Inc.* | 141,800 | 5,374,220 |
Oil States International, Inc.* | 358,300 | 7,298,571 |
Patterson-UTI Energy, Inc. | 568,000 | 11,360,000 |
Superior Energy Services, Inc.* | 237,700 | 3,489,436 |
Unit Corp.* | 61,000 | 2,416,820 |
| 39,973,804 |
Oil & Gas 6.7% |
ATP Oil & Gas Corp.* | 203,300 | 2,897,025 |
Comstock Resources, Inc.* | 17,600 | 382,096 |
Denbury Resources, Inc.* | 365,900 | 10,592,805 |
Energy Partners Ltd.* | 202,200 | 3,916,614 |
Frontier Oil Corp. | 61,700 | 1,644,305 |
Global Industries, Inc.* | 488,500 | 4,191,330 |
Grey Wolf, Inc.* | 184,000 | 1,012,000 |
Magnum Hunter Resources, Inc.* | 319,900 | 4,286,660 |
Penn Virginia Corp. | 192,300 | 8,357,358 |
Pioneer Drilling Co.* | 600,000 | 5,790,000 |
Tesoro Petroleum Corp.* | 135,600 | 4,491,072 |
Ultra Petroleum Corp.* | 145,800 | 7,677,828 |
| 55,239,093 |
Financials 25.9% |
Banks 8.3% |
BankAtlantic Bancorp., Inc. "A" | 130,400 | 2,477,600 |
Capital Bancorp., Ltd. | 63,600 | 2,206,920 |
Center Financial Corp. | 178,000 | 3,665,020 |
FirstFed Financial Corp.* | 99,300 | 5,225,166 |
Glacier Bancorp., Inc. | 196,100 | 6,787,021 |
Greater Bay Bancorp. | 168,600 | 4,897,830 |
Independence Community Bank Corp. | 103,300 | 4,388,184 |
IndyMac Bancorp., Inc. | 104,500 | 3,395,205 |
International Bancshares Corp. | 92,975 | 3,677,161 |
NewAlliance Bancshares, Inc. | 121,900 | 1,832,157 |
Oriental Finance Group, Inc. | 78,500 | 2,380,120 |
PFF Bancorp., Inc. | 103,300 | 4,669,160 |
Provident Bankshares Corp. | 152,300 | 5,595,502 |
R & G Financial Corp. "B" | 194,700 | 7,554,360 |
S&T Bancorp, Inc. | 41,100 | 1,508,781 |
Sterling Financial Corp. | 114,805 | 4,586,460 |
Webster Financial Corp. | 67,500 | 3,378,375 |
| 68,225,022 |
Diversified Financial Services 1.7% |
ACE Cash Express, Inc.* | 156,800 | 4,182,640 |
CMET Finance Holdings, Inc.* | 10,800 | 972,000 |
JER Investment Trust, Inc. 144A* | 225,100 | 3,399,010 |
Prospect Energy Corp.* (b) | 390,800 | 5,510,280 |
| 14,063,930 |
Insurance 5.0% |
Ceres Group, Inc.* | 434,210 | 2,171,050 |
Endurance Specialty Holdings Ltd. | 139,400 | 4,679,658 |
Meadowbrook Insurance Group, Inc.* | 393,600 | 1,995,552 |
PMA Capital Corp. "A"* | 220,300 | 2,191,985 |
ProCentury Corp. | 508,500 | 5,110,425 |
PXRE Group Ltd. | 29,400 | 709,422 |
Quanta Capital Holdings Ltd.* | 420,700 | 3,946,166 |
Scottish Re Group Ltd. | 378,600 | 8,707,800 |
Selective Insurance Group, Inc. | 192,300 | 8,613,117 |
Specialty Underwriters' Alliance, Inc.* | 92,000 | 884,120 |
Tower Group, Inc.* | 228,700 | 2,643,772 |
| 41,653,067 |
Real Estate 10.9% |
Aames Investment Corp. (REIT) | 346,400 | 3,775,760 |
Capital Lease Funding, Inc. (REIT) | 352,700 | 4,461,655 |
Fieldstone Investment Corp. (REIT) | 595,300 | 10,268,925 |
Highland Hospitality Corp. (REIT) | 161,000 | 1,812,860 |
KKR Financial Corp. (REIT) 144A | 1,517,400 | 15,401,610 |
Medical Properties of America (REIT) | 165,700 | 1,657,000 |
Newcastle Investment Corp. (REIT) | 463,459 | 14,543,343 |
Newcastle Investment Holding Corp. (REIT) 144A* | 388,759 | 3,089,507 |
Novastar Financial, Inc. (REIT) | 462,700 | 20,354,173 |
Provident Senior Living Trust (REIT) 144A | 607,200 | 9,715,200 |
Saxon Capital, Inc. (REIT)* | 229,800 | 5,216,460 |
| 90,296,493 |
Health Care 9.2% |
Biotechnology 2.6% |
Axonyx, Inc.* | 734,900 | 5,408,864 |
Charles River Laboratories International, Inc.* | 193,100 | 9,027,425 |
Serologicals Corp.* | 282,900 | 6,602,886 |
| 21,039,175 |
Health Care Equipment & Supplies 0.9% |
Fisher Scientific International, Inc.* | 70,840 | 4,005,294 |
Zoll Medical Corp.* | 108,900 | 3,694,977 |
| 7,700,271 |
Health Care Providers & Services 4.3% |
Accredo Health, Inc.* | 115,800 | 3,134,706 |
Allied Healthcare International, Inc.* | 659,600 | 3,548,648 |
LabOne, Inc.* | 138,400 | 4,172,760 |
Odyssey Healthcare, Inc.* | 396,600 | 5,294,610 |
Pediatrix Medical Group, Inc.* | 79,200 | 4,934,160 |
Province Healthcare Co.* | 295,300 | 6,626,532 |
TLC Vision Corp.* | 255,900 | 2,983,794 |
Triad Hospitals, Inc.* | 137,100 | 5,030,199 |
| 35,725,409 |
Pharmaceuticals 1.4% |
King Pharmaceuticals, Inc.* | 276,800 | 3,422,327 |
Par Pharmaceutical Cos., Inc.* | 213,300 | 8,416,818 |
| 11,839,145 |
Industrials 18.5% |
Aerospace & Defense 5.2% |
CAE, Inc. | 886,200 | 3,340,974 |
Curtiss-Wright Corp. | 88,000 | 5,244,800 |
DRS Technologies, Inc.* | 120,100 | 5,130,672 |
GenCorp, Inc.* | 301,800 | 5,073,258 |
Herley Industries, Inc.* | 271,300 | 5,586,067 |
Precision Castparts Corp. | 167,200 | 10,841,248 |
Triumph Group, Inc.* | 83,000 | 3,366,480 |
United Defense Industries, Inc.* | 92,600 | 4,194,780 |
| 42,778,279 |
Building Products 1.5% |
Levitt Corp. "A" | 260,000 | 6,684,600 |
NCI Building Systems, Inc.* | 91,700 | 3,402,070 |
York International Corp. | 73,900 | 2,724,693 |
| 12,811,363 |
Commercial Services & Supplies 2.4% |
Consolidated Graphics, Inc.* | 107,500 | 5,084,750 |
Duratek, Inc.* | 182,300 | 4,194,723 |
John H. Harland Co. | 92,300 | 3,259,113 |
Nobel Learning Communities, Inc.* | 45,600 | 330,600 |
WCA Waste Corp.* | 712,100 | 7,299,025 |
| 20,168,211 |
Construction & Engineering 2.2% |
EMCOR Group, Inc.* | 79,900 | 3,692,978 |
Infrasource Services, Inc.* | 324,400 | 4,006,340 |
URS Corp.* | 338,300 | 10,162,532 |
| 17,861,850 |
Electrical Equipment 1.7% |
General Cable Corp.* | 700,900 | 9,532,240 |
Genlyte Group, Inc.* | 61,000 | 4,890,370 |
| 14,422,610 |
Machinery 2.4% |
Albany International Corp. "A" | 109,400 | 3,659,430 |
Briggs & Stratton Corp. | 80,800 | 3,168,976 |
Harsco Corp. | 65,800 | 3,497,270 |
Oshkosh Truck Corp. | 77,000 | 4,837,140 |
Valmont Industries | 172,200 | 4,298,112 |
| 19,460,928 |
Marine 1.5% |
GulfMark Offshore, Inc.* | 60,900 | 1,267,329 |
Hornbeck Offshore Services, Inc.* | 89,700 | 1,811,940 |
OMI Corp. | 101,400 | 2,166,918 |
Tsakos Energy Navigation Ltd. | 168,500 | 7,119,125 |
| 12,365,312 |
Road & Rail 1.6% |
Genesee & Wyoming, Inc.* | 187,500 | 5,169,375 |
RailAmerica, Inc.* | 256,200 | 3,279,360 |
Yellow Roadway Corp.* | 95,788 | 5,062,396 |
| 13,511,131 |
Information Technology 4.0% |
Communications Equipment 0.6% |
PC-Tel, Inc.* | 439,800 | 3,549,186 |
SpectraLink Corp. | 126,000 | 1,845,900 |
| 5,395,086 |
Computers & Peripherals 1.5% |
Applied Films Corp.* | 153,200 | 3,394,912 |
CyberGuard Corp.* | 403,100 | 2,487,127 |
Stratasys, Inc.* | 115,600 | 3,733,880 |
Western Digital Corp.* | 273,500 | 2,672,095 |
| 12,288,014 |
Electronic Equipment & Instruments 1.0% |
KEMET Corp.* | 94,400 | 836,384 |
Scansource, Inc.* | 64,000 | 4,140,800 |
Vishay Intertechnology, Inc.* | 217,800 | 3,182,058 |
| 8,159,242 |
IT Consulting & Services 0.5% |
BISYS Group, Inc.* | 112,700 | 1,804,327 |
CACI International, Inc. "A"* | 40,300 | 2,503,839 |
| 4,308,166 |
Semiconductors & Semiconductor Equipment 0.4% |
MKS Instruments, Inc.* | 141,700 | 2,407,483 |
ZiLOG, Inc.* | 115,800 | 758,490 |
| 3,165,973 |
Materials 6.8% |
Chemicals 2.3% |
Headwaters, Inc.* | 355,000 | 11,370,650 |
Sensient Technologies Corp. | 316,800 | 7,302,240 |
| 18,672,890 |
Construction Materials 0.8% |
Florida Rock Industries, Inc. | 123,855 | 6,973,037 |
Containers & Packaging 0.0% |
Myers Industries, Inc. | 1 | 11 |
Metals & Mining 3.7% |
Cleveland-Cliffs, Inc.* | 97,000 | 9,399,300 |
Metal Management, Inc.* | 294,200 | 7,731,576 |
Pan American Silver Corp.* | 320,600 | 5,790,036 |
Uranium Resources, Inc.* | 1,595,200 | 1,308,064 |
Wheaton River Minerals Ltd.* | 1,943,900 | 6,375,992 |
| 30,604,968 |
Utilities 6.7% |
Electric Utilities 1.5% |
Allegheny Energy, Inc.* | 279,100 | 5,341,974 |
TECO Energy, Inc. | 156,000 | 2,333,760 |
WPS Resources Corp. | 99,200 | 4,796,320 |
| 12,472,054 |
Gas Utilities 1.4% |
Southern Union Co.* | 459,300 | 11,262,036 |
Multi-Utilities 2.0% |
CMS Energy Corp.* | 483,000 | 4,926,600 |
ONEOK, Inc. | 220,600 | 6,159,152 |
Ormat Technologies, Inc.* | 144,300 | 2,460,315 |
Sierra Pacific Resources* | 329,200 | 3,374,300 |
| 16,920,367 |
Multi-Utilities & Unregulated Power 1.8% |
Reliant Energy, Inc.* | 1,235,700 | 14,680,116 |
Total Common Stocks (Cost $560,081,020) | 767,974,736 |
|
Corporate Bonds 1.0% |
Utilities |
Mirant Corp.: | | |
144A, 7.4%, 7/15/2004* | 4,000,000 | 2,850,000 |
144A, 7.9%, 7/15/2009* | 6,985,000 | 5,029,200 |
Total Corporate Bonds (Cost $6,506,225) | 7,879,200 |
|
Convertible Preferred Stocks 0.3% |
Energy |
Petrohawk Energy Corp., Series B (Cost $2,611,750) | 33,700 | 2,620,176 |
|
Investment Company 0.7% |
Tortoise Energy Infrastructure Corp. (Cost $5,312,155) | 212,451 | 5,748,924 |
|
Exchange Traded Fund 1.3% |
iShares Russell 2000 Index Fund (Cost $10,535,341) | 87,500 | 11,102,000 |
|
Cash Equivalents 4.1% |
Scudder Cash Management QP Trust, 1.97% (c) (Cost $33,704,196) | 33,704,196 | 33,704,196 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $618,750,687) (a) | 100.2 | 829,029,232 |
Other Assets and Liabilities, Net | (0.2) | (1,859,190) |
Net Assets | 100.0 | 827,170,042 |
* Non-income producing security. In the case of a bond, generally denotes that the issuer has defaulted on the payment of principal or interest or has filed for bankruptcy.
(a) The cost for federal income tax purposes was $619,278,565. At November 30, 2004, net unrealized appreciation for all securities based on tax cost was $209,750,667. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $215,775,827 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $6,025,160.
(b) Affiliated issuer (see Notes to Financial Statements)
(c) Scudder Cash Management QP Trust is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
REIT: Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of November 30, 2004 |
Assets |
Investments in securities, at value: Unaffiliated issuers (cost $579,184,491) | $ 789,814,756 |
Affiliated issuer (cost $5,862,000) | 5,510,280 |
Investment in Scudder Cash Management QP Trust (cost $33,704,196) | 33,704,196 |
Total investments in securities, at value (cost $618,750,687) | 829,029,232 |
Receivable for investments sold | 4,004,446 |
Dividends receivable | 364,269 |
Interest receivable | 194,513 |
Receivable for Fund shares sold | 2,729,611 |
Other assets | 44,699 |
Total assets | 836,366,770 |
Liabilities |
Due to custodian bank | 1,267,469 |
Payable for investments purchased | 5,475,738 |
Payable for Fund shares redeemed | 968,667 |
Accrued management fee | 485,516 |
Other accrued expenses and payables | 999,338 |
Total liabilities | 9,196,728 |
Net assets, at value | $ 827,170,042 |
Net Assets |
Net assets consist of: Accumulated distributions in excess of net investment income | (3,541) |
Net unrealized appreciation (depreciation) on investments | 210,278,545 |
Accumulated net realized gain (loss) | 6,485,375 |
Paid-in capital | 610,409,663 |
Net assets, at value | $ 827,170,042 |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of November 30, 2004 (continued) |
Net Asset Value |
Class A Net Asset Value and redemption price per share ($579,247,359 ÷ 18,110,330 shares of capital stock outstanding, $.01 par value, 320,000,000 shares authorized) | $ 31.98 |
Maximum offering price per share (100 ÷ 94.25 of $31.98) | $ 33.93 |
Class B Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($124,885,051 ÷ 4,162,063 shares of capital stock outstanding, $.01 par value, 320,000,000 shares authorized) | $ 30.01 |
Class C Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($105,669,496 ÷ 3,490,174 shares of capital stock outstanding, $.01 par value, 80,000,000 shares authorized) | $ 30.28 |
Class I Net Asset Value, offering and redemption price per share ($1,533,116 ÷ 45,925 shares of capital stock outstanding, $.01 par value, 80,000,000 shares authorized) | $ 33.38 |
Class R Net Asset Value, offering and redemption price per share ($737,223 ÷ 22,972 shares of capital stock outstanding, $.01 par value, 100,000,000 shares authorized) | $ 32.09 |
Institutional Class Net Asset Value, offering and redemption price per share ($15,097,797 ÷ 470,269 shares of capital stock outstanding, $.01 par value, 100,000,000 shares authorized) | $ 32.10 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended November 30, 2004 |
Investment Income |
Dividends — Unaffiliated issuers (net of foreign taxes withheld of $20,989) | $ 10,188,426 |
Dividends — Affiliated issuer | 39,080 |
Interest — Unaffiliated issuers | 138,690 |
Interest — Scudder Cash Management QP Trust | 329,692 |
Total Income | 10,695,888 |
Expenses: Management fee | 4,772,684 |
Services to shareholders | 2,000,720 |
Distribution service fees | 3,054,352 |
Custodian fees | 38,687 |
Auditing | 49,102 |
Legal | 9,297 |
Directors' fees and expenses | 45,262 |
Reports to shareholders | 66,279 |
Registration fees | 46,084 |
Other | 24,115 |
Total expenses, before expense reductions | 10,106,582 |
Expense reductions | (7,336) |
Total expenses, after expense reductions | 10,099,246 |
Net investment income (loss) | 596,642 |
Realized and Unrealized Gain (Loss) on Investment Transactions |
Net realized gain (loss) from: Investments | 75,193,751 |
Foreign currency related transactions | (1,530) |
| 75,192,221 |
Net unrealized appreciation (depreciation) during the period on investments | 85,851,849 |
Net gain (loss) on investment transactions | 161,044,070 |
Net increase (decrease) in net assets resulting from operations | $ 161,640,712 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets | Years Ended November 30, |
2004 | 2003 |
Operations: Net investment income (loss) | $ 596,642 | $ 2,514,812 |
Net realized gain (loss) on investment transactions | 75,192,221 | (14,503,638) |
Net unrealized appreciation (depreciation) on investment transactions during the period | 85,851,849 | 157,058,017 |
Net increase (decrease) in net assets resulting from operations | 161,640,712 | 145,069,191 |
Distributions to shareholders from: Net investment income: Class A | (2,321,991) | (1,092,630) |
Class I | (25,798) | (62,485) |
Class R | (3) | — |
Institutional Class | (20,086) | (7) |
Fund share transactions: Proceeds from shares sold | 327,088,476 | 179,754,052 |
Reinvestment of distributions | 2,107,912 | 1,013,264 |
Cost of shares redeemed | (219,340,840) | (191,343,883) |
Net increase (decrease) in net assets from Fund share transactions | 109,855,548 | (10,576,567) |
Increase (decrease) in net assets | 269,128,382 | 133,337,502 |
Net assets at beginning of period | 558,041,660 | 424,704,158 |
Net assets at end of period (including distributions in excess and undistributed net investment income of $3,541 and $2,000,858, respectively) | $ 827,170,042 | $ 558,041,660 |
The accompanying notes are an integral part of the financial statements.
Class A |
Years Ended November 30, | 2004 | 2003 | 2002 | 2001 | 2000 |
Selected Per Share Data |
Net asset value, beginning of period | $ 25.27 | $ 18.46 | $ 19.69 | $ 16.49 | $ 17.75 |
Income (loss) from investment operations: Net investment income (loss)a | .09 | .17 | .12 | —b | (.10) |
Net realized and unrealized gain (loss) on investment transactions | 6.79 | 6.73 | (1.35) | 3.20 | (1.16) |
Total from investment operations | 6.88 | 6.90 | (1.23) | 3.20 | (1.26) |
Less distributions from: Net investment income | (.17) | (.09) | — | — | — |
Net asset value, end of period | $ 31.98 | $ 25.27 | $ 18.46 | $ 19.69 | $ 16.49 |
Total Return (%)c | 27.37 | 37.49 | (6.25) | 19.41 | (7.10) |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 579 | 351 | 222 | 177 | 156 |
Ratio of expenses before expense reductions (%) | 1.29 | 1.43 | 1.44 | 1.54 | 1.67d |
Ratio of expenses after expense reductions (%) | 1.29 | 1.43 | 1.44 | 1.49e | 1.66d |
Ratio of net investment income (loss) (%) | .35 | .91 | .65 | .00 | (.58) |
Portfolio turnover rate (%) | 64 | 67 | 89 | 73 | 19 |
a Based on average shares outstanding during period. b Amount is less than $.005. c Total return does not reflect the effect of any sales charges. d The ratio of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.62% and 1.61%, respectively. e The ratio of operating expenses after expense reductions includes a reimbursement by the Advisor associated with the cancellation of the merger between the Fund and Scudder Small Company Value Fund. |
|
Class B |
Years Ended November 30, | 2004 | 2003 | 2002 | 2001 | 2000 |
Selected Per Share Data |
Net asset value, beginning of period | $ 23.76 | $ 17.41 | $ 18.72 | $ 15.80 | $ 17.15 |
Income (loss) from investment operations: Net investment income (loss)a | (.12) | .03 | (.02) | (.13) | (.24) |
Net realized and unrealized gain (loss) on investment transactions | 6.37 | 6.32 | (1.29) | 3.05 | (1.11) |
Total from investment operations | 6.25 | 6.35 | (1.31) | 2.92 | (1.35) |
Net asset value, end of period | $ 30.01 | $ 23.76 | $ 17.41 | $ 18.72 | $ 15.80 |
Total Return (%)b | 26.30 | 36.47 | (7.00) | 18.48 | (7.87) |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 125 | 133 | 147 | 160 | 144 |
Ratio of expenses before expense reductions (%) | 2.16 | 2.27 | 2.25 | 2.34 | 2.49c |
Ratio of expenses after expense reductions (%) | 2.16 | 2.27 | 2.25 | 2.27d | 2.48c |
Ratio of net investment income (loss) (%) | (.52) | .07 | (.16) | (.78) | (1.40) |
Portfolio turnover rate (%) | 64 | 67 | 89 | 73 | 19 |
a Based on average shares outstanding during the period. b Total return does not reflect the effect of any sales charges. c The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 2.43% and 2.42%, respectively. d The ratio of operating expenses after expense reductions includes a reimbursement by the Advisor associated with the cancellation of the merger between the Fund and Scudder Small Company Value Fund. |
|
Class C |
Years Ended November 30, | 2004 | 2003 | 2002 | 2001 | 2000 |
Selected Per Share Data |
Net asset value, beginning of period | $ 23.94 | $ 17.54 | $ 18.85 | $ 15.91 | $ 17.24 |
Income (loss) from investment operations: Net investment income (loss)a | (.09) | .04 | (.01) | (.14) | (.21) |
Net realized and unrealized gain (loss) on investment transactions | 6.43 | 6.36 | (1.30) | 3.08 | (1.12) |
Total from investment operations | 6.34 | 6.40 | (1.31) | 2.94 | (1.33) |
Net asset value, end of period | $ 30.28 | $ 23.94 | $ 17.54 | $ 18.85 | $ 15.91 |
Total Return (%)b | 26.48 | 36.49 | (6.95) | 18.48 | (7.71) |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 106 | 71 | 49 | 32 | 29 |
Ratio of expenses before expense reductions (%) | 2.04 | 2.21 | 2.23 | 2.36 | 2.32c |
Ratio of expenses after expense reductions (%) | 2.04 | 2.21 | 2.23 | 2.28d | 2.31c |
Ratio of net investment income (loss) (%) | (.40) | .13 | (.14) | (.79) | (1.23) |
Portfolio turnover rate (%) | 64 | 67 | 89 | 73 | 19 |
a Based on average shares outstanding during the period. b Total return does not reflect the effect of any sales charges. c The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 2.26% and 2.25%, respectively. d The ratio of operating expenses after expense reductions includes a reimbursement by the Advisor associated with the cancellation of the merger between the Fund and Scudder Small Company Value Fund. |
|
Class I |
Years Ended November 30, | 2004 | 2003 | 2002 | 2001 | 2000 |
Selected Per Share Data |
Net asset value, beginning of period | $ 26.39 | $ 19.30 | $ 20.45 | $ 17.02 | $ 18.19 |
Income (loss) from investment operations: Net investment income (loss)a | .19 | .29 | .24 | .10 | .03 |
Net realized and unrealized gain (loss) on investment transactions | 7.09 | 7.01 | (1.39) | 3.33 | (1.20) |
Total from investment operations | 7.28 | 7.30 | (1.15) | 3.43 | (1.17) |
Less distributions from: Net investment income | (.29) | (.21) | — | — | — |
Net asset value, end of period | $ 33.38 | $ 26.39 | $ 19.30 | $ 20.45 | $ 17.02 |
Total Return (%) | 27.87 | 38.24 | (5.62) | 20.15 | (6.43) |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 2 | 2 | 6 | 5 | 3 |
Ratio of expenses before expense reductions (%) | .91 | .87 | .84 | .90 | .92b |
Ratio of expenses after expense reductions (%) | .91 | .87 | .84 | .88c | .91b |
Ratio of net investment income (loss) (%) | .73 | 1.47 | 1.25 | .62 | .18 |
Portfolio turnover rate (%) | 64 | 67 | 89 | 73 | 19 |
a Based on average shares outstanding during the period. b The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were .89% and .88%, respectively. c The ratio of operating expenses after expense reductions includes a reimbursement by the Advisor associated with the cancellation of the merger between the Fund and Scudder Small Company Value Fund. |
|
Class R |
Years Ended November 30, | 2004 | 2003a |
Selected Per Share Data |
Net asset value, beginning of period | $ 25.26 | $ 22.96 |
Income (loss) from investment operations: Net investment income (loss)b | (.06) | .04 |
Net realized and unrealized gain (loss) on investment transactions | 6.90 | 2.26 |
Total from investment operations | 6.84 | 2.30 |
Less distributions from: Net investment income | (.01) | — |
Net asset value, end of period | $ 32.09 | $ 25.26 |
Total Return (%) | 27.07 | 10.02** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | .737 | .013 |
Ratio of expenses (%) | 1.79 | 1.35* |
Ratio of net investment income (loss) (%) | (.15) | .90* |
Portfolio turnover rate (%) | 64 | 67 |
a For the period from October 1, 2003 (commencement of operations of Class R shares) to November 30, 2003. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
|
Institutional Class |
Years Ended November 30, | 2004 | 2003 | 2002a |
Selected Per Share Data |
Net asset value, beginning of period | $ 25.31 | $ 18.48 | $ 19.74 |
Income (loss) from investment operations: Net investment income (loss)b | .20 | .26 | .03 |
Net realized and unrealized gain (loss) on investment transactions | 6.81 | 6.71 | (1.29) |
Total from investment operations | 7.01 | 6.97 | (1.26) |
Less distributions from: Net investment income | (.22) | (.14) | — |
Net asset value, end of period | $ 32.10 | $ 25.31 | $ 18.48 |
Total Return (%) | 27.91 | 38.07 | (6.38)** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 15 | .619 | .001 |
Ratio of expenses (%) | .88 | .85 | 1.18* |
Ratio of net investment income (loss) (%) | .76 | 1.49 | .58* |
Portfolio turnover rate (%) | 64 | 67 | 89 |
a For the period from August 19, 2002 (commencement of operations of Institutional Class shares) to November 30, 2002. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
Notes to Financial Statements |
|
A. Significant Accounting Policies
Scudder-Dreman Small Cap Value Fund (the ``Fund'') is a diversified series of Scudder Value Series, Inc. (the ``Corporation'') 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 Maryland Corporation.
The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are offered to investors subject to an initial sales charge. Class B shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Prior to March 1, 2004, Class C shares were offered with an initial sales charge. Class C shares do not convert into another class. Institutional Class and Class I shares are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes. Class R shares are only available to participants in certain retirement plans and are offered to investors without an initial sales charge.
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution service fees, administrative fees and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those 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 on each day the exchange is open for trading. Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investment companies and Scudder Cash Management QP Trust are valued at their net asset value each business day.
Debt securities are valued by independent pricing services approved by the Directors of the Fund. If the pricing services are unable to provide valuations, the securities are valued at the most recent bid quotation or evaluated price, as applicable, obtained from a broker-dealer. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Directors.
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.
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 of America. These differences primarily relate to certain securities sold at a loss. 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.
At November 30, 2004, the Fund's components of distributable earnings (accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income* | $ — |
Undistributed net long-term capital gains | $ 7,013,253 |
Capital loss carryforwards | $ — |
Net unrealized appreciation (depreciation) on investments | $ 209,750,667 |
In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
| Years Ended November 30, |
| 2004 | 2003 |
Distribution from ordinary income* | $ 2,367,878 | $ 1,555,122 |
* Included in the Fund's distributions from ordinary income for the year ended November 30, 2004, is $846,758 in excess of investment company taxable income, which in accordance with applicable US tax law, is taxable to shareholders as ordinary income distributions. For tax purposes, short term capital gains distributions are considered ordinary income distributions.
Expenses. Expenses of the Corporation arising in connection with a specific fund are allocated to that fund. Other Corporation expenses which cannot be directly attributed to a fund are apportioned among the funds in the Corporation.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset valuation calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis.
B. Purchases and Sales of Securities
During the year ended November 30, 2004, purchases and sales of investment securities (excluding short-term investments) aggregated $503,102,813 and $405,292,489, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor 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 Advisor provides certain administrative services in accordance with the Management Agreement. The management fee payable under the Management Agreement is equal to an annual rate of 0.75% of the first $250 million of the Fund's average daily net assets, 0.72% of the next $750 million of such net assets, 0.70% of the next $1.5 billion of such net assets, 0.68% of the next $2.5 billion of such net assets, 0.65% of the next $2.5 billion of such net assets, 0.64% of the next $2.5 billion of such net assets, 0.63% of the next $2.5 billion of such net assets and 0.62% of such net assets in excess of $12.5 billion, computed and accrued daily and payable monthly. Accordingly, for the year ended November 30, 2004, the fee pursuant to the Management Agreement was equivalent to an annualized effective rate of 0.73% of the Fund's average daily net assets. Dreman Value Management, L.L.C. ("DVM") serves as subadvisor with respect to the investment and reinvestment of assets of the Fund. DVM is paid by the Advisor for its services.
In addition, for the year ended November 30, 2004, the Advisor agreed to reimburse the Fund $3,597, which represents a portion of the fee savings expected to be realized by the Advisor related to the outsourcing by Advisor of certain administrative services to an unaffiliated service provider.
Effective October 1, 2003 through September 30, 2005, the Advisor has agreed to contractually waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Fund to the extent necessary to maintain the operating expenses of each class at 1.50%, 1.50%, 1.50%, 1.00% and 1.17% of average daily net assets for Class A, B, C, I and Institutional Class shares, respectively (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest, Rule 12b-1 distribution and/or service fees, director and director counsel fees and organizational and offering expenses). For Class R shares, the Advisor has contractually agreed to waive all or a portion of its management fee and reimburse or pay operating expenses of the Fund to the extent necessary to maintain the Fund's operating expenses at 2.00%, excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest, and director and director counsel fees and organizational and offering expenses.
Service Provider Fees. Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, is the transfer, dividend-paying and shareholder service agent. Pursuant to a sub-transfer agency agreement between SISC and DST Systems, Inc. ("DST"), SISC has delegated certain transfer agent and dividend paying agent functions to DST. The costs and expenses of such delegation are borne by SISC, not by the Fund. For the year ended November 30, 2004, the amounts charged to the Fund by SISC were as follows:
Services to Shareholders | Total Aggregated | Unpaid at November 30, 2004 |
Class A | $ 1,072,592 | $ 351,720 |
Class B | 445,444 | 149,991 |
Class C | 192,378 | 62,940 |
Class I | 2,174 | 818 |
Class R | 1,365 | 1,365 |
Institutional Class | 3,395 | 1,315 |
| $ 1,717,348 | $ 568,149 |
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, Scudder Distributors, Inc. ("SDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee") of 0.25% of average daily net assets of Class R shares and of 0.75% of average daily net assets of Class B and C shares. Pursuant to the agreement, SDI enters into related selling group agreements with various firms at various rates for sales of Class B, C and R shares. For the year ended November 30, 2004, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at November 30, 2004 |
Class B | $ 936,256 | $ 76,262 |
Class C | 609,693 | 60,541 |
Class R | 723 | 170 |
| $ 1,546,672 | $ 136,973 |
In addition, SDI provides information and administrative services ("Service Fee") to Class A, B, C and R shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. SDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the year ended November 30, 2004, the Service Fee was as follows:
Service Fee | Total Aggregated | Unpaid at November 30, 2004 | Annual Effective Rate |
Class A | $ 1,022,889 | $ 111,361 | .23% |
Class B | 293,963 | 17,821 | .24% |
Class C | 190,098 | 15,898 | .23% |
Class R | 730 | 256 | .25% |
| $ 1,507,680 | $ 145,336 | |
Underwriting Agreement and Contingent Deferred Sales Charge. SDI is the principal underwriter for the Fund. Underwriting commissions paid by shareholders in connection with the distribution of Class A and C shares for the year ended November 30, 2004, aggregated $82,784 and $150, respectively.
In addition, SDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates, ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the year ended November 30, 2004, the CDSC for Class B and C shares aggregated $309,596 and $8,268, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions of Class A shares. For the year ended November 30, 2004, SDI received $11,353.
Directors' Fees and Expenses. The Fund pays each Director not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
Scudder Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Scudder Cash Management QP Trust (the "QP Trust") and other affiliated funds managed by the Advisor. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay the Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Expense Off-Set Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's custodian expenses. During the year ended November 30, 2004, the custodian fee was reduced by $3,739 for custodian credits earned.
E. Transactions in Securities of Affiliated Issuers
An affiliated issuer includes any company in which the Fund has ownership of at least 5% of the outstanding voting securities. A summary of the Fund's transactions during the year ended November 30, 2004 with companies which are or were affiliates is as follows:
Affiliate | Shares | Purchases Cost ($) | Sales Cost ($) | Realized Gain/Loss ($) | Dividend Income ($) | Value ($) |
Prospect Energy Corp. | 390,800 | 5,862,000 | — | — | 39,080 | 5,510,280 |
F. Line of Credit
The Fund and several other affiliated funds (the "Participants") share in a $1.25 billion revolving credit facility administered by J.P. Morgan Chase Bank for temporary or emergency purposes, including the meeting of redemptions requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.
G. Share Transactions
The following table summarizes share and dollar activity in the Fund:
| Year Ended
November 30, 2004 | Year Ended
November 30, 2003 |
| Shares | Amount | Shares | Amount |
Shares sold |
Class A | 8,705,559 | $ 245,859,278 | 6,376,800 | $ 132,901,344 |
Class B | 1,148,357 | 30,186,118 | 1,272,098 | 24,521,203 |
Class C | 1,341,961 | 36,402,020 | 980,384 | 19,214,431 |
Class I | 12,828 | 373,346 | 132,186 | 2,508,558 |
Class R | 43,151 | 1,245,365 | 495* | 11,500* |
Institutional | 456,807 | 13,022,349 | 24,423 | 597,016 |
| | $ 327,088,476 | | $ 179,754,052 |
Shares issued to shareholders in reinvestment of distributions |
Class A | 80,298 | $ 2,062,028 | 52,126 | $ 950,779 |
Class I | 966 | 25,798 | 3,296 | 62,485 |
Institutional | 782 | 20,086 | — | — |
| | $ 2,107,912 |
| $ 1,013,264 |
Shares redeemed |
Class A | (4,566,621) | $ (127,792,323) | (4,580,443) | $ (90,100,357) |
Class B | (2,581,658) | (67,260,266) | (4,133,993) | (79,024,841) |
Class C | (821,495) | (21,658,549) | (802,377) | (15,268,295) |
Class I | (57,023) | (1,680,089) | (366,457) | (6,950,390) |
Class R | (20,674) | (590,998) | — | — |
Institutional | (11,794) | (358,615) | — | — |
|
| $ (219,340,840) | | $ (191,343,883) |
Net increase (decrease) |
Class A | 4,219,236 | $ 120,128,983 | 1,848,483 | $ 43,751,766 |
Class B | (1,433,301) | (37,074,148) | (2,861,895) | (54,503,638) |
Class C | 520,466 | 14,743,471 | 178,007 | 3,946,136 |
Class I | (43,229) | (1,280,945) | (230,975) | (4,379,347) |
Class R | 22,477 | 654,367 | 495* | 11,500* |
Institutional | 445,795 | 12,683,820 | 24,423 | 597,016 |
|
| $ 109,855,548 | | $ (10,576,567) |
* For the period October 1, 2003 (commencement of operations of Class R shares) to November 30, 2003.
H. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including Scudder Investments. It is not possible to determine what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the Scudder funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain Scudder funds, the funds' investment advisors and their affiliates, certain individuals, including in some cases fund Trustees/Directors, officers, and other parties. Each Scudder fund's investment advisor has agreed to indemnify the applicable Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding market timing, revenue sharing, fund valuation or other subjects arising from or related to the pending inquiries. Based on currently available information, the funds' investment advisors believe the likelihood that the pending lawsuits will have a material adverse financial impact on a Scudder fund is remote and such actions are not likely to materially affect their ability to perform under their investment management agreements with the Scudder funds.
Report of Independent Registered Public Accounting Firm |
|
To the Board of Directors and Shareholders of
Scudder-Dreman Small Cap Value Fund:
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of the Scudder-Dreman Small Cap Value Fund, one of a series of Scudder Value Series, Inc. (the "Corporation"), as of November 30, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of November 30, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Scudder-Dreman Small Cap Value Fund at November 30, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
January 24, 2005 |  |
Tax Information (Unaudited) |
|
For corporate shareholders, 100% of the income dividends paid during the Fund's fiscal year ended November 30, 2004 qualified for the dividends received deduction.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $7,500,000 as capital gain dividends for its year ended November 30, 2004, of which 100% represents 20% rate gains.
For federal income tax purposes, the Fund designates approximately $11,000,000, or the maximum amount allowable under law, as qualified dividend income.
Please contact a tax advisor 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 our account, please call 1-800-621-1048.
The following table presents certain information regarding the Directors and Officers of the fund as of November 30, 2004. Each individual's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each individual has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each individual is c/o Deutsche Asset Management, 222 South Riverside Plaza, Chicago, Illinois, 60606. Each Director's term of office extends until the next shareholder's meeting called for the purpose of electing Directors and until the election and qualification of a successor, or until such Director sooner dies, retires, resigns or is removed as provided in the governing documents of the fund.
Independent Directors |
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and
Other Directorships Held | Number of Funds in Fund Complex Overseen |
Shirley D. Peterson (1941) Chairman, 2004-present Director, 1995-present | Retired; formerly, President, Hood College (1995-2000); prior thereto, Partner, Steptoe & Johnson (law firm); Commissioner, Internal Revenue Service; Assistant Attorney General (Tax), US Department of Justice. Directorships: Federal Mogul Corp. (supplier of automotive components and subsystems); AK Steel (steel production); Goodyear Tire & Rubber Co. (April 2004-present); Champion Enterprises, Inc.; Trustee, Bryn Mawr College. Former Directorship: Bethlehem Steel Corp. | 87 |
John W. Ballantine (1946) Director, 1999-present | Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: First Oak Brook Bancshares, Inc.; Oak Brook Bank; American Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company) | 87 |
Lewis A. Burnham (1933) Director, 1977-present | Retired; formerly, Director of Management Consulting, McNulty & Company (1990-1998); prior thereto, Executive Vice President, Anchor Glass Container Corporation | 87 |
Donald L. Dunaway (1937) Director, 1980-present | Retired; formerly, Executive Vice President, A.O. Smith Corporation (diversified manufacturer) (1963-1994) | 87 |
James R. Edgar (1946) Director, 1999-present | Distinguished Fellow, University of Illinois, Institute of Government and Public Affairs (1999-present); formerly, Governor, State of Illinois (1991-1999). Directorships: Kemper Insurance Companies; John B. Sanfilippo & Son, Inc. (processor/packager/marketer of nuts, snacks and candy products); Horizon Group Properties, Inc.; Youbet.com (online wagering platform); Alberto-Culver Company (manufactures, distributes and markets health and beauty care products) | 87 |
Paul K. Freeman (1950) Director, 2002-present | President, Cook Street Holdings (consulting); Senior Visiting Research Scholar, Graduate School of International Studies, University of Denver; Consultant, World Bank/Inter-American Development Bank; formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998) | 87 |
Robert B. Hoffman (1936) Director, 1981-present | Retired; formerly, Chairman, Harnischfeger Industries, Inc. (machinery for the mining and paper industries) (1999-2000); prior thereto, Vice Chairman and Chief Financial Officer, Monsanto Company (agricultural, pharmaceutical and nutritional/food products) (1994-1999). Directorships: RCP Advisors, LLC (a private equity investment advisory firm) | 87 |
Fred B. Renwick (1930) Director, 1988-present | Retired; Professor Emeritus of Finance, New York University, Stern School of Business (2001-present); formerly, Professor, New York University Stern School of Business (1965-2001). Directorships: The Wartburg Foundation; Chairman, Finance Committee of Morehouse College Board of Trustees; formerly, Director of Board of Pensions, Evangelical Lutheran Church in America; member of the Investment Committee of Atlanta University Board of Trustees; Chair of the Investment Committee, American Bible Society Board of Trustees | 87 |
John G. Weithers (1933) Director, 1993-present | Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago Stock Exchange. Directorships: Federal Life Insurance Company; Chairman of the Members of the Corporation and Trustee, DePaul University; formerly, International Federation of Stock Exchanges; Records Management Systems | 87 |
Interested Director and Officers2 |
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and
Other Directorships Held | Number of Funds in Fund Complex Overseen |
William N. Shiebler3 (1942) Director, 2004-present | Chief Executive Officer in the Americas for Deutsche Asset Management ("DeAM") and a member of the DeAM Global Executive Committee (since 2002); Vice Chairman of Putnam Investments, Inc. (1999); Director and Senior Managing Director of Putnam Investments, Inc. and President, Chief Executive Officer, and Director of Putnam Mutual Funds Inc. (1990-1999) | 142 |
Julian F. Sluyters4 (1960) President and Chief Executive Officer, 2004-present | Managing Director, Deutsche Asset Management (since May 2004); President and Chief Executive Officer of The Germany Fund, Inc., The New Germany Fund, Inc., The Central Europe and Russia Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., Scudder Global High Income Fund, Inc. and Scudder New Asia Fund, Inc. (since May 2004); President and Chief Executive Officer, UBS Fund Services (2001-2003); Chief Administrative Officer (1998-2001) and Senior Vice President and Director of Mutual Fund Operations (1991-1998) UBS Global Asset Management | n/a |
Philip J. Collora (1945) Vice President and Assistant Secretary, 1986-present | Director, Deutsche Asset Management | n/a |
Kenneth Murphy5 (1963) Vice President, 2002-present | Vice President, Deutsche Asset Management (2000-present); formerly, Director, John Hancock Signature Services (1992-2000) | n/a |
Paul H. Schubert4 (1963) Chief Financial Officer, 2004-present | Managing Director, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds at UBS Global Asset Management (1994-2004) | n/a |
Charles A. Rizzo5 (1957) Treasurer, 2002-present | Managing Director, Deutsche Asset Management (since April 2004); formerly, Director, Deutsche Asset Management (April 2000-March 2004); Vice President and Department Head, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP) (1993-1998) | n/a |
John Millette5 (1962) Secretary, 2001-present | Director, Deutsche Asset Management | n/a |
Lisa Hertz4 (1970) Assistant Secretary, 2003-present | Assistant Vice President, Deutsche Asset Management | n/a |
Daniel O. Hirsch6 (1954) Assistant Secretary, 2002-present | Managing Director, Deutsche Asset Management (2002-present) and Director, Deutsche Global Funds Ltd. (2002-present); formerly, Director, Deutsche Asset Management (1999-2002); Principal, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Assistant General Counsel, United States Securities and Exchange Commission (1993-1998) | n/a |
Caroline Pearson5 (1962) Assistant Secretary, 1998-present | Managing Director, Deutsche Asset Management | n/a |
Kevin M. Gay5 (1959) Assistant Treasurer, 2004-present | Vice President, Deutsche Asset Management | n/a |
Salvatore Schiavone5 (1965) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management | n/a |
Kathleen Sullivan D'Eramo5 (1957) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management | n/a |
1 Length of time served represents the date that each Director was first elected to the common board of Directors which oversees a number of investment companies, including the fund, managed by the Advisor. For the Officers of the fund, the length of time served represents the date that each Officer was first elected to serve as an Officer of any fund overseen by the aforementioned common board of Directors.
2 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.
3 Address: 280 Park Avenue, New York, New York
4 Address: 345 Park Avenue, New York, New York
5 Address: Two International Place, Boston, Massachusetts
6 Address: One South Street, Baltimore, Maryland
The fund's Statement of Additional Information ("SAI") includes additional information about the Directors. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: 1-800-621-1048.
Account Management Resources |
|
For shareholders of Classes A, B, C, I and Institutional
Automated Information Lines | ScudderACCESS (800) 972-3060 Personalized account information, information on other Scudder funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a Scudder service representative. |
Written Correspondence | Scudder Investments PO Box 219356
Kansas City, MO 64121-9356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — scudder.com (type "proxy voting" in the search field) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside Plaza
Chicago, IL 60606-5808 (800) 621-1148 |
| Class A | Class B | Class C | Institutional |
Nasdaq Symbol | KDSAX | KDSBX | KDSCX | KDSIX |
CUSIP Number | 81123U-303 | 81123U-873 | 81123U-865 | 81123U-824 |
Fund Number | 088 | 288 | 388 | 545 |
For shareholders of Class R
Automated Information Lines | Scudder Flex Plan Access (800) 532-8411 24-hour access to your retirement plan account. |
Web Site | scudder.com Click "Retirement Plans" to reallocate assets, process transactions and review your funds through our secure online account access. Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 543-5776 To speak with a Scudder service representative. |
Written Correspondence | Scudder Retirement Services 222 South Riverside Plaza
Chicago, IL 60606-5806 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — scudder.com (type "proxy voting" in the search field) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside Plaza
Chicago, IL 60606-5808 (800) 621-1148 |
Nasdaq Symbol | KDSRX |
CUSIP Number | 81123U-782 |
Fund Number | 1507 |
ITEM 2. CODE OF ETHICS.
As of the end of the period, November 30, 2004, Scudder Value Series has adopted
a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its
Principal Executive Officer and Principal Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of
ethics during the period covered by this report that would require disclosure
under Item 2.
A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Board of Directors/Trustees has determined that the Fund has at least
one "audit committee financial expert" serving on its audit committee: Mr.
Donald L. Dunaway. This audit committee member is "independent," meaning that he
is not an "interested person" of the Fund (as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940) and he does not accept any
consulting, advisory, or other compensatory fee from the Fund (except in the
capacity as a Board or committee member).
An "audit committee financial expert" is not an "expert" for any purpose,
including for purposes of Section 11 of the Securities Act of 1933, as a result
of being designated as an "audit committee financial expert." Further, the
designation of a person as an "audit committee financial expert" does not mean
that the person has any greater duties, obligations, or liability than those
imposed on the person without the "audit committee financial expert"
designation. Similarly, the designation of a person as an "audit committee
financial expert" does not affect the duties, obligations, or liability of any
other member of the audit committee or board of directors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
SCUDDER DREMAN SMALL CAP VALUE FUND
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that Ernst & Young, LLP
("E&Y"), the Fund's auditor, billed to the Fund during the Fund's last two
fiscal years. For engagements with E&Y entered into on or after May 6, 2003,
the Audit Committee approved in advance all audit services and non-audit
services that E&Y provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund's Auditor Billed to the Fund
- --------------------------------------------------------------------------------
Fiscal Year Audit Fees Audit-Related Tax Fees All Other
Ended Billed Fees Billed Billed to Fees Billed
November 30, to Fund to Fund Fund to Fund
- --------------------------------------------------------------------------------
2004 $41,688 $0 $7,357 $0
- --------------------------------------------------------------------------------
2003 $36,379 $0 $6,334 $0
- --------------------------------------------------------------------------------
The above "Tax Fees" were billed for professional services rendered for tax
compliance and tax return preparation.
Services that the Fund's Auditor Billed to the Adviser and
Affiliated Fund Service Providers
The following table shows the amount of fees billed by E&Y to Deutsche
Investment Management Americas, Inc. ("DeIM" or the "Adviser"), and any entity
controlling, controlled by or under common control with DeIM ("Control
Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service
Provider"), for engagements directly related to the Fund's operations and
financial reporting, during the Fund's last two fiscal years.
- --------------------------------------------------------------------------------
Audit-Related Tax Fees All Other
Fees Billed Billed to Fees Billed
Fiscal to Adviser and Adviser and to Adviser and
Year Affiliated Affiliated Affiliated
Ended Fund Service Fund Service Fund Service
November 30, Providers Providers Providers
- --------------------------------------------------------------------------------
2004 $281,500 $0 $0
- --------------------------------------------------------------------------------
2003 $112,900 $0 $0
- --------------------------------------------------------------------------------
The "Audit-Related Fees" were billed for services in connection with the
assessment of internal controls and additional related procedures.
Non-Audit Services
The following table shows the amount of fees that E&Y billed during the
Fund's last two fiscal years for non-audit services. For engagements entered
into on or after May 6, 2003, the Audit Committee pre-approved all non-audit
services that E&Y provided to the Adviser and any Affiliated Fund Service
Provider that related directly to the Fund's operations and financial reporting.
The Audit Committee requested and received information from E&Y about any
non-audit services that E&Y rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating E&Y's independence.
- --------------------------------------------------------------------------------
Total Non-Audit
Fees billed to Total
Adviser and Non-Audit Fees
Affiliated Fund billed to
Service Providers Adviser and
(engagements related Affiliated
Total directly to the Fund Service
Non-Audit operations and Providers
Fiscal Fees Billed financial reporting (all other Total of
Year to Fund of the Fund) engagements) (A),(B)
Ended
November 30, (A) (B) (C) and (C)
- --------------------------------------------------------------------------------
2004 $7,357 $0 $386,601 $393,958
- --------------------------------------------------------------------------------
2003 $6,334 $0 $3,759,685 $3,766,019
- --------------------------------------------------------------------------------
All other engagement fees were billed for services in connection with risk
management and process improvement initiatives for DeIM and other related
entities that provide support for the operations of the fund.
***
The Fund's independent accountant, Ernst & Young LLP ("E&Y"), recently
advised the Fund's Audit Committee that E&Y's member firms in China and
Japan ("E&Y China" and "E&Y Japan," respectively) provided certain
non-audit services to Deutsche Bank entities and affiliates (collectively, the
"DB entities") during 2003 and 2004 that raise issues under the SEC auditor
independence rules. The DB entities are within the "Investment Company Complex"
(as defined by SEC rules) and therefore covered by the SEC auditor independence
rules applicable to the Fund.
E&Y advised the Audit Committee that in connection with providing permitted
expatriate tax compliance services during 2003 and 2004, E&Y China and
E&Y Japan received funds from the DB entities into E&Y "representative
bank trust accounts" that were used to pay the foreign income taxes of the
expatriates. E&Y has advised the Audit Committee that handling those funds
was in violation of Rule 2-01 of Regulation S-X. (Rule 2-01(c)4(viii)), which
states that
"... an accountant's independence will be impaired if the accountant has ...
custody of client assets.")
The Audit Committee was informed that E&Y China received approximately
$1,500 in fees for these services, while E&Y Japan received approximately
$41,000. E&Y advised the Audit Committee that it conducted an internal
review of the situation and, in view of the fact that similar activities
occurred vis-a-vis a number of E&Y audit clients unrelated to DB or the
Fund, E&Y has advised the SEC and the PCAOB of the matter. E&Y advised
the Audit Committee that E&Y believes its independence as auditors for the
Fund was not impaired during the period the services were provided. In reaching
this conclusion, E&Y noted a number of factors, including that none of the
E&Y personnel who provided the non-audit services to the DB entities were
involved in the provision of audit services to the Fund, the E & Y
professionals responsible for the Fund's audits were not aware that these
non-audit services took place until October, 2004, and that the fees charged are
not significant to E&Y overall or to the fees charged to the Investment
Company Complex.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The primary function of the Nominating and Governance Committee is to identify
and recommend individuals for membership on the Board and oversee the
administration of the Board Governance Procedures and Guidelines. Shareholders
may recommend candidates for Board positions by forwarding their correspondence
by U.S. mail or courier service to the Fund's Secretary for the attention of the
Chairman of the Nominating and Governance Committee, Two International Place,
Boston, MA 02110. Suggestions for candidates must include a resume of the
candidate.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last half-year (the
registrant's second fiscal half-year in the case of the annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto as EX-99.CODE ETH.
(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as
Exhibit 99.CERT.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as
Exhibit 99.906CERT.
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: Scudder-Dreman Small Cap Value Fund
By: /s/Julian Sluyters
-------------------------------
Julian Sluyters
Chief Executive Officer
Date: January 31, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Registrant: Scudder-Dreman Small Cap Value Fund
By: /s/Julian Sluyters
-------------------------------
Julian Sluyters
Chief Executive Officer
Date: January 31, 2005
By: /s/Paul Schubert
-------------------------------
Paul Schubert
Chief Financial Officer
Date: January 31, 2005
