Scudder
Micro Cap
Fund
Annual Report
August 31, 1996
Pure No-Load(TM) Funds
A pure no-load(TM) (no sales charges) mutual fund which seeks long-term growth
of capital by investing primarily in a diversified portfolio of U.S. micro-cap
stocks.
<PAGE>
Table of Contents
3 Letter from the Fund's President
4 Portfolio Summary
5 Portfolio Management Discussion
7 Investment Portfolio
16 Financial Statements
19 Financial Highlights
20 Notes to Financial Statements
23 Report of Independent Accountants
25 Officers and Trustees
26 Investment Products and Services
27 How to Contact Scudder
2-Scudder Micro Cap Fund
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We are pleased to welcome you as an investor in Scudder Micro Cap Fund, and
to present the first annual report for the Fund, covering the abbreviated fiscal
year which began with the commencement of operations on August 12, 1996 and
ended August 31, 1996. Going forward, you can expect to receive semiannual
updates on the Fund's investments and strategy, with the next report covering
the six-month period ending February 28, 1997.
In the few weeks since the Fund's inception, the U.S. stock market has
shown signs of resuming its upward trend, following several months of volatility
as investors reacted to mixed signals on the economy, interest rates, and
inflation. Small stocks in particular, whose recent performance had lagged the
overall market, rebounded in August. In this current market environment, Scudder
Micro Cap Fund has begun to implement its disciplined approach to uncovering
promising stocks from among America's smallest public companies.
For those of you who like to stay informed about new funds offered by
Scudder, we introduced two new equity funds in September. Scudder Classic Growth
Fund seeks long-term capital appreciation with a higher degree of principal
stability than the average growth fund. Scudder 21st Century Growth Fund takes a
more aggressive approach, focusing primarily on emerging growth companies with
the potential to benefit from the rapidly changing industrial and economic
landscape. For more information on these and other Scudder Fund products and
services, please turn to page 26.
Thank you for your interest and investment in Scudder Micro Cap Fund.
Please do not hesitate to contact Investor Relations at 1-800-225-2470 with any
questions regarding your account.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Micro Cap Fund
3-Scudder Micro Cap Fund
<PAGE>
PORTFOLIO SUMMARY as of August 31, 1996
- -----------------------------
ASSET ALLOCATION
- -----------------------------
Common Stocks 55%
Cash Equivalents 45%
- -----------------------------
100%
=============================
The Fund's cash position is temporary and will be reduced
as the management team invests incoming assets.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------
SECTOR DIVERSIFICATION
(Excludes 45% Cash Equivalents)
- -----------------------------
Financial 23%
Consumer Discretionary 13%
Manufacturing 13%
Service Industries 9%
Construction 8%
Technology 7%
Consumer Staples 6%
Health 5%
Durables 4%
Other 12%
- -----------------------------
100%
=============================
The Fund's value-orientation has led significant positions in the financial,
consumer discretionary, and manufacturing groups.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------
TOP 10 HOLDINGS
- -----------------------------
DUCOMMUN, INC.
Manufacturer of components and sub-assemblies for areospace and wireless
telecommunications industries
ACETO CORP.
Manufacturer of industrial chemicals
MERCHANTS BANCORP, INC.
Commercial bank holding company
UPPER PENINSULAR ENERGY CORP.
Electric utility holding company
COLUMBIA BANKING SYSTEM, INC.
Bank holding company
CENTNNIAL BANCORP
Bank holding company
URS CORP
Infrasturcture projects involving transportation, pollution control, water
resources, hazardous waste management
STERLING BANCORP
Commercial bank holding company
ADVEST GROUP, INC.
Provider of banking and financial services
HUDSON GENERAL CORP.
Provider of baggage and freight handling and other aviation services
A number of top holdings are in the banking industry.
For more complete details about the Fund's Investment Portfolio, see page 7.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
- -------------------------------------------------------------------------------
4 - Scudder Micro Cap Fund
<PAGE>
Dear Shareholders,
Scudder Micro Cap Fund began operations on August 12, 1996. In the brief time
between its inception and the end of August, the Fund's net asset value per
share increased by .058% from $12.00 to $12.07.
Scudder Micro Cap Fund seeks long-term capital appreciation by investing in
America's smallest publicly traded stocks, known as micro-cap stocks. While most
equity mutual funds invest primarily among the 3,000 largest U.S. companies,
there are more than 7,000 companies traded on the leading national exchanges.
The Fund's investment universe is composed of those domestic issuers smaller
than the 3,000 largest U.S. companies, or those whose stock market values are
currently below $175 million. While generally more volatile than larger company
stocks, stocks from this segment of the market are issued by many promising
companies not closely followed by the investment community.
In pursuing growth from micro-cap stocks, the Fund utilizes a disciplined
process designed to identify stocks selling at prices that do not reflect the
long-term investment value of the underlying companies. We systematically
compare thousands of micro-cap stocks based on a proprietary model that
incorporates data on valuation, earnings, and financial stability. We then
employ further analysis to select portfolio holdings from among those stocks
that we have ranked highest and view as having overall acceptable risk. Our goal
is to build a diversified portfolio of reasonably priced micro cap companies
that offer prospects for superior capital appreciation.
At the end of August, Fund portfolio assets totaled $8.06 million, including 214
equity holdings of U.S. companies, ranging in size (value of shares outstanding)
from $10 to $121 million. The Fund's median market capitalization was $41
million. This compares to a $325 million median market capitalization for the
Russell 2000 Index of Small Companies and nearly $5 billion for the typical S&P
500 company. The most significant portfolio weightings were in the financial,
consumer discretionary, manufacturing, and technology groups. The Fund's large
cash position (45% of assets) is temporary, reflecting the fact that, as a new
fund, its cash flows have been relatively high as a percent of total assets and
take time to invest.
5-Scudder Micro Cap Fund
<PAGE>
In the weeks since its inception, Scudder Micro Cap Fund has begun to implement
its disciplined approach to investing in the smallest stocks in the U.S. stock
market. We believe the Fund, with its focus on uncovering promising micro cap
stocks selling at reasonable valuations, is appropriate for long-term investors
seeking growth from this often overlooked segment of the stock market.
Sincerely,
Your Portfolio Management Team
/S/James M. Eysenbach /s/Philip S. Fortuna
James M. Eysenbach Philip S. Fortuna
Scudder Micro Cap Fund:
A Team Approach to Investing
Scudder Micro Cap Fund is managed by a team of Scudder investment professionals,
who each play an important role in the Fund's management process. Team members
work together to develop investment strategies and select securities for the
Fund's portfolio. They are supported by Scudder's large staff of quantitative
analysts, traders and other investment specialists who work in Scudder's offices
across the United States and abroad. Scudder believes its team approach benefits
Fund investors by bringing together many disciplines and leveraging Scudder's
extensive resources.
James M. Eysenbach, Lead Portfolio Manager, joined Scudder in 1991 as a senior
quantitative analyst and is currently director of quantitative research for
Scudder. Mr. Eysenbach has more than nine years investment research and
management experience. Philip S. Fortuna, Portfolio Manager, joined Scudder in
1986 as manager of institutional equity accounts. He became director of
quantitative research in 1987 and served as director of investment operations
from 1993 to 1994. Officers and Trustees
6-Scudder Micro Cap
<PAGE>
Investment Portfolio as of August 31, 1996
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.1%
- --------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and
Trust Company dated 8/30/96 at 5.23%, to be
repurchased at $166,096 on 9/3/96,
collateralized by a $170,000 U.S. Treasury
Note, 6.125%, 5/15/98 (Cost $166,000) .............. 166,000 166,000
----------
SHORT TERM NOTES 43.4%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 5.16%, 9/3/96 ...... 1,750,000 1,749,498
Student Loan Marketing Association, 5.18%, 9/3/96 .... 1,750,000 1,749,496
- --------------------------------------------------------------------------------
Total Short Term Notes (Cost $3,498,994) ............. 3,498,994
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
COMMON STOCKS 54.5%
- --------------------------------------------------------------------------------
Consumer Discretionary 7.3%
Apparel & Shoes 0.6%
Hyde Athletic Industries, Inc. "B"* .................. 3,700 19,888
Michael Anthony Jewelers, Inc.* ...................... 1,200 3,600
Pubco Corp.* ......................................... 3,400 26,775
----------
50,263
----------
Department & Chain Stores 1.1%
Drug Emporium, Inc.* ................................. 5,200 21,613
Duckwall-ALCO Stores, Inc.* .......................... 2,100 28,875
Fred's, Inc. "A" ..................................... 3,000 28,500
Harold's Stores, Inc.* ............................... 400 5,700
----------
84,688
----------
Home Furnishings 1.5%
Ameriwood Industries International Corp.* ............ 3,100 22,475
Baldwin Piano & Organ Co.* ........................... 1,900 28,975
National Picture & Frame Co.* ........................ 3,400 36,550
Seaman Furniture Co.* ................................ 1,700 32,300
----------
120,300
----------
Hotels & Casinos 0.4%
Amerihost Properties, Inc.* .......................... 1,000 8,000
International Thoroughbred Breeders, Inc.* ........... 1,000 3,625
Sonesta International Hotels Corp. "A" ............... 2,400 22,800
----------
34,425
----------
Recreational Products 0.9%
ERO, Inc.* ........................................... 6,300 29,138
Equity Marketing Inc.* ............................... 1,700 22,738
The accompanying notes are an integral part of the financial statements.
7 - SCUDDER MICRO CAP FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Escalade, Inc.* ...................................... 1,900 16,031
Foundation Powerboat Industries, Inc.* ............... 500 6,000
----------
73,907
----------
Restaurants 0.6%
Benihana, Inc. "A"* .................................. 2,200 21,725
El Chico Restaurants, Inc.* .......................... 1,700 13,175
Skyline Chili, Inc.* ................................. 3,700 14,338
----------
49,238
----------
Specialty Retail 2.2%
Amplicon, Inc. ....................................... 200 3,750
Bell Microproducts, Inc.* ............................ 3,700 29,138
Brookstone, Inc. ..................................... 2,900 31,538
D.I.Y. Home Warehouse, Inc.* ......................... 3,300 16,913
Natural Wonders, Inc.* ............................... 4,100 19,731
Rent-Way, Inc. ....................................... 2,300 31,625
S & K Famous Brands, Inc.* ........................... 3,300 27,225
Transnet Corp.* ...................................... 7,500 15,938
----------
175,858
----------
Consumer Staples 3.0%
Food & Beverage 1.9%
Chock Full O'Nuts Corp. .............................. 6,300 31,500
Foodarama Supermarkets, Inc.* ........................ 600 10,538
Hain Food Group, Inc.* ............................... 4,900 17,150
Schultz Sav-O Stores, Inc. ........................... 2,800 37,100
Seaway Food Town, Inc. ............................... 1,700 30,600
Suprema Specialties, Inc.* ........................... 4,600 24,725
----------
151,613
----------
Package Goods/Cosmetics 0.5%
Alfin, Inc.* ......................................... 5,700 12,469
Allou Health & Beauty, Inc. "A"* ..................... 4,600 25,300
----------
37,769
----------
Textiles 0.6%
Premiumwear Inc.* .................................... 1,900 19,713
Worldtex, Inc.* ...................................... 5,600 33,600
----------
53,313
----------
The accompanying notes are an integral part of the financial statements.
8 - SCUDDER MICRO CAP FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Health 2.9%
Biotechnology 0.1%
Synbiotics Corp.* .................................... 3,000 12,188
----------
Health Industry Services 1.1%
Healthcare Services Group, Inc.* ..................... 2,900 26,825
SMT Health Services, Inc. ............................ 3,300 23,100
Staff Builders, Inc. "A"* ............................ 6,500 19,906
Star Multi Care Services, Inc. ....................... 2,600 17,550
----------
87,381
----------
Hospital Management 0.3%
National Home Health Care Corp. ...................... 3,500 21,875
----------
Medical Supply & Specialty 1.4%
Akorn, Inc.* ......................................... 7,100 15,975
Colorado Medtech, Inc.* .............................. 4,300 12,363
Luther Medical Products, Inc.* ....................... 3,000 12,750
Moore Medical Corp.* ................................. 2,200 23,100
National Patent Development Corp.* ................... 2,800 26,250
Osteotech, Inc.* ..................................... 2,800 17,850
Trans Leasing International, Inc. .................... 1,400 4,725
----------
113,013
----------
Financial 12.7%
Banks 10.5%
Andover Bancorp, Inc. ................................ 1,400 35,525
Centennial Bancorp ................................... 3,100 38,750
Center Banks, Inc. ................................... 1,400 18,900
Coastal Bancorp, Inc. ................................ 500 9,250
Columbia Banking System, Inc. ........................ 2,600 40,300
Community Bankshares, Inc. ........................... 800 14,800
Eastern Bancorp, Inc. ................................ 1,800 31,950
FNB Rochester Corp.* ................................. 2,300 22,138
Fed One Bancorp ...................................... 1,000 14,500
First Citizens Financial Corp. ....................... 1,300 21,775
First Essex Bancorp .................................. 2,100 23,363
First Federal Savings Bank of Siouxland .............. 1,000 24,750
First Georgia Holding, Inc. .......................... 3,700 26,825
First Mutual Savings Bank ............................ 200 2,700
The accompanying notes are an integral part of the financial statements.
9 - SCUDDER MICRO CAP FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
First Oak Brook Bancshares, Inc. "A" ................. 1,700 36,125
First Republic Bancorp, Inc.* ........................ 1,700 22,738
Granite State Bankshares, Inc. ....................... 1,600 29,200
Haverfield Corp. ..................................... 1,500 25,500
Lawrence Savings Bank* ............................... 3,500 21,000
Merchants Bancorp, Inc. .............................. 1,400 42,700
Mid Continent Bancshares, Inc. ....................... 1,400 26,775
Midconn Bank ......................................... 1,100 21,450
New Milford Bank & Trust Co. ......................... 2,200 26,400
Newnan Holdings, Inc. ................................ 1,000 21,000
Northrim Bank ........................................ 3,100 25,188
PonceBank ............................................ 1,700 30,175
Progress Financial Corp. ............................. 2,800 18,200
Redwood Empire Bancorp* .............................. 2,900 28,638
SJNB Financial Corp. ................................. 1,400 26,600
Sterling Bancorp ..................................... 3,300 37,538
Sterling Bancshares, Inc. ............................ 1,500 21,375
Tolland Bank* ........................................ 1,200 12,375
United Federal Savings Bank .......................... 3,300 23,925
Warren Bancorp, Inc. ................................. 1,700 20,613
----------
843,041
----------
Insurance 1.0%
Cotton States Life Insurance ......................... 2,400 28,200
Penn-America Group, Inc. ............................. 2,300 37,375
Seibels Bruce Group, Inc.* ........................... 7,600 15,675
----------
81,250
----------
Business Finance 0.5%
Advest Group, Inc.* .................................. 3,800 37,525
----------
Other Financial Companies 0.3%
First Cash, Inc.* .................................... 5,000 25,000
----------
Real Estate 0.4%
Grubb & Ellis Co.* ................................... 3,000 11,625
New Mexico & Arizona Land Co. ........................ 1,900 24,700
----------
36,325
----------
The accompanying notes are an integral part of the financial statements.
10 - SCUDDER MICRO CAP FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Media 0.4%
Broadcasting & Entertainment
Live Entertainment, Inc.* ............................ 2,500 10,625
Vaughn Communications, Inc.* ......................... 2,000 24,500
----------
35,125
----------
Service Industries 5.0%
Environmental Services 1.4%
Air-Cure Technologies, Inc.* ......................... 7,200 27,000
GZA GeoEnvironmental Technologies, Inc.* ............. 4,300 13,438
Scope Industries, Inc. ............................... 900 35,100
URS Corp.* ........................................... 4,900 37,975
----------
113,513
----------
Investment 0.6%
H.D. Vest, Inc.* ..................................... 2,900 15,225
Kinnard Investment Inc.* ............................. 3,600 18,450
M.H. Meyerson & Co, Inc. ............................. 3,400 12,538
----------
46,213
----------
Miscellaneous Commercial Services 2.5%
American Physicians Service Group, Inc.* ............. 2,600 16,250
Automobile Protection Corp.* ......................... 4,800 23,400
General Employment Enterprises, Inc. ................. 1,800 21,375
General Physics Corp. ................................ 5,100 19,125
Joule, Inc.* ......................................... 3,600 18,900
LCS Industries, Inc. ................................. 1,600 19,200
RCM Technologies, Inc.* .............................. 2,300 21,850
Sudbury, Inc.* ....................................... 2,700 29,025
TRM Copy Centers Corp.* .............................. 3,300 34,650
----------
203,775
----------
Miscellaneous Consumer Services 0.5%
ACE Cash Express, Inc.* .............................. 2,500 35,625
----------
Durables 2.4%
Aerospace 1.6%
Aeroflex, Inc.* ...................................... 3,800 19,475
Ducommun, Inc.* ...................................... 2,800 46,550
ECC International Corp.* ............................. 3,900 30,225
The accompanying notes are an integral part of the financial statements.
11 - SCUDDER MICRO CAP FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Engineered Support Systems, Inc. ..................... 3,400 29,325
----------
125,575
----------
Automobiles 0.2%
Williams Controls, Inc.* ............................. 7,300 19,163
----------
Construction/Agricultural Equipment 0.4%
Portec, Inc.* ........................................ 3,400 32,725
----------
Leasing Companies 0.2%
Sunrise Resources Inc.* .............................. 4,300 18,275
----------
Manufacturing 7.0%
Chemicals 0.9%
AG Services of America, Inc.* ........................ 2,300 26,450
Aceto Corp. .......................................... 3,600 45,450
----------
71,900
----------
Electrical Products 1.0%
Bel Fuse, Inc.* ...................................... 3,600 36,000
SL Industries, Inc. .................................. 2,900 27,188
Valley Forge Corp. ................................... 1,400 18,463
----------
81,651
----------
Industrial Specialty 3.3%
Badger Meter, Inc. ................................... 400 12,525
Dynamic Materials Corp.* ............................. 3,000 21,000
Graham Corp. ......................................... 2,500 27,188
Insteel Industries, Inc. ............................. 4,600 31,050
Met-Pro Corp. ........................................ 2,800 37,450
Rotonics Manufacturing, Inc. ......................... 9,800 14,088
Sifco Industries, Inc.* .............................. 3,100 30,613
Talley Industries, Inc.* ............................. 3,900 30,713
Temtex Industries, Inc.* ............................. 4,200 14,700
Tokheim Corp.* ....................................... 3,500 33,250
Vitronics Corp.* ..................................... 9,200 14,950
----------
267,527
----------
Machinery/Components/Controls 0.8%
Chicago Rivet & Machine Co. .......................... 800 26,000
Devlieg-Bullard, Inc.* ............................... 7,000 15,750
Trans-Industries, Inc.* .............................. 3,900 19,500
----------
61,250
----------
The accompanying notes are an integral part of the financial statements.
12 - SCUDDER MICRO CAP FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Office Equipment/Supplies 0.6%
Dixon Ticonderoga Co.* ............................... 2,800 20,650
TAB Products Co. ..................................... 4,300 30,100
----------
50,750
----------
Specialty Chemicals 0.4%
Melamine Chemicals, Inc.* ............................ 3,700 27,288
----------
Technology 4.0%
Computer Software 0.8%
Concurrent Computer Corp.* ........................... 9,900 14,850
Data Systems & Software, Inc.* ....................... 5,400 30,375
Metatec Corp. "A"* ................................... 2,500 22,813
----------
68,038
----------
Diverse Electronic Products 0.6%
Impact Systems, Inc.* ................................ 4,300 8,600
SBS Technologies, Inc.* .............................. 1,600 22,800
WPI Group, Inc.* ..................................... 2,000 18,000
----------
49,400
----------
EDP Peripherals 0.6%
Key Tronic Corp.* .................................... 3,500 23,188
Printronix, Inc. ..................................... 1,800 24,300
----------
47,488
----------
Electronic Components/Distributors 1.7%
Alpha Technologies Group, Inc.* ...................... 5,800 29,725
IEC Electronics Corp. (New)* ......................... 4,300 32,788
Jaco Electronics, Inc. ............................... 4,200 33,600
Merrimac Industries, Inc. ............................ 2,200 23,925
Nu Horizons Electronics Inc.* ........................ 2,400 19,800
----------
139,838
----------
Semiconductors 0.3%
Diodes, Inc.* ........................................ 3,400 20,400
----------
Energy 2.2%
Oil & Gas Production 1.1%
Alamco, Inc.* ........................................ 700 7,875
Hallwood Energy Partners, L.P. ....................... 3,300 21,450
Key Production Co., Inc.* ............................ 2,500 21,875
McFarland Energy, Inc.* .............................. 1,700 17,425
The accompanying notes are an integral part of the financial statements.
13 - SCUDDER MICRO CAP FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Resource America, Inc. "A" ........................... 1,400 19,600
----------
88,225
----------
Oilfield Services/Equipment 1.1%
American Oilfield Divers, Inc.* ...................... 3,900 37,050
Dawson Geophysical Co.* .............................. 2,900 26,825
Industrial Holdings Inc.* ............................ 3,600 29,250
----------
93,125
----------
Metals & Minerals 0.2%
Steel & Metals
Friedman Industries, Inc. ............................ 900 4,163
NS Group, Inc.* ...................................... 5,000 15,000
----------
19,163
----------
Construction 4.2%
Building Materials 1.4%
A.P. Green Industries, Inc. .......................... 1,400 33,600
Eljer Industries, Inc.* .............................. 2,400 24,900
Genlyte Group, Inc.* ................................. 4,200 34,125
Strober Organization, Inc.* .......................... 4,000 17,500
----------
110,125
----------
Building Products 0.8%
Shelter Components Corp. ............................. 2,700 34,425
Thermal Industries, Inc. ............................. 3,000 25,500
----------
59,925
----------
Homebuilding 0.9%
Engle Homes, Inc. .................................... 3,700 28,675
Kit Manufacturing Company* ........................... 1,000 12,500
Starrett Corp. ....................................... 3,000 32,250
----------
73,425
----------
Miscellaneous 1.1%
ACMAT Corp. "A"* ..................................... 2,500 30,625
MYR Group Inc. ....................................... 3,000 32,250
Turner Corp.* ........................................ 2,700 28,350
----------
91,225
----------
Transportation 1.5%
Air Freight 0.7%
Golden Eagle Group, Inc.* ............................ 4,600 18,975
The accompanying notes are an integral part of the financial statements.
14 - SCUDDER MICRO CAP FUND
<PAGE>
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Hudson General Corp. ................................. 1,000 37,500
----------
56,475
----------
Airlines 0.4%
Mercury Air Group, Inc. .............................. 3,500 25,813
----------
Railroads 0.2%
Providence & Worcester Railroad Co. .................. 2,500 17,500
----------
Trucking 0.2%
Morgan Group, Inc. "A" ............................... 2,300 17,825
----------
Utilities 1.7%
Electric Utilities 0.7%
Unitil Corp. ......................................... 800 17,600
Upper Peninsular Energy Corp. ........................ 2,200 41,250
----------
58,850
----------
Natural Gas Distribution 0.4%
Valley Resources, Inc. ............................... 2,700 32,231
----------
Water Supply 0.4%
Dominguez Services Corp. ............................. 200 4,650
Southwest Water Co. .................................. 2,000 26,500
----------
31,150
----------
Miscellaneous 0.2%
Florida Public Utilities Co. ......................... 800 16,334
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $4,371,642) ................ 4,395,882
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investment Portfolio - 100.0% (Cost $8,036,636) (a) 8,060,876
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $8,036,636. At August 31,
1996, net unrealized appreciation for all securities based on tax cost was
$24,240. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$89,929 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $65,689.
The accompanying notes are an integral part of the financial statements.
15 - SCUDDER MICRO CAP FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of August 31, 1996
Assets
- --------------------------------------------------------------------------------
Investments, at market (identified cost
$8,036,636) (Note A) .................................... $8,060,876
Cash ...................................................... 269,441
Receivable for Fund shares sold ........................... 427,336
Dividends and interest receivable ......................... 977
Due from the Adviser (Note C) ............................. 26,936
Deferred organization expenses (Note A) ................... 26,309
----------
Total assets .............................................. 8,811,875
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased ......................... $ 889,903
Accrued organization fee (Note C) ......................... 26,600
Other accrued expenses (Note C) ........................... 29,971
----------
Total liabilities ......................................... 946,474
----------------------------------------------------------------------------
Net assets, at market value ............................... $7,865,401
----------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ....................... $ 4,890
Unrealized appreciation on investments .................... 24,240
Shares of beneficial interest ............................. 6,519
Additional paid-in capital ................................ 7,829,752
----------------------------------------------------------------------------
Net assets, at market value ............................... $7,865,401
----------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Net Asset Value, offering and redemption
price (Note A) per share ($7,865,401 /
651,850 outstanding shares of beneficial
interest, $.01 par value, unlimited number ----------
of shares authorized) ................................... $ 12.07
----------
The accompanying notes are an integral part of the financial statements.
16 - SCUDDER MICRO CAP FUND
<PAGE>
Statement of Operations
for the period August 12, 1996
(commencement of operations) to August 31, 1996
Investment Income
- --------------------------------------------------------------------------------
Income:
Dividends ..................................................... $ 1,035
Interest ...................................................... 7,181
--------
8,216
Expenses:
Management fee (Note C) ....................................... $ 1,426
Services to shareholders (Note C) ............................. 9,475
Custodian and accounting fees (Note C) ........................ 4,842
Trustees' fee (Note C) ........................................ 1,087
Auditing ...................................................... 10,000
State registration ............................................ 4,159
Reports to shareholders ....................................... 3,738
Legal ......................................................... 2,250
Federal registration .......................................... 2,726
Amortization of organization expense (Note A) ................. 291
Other ......................................................... 1,837
--------
Total expenses before reductions .............................. 41,831
Expense reductions (Note C) ................................... (38,505)
--------
Expenses, net ................................................. 3,326
----------------------------------------------------------------------------
Net investment income ......................................... 4,890
----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net unrealized appreciation during the period on investments .. 24,240
----------------------------------------------------------------------------
Net increase in net assets resulting from operations .......... $ 29,130
----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
17 - SCUDDER MICRO CAP FUND
<PAGE>
Statement of Changes in Net Assets
For the Period
August 12, 1996
(commencement of
operations) to
Increase (Decrease) in Net Assets August 31, 1996
- --------------------------------------------------------------------------------
Operations:
Net investment income ...................................... $ 4,890
Net unrealized appreciation on investment transactions
during the period ........................................ 24,240
-----------
Net increase in net assets resulting from operations ....... 29,130
-----------
Fund share transactions:
Proceeds from shares sold .................................. 7,839,168
Cost of shares redeemed .................................... (4,097)
-----------
Net increase in net assets from Fund share transactions .... 7,835,071
-----------
Increase in net assets ..................................... 7,864,201
Net assets at beginning of period .......................... 1,200
Net assets at end of period (including undistributed -----------
net investment income of $4,890) ........................... $ 7,865,401
-----------
Other information
- -------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................. 100
-----------
Shares sold ................................................ 652,092
Shares redeemed ............................................ (342)
-----------
Net increase in Fund shares ................................ 651,750
-----------
Shares outstanding at end of period ........................ 651,850
-----------
The accompanying notes are an integral part of the financial statements.
18 - SCUDDER MICRO CAP FUND
<PAGE>
Financial Highlights
The following table includes select data for a share outstanding throughout each
period (a) and other performance information derived from the financial
statements.
For the Period
August 12, 1996
(commencement)
of operations)to
August 31, 1996
- --------------------------------------------------------------------------------
Net asset value, beginning of period ........................... $ 12.00
-------------
Income from investment operations: ............................. .01
Net investment income
Net realized and unrealized gain on investments ................ .06
-------------
Net asset value, end of period ................................. $ 12.07
- --------------------------------------------------------------------------------
TOTAL RETURN (%) (b) ........................................... .58(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......................... 8
Ratio of operating expenses, net to average daily
net assets (%) ............................................... 1.75*
Ratio of operating expenses before expense reductions,
to average daily net assets (%) .............................. 22.06*
Ratio of net investment income to average daily net assets (%) . 2.58*
Portfolio turnover rate (%) .................................... None
Average commission rate paid ................................... $ .0323
(a) Per share amounts have been calculated using the weighted average shares
outstanding during the period.
(b) Total return is higher due to maintenance of the Fund's expenses.
(c) Total return does not reflect the effect of the 1% redemption fee on shares
held less than one year.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
19 - SCUDDER MICRO CAP FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
A. Significant Accounting Policies
Scudder Micro Cap Fund (the "Fund") is a diversified series of Scudder
Securities Trust, a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company.
Due to investment considerations, it is presently intended that the Fund will
close to new individual investors when total assets of the Fund reach $100
million. It is anticipated that current individual shareholders of the Fund will
be able to continue to invest in the Fund after it reaches $100 million in total
assets. Further, the Fund will remain open to investment through qualified
retirement plans. If the Fund closes at $100 million in total assets as
currently expected, the Trustees may determine to reopen the Fund at some point
based on market conditions and other factors.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations the most recent bid quotation shall be used. Short-term investments
having a maturity of sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the resale price.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code 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.
REDEMPTION FEES. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 1% of the lower of cost or the current net
asset value of the shares will be assessed and retained by the Fund for the
benefit of the remaining shareholders. The redemption fee is accounted for as an
addition to paid-in capital.
20 - SCUDDER MICRO CAP FUND
<PAGE>
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income, if
any, are made annually. During any particular year net realized gains from
investment transactions, in excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed and, therefore, will be
distributed to shareholders annually. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
During the period August 12, 1996 (commencement of operations) to August 31,
1996, purchases and sales of investment securities (excluding short-term
investments) aggregated $4,371,642 and $0, respectively.
C. Related Parties
Under the Fund's Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund pays the Adviser a fee equal to
an annual rate of 0.75% of the Fund's average daily net assets, computed and
accrued daily and payable monthly. As manager of the assets of the Fund, the
Adviser directs the investments of the Fund in accordance with its investment
objective, policies, and restrictions. The Adviser determines the securities,
instruments and other contracts relating to investments to be purchased, sold or
entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The Agreement also provides that if the Fund's expenses, exclusive of
taxes, interest, and extraordinary expenses, exceed specified limits, such
excess, up to the amount of the management fee, will be paid by the Adviser. In
addition, the Adviser has agreed not to impose all or a portion of its
management fee until August 31, 1997 in order to maintain the annualized
expenses of the Fund at not more than 1.75% of average daily net assets. For the
period August 12, 1996 (commencement of operations) to August 31, 1996, the
Adviser did not impose any of its management fee amounting to $1,426. Further,
due to the limitations of such Agreement, the Adviser's reimbursement payable to
the Fund for the period August 12, 1996 (commencement of operations) to August
31, 1996, amounted to $26,936.
21 - SCUDDER MICRO CAP FUND
<PAGE>
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
period August 12, 1996 (commencement of operations) to August 31, 1996, SSC did
not impose any of its fee amounting to $6,925.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. There were no fees during the
period August 12, 1996 (commencement of operations) to August 31, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the period August
12, 1996 (commencement of operations) to August 31, 1996, SFAC did not impose
any of its fee amounting to $2,131.
The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually plus specified amounts for attended board and committee meetings. For
the period August 12, 1996 (commencement of operations) to August 31, 1996 the
Trustees did not impose any of its fee amounting to $1,087.
22 - SCUDDER MICRO CAP FUND
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder Securities Trust
and the Shareholders of Scudder Micro Cap Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Micro Cap Fund, including the investment portfolio, as of August 31, 1996, and
the related statement of operations, the statement of changes in net assets, and
the financial highlights for the period August 12, 1996 (commencement of
operations) to August 31, 1996. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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. Our
procedures included confirmation of securities owned as of August 31, 1996 by
correspondence with the custodian and brokers. 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 audit provides 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
Scudder Micro Cap Fund as of August 31, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the period August 12,
1996 (commencement of operations) to August 31, 1996, in conformity with
generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
October 7, 1996
23 - SCUDDER MICRO CAP FUND
<PAGE>
This Page
intentionally
left blank
24-Scudder Micro Cap Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
Thomas J. Devine
Trustee; Consultant
Keith R. Fox
Trustee; President, Exeter Capital Management Corporation
Dudley H. Ladd*
Trustee
Dr. Wilson Nolen
Trustee; Consultant
Juris Padegs*
Trustee
Dr. Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University
Graduate School of Business
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Visiting Professor,
Columbia University Graduate School of Business
Robert G. Stone, Jr.
Honorary Trustee; Chairman of the Board and Director, Kirby Corporation
Edmund R. Swanberg*
Honorary Trustee
Peter Chin*
Vice President
James M. Eysenbach*
Vice President
Philip S. Fortuna*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President
Roy C. McKay*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
Richard W. Desmond*
Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
25-Scudder Micro Cap Fund
<PAGE>
The Scudder Family of Funds
- --------------------------------------------------------------------------------
Money Market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Fund
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Small Company Value Fun
Scudder 21st Century Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- --------------------------------------------------------------------------------
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase
Pension Plans
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
Institutional Cash Management
- --------------------------------------------------------------------------------
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +A portion of the income from the tax-free funds may
be subject to federal, state, and local taxes. *Not available in all states.
+++A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust,(TM) an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.
26-Scudder Micro Cap Fund
<PAGE>
HOW TO CONTACT SCUDDER
Account Service and Information
- --------------------------------------------------------------------------------
For existing account service and transactions
Scudder Investor Relations
1-800-225-5163
For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund
Scudder Automated Information Line (SAIL)
1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
Scudder Investor Relations
1-800-225-2470
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services
1-800-323-6105
Please address all correspondence to
- --------------------------------------------------------------------------------
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Visit the Scudder World Wide Web Site at:
- --------------------------------------------------------------------------------
http://funds.scudder.com
Or Stop by a Scudder Funds Center
- --------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they
can be found in the following cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
For information on Scudder Treasurers Trust(TM), an
institutional cash management service for corporations,
non-profit organizations and trusts which utilizes certain
portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
For information on Scudder Institutional Funds*, funds designed
to meet the broad investment management and service needs of
banks and other institutions, call:
1-800-854-8525.
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor. * Contact Scudder Investor
Services, Inc., Distributor, to receive a prospectus with more complete
information, including management fees and expenses. Please read it carefully
before you invest or send money.
27-Scudder Micro Cap Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
